Cambodia: A Maturing Frontier Market?

Via Capitalist Exploits, some comments on Cambodia:

With the Mongolian meet up now over, one of the countries we are going to hone in on is Cambodia. It’s a sleepy SE Asian “powerhouse-to-be” in our opinion.

Unfortunately, the place gets a bad rep due to its past. Too many people hear Cambodia and think land mines and Khmer Rouge. Stereotypes are often wrong, and in the case of Cambodia they are 180 degrees from reality.

My on-the-ground experience was of a burgeoning society with a bright future. Cambodia is kicking into high gear, with GDP growing north of 5.0% since 2001, excluding 2009. In a land where fear of a long ago past still haunts investors, this leaves the door of opportunity wide open.

When I was there last month I was lucky enough to experience the vast economic changes first-hand, and see the potentialities for Cambodia to become the next Asian Tiger.

From Phnom Penh’s CBD rising from the ground, to garment factories on the edge of town, to the bustling vibe around the Sihanoukville deepwater port, Cambodia is on an upward trajectory and is also a unique place to invest.

With a population whose average age is 23, Cambodia boasts a large and inexpensive workforce with which to drive the building of new factories and immigration into the cities.

This is spawning a middle class, and allowing Cambodian’s to purchase everything from electronics to new cars. Strolling around Phnom Penh and Siem Reap it’s not hard to find Apple iPhones and Samsung Galaxy phones in the hands of the youth. This would have been non-existent a few years ago.

However, amid the bright spots, most frontier markets experience growing pains due to fragmentation in industries; Cambodia is no different.

Fragmentation to us means opportunity, plain and simple. Mark spoke of some great inefficiencies when he was on the ground in Mongolia, from the availability of food to getting around town…all potential businesses for intrepid capitalists looking for a change of scenery..

On my first night in Phnom Penh I sat down with Doug Clayton of Leopard Capital to discuss such issues. The conversation drifted from the lack of domestic food processing to untapped niche markets focusing on SME’s.

A unique niche, SME’s are faced with insufficient access to capital. This creates an opportunity for investors to fund select companies with top management. Comforting, the sector is fairly buffered by ACLEDA, Cambodia’s largest bank, and a well-run one at that, which focuses on micro lending (with an average loan size of $3,802.)

On the flip side, fund flows from Vietnam, China, et al are focused on large real estate and industrial farming projects. Therefore, SME’s are left relatively untouched.

After my conversation with Doug I visited his associates at Leopard’s headquarters, which is conveniently located on top of one of their investments, Kingdom Breweries, the only microbrewery in the country.

When Doug went looking for an investment in this sector he found that it didn’t exist. Being not only a savvy investor, but also a shrewd businessman, Doug simply went and created the business he wanted to invest into. We believe that his strategy will pay off in a BIG way in a few years, as other multinational beer companies want to get a foothold in the country.

Our conversation focused on Kingdom, as the brewery fills a niche in the market for local, high quality suds. Being a 22 year-old, I of course have a mild interest in frothy beverages. More than that, as an investor I’m interested in the fact that rising incomes will propel demand for such quality, as more people can afford a $2 brew. (Side note: During my parade of meetings, everyone I spoke with about beer commended Kingdom on their presence in the market…it was remarkable.)

After our conversation I couldn’t help but ask for a tour of the facility. Did you actually think I wouldn’t?

Cambodia is a unique market where demand for capital is high and good opportunities with trustworthy management exist.

This entry was posted on Thursday, August 16th, 2012 at 2:51 pm and is filed under Cambodia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.