Cambodia is a small country located in the southern region of the Indo-China peninsula in Southeast Asia. Cambodia has an area that covers roughly 181,035 square kilometers, with a population of 15,288,489, according to a 2019 census. Vietnam borders it to the east, Laos to the northeast, Thailand to the northwest, and the Gulf of Thailand (its only direct access to a large body of water for sea-bound trade and another key) to the southwest.
The country has a nominal GDP of $26.628 Billion; and a Purchasing Power Parity (PPP) GDP of $76.635. It has a GDP per capita of $4,645. These economic indicators make Cambodia, at least on paper, an Upper Middle-Income Country, by World Bank standards. It is, however, for the most part, a developing country. Cambodia is a part of the ASEAN (Association of Southeast Asian Nations) regional economic bloc. However, it is a fast-growing economy; however, although this is a characteristic shared by most of its Southeast Asian neighbors.
One of the critical highlights of Cambodia’s most recent economic growth spurt is the increased level of attention that it has paid to its somewhat outdated infrastructures. It brings the discussion to the National Highway 6 (from now on, refer to simply as Highway 6) along the Mekong River. Currently, Phnom Penh serves as the country’s economic, political, and cultural capital. A large portion of the country’s economic output originates from this city. The government has long known that it would have to start looking for ways to stimulate economic growth elsewhere if it wants to continue the pace by which its national economy is growing today well into the medium to long term. One of the proven and effective ways to do that has been to direct economic growth outwards, i.e., outside Phnom Penh, in a decentralized manner. In this case, highway 6 is a crucial infrastructure project because it aims to connect Phnom Penh to other strategic areas in nearby provinces such as Kampong Cham, Kracheh to the northeast, and Kampong Thom, Siem Reap to the northwest. With an influx of investments flowing into new regions, the vision is for Cambodia to have multiple economic growth centers in the future instead of just one at the moment. A significant investment in infrastructure development programs is a necessary step to accomplish this goal. Several case studies can be used to show how not investing in infrastructure development programs would be a fatal and costly mistake for developing countries like Cambodia. Especially considering it has plans to stimulate economic growth in a relatively barren region (around Highway 6), the only way to accomplish this is to populate the area, hopefully through sound urban and city planning methodologies. In this paper, the author discusses strategies and schemes (e.g., joint venture agreements, long-term lease agreements, land purchase deals) that the government of Cambodia can use to make the most out of the land surrounding its National Highway 6 project.
2. Economic Proposal
2.1. Economic Zones
The goal for the area near the National Highway 6 is to create and develop a special economic zone that will also act as an autonomous or, depending on existing government policies, a semi-autonomous region that will stimulate social and economic growth, not just for the residents and businesses of the new proposed region, but the surrounding areas, even as far as Phnom Penh, as well. The proposed Special Economic Zone (SEX) will be divided into different regions, i.e., zones, namely, 1) Industrial Zone, 2) Residential Zone, 3) Commercial Zone, 4) Administrative Zone, and 5) Parks, Green, and Open Spaces. A civic zone will also have to be planned and developed, which will fall under the jurisdiction of the administrative area.
A Special Economic Zone is an area within a country where different, often more lenient and liberal, trade and business laws and regulations can be applied compared to regions from the government. One of the aims of establishing an SEZ is to minimize the impacts of bureaucracy (e.g., red tape) and other imbalances (that are often caused by unfriendly trade and business laws and regulations) in an attempt to boost employment, improve export output, increase investments, create opportunities for job creation, and enhance the nation or a region within the nation’s trade balance. There are, in fact, different types of exclusive economic zones.
There are, for example, Free Trade Zones, Export Processing Zones, Free Economic Zones, Industrial Parks, Free Ports, Bonded Logistics Parks, and Urban Enterprise Zones. Each of these types of SEZs targets a specific priority. For example, Free Trade Zones aims to increase the volume of products traded domestically (i.e., re-export markets). Free Ports, on the other hand, are more broadly encompassing because they target internal or domestic trade as well as international exports. A country that has an excellent model for Special Economic Zones (SEZs) that Cambodia can use as a case study in its plan to stimulate economic growth in the area around Highway 6 would be China. China has many special economic zones, perhaps the most popular of which would be the Shenzhen and Shanghai economic zones. In China’s case, it embarked on a long-term SEZ journey to minimize the impacts of having a communist-socialist form of government—which has long been proven to be unconducive to private enterprises and foreign direct investments, to its economic growth. Although Cambodia’s political and economic systems are friendlier towards domestic and international businesses, establishing SEZs is still a good idea. Because doing so would give it more flexibility to attract more locators (e.g., local businesses and multinational corporations) to establish facilities and set up operations in the country.
