A Red Carpet For Capitalists...As A Red Army Of Horror Fades

One of the first foreign investors who ventured into a newly welcoming Cambodia keeps by his desk an advertisement listing the dream business conditions being offered. Amin Khan, chief operating officer of Royal Air Cambodge, rattles off such lures as a corporate tax of 9%, tax holidays of up to eight years, and no import duties. "In terms of the incentives, it's very lucrative" to invest in Cambodia, Amin says.

The government hopes the pro-business investment law passed last August will woo more companies like Malaysia Helicopter Services Ltd., which in December paid $4 million for 40% of the Cambodian national airline and sent Amin to run it. Tasty enticements are offered "because we are so willing to attract investors to help us produce the cake," says Tioulong Saumura, deputy governor of Cambodia's central bank.

BLATANT PITCH. For the first time in 25 years, Cambodia can focus on development, not war. The three-party coalition government, elected under U.N. supervision in 1993, sees an open economy as the surest path to stability and wealth for its 9.5 million people. Private property was restored in 1989. Capital movements are unhindered. Interest rates, prices, and the exchange rate are set by the market. The government promises to spit out an investment license within 45 days--a blatant pitch for those quagmired in red tape in neighboring Vietnam. Natural resources and cheap labor--at $35 a month for an unskilled worker--are abundant.

Cambodia has something else in plentiful supply, too: bad luck. A "Cambodia... Open for business" campaign that began last year uas overshadowed by a four-month saga involving the kidnapping and murder of three Western backpackers on a train ride through Khmer Rouge-held territory. The Marxist force controls up to 10% of the country, mainly the rice-producing northwest. Vast minefields hinder cultivation and have resulted in Cambodians suffering the world's highest rates of amputation. The educated classes, whose skills are desperately needed, were particular targets of the Khmer Rouge during its horrific reign from 1975 to 1979, when more than 1 million Cambodians were slaughtered.

Today, Cambodia remains a nation almost without industry. Clashes between the government and Pol Pot's Khmer Rouge troops remain the major brake on development. The military absorbs a third of government spending; education, only 8%. "If we could solve the problem of security, we could double the economy in five years," says Sok Hach, advisor to the Finance Ministry. So far, however, foreign investments on the drawing board are modest: Singapore's Asia Pacific Breweries Ltd. plans a $60 million brewery, and French oil company Total a $3.3 million hydrocarbon plant.

The best hope for Cambodia is that it appears to be winning the security battle. Major cities and towns are quieter, and the roads between them safer. Foreign-aid donors have demanded reform of the military (the number of generals was chopped from 2,000 to 200), and the army is receiving better training and equipment. At the same time, the Khmer Rouge is degenerating from a political and military power into a bandit group--albeit a well-armed one with vicious leaders. The U.N.-sponsored peace agreement in 1991 rid the faction of overt international backing, and it is generally believed that China has cut covert support. The 5,000-strong army is corrupt, its command disjointed, and defections common. Another promising sign is that hundreds of Cambodians who fled the Khmer Rouge are returning from abroad, equipped with Western professional credentials, to help guide the country's rebirth.

Perhaps one reason Malaysians account for more than half the $2.2 billion in foreign investment approved by the government between last August and December--much of it for a $1.3 billion island resort casino--is that their country blossomed despite a communist guerrilla problem. So why shouldn't Cambodia? "It took us 45 years to clean up [the Malaysian insurgency] completely," says Amin, who expects a profitable 1995. As it is, he adds, "Phnom Penh is safer than New York."

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