An early look at how Cambodia’s economic vision is shaping up
An early look at how Cambodia’s economic vision is shaping up
There’s a broad consensus on Cambodia that it has become one of the attractive destinations of the world. In gist, it has become the apple of the eye for global investors. Going by the latest report of the Council for the Development of Cambodia – a nodal body for approving foreign investments – the country has attracted 315 fixed-asset investment projects worth $5.28 billion in the first nine months of 2024. Not a small figure considering the size of the country and more importantly when there’s little investments taking place in most parts of the world due to persistent recession. Khmer Times talks to experts to decipher why investors reach out to Cambodia
The evolving investment climate in Cambodia in recent years has made it as one of the attractive destinations for foreign direct investment (FDI