2.1.1. Industrial Zone
The industrial zone is usually the second part of a community within a Special Economic Zone that gets developed. A large volume of the jobs available to the residents and future residents of the residential zone would most likely be created here. The industrial area also has to have a direct connection to Highway 6, so that the freight delivery trucks can bypass the narrow streets and avenues in the SEZ’s other zones, avoiding unnecessary traffic congestion, which would have a significantly negative impact on the livability and quality of life in the district. A more modern take in solving this problem is the construction of cargo or freight railway lines. It would enable the businesses within the proposed SEZ’s economic zones to move products more efficiently in and out of the SEZ. It would also have a positive impact on the cost of doing business. This argument makes a lot of sense, considering that a significant percentage of the operating costs of industrial enterprises are allocated to transportation and logistics expenses. A rail line that is directly connected to seaports, airports, and other logistics hubs would make the proposed SEZ a beautiful destination for multinational corporations that have the intention to set up operations in Cambodia. There are also multinational corporations that want to establish a regional production center to capture a slice of the Asia and the Pacific region’s market that may be attracted to choose the proposed Special Economic Zone in Cambodia as its base of manufacturing operations. It can significantly impact Cambodia’s economy, especially if its SEZ manages to attract big-ticket names such as Apple Corporation, Samsung Electronics, and other multinational firms whose operations are concentrated on manufacturing.
The ongoing trade war between the world’s two biggest economies, the United States and China is a golden opportunity for Cambodia to present itself, through the proposed industrial zone within an SEZ, as a viable alternative destination for manufacturing and industrial operations. The departure of the United Kingdom from the European Union is another golden opportunity for Cambodia to attract multinational corporations that want to gain significant exposure to Asia and the Pacific markets. It has been revealed in recent reports that many British multinational corporations are considering relocating some of their bases of operations from Europe to Asia. One of the regions they are currently looking at is Southeast Asia, which Cambodia is a part of (Kliem, 2020).
Together, these two opportunities make the idea of establishing an industrial zone within the proposed SEZ along with Cambodia’s Highway 6 a no-brainer. The risk-to-reward proposition is attractive, and there is little to no reason for the Cambodian national government not to support the program.
2.1.2. Residential Zone (Living Community)
The residential zone is an essential component of a medium to large-scale Special Economic Zone. Housing so far remains one of the biggest challenges of working for a company located in a Special Economic Zone. Many SEZs that have been established in the past twenty to thirty years in the region have failed to consider the fact that employees who work for companies within SEZs need a place to live. For example, in top-tier SEZs in China, such as the Shenzhen and Shanghai SEZ, employees have to endure a challenging commute journey (to and from their workplace) because the SEZ’s planners failed to incorporate an affordable housing option into the SEZ’s masterplan. While there are indeed housing options that are available in these areas, they tend to be very expensive, making them out of reach for the majority of the people who need them, i.e., the people working in the companies located in the industrial, commercial, and administrative zones of the SEZ.
An important question to answer is where the people migrating to the proposed SEZ’s residential communities would come from. The future residents of the National Highway 6 SEZ would likely come from the different rural areas in the country. It is already an ongoing trend across the country—where families and individuals from the country’s rural areas migrate to the urban centers (e.g., Phnom Penh districts) to look for better opportunities in terms of work or educational opportunities. In 2000, roughly 81.4% of Cambodia’s population lived in rural areas. In 2019, the country’s population living in rural areas went down to 76%. The movement of people indicates a downward trend. The problem is that there is not a lot of room in the country’s capital to accommodate more people without causing a traffic and affordable housing crisis. It is why the proposed SEZ around National Highway 6 along the Mekong River comes at an opportune moment. There is expected to be a massive spike in demand for affordable and mid-range-priced housing units in short to medium term, caused by many families and individuals from the countryside migrating into urban areas. To maximize the earning potential from this expected uptick in demand, the administrator of the SEZ should focus on building medium to high-density housing units such as condominiums and apartments. The housing units should also be offered at a price range that a typical resident worker within the SEZ would afford. A lease agreement for some of the buildings would also be a good idea, as this would allow the special economic zone’s administrative body to earn passive and recurring income from rents.
