A Look at the Tourism Industry in Cambodia

Cambodia is still one of the poorest countries in the world and still lacks the basic infrastructure, especially in rural areas, to promote better economic conditions for the whole population. Roughly 60 to 70 % (estimates vary) of the rural population lives on subsistence farming.

The Communist past until 1991 and its subservience to the then Soviet Union, Vietnam, and the other Communist East European countries kept it one of the most backward countries in Asia, if not the world. After the fall of Communism the United Nations organized the first free elections in 1992, which laid the groundwork for the current development of Cambodia.

The years from 1992 to 1997 were marked by relative stability, brought on by the coalition government formed after the election. The country was mostly dependent on foreign aid for approximately 95% of its budget during those years.

In 1997 there was an internal struggle between the two prime ministers (a unique form of a coalition government following the indecisive outcome of the elections in 1993). One coalition partner had to relinquish their position in the government. This led to erosion of confidence by the foreign investor community and resulted in a meltdown in the budding development for the next 6 years.

However, in 2004, after new elections and a rapprochement of the majority parties, the situation stabilized and as a result the economy enjoyed healthy growth rates of 5% in 2004, reaching an estimated 7.2% in 2006, and a projected 10% for 2007. Some sectors, such as tourism and the garment industry even enjoyed growth rates of 15%, as foreign investors re-gained confidence in the stability of the country. This fact is borne out by the 15% increase in foreign aid the donor countries extended to Cambodia for 2008. Foreign aid still constitutes about 50% of the national budget. But it is noteworthy that the greatest contributors to economic growth are tourism and the garment sector.

Oil companies have found oil in Cambodian territorial waters and will begin exploiting these fields in 2010. This will also contribute to further growth, and hopefully, development of the Cambodian economy.

These factors combined create a favorable environment for resort developments by the private sector, offering opportunities not only for large scale investments but also for small to medium-sized developments that will not only benefit the investors but also the local population by training them and creating jobs.

If adequate emphasis is put on ecological aspects this will lend added attractiveness to foreign, especially Western, tourists.

Current Situation of Tourism

Cambodia currently counts about 1.7 million tourist arrivals per year and expects to reach the 2.0 million threshold either in 2007 or certainly in 2008.

Most arrivals come from South Korea (300,000), China (160,000), Vietnam, Thailand and other ASEAN countries (150,000), and Japan (100,000), followed by British, German, other European and U. S. tourists. Accurate numbers are hard to come by given the still underdeveloped state of government statistics.

Tourism income amounted to about $1.3 billion in 2006 and contributed to about 5% of the Gross Domestic Product in Cambodia. As a whole, agriculture contributes 35%, industry (mostly garment) 30%, and services (including banking and tourism) about 35% to the GDP. Along with the garment industry, tourism is the major foreign exchange earner for Cambodia.

The major attraction in Cambodia is, of course, the temple complex of Angkor Wat in Siam Reap. This city and province has seen a huge influx of capital with an ensuing hotel building boom. Hotels of varying categories, from 5-star international hotels to simple guesthouses were built. Overall occupancy rates hover around 60% in Siem Reap, which is normal for tourist destinations that have to go through seasonal fluctuations. We believe there is an over-development of tourist hotels in the area, and therefore, economic success will be somewhat long in coming.

As a consequence of that building boom land prices have skyrocketed and are affected by huge speculative buying. It is our impression that this bubble will soon burst, as all economic bubbles caused by hyper-speculation will burst eventually. There is a certain saturation point for the destination, particularly in view of the government’s necessity to preserve this national treasure, which is literally being trampled upon by the millions of tourists visiting the sites each year. Access to the sites will have to be limited in order to guard against man-made erosion and destruction.

Nevertheless, the outlook for tourism in Cambodia remains bright as Angkor Wat is unique in the world and will constitute a lasting contributor to the Cambodian economy, comparable to the tourism industry in Thailand, which is a major economic factor there.

Generally, Cambodia can most aptly be compared to Thailand, only that Thailand began its major tourist development some 35 years ago. Cambodia can become a viable alternative to Thailand.

What is generally called warm-water tourism, that is beach resorts, is still in its infancy in Cambodia. There are, however, several larger projects under way in Sihanoukville, the port city of Cambodia.

Most tourist arrivals visit Angkor Wat for 3 to 4 days and only a relatively few extend their visit to another 2 days in Phnom Penh, and possibly 3 to 4 days at the beach in Sihanoukville. The establishment of direct flights to Siem Reap further cut down on tourists spending more time and money in Cambodia.

Cambodia still is a favored destination for backpackers and, unfortunately, tourists looking for cheap sex. This segment can best be countered by creating holiday resorts catering to family vacation packages.

Sihanoukville at this time does not encompass the attractiveness tour operators look for in their package tours as it does not have the necessary tourist infrastructure, e. g. jet ski rentals, kite surfing, windsurfing, boat rentals, snorkeling excursions, fishing charters, to lure package tourists to its beaches. So far it is mostly indivdual tourists and backpackers visiting this city. But since the best beaches are to be found in this city, it is the ideal location for a full-featured resort in the 3- to 4-star category. There is only one 5-star hotel in Sihanoukville offering all these features.

Sihanoukville, as the country’s port city, receives a good share of foreign visitors – merchant marine, military vessels, etc. - that, unfortunately, also make part of it somewhat seedy with prostitution and drugs rampant.

The beaches are relatively tranquil, but owing to its basic state there is a good number of back-packers. Local people and expatriates come from Phnom Penh on weekends. Otres Beach is so far completely undeveloped and offers a unique opportunity for creating a secluded resort on the one hand but close enough to areas of entertainment.

Once oil exploration has begun, however, there will be an additional influx into Sihanoukville of all kinds of people connected to the oil business, from oil platform riggers to engineers, which will create a bustling, vibrant port city.

The Cambodian government issued licenses to operate casinos throughout Cambodia. The concept banks on nationals from neighboring countries (Thailand, Malaysia, Vietnam) where gambling is illegal to come to Cambodia to gamble. These casinos are almost exclusively owned by foreign companies, which will repatriate profits. They do not create jobs on a larger scale and in general do not contribute to the overall development of the Cambodian economy and certainly do not benefit the Cambodian people.

Given the geographic location of Cambodia with its tropical climate without major temperature fluctuations, the country’s political stability, and its dollar-based economy, there is a huge potential for further tourist developments comparable to neighboring Thailand.

Cars and motor coaches can easily reach all major cities and towns on renovated roads in relatively short time. All major cities and towns have electrical power and water (though proper care must still be taken for potable water).

The people are very friendly and hospitable to foreigners. Crime against foreigners is almost non-existent, mostly because of the government’s crackdown in order to safeguard a vital economic factor. If crimes are reported it is mostly petty theft.

More than 50% of the population is under 21 years of age and will create a huge base for work training and recruitment in the years to come. The young generation is particularly eager to learn about Western technology and achievements.

For a look at a project for a resort hotel in Cambodia visit http://www.iamd-usa.com/about6.html