Anti-fraud software firm draws major clients

A year after a local technology company introduced new software to combat financial crime in Cambodia, four banks have started using the system to fight against money laundering and terrorism financing, the company’s executive said yesterday.

Chhor Sophanak, managing director of IdeaLink Consulting, said that his anti-money-laundering software, which was developed locally to reflect the needs of financial institutions in the Kingdom, is now being used by Sathapana, Canadia, ABA and Vattanac banks.

While Sophanak declined to disclose the value of the software that each bank had purchased, he said sales varied according to scale.

“The software helps financial institutions increase their speed in combating financial crime,” he said. “It supports the central bank’s initiative to combat money laundering and terrorism financing, which is good for building trust and attracting more investors to our country.”

In addition to banks, IdeaLink’s software is attracting attention from microfinance institutions, insurance companies and payment service providers.

According to Sophanak, the majority financial institutions in Cambodia have been using software to combat financial crime, but most of the technology has been developed abroad. Idealink’s software is the only locally-developed software in existence, and therefore is the best at combating financial crimes in Cambodia, he claimed.

Last year, IdeaLink signed a distribution agreement with Tess International, a Malaysia-based provider of software applications, to provide solutions to the financial sector by implementing anti-fraud and anti-money-laundering measures.

World Bank outlook remains bright despite political concern

Cambodia’s economy is predicted to remain strong and resilient for the next two years, fuelled by a shift to higher value-added manufacturing, despite lingering concerns over political stability and the slowed growth of both the construction and garment sectors, the World Bank said yesterday in its latest review of the Cambodian economy.

The Kingdom’s robust GDP growth is expected to reach 6.9 percent in 2018 and remain almost as high at 6.7 percent in 2019, thanks to increased export diversification of footwear, electrical machinery and auto parts as well as healthy inflows of foreign direct investment (FDI), the World Bank said in its Cambodia Economic Update for October 2017.

However, downside risks – including the possibility of a slowdown in the regional economy, especially from China and “potential election-related uncertainties” – still remain.

World Bank Country Manager for Cambodia Inguna Dobraja said that while the Kingdom “appears to be on the verge of climbing up the manufacturing value chains”, this change could bring new challenges to the economy.

“To succeed in boosting export diversification, Cambodia would need to undertake deeper structural reforms that address high electricity and logistics costs, as well as skills gaps,” she said.

The report noted that in 2012, the Kingdom had 46 factories dedicated to electrical machinery and auto parts, accounting for a 5.1 percent share of the manufacturing industry. As of August of this year, the number of factories had increased to 121 and accounted for 7.1 percent of manufacturing.

“Cambodia will not be able to rely on the same factors that drove strong growth and production over the last two decades,” Dobraja said.

The report said that despite the Kingdom’s pivotal garment sector still trending in positive territory, with exports for the first six months of this year valued at $3.3 billion, growth slipped to 5.4 percent compared to 8.4 percent in the first half of 2016.

The garment and footwear industry, which tallied over $7.3 billion in exports last year and provides jobs to about 700,000 workers, is currently the thickest pillar of Cambodia’s economy.

However, Miguel Eduardo Sanchez Martin, senior country economist for the World Bank in Cambodia, warned that increased competition, looming wage hikes and modest improvements in productivity could stifle FDI into the sector.

He added that while export diversification into higher value-added manufacturing could offset any potential future garment losses, Cambodia lagged far behind Vietnam and Thailand in industry diversification.

“Hopefully Cambodia can follow [these countries’] models in the future, but for that to happen it is important to overcome the challenge of high electricity costs,” he said. “Cambodia may be losing some potential investors that do energy-intense manufacturing processes because of the high cost of electricity.”

The report said that a lack of competitive bidding in energy generation, fragmentation in transmission and distribution as well as the government’s Industrial Development Policy 2015-2025 showed almost no planned reduction in electricity prices until 2020.

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said that while electricity has been a long-term challenge in Cambodia, reliability has been less problematic of an issue than price.

“From an FDI point of view, while electricity prices are still high, the direction of prices is down, whereas in many other countries, pricing is likely to head upwards,” he said. “So that will give potential investors some comfort.”

He added that while renewables, like solar, could help alleviate the price problem, their use was likely far off.

Nevertheless, he agreed that with higher value-added manufacturing and export diversification taking place, there was a real opportunity for Cambodia to take part in regional supply chains.

