Ayanna Runcie | Publication date 19 September 2015 | 05:41 ICT

The property boom that is transforming the skyline of Cambodia’s cities has been largely built on imported steel, glass and cement.

But as more buildings rise, some investors are seeing cost efficiencies in setting up local production lines to supply the Kingdom’s $3 billion construction sector.

Responding to a gap in the market, CH Steel Wire Industries, a Malaysia-based firm, established a factory in Phnom Penh Special Economic Zone (PPSEZ) in February to produce steel wire mesh for the domestic market.

“We decided to set up a steel wire mesh plant in Cambodia because we see the potential growth in Cambodia,” said Nicholas Lim Kean Hoong, executive director of CH Steel Wire Industries (Cambodia) Co Ltd.

“There is a lot of development, and there is a lot of construction of high-rise buildings that need these products.”

He said that welded steel wire mesh, which is used to reinforce concrete slabs, was previously either imported from Thailand or Vietnam, or stitched together from steel wire by local construction workers on the site.

Hoong said Cambodia’s growth potential is drawing many foreign investors, mainly Asian firms, to establish new factories to serve the domestic market.

One of those companies is Siam Cement Group, which expects to pour between $200 million and $300 million in additional investment into Cambodia over the next five years.

The Thai industrial conglomerate plans to double its network of ready-mix concrete in the country and will add a third production line to its cement plant in Kampot province.

Its two existing lines have an annual capacity of 2 million tonnes, enough to satisfy about half of Cambodia’s demand.

A chief competitor, Huaxin Cement, is looking to claim much of the other half. The Chinese company recently stepped up its investment in a local cement plant, and is planning further expansions.

Workers on a construction site in Phnom Penh. Heng Chivoan

While much of the investment in the sector is new, Eastern Steel Industry Corporation was a trailblazer, setting up a $2 million factory on the southern outskirts of Phnom Penh in 1994 to meet Cambodia’s post-war need for corrugated steel sheets.

The Japanese-owned company has expanded on the construction sector’s growth, and weathered a few downturns, but it remains the Kingdom’s sole producer of corrugated galvanised iron (GI).

A company employee said the market has seen a sharp increase in demand for corrugated steel sheet within the past five years as the price of timber – traditionally used by Cambodian builders to form moulds for poured concrete – has risen due to scarcity.

But the company has struggled to compete with products smuggled in from Vietnam.

“[Unlicensed traders] bring in corrugated GI and they sell it for cheaper in the local market, maybe because they pay no tax or importation fee, which makes their price much cheaper,” said the employee, who declined to be named as they are not authorised to speak to the press.

Eastern Steel is also facing the prospect that demand could ease as Cambodia’s increasingly affluent homebuyers turn away from roughly hewn corrugated iron in favour of higher-quality construction materials, such as pre-coated steel sheets.

The company already manufactures the product in its Vietnam factory, and will consider adding a local production line as Cambodia’s market grows.

Yet some traders are sceptical, arguing that Cambodia lacks the resources and infrastructure to create a competitive local building materials industry.

Meng Kimly, owner of EM Construction Import Export, a distributor of electrical equipment and construction material, believes that it is more cost effective to import materials than to manufacture them in Cambodia.

Moreover, the creation of the ASEAN Economic Community, due by the end of the year, will remove tariff barriers, opening the floodgates to cheap, imported building materials.

“It would be great if Cambodia could manufacture material locally,” he said, “but [this is a pipe dream] unless the government sets a good strategy and provides incentive packages to local and foreign investors.”

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