Commentary by William Pesek
Feb. 22 (Bloomberg) -- If you want to learn about Cambodia's economy, you can peruse government data and a small mountain of aid-agency reports. Or you could go trekking in the jungle near Mount Kbal Spean.
There, 25 miles (40 kilometers) north of the temples of Angkor, you'll find a small nature preserve. The Angkor Centre for Conservation of Biodiversity is one of a handful of efforts to protect Cambodia's wildlife that sprang up during the last nine years of peace.
It's mostly a breeding facility for critically endangered animal species. There, you will come face to face with gibbons, lemurs, turtles, scores of local birds and even native bees. The scene may offer one of the best reasons for investors to pay more attention to Cambodia.
When most think of Cambodia, extreme poverty springs to mind. While stability since 1998 is raising living standards, a third of the nation's 14 million people live on less than 50 cents a day. Much of the blame goes to lingering fallout from the mass killings by the Khmer Rouge from 1975 to 1979.
There's a cruel irony to the fact that Cambodia's No. 2 tourist attraction is the infamous ``Killing Fields,'' one of the sites where an estimated 1.7 million died under dictator Pol Pot. Nearby, hawkers still sell Dead Kennedys T-shirts, a nod to their 1980 song ``Holiday in Cambodia.''
Yet waves of tourists are making their way to Cambodia, pumping up its $7 billion economy. Until recently, most made a beeline for Siem Reap, where Angkor's magnificent temples rise defiantly from dense forests. These days, more are exploring the nation's capital, Phnom Penh, and the fast-growing selection of beach resorts.
In 2007, tourist arrivals topped 2 million. For an economy that depends largely on the garment sector -- it accounts for 80 percent of exports -- increasing tourism is a big plus. It will help sustain the roughly 10 percent growth of the past four years.
Together with efforts by conservationists around the country, strong growth explains why investors such as Marc Faber are bullish on Cambodia. Both show that after decades of struggling to survive, Cambodians are getting serious about preserving their heritage and competing in the globalization age. Cambodia, in other words, is becoming a normal country.
``Cambodia offers an enormous potential for future capital gains,'' says Faber, the Hong Kong-based investor and publisher of the Gloom, Boom & Doom report. ``It may take some time, as was the case for Vietnam and India, where stocks languished for a number of years before huge upward trends in asset prices developed. But patience was amply rewarded.''
The Asian Development Bank continues to pump fresh aid into the economy. ADB President Haruhiko Kuroda was in Cambodia this week to christen a project to rebuild decades-old railway tracks to spread the benefits of growth.
More importantly, the government is stepping up efforts to attract foreign capital. It plans to set up a stock market in 2009 and officials are working to diversify the economy. Prime Minister Hun Sen recently visited India and appealed to technology firms to invest in Cambodia.
Of course, Cambodia is a contrarian investment with a capital ``C.'' For every positive trend cited in this column, one can find a reason, or two, to avoid the place.
While Cambodia has great promise, says Simon Ogus, chief executive of DSG Asia Ltd. in Hong Kong, it has a long, long way to go before many investors are willing even to consider putting money there. For one thing, he says, ``the monetary system is 95 percent dollarized'' and the country lacks a bond market.
Cambodia's challenges run deeper. Crushing poverty means all too many aren't being educated to compete globally. Good roads, bridges, and power systems are in short supply. The export-dependent economy is vulnerable to a U.S. slowdown and rising fuel costs.
Corruption means double-digit growth doesn't get very far anyway. In Transparency International's 2007 Corruption Perceptions Index, Cambodia ranked 162nd -- behind Bangladesh, Zimbabwe and Tajikistan.
Cambodia also is sitting on a discovery that will either attract investors or have them aggressively avoiding the country: oil. While deposits are still being estimated, the potential of Cambodia's petroleum industry is attracting interest from BHP Billiton Ltd. and Chevron Corp.
The question is what happens to billions of dollars of oil revenue. Corruption-prone governments have a poor track record of using such wealth wisely, too often suffering the ``oil curse.'' Since weak institutions oversee its underdeveloped economy, Cambodia's odds aren't great.
Then again, what if Cambodia surprises skeptics? That's a big ``if,'' given the prime minister's failure to eradicate corruption and crack down on illegal logging.
Yet investors are searching for the next generation of developing-market stars now that the ``BRIC'' economies -- Brazil, Russia, India and China -- and Vietnam have been discovered. Watching neighboring Vietnam thrive also may inspire Cambodia's government.
If oil profits are used to improve education, reduce poverty and upgrade infrastructure, investors who took a chance on Cambodia will be, in Faber's words, amply rewarded.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)