“Companies like Minebea and Sumi Wiring are demonstrating that you can establish successful manufacturing operations in Cambodia,” he said.

While Sanchez Martin admitted that there were election-related stability concerns that could see potential investors taking a wait-and-see approach until the dust settles, the World Bank’s FDI projections showed no sign of a downturn.

“FDI will keep coming in because the overall environment is still okay, and with a dollarised economy, investors have less risk of asset depreciation,” he said. “The key now is for the government to push through reforms that increase the ease of doing business in order to bring the right kind of manufacturing in.”

Higgins also predicted that FDI projections will remain strong.

“Investors abhor uncertainty, and without commenting on the manner in which it has been achieved, there is now less uncertainty surrounding 2018,” he said. “We have been pleasantly surprised that the level of investor interest has remained as strong as it has.”

QR codes could prove to be a digital alternative to cash for Cambodia

Global payments giant Visa is the first international financial firm to announce the roll out of a payment solution in Cambodia for quick response codes, or QR codes, those pixelated black and white squares designed to be read by a smartphone camera that have begun popping up at retail outlets throughout the capital.

The company is preparing to launch mVisa in Cambodia and 10 other countries worldwide, according to a spokeswoman, who said the QR code payment platform would be available to merchants and consumers through participating local banks in the coming months.

“We expect the first banks in Cambodia to start offering the service in the third quarter of this year,” she said.

In a press release at the unveiling of mVisa earlier in February, the company explained that the digital payments service allows retailers to accept payments without investing in expensive point of sale (POS) machinery, and is available to any consumer with a camera-equipped smartphone.

“mVisa aids in overcoming merchant infrastructure issues as it allows consumers to use their mobile phones to make cashless purchases at merchant outlets, pay bills remotely and even send money to friends and family members by securely linking their Visa debit, credit or prepaid account to the mVisa application,” it said.

mVisa will join the growing list of QR payment platforms in Cambodia, which include apps developed by Acleda Bank, the country’s largest commercial bank, and Pi Pay, a new digital payment smartphone application.

Originally designed for applications in the Japanese automotive industry, QR codes have been given broader usage for everything from product tracking to advertising and digital payments.

David Totten, director at Emerging Markets Consulting, said the technology could become widely adopted in Cambodia given its low infrastructure costs and the country’s rapid uptake of smartphone ownership.

However, the challenge for QR payment platforms will be to convince local merchants and consumers of the benefits of using digital payments – a tall order given the strong local preference for cash transactions.

“QR codes payment systems share the same benefits as all cashless payments – it is faster, more secure and cheaper way to transact compared to cash,” he said. “[However], customer adoption is the key issue. The customer’s preference for cashless over cash for the majority of his or her transactions, is probably unknown at this point.”

Many of the developed economies that were early to adopt QR code payment systems have already moved on to more advanced payment technology such as Near Field Communication, which allows consumers to pay for purchases by tapping their phone to a POS terminal. Yet the chip-based technology is also more expensive, which makes it arguably less suited to the Cambodian market.

“The ubiquity of optical scanning devices [in phones] compared to alternative technology such as NFC makes QR codes attractive, lowering the total cost of implementing the system,” said Totten.

Zokhir Rasulov, chief digital officer at ABA bank, said his bank is currently researching QR code usage in other markets and has yet to decide on whether to adopt a QR payment platform. He said while consumers in Cambodia might be prepared to use QR codes for payments, to be successful the platform’s fees would have to be small enough to make it financially viable for small businesses.

“It’s quite early to predict whether this type of cashless payments can be a successful replacement to the traditional cards, or if it will develop as an alternative option of payments, or if it will not be popular at all,” he said.

“However, in my opinion it has a high potential to be adopted by Cambodian consumers, while I’m not sure about small merchants who are still very sensitive to any charges on transactions applied by banks and other payment companies such as Visa or MasterCard.”

Chy Sila, general director of CBM Corporation, which operates food franchises like Domino’s Pizza, Lotteria and Tous les Jours bakery, said his company has partnered with Pi Pay to offer various form of mobile digital payments including QR codes at several restaurant locations. He noted that in order to improve adoption rates, companies needed to ensure that consumers understand the technology and incentivise its use.

