B2B Cambodia had a chance to sit down with Christophe Forsinetti, Founder and Chairman of OBOR Capital and OBOR Management, to get his insights on the evolving investment landscape in Cambodia. With a unique perspective formed by his Cambodian heritage and global expertise, Forsinetti discussed the hurdles and prospects of investing in Cambodia's rapidly transforming market.
What Attracted Forsinetti To The Cambodian Market?
In addition to having roots in Cambodia, Forsinetti explained that he was drawn to the country because of the potential he saw in the nation’s budding markets. Identifying opportunities in a young population poised to enter the middle class, he emphasised the growth in consumer demand for products and services.
“If you look in the streets, you see opportunities everywhere. You may think there's a very small middle class, but that very young population will become the middle class, and they want consumption, they want a motorcycle, car, phone..." said Forsinetti.
With that said, he stressed the that there is still some difficulty in finding large and scalable demand in Cambodia given the country's smaller population.
"I have to say we went through a learning curve, because timing is very important, demand is very important, and, as I said, the middle class is still very small, so it's hard to find the right opportunities. I would say the banking, microfinance, telecom sector and the infrastructure were the first ones to grow, but it's still difficult to find large and scalable demand
Apart from this, great country, dollarised, easy to do business in. I also have some investment activities in Indonesia, Vietnam and Thailand, but I really think Cambodia is a great country for investment.
What Are Cambodia's Most Promising Sectors And How Does The Country Compare To Its Neighbours?
Forsinetti pointed to infrastructure, agriculture, and financial services as sectors ripe with opportunity, given Cambodia’s largely rural population and need for basic services.
"Anything that the bottom of the pyramid needs, so anything related to infrastructure, water, energy, agriculture, because [Cambodia] is 75 per cent rural. It's not easy, but there's definitely a need at all those levels of financial inclusion, financial services for the population as well," Forsinetti outlined.
Regionally, Cambodia is smaller compared to its neighbours like Vietnam and Thailand, which possess larger middle classes and more developed institutional investment environments. This comparison, Forsinetti said, highlights the need for targeted government incentives to attract investment and bolster economic zones.
When you talk to institutional investors, they have no appetite yet for Cambodia. [They say it's] too small, there's uncertainty on the regulatory framework… They like the political stability, which is something very important, but apart from this, there is a little bit of work that needs to be done to explain [to international investors] that actually, Cambodia is growing fast and has the potential even for larger institutional investors and companies to operate.
Experience As A Fund Manager: Investment Challenges And Opportunities In Cambodia
Forsinetti discussed OBOR Capital’s journey as one of the first regulated fund managers in Cambodia, focusing on supporting small to medium enterprises (SMEs) and enhancing the local investment ecosystem in collaboration with public and private sectors.
“One of the key things [we learned], because we made this mistake several times, was that we had to get very much involved because the [entrepreneurial] team was not, let's say, fully independent. So you have good entrepreneurs who are good in operations, but anything related to governance, finance, tax, legal, raising capital, organisation – it's hard to find entrepreneurs that have these skills," said Forsinetti. "It's hard for them to find resources here, so we had to develop this internally and provide them with support. The issue is that you end up spending a lot of time for each company you've invested in. It's a great learning process, but it takes time.
In the end, when I arrived in Cambodia, I thought I would invest and sit on the board and wait for dividends to come, but it doesn't work like this. You have to be extremely involved... As a fund manager, first, if you're making small investments and you have to spend time and resources on them, otherwise you cannot make a living.
While there has been a lack of resources and a prevailing skills gap in Cambodia's entrepreneurial landscape, Forsinetti positively noted that several actors are currently working to address these problems. He particularly mentioned Khmer Enterprise, an entity that was established by the Ministry of Economy and Finance, and the work its doing to develop the investment readiness programs and the overall ecosystem.
Forsinetti pointed out that one of the key things still missing in the Cambodian market is equity, which is something OBOR wishes to address, especially since the company received its official fund management licence from the Securities and Exchange Regulator of Cambodia (SERC) back in 2019.
"The reason we haven't done it yet is because the regulation to be able to do it was not yet there, we needed a Prakas. We had the licence process, but we didn't have the regulatory regime for what we call the Collective Investment Scheme (CIS) fund. This was just released, so now is the moment," he affirmed.
Expanding on the challenges that continue to persist in regard to the gap in equity and funding in the market, Forsinetti touched on the issue of ticket sizes and the mismatch between the funding investors are willing to bring to the table, and the types and amounts of funding Cambodian entrepreneurs are actually looking for.
"If you have a USD $10 million fund, that's very small [from the perspective of] a fund manager, it's hard to survive, but at the same time, this is appropriate for [the Cambodian market], because with USD $10 million, you could invest between USD $500,000 up to a million in maybe 10 or 15 companies," he said.
Fund managers, he explained, are more interested in bringing in a larger fund – for example, a USD $100 million fund over a USD $10 million fund – but this would also mean that it would not be possible for the fund to invest the same smaller ticket sizes into different companies, as it would not be feasible for the fund manager to oversee 100+ projects.
"Most of the frontier market and developing countries have what we call the ‘missing middle', so [most] companies, 90 per cent of them, are SMEs. They're small, they have maybe between USD $500,000 up to a few million dollars in revenue, sometimes a bit more, but their valuation is still below USD $10 or $20 million, and there are not many of them. So if your ticket size is big, you're going to be a majority shareholder of that company because the valuation is small. Usually entrepreneurs or founders don't really like that, so that's the issue.
It's very difficult for investors to do small tickets because they put the same amount of effort for a USD $10 million investment or for a USD $1 million investment. So you'd rather do the USD $10 million, and everybody is going to focus on this. You don't want to do the USD $1 million, or, even less, the USD $500,000. The problem is that in Cambodia, most of the opportunities are at USD $500,000 or $1 million.
In any case, Forsinetti affirmed that OBOR are still moving forward with a new fund aimed at SMEs because they want to help the market and they have experience doing so.
"Even with a smaller fund we're moving forward because we've done it in the past. I think we're one of the only investors in Cambodia that went through the setup, investment, development and exit of a company. There are a few funds doing this, but very often there is no exit, so for that segment of Cambodian companies, we're the only ones," said Forsinetti.
Developing Cambodia's Capital Markets And Providing Investment Incentives
Remarking on what can be done to attract more institutional investors to Cambodia who might not normally see the worth in entering the market due to the small size of investments, Forsinetti pointed to:
- Further developing the capital markets
- Providing greater investment incentives
- Encouraging transparency and improving governance
“We have some investors already looking at Cambodia, but to be totally transparent, institutional investors are not looking at Cambodia – it's not on their radar because of the size of the investments [most companies can take on], and usually because of the poor governance, that's what we need to improve.
We need to market Cambodia better, change some of the very old ideas... that are not true anymore. We need to incentivise investors to come, and that's being done by the government with the current Investment Law, but beyond that, we need to encourage transparency and [better] governance, and the capital markets help that.
Regarding what advice he has for potential new investors, Forsinetti urged them to give the Cambodian market a chance.
“First, I would tell them to come because many of those investors are really not taking the time... We're probably one of the fastest growing countries in the world. We're coming from far, but there is no doubt on where we're going. There might be some ups and downs in the process, but you cannot be wrong on where [Cambodia] is going or where it will be in ten years from now. In a world where you don't see growth everywhere, I think this is very important," he concluded.