Economic Update

I don't know how many of my readers receive Leopard Capital's newsletter. The last one contains a rather good overview of the current status of the Cambodian economy. For this reason I thought it is worthwhile sharing it with you.

Quote

Cambodia's economic recovery continues to gain momentum. Ramping up from a flat 2009 to grow by 5.5% in 2010, the Kingdom is projected to grow by 6-7% in 2011. Core sectors reasserted their strength last year and are posed to build on these gains in 2011: Garment exports surged 26% to a record $3 billion; tourism roared back with 16% growth in arrivals, rising to 2.5 million; Agriculture kicked back in across several sub-sectors with rubber topping growth for the sector at 43%, bringing rubber output to 50,000 tons. Underscoring growth in tourism, ticket sales for Angkor Wat -rated the world's #1 heritage site on TripAdvisor.com - rose around 20%. The airports are now bustling and airlines are planning new flights. Agriculture's gains come from outside and within Cambodia -- sustained, non-speculative demand in commodities will keep demand and prices high while, internally, the opening of several new rice mills and integrated sugar projects signal upgrades to infrastructure and efficiency of the Kingdom's agricultural sector..

Cambodia's wide-open banking sector continues to attract newcomers willing to meet the capital requirement ($34.5 million); the latest entrants CIMB, Bank of China, and ICBC have raised the number of issued licenses to 30. Meanwhile fifteen firms (including our portfolio company ACLEDA Bank) received securities licenses. Two of these firms have already built spacious new securities trading rooms in anticipation of the planned July 2011 launch of the Cambodia stock exchange. The question to answer: will it open on schedule? Only time will tell, but if precedents matter, note that neighboring Laos successfully opened its securities market in January with two fruitfulI POs.

Cambodia continues to make strides in the international arena. The EIU (Economist Intelligence Unit) scored Cambodia as having the second best environment for microfinance in all of Southeast Asia. The UN reported that Cambodia achieved Asia's fastest rise in human development - defined as income, life expectancy and years of schooling - over the past two decades. Cambodia ratified the ASEAN Free Trade Zone with Australia and New Zealand, opening the way for full, free trade with these countries by 2015. Europe extended its "Everything But Arms" tariff free exports for Cambodia, and slashed from 50% to 30% the local content requirement for such exports.

The development of new infrastructure continues and is laying the groundwork for future growth. The ADB-backed $84 million project to renovate Cambodia's decrepit 650 km line has reopened the first section, 120 km from Phnom Penh southward to Kampot. Next will come the Kampot to Sihanoukville Port link, and the northwest line from Phnom Penh to the Thailand border. Separately, China agreed to finance a $700 million new eastern line to connect Phnom Penh to Vietnam, the 250 km "missing link" of the Trans-Asian Railway system. This five year project would slash transport costs and boost Cambodia's agriculture and mining exports to China. Cambodia's port revenues rose 31% in 2010 in sync with the garment sector recovery. The Phnom Penh river port led the growth, as it now feeds Vietnam's new Cai Mep Port, which offers direct connections to the U.S. and Europe. A second river port with over twice the handling capacity is being financed by China and is now 25% complete. As for power, construction has started on a Malaysia-backed 100 MW coal-fired power plant in Sihanoukville and several hydro dams financed by China. In the meantime, new power lines have been strung from Vietnam to Phnom Penh, and blackouts have become rare in our office.

End Quote