“QR code payment is quite convenient, but you need to have people who are able to download and understand the simple process of how to use it, and they have to know how to upload the money into their digital wallet,” he said.
“You have to give them special and interesting discounts so that they feel like they can use digital money to save when they spend. That is a very important point from the business side.”

UK to maintain Cambodia’s duty-free access

The British government has attempted to assuage the fears of least developed countries (LDCs) including Cambodia by assuring them that they will retain their trade privileges to the United Kingdom following the country’s exit from the European Union, something the International Labour Organization (ILO) has warned could put Cambodia’s critical garment and footwear industry on shaky footing.

A statement released on Sunday said that despite Brexit, the UK would continue to commit to protect its current trade relations with LDCs to help keep global prices for goods and commodities in check, as well as building on existing trade agreements with the world’s poorest countries.

The release was aimed to waylay uncertainty for the 48 LDCs that currently benefit from reduced or zero tariffs under the EU’s “Everything But Arms” agreement.

“Our departure from the EU is an opportunity to step up to our commitments to the rest of the world, not step away from them,” the UK’s International Trade Secretary Liam Fox said in the statement.

The commitment to preserve duty-free access was explained in the statement as being both motivated by reducing poverty worldwide, as well as sheltering “some of the poorest countries that could face tariffs of over 10 percent – which could be passed on to UK consumers through higher prices at the till”.

British Ambassador to Cambodia William Longhurst confirmed via Twitter yesterday that Cambodia’s duty-free access to the UK would be preserved.

“The UK Government is committed to maintaining duty-free access to UK markets for Cambodia once we leave the EU,” he tweeted, adding that the UK remained the single largest trade partner for the Kingdom, importing roughly $1 billion worth of products last year.

While the statement from the British government should bring some certainty to the foot-loose garment sector, David Van, local managing director of Bower Group Asia, expressed cautious optimism about the UK’s commitments.

“I can only assume that UK government is committed to granting market access privileges – similar to the EBA for EU – to LDCs as part of the British government’s efforts for more equitable trade,” he said in an email.

“However, how much that would benefit Cambodia is a matter of digging into the detailed breakdown of Cambodia exports to the EU to find out how much percentage is actually bound for UK.”

According to the ILO, the EU accounted for 45 percent of all Cambodian garment exports during the first half of 2016, with the UK market alone taking up 24.3 percent. The organisation warned in January that Brexit uncertainty was already weighing down the local garment sector through the depreciation of the British pound and the possibility that without a clear policy, Cambodia’s status could revert back to World Trade Organisation (WTO) rules.

If the UK reverts to WTO rules, countries that it does not have a free trade agreement with, such as Cambodia, would no longer receive preferential access, the report said, adding that Cambodian would then have to broker a new bilateral trade deal.

Van Sou Ieng, chairman of the Garment Manufacturers Association in Cambodia, said it was “great to hear” assurances from the UK that it would keep the same terms for garment exports.

“This will give Cambodia’s garment exports a more stable and predictable market access because the UK buys about 15 to 20 percent of Cambodian exports and it will promote further growth and maintain and sustain employment for Cambodians,” he said.

Regus opens its second biz centre

Global workspace provider Regus officially opened its second business centre in Phnom Penh yesterday with the aim of offering flexible office solutions for the growing number of Cambodian and global professionals.

Located in Casa Meridian, a luxury condo development on Phnom Penh’s Diamond Island, the firm offers 191 rentable workstations, co-working spaces, professional address solutions and virtual offices that are bookable by the hour.

Lars Wittig, country manager for Regus Cambodia, said that the demand for short- and long-term rentable office space and meeting rooms has been on the rise. The company first opened a 208 workstation facility in Canadia Tower in 2012.

“As a developing economy, Cambodian enterprises, especially startups, are challenged by a lack of capital, business networks and affordable professional office space,” he said. “By providing opportunities for modern and dynamic businesses to work where and when they want, they can become better connected globally through our network.”

The firm, which is based in Luxembourg and listed on the London Stock Exchange, claims to be the world’s largest provider of flexible workspace solutions with 2.3 million customers spread across more than a 100 countries with 3,000 locations. The company posted total revenue earnings of nearly $3 billion last year with a net profit of $183 million.

Wittig added that for startups, rentable workstation fees start at $79 per person a month while office space for two or more people begins at $479 per month.

