Cambodia Investment Review
In episode 109 of the Rising Giants podcast, Stephen Higgins, Co-Founder and Managing Partner of Mekong Strategic Capital, provided an in-depth analysis of Cambodia’s economic trajectory, drawing on his over two decades of experience in banking and financial services. His insights shed light on the challenges and opportunities that lie ahead for Cambodia, especially in the wake of the COVID-19 pandemic.
Higgins’ journey in Cambodia began in 2008 with a role at ANZ Bank, leading to an unexpected but profound love for the country. “The day I arrived, I fell in love with Cambodia,” he said, recounting his decision to extend his initially short-term assignment into a permanent stay. After a brief retirement at 39, Higgins, along with John McGinley, another ANZ alumnus, embarked on a new venture, founding Mekong Strategic Capital.
MSC: Corporate Advisory, Infrastructure Investments, And Climate Financing
“The firm focuses on three key business lines; Corporate Advisory, Investments, and Climate Finance,” Higgins explained. He noted the growing importance of climate finance globally, and cited significant investments in Phnom Penh port and Nahm 24, underlining the firm’s diverse and strategic portfolio.
Discussing the firm’s growth trajectory, Higgins acknowledged the initial challenges. “Starting out, the main focus was on just paying the bills, like any new venture,” he shared. Despite setbacks during the COVID-19 pandemic, the firm has managed to sustain and grow, indicating a strong resilience during a turbulent economic landscape.
Reflecting on the post-pandemic recovery for Cambodia, according to Higgins, it has been uneven. “While 2022 saw a fairly strong rebound post-covid, the economic momentum this year has been slower,” he noted. Contrasting his conservative growth forecast of around 2% or lower with more optimistic predictions from major development banks at over 5%, Higgins based his analysis on current economic indicators like loan growth, loan arears, VAT collections, and tourism numbers. “These numbers just aren’t reflective of GDP growth being anywhere close to 5%,” he said.
Higgins also commented on the reported recovery in tourism. “While there’s been an increase in foreign arrivals, it hasn’t necessarily translated into significant economic contributions, with air arrivals still well down on pre-covid numbers” he observed, highlighting the need to grow the country’s tourism industry.
Potential For Growth and Consolidation in Several Key Sectors
In a regional comparison, Higgins pointed out the unique position of Cambodia. “Thailand is grappling with an aging demographic, Myanmar faces political instability, Laos is burdened with economic and debt issues, and Vietnam shares some of Cambodia’s challenges,” he assessed. These comparisons paint Cambodia in a relatively favorable light, especially considering the proactive policies of the new government and the emerging skilled manufacturing sector.
Higgins also emphasized the potential for growth and consolidation in several key sectors. “The banking sector is ripe for consolidation, logistics needs more professional players, and the agricultural sector, often romanticized, faces practical scaling challenges,” he explained.
On the real estate front, he was also candid about the need for a market correction. “The slowdown in the property sector was necessary. The market was overheated with unrealistic pricing and excessive supply,” he stated, predicting a 3–5-year period for the market to stabilize.
Discussing the Smart Axiata Digital Innovation fund, Higgins highlighted the diversity of their investments, particularly praising the success of Nahm 24. “Our due diligence and trust in the founder paid off, proving its significant social and economic value,” he said.
Reflecting on the venture capital landscape from 2017 to 2019, Higgins described it as a period of high optimism, which was significantly impacted by the pandemic. “The landscape has shifted, but the long-term growth prospects remain strong,” he said, acknowledging the hurdles yet maintaining an optimistic outlook for Cambodian startups.
Confidence In the Pro-Business Stance of The New Administration
Addressing the recent governmental changes, Higgins expressed confidence in the pro-business stance of the new administration. “The government realizes the importance of the private sector in job creation, particularly for the growing workforce,” he noted, commending the new government’s focus on mature policy-making and diplomatic efforts.
Higgins also shared personal insights, stressing the importance of work-life balance and the flexibility afforded by running his own business in Cambodia. “Seeing your children grow up is a once-in-a-lifetime opportunity,” he reflected, highlighting the personal values that have shaped his professional journey.
In closing, Higgins shared his reading preferences, favoring factual books and relying on outlets like The Wall Street Journal and The New York Times for a curated news flow. He also emphasized the ongoing need for quality business news in Cambodia to accurately represent the country’s investment potential and counter negative perceptions.
Stephen Higgins’ candid conversation on Rising Giants offers a comprehensive and nuanced perspective on Cambodia’s economic landscape, marked by cautious optimism and a clear-eyed assessment of both challenges and opportunities in the coming years. His analysis provides valuable insights for investors, entrepreneurs, and policymakers navigating the evolving economic environment of Cambodia.
