Cambodia bets on booming industry
Phnom Penh waking up to casino benefits
On a recent Monday evening, Cambodia casino developer Chen Lip Keong took a stroll through the capital city's Hun Sen Park on the banks of the Mekong River.
Locals sat chatting on the grass beneath the lights of the imposing NagaWorld casino hotel across the street as its proprietor, Dr Chen, described his plans to relocate the street.
In its place he intends to build a HK$14 million, 220-metre-long water fountain in the park that will connect with a two-storey block of restaurants, cafes and bars he plans to add to the front of the casino.
Cambodia is gambling on gambling. While the economy has expanded at an average annual rate of 10 per cent since 1998, it has grown from a low and narrow base and the country remains one of Asia's poorest on a per capita basis.
In addition to manufacturing and, potentially, oil reserves, tourism offers perhaps the most promising new driver for a traditionally agrarian economy that is still emerging from decades of war and civil strife. Officials are wagering that casinos such as Dr Chen's will help boost visitor numbers and fuel future growth.
It is a reasonable bet: international tourist arrivals more than tripled since 2000 to 1.7 million last year and were up a further 20 per cent in the first four months of this year. Most are drawn to the historic Angkor Wat temple complex - its home province of Siem Reap received 68 per cent of international visitors to the country in the first four months.
For Cambodia the impact of this is profound. According to the tourism ministry, the average visitor stays six nights and spends US$106 per day - equal to nearly 25 per cent of the annual per capita GDP. Officials hope to increase spending and length of stay by adding a few more attractions to the mix and casinos are expected to play an important role.
'People can come to Cambodia and see the temples and historic sites,' Cambodia National Tourism Authority secretary general So Mara said last week on the sidelines of the International Travel Expo in Hong Kong. 'And then they can also do a little gambling.'
Make that a lot of gambling. In the past few years nearly 50 slot machine halls have sprung up in Phnom Penh while NagaWorld, which holds a monopoly on operating casino tables in the capital, is in the process of quadrupling the number of gaming tables and fitting-out a 508-room hotel.
Eighteen full-fledged casinos have opened across the country, with most clustered along the Thai border at Poipet and more recently on the Vietnam border at Bavet.
'The casino industry is alive and well and thriving,' said Mark Mobius, a fund manager at Franklin Templeton who specialises in investing in emerging markets and who owns shares in Dr Chen's company.
The gaming mini-boom is attracting attention from Hong Kong investors. Earlier this month Melco International Development's newly-launched slot machine unit, Elixir Group, said Cambodia would be one of its top target markets for electronic gaming machines and casino equipment.
Last month, Macau casino developer Golden Resorts announced it would pay HK$147 million for a 49 per cent stake in Cambo Six, a Cambodian bookmaking business with 30 retail sports betting shops across the country.
The largest of all is the casino operated by Dr Chen's NagaCorp, which occupies a special place in the history of the country's development as the first and only Cambodia-based company to be listed on a stock market anywhere.
It was a difficult path for Dr Chen, a Malaysian-Chinese medical doctor-turned-entrepreneur who operated a floating casino on the Mekong River for five years before breaking ground on the current resort complex in 2000.
Both Singapore and Hong Kong turned down a share sale by NagaCorp over concerns about Cambodia's weak regulatory environment and poor anti-money laundering provisions. NagaCorp significantly strengthened internal controls and a second initial public offering attempt in Hong Kong succeeded in October last year.
A one-time adviser to former Malaysian Prime Minister Mahathir Mohamad and a current economic adviser to Cambodian Prime Minister Hun Sen, the 59-year-old Dr Chen lacks neither connections nor ambition.
'[Las Vegas Sands] chairman Sheldon Adelson said a few months ago that Asia could have room for eight to 10 'Las Vegases',' Dr Chen said. 'I agree, and I think Phnom Penh could have one.'
Of course, the strongest candidate for a 'regional Las Vegas' is Macau which last year overtook the original Las Vegas Strip in total gaming revenues.
But while small in comparison to the towering turnover of Macau's major casinos, NagaCorp does have competitive strength in the market for middleweight players from Southeast Asia and mainland China who gamble between US$5,000 and US$50,000 per trip. Citigroup analyst Anil Daswani dubs the niche 'catering to the poor man's VIP'.
Macau's 39 per cent tax on gaming revenue limits how much casino operators in the territory can pay the powerful junket representatives that bring in VIPs, lend them money and collect gaming debts. NagaCorp by contrast pays a variable tax that last year equalled less than 5 per cent of gaming revenues, which allows the casino to pay significantly higher commissions to the agents who bring in high-rollers. The low tax rate is partly intended to encourage casino investment but it is also a reflection of Cambodia's struggle to improve collection efficiency.
'We were fighting for several years to collect tax from the border casinos and slot machine halls,' said Mey Vann, director of the financial industry department at the Ministry of Economy and Finance, which oversees the casinos industry. 'We won the war in 2006.'
While NagaCorp's monopoly licence has made it a regular taxpayer for more than a decade, the country managed to widen the fiscal net substantially last year.
Instead of the more common revenue-based tax, which can require detailed audits, it opted for a simple per-unit tax on the number of slot machines or gaming tables installed at each property. But the results were significant: the gaming industry coughed up US$17 million in taxes, accounting for 9 per cent of the country's total non-trade tax revenues.
'Government policy has been successful in developing the gambling industry, especially in the [Thai and Vietnamese] border areas,' said Mr Mey Vann, who explained taxes were not the only consideration. 'Before, these places were poor and suffering, but casino investment has created new towns and provided jobs.
'In the long term we need to expand the legal framework to give casino operators confidence for further investment,' he said, citing the need to implement industry specific legislation and a licensing regime.
To be sure, the challenges of developing Cambodia's casinos into major regional players are many.
In a corruption index of 163 nations compiled by Transparency International, Cambodia ranked only a few notches above the most corrupt country in the world. The legal infrastructure is weak, capital markets non-existent and regional competition from casinos in Macau, Singapore and potentially Vietnam is expected to be fierce.
Still, early investors are betting Cambodia can follow the path laid down by some of its more successful neighbours in the region.
'Just like Vietnam is looking over its shoulder to China, Cambodia must be looking over its shoulder to Vietnam and realising that they've got to get a move on,' said Mr Mobius.