2.1.3. Commercial Zone (Shopping Centers)
The commercial zone would most likely be developed together with the residential area. The demand for new shops and retail buildings would rise as the number of residents in the particular economic zone increases. It is why a small contingent of strategically placed shops and retail centers is necessary during the early stages of the development. It is crucial for the administrative body of the SEZ not to fully let go of the land by directly selling them to the locators. A more economically viable strategy would be to enter into joint venture agreements where the SEZ’s administrative body would come in as a minority partner and the locator as the majority shareholder. Another viable alternative would be to enter into a long-term lease agreement of between 25 to 50 years for the land where the shops and retail centers would be situated.
2.1.4. Administrative Zone
The reality is that no business, family, or individual would ever want to set foot on a barren wasteland, regardless of how attractive the trade and business laws in it are ever going to be if there are no existing infrastructures such as roads, public transportation, hospitals, schools, and government facilities within the area. In the same manner, no private entity would most likely be willing to take the risk of developing the infrastructures above to spur up demand in the area, without some guarantee or arrangement from the government (i.e., the administrator of the SEZ) that the private entity will be able to get a specific rate of return on their investments. In most cases, the administrative zone is the first one that must be established and why it is also not uncommon for the local or the national government (depending on the scale of the project) that shells out the funding for the construction of the required infrastructures. In the case of the proposed SEZ in the Highway 6 area, a well-designed road network with strategically placed government offices, hospitals, educational institutions will be needed. The completion of these facilities would make it easier for the future residents of the SEZ actually to make a move to relocate.
The SEZ’s administrative authority needs to focus on the road networks to ensure that every plot of land will have sufficient access to a viable road network. Regional offices for government departments and agencies that future families and businesses will have to transact with—to secure the necessary permits and clearances, to set up residences and operations within the proposed SEZ, should also be constructed.
18.104.22.168. Civic Zone
The civic zone is practically a sub-zone that would fall under the administrative zone. The civic zone will be made up of infrastructures based on the residents’ and businesses’ shared interests. Structures within this sub-zone will be established for community development purposes. Churches, community clubs, and social facilities can be constructed in the civic zone. The idea is to create an environment where people can freely express themselves and be a part of the community within the SEZ.
2.1.5. Parks, Green, and Open Spaces
Around 30% of the proposed SEZ’s land area will be allocated for parks and green and open spaces. It is to ensure that the residents and employees of the SEZ would have fresh air to breath; to protect the critical low lying areas (if any) from floods (through the construction of catchment areas); and for everyone, including the visitors of the SEZ, to have enough spaces to move around. The management of the parks and green and open spaces will be privatized. While admission or entry into the SEZ’s parks and green and open spaces would be free, the high traffic areas may be linked with a small contingent of retail stalls and buildings. The income from which would be used to maintain the parks and the green and open spaces.
3. Conclusions and Recommendations
In conclusion, the author of this paper proposes developing a Special Economic Zone around the National Highway 6 along the Mekong River that is practically a mini-city that will be created from scratch. It is one of the best and sustainable ways to maximize the economic potential of the Highway 6 development project. The recommendation for the Cambodian government is to engage in a careful and detailed master planning process and stick to the master plan as the different zones within the proposed SEZ are being developed. Being proactive and always ahead of the curve, especially when it comes to solving or, better yet, preventing the occurrence of some of the most commonly occurring problems in the development of an SEZ of this scale and or magnitude, is also necessary. The story of an SEZ based on the current specifications will significantly positively impact the region and the country’s economic growth. It will also be an excellent way to elevate the Cambodian citizens’ quality of life and standard of living.
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Kliem, F. (2020). Post-Brexit UK should prioritize Southeast Asia trade deals. Nikke Asian Review, Retrieved from https://asia.nikkei.com/Opinion/Post-Brexit-UK-should-prioritize-Southeast-Asia-trade-deals.