World Bank outlook remains bright despite political concern

Cambodia’s economy is predicted to remain strong and resilient for the next two years, fuelled by a shift to higher value-added manufacturing, despite lingering concerns over political stability and the slowed growth of both the construction and garment sectors, the World Bank said yesterday in its latest review of the Cambodian economy.

The Kingdom’s robust GDP growth is expected to reach 6.9 percent in 2018 and remain almost as high at 6.7 percent in 2019, thanks to increased export diversification of footwear, electrical machinery and auto parts as well as healthy inflows of foreign direct investment (FDI), the World Bank said in its Cambodia Economic Update for October 2017.

However, downside risks – including the possibility of a slowdown in the regional economy, especially from China and “potential election-related uncertainties” – still remain.

World Bank Country Manager for Cambodia Inguna Dobraja said that while the Kingdom “appears to be on the verge of climbing up the manufacturing value chains”, this change could bring new challenges to the economy.

“To succeed in boosting export diversification, Cambodia would need to undertake deeper structural reforms that address high electricity and logistics costs, as well as skills gaps,” she said.

The report noted that in 2012, the Kingdom had 46 factories dedicated to electrical machinery and auto parts, accounting for a 5.1 percent share of the manufacturing industry. As of August of this year, the number of factories had increased to 121 and accounted for 7.1 percent of manufacturing.

“Cambodia will not be able to rely on the same factors that drove strong growth and production over the last two decades,” Dobraja said.

The report said that despite the Kingdom’s pivotal garment sector still trending in positive territory, with exports for the first six months of this year valued at $3.3 billion, growth slipped to 5.4 percent compared to 8.4 percent in the first half of 2016.

The garment and footwear industry, which tallied over $7.3 billion in exports last year and provides jobs to about 700,000 workers, is currently the thickest pillar of Cambodia’s economy.

However, Miguel Eduardo Sanchez Martin, senior country economist for the World Bank in Cambodia, warned that increased competition, looming wage hikes and modest improvements in productivity could stifle FDI into the sector.

He added that while export diversification into higher value-added manufacturing could offset any potential future garment losses, Cambodia lagged far behind Vietnam and Thailand in industry diversification.

“Hopefully Cambodia can follow [these countries’] models in the future, but for that to happen it is important to overcome the challenge of high electricity costs,” he said. “Cambodia may be losing some potential investors that do energy-intense manufacturing processes because of the high cost of electricity.”

The report said that a lack of competitive bidding in energy generation, fragmentation in transmission and distribution as well as the government’s Industrial Development Policy 2015-2025 showed almost no planned reduction in electricity prices until 2020.

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said that while electricity has been a long-term challenge in Cambodia, reliability has been less problematic of an issue than price.

“From an FDI point of view, while electricity prices are still high, the direction of prices is down, whereas in many other countries, pricing is likely to head upwards,” he said. “So that will give potential investors some comfort.”

He added that while renewables, like solar, could help alleviate the price problem, their use was likely far off.

Nevertheless, he agreed that with higher value-added manufacturing and export diversification taking place, there was a real opportunity for Cambodia to take part in regional supply chains.

“Companies like Minebea and Sumi Wiring are demonstrating that you can establish successful manufacturing operations in Cambodia,” he said.

While Sanchez Martin admitted that there were election-related stability concerns that could see potential investors taking a wait-and-see approach until the dust settles, the World Bank’s FDI projections showed no sign of a downturn.

“FDI will keep coming in because the overall environment is still okay, and with a dollarised economy, investors have less risk of asset depreciation,” he said. “The key now is for the government to push through reforms that increase the ease of doing business in order to bring the right kind of manufacturing in.”

Higgins also predicted that FDI projections will remain strong.

“Investors abhor uncertainty, and without commenting on the manner in which it has been achieved, there is now less uncertainty surrounding 2018,” he said. “We have been pleasantly surprised that the level of investor interest has remained as strong as it has.”

CMA launches fund to strengthen MFI staffing

The Cambodia Microfinance Association (CMA) has announced that it will establish a staff development fund to stem the tide of cross-institutional recruitment in the competitive microfinance institution (MFI) sector.

Under the framework of the fund, which is slated to launch in September, MFIs deemed to have engaged in poaching staff will be required to contribute two months of an employee’s salary to the fund, which will be used to establish a CMA training centre.

Bun Mony, adviser to CMA, said the fund would not stop workers from moving freely from one institution to another, but would encourage members of CMA to invest in building up their staff’s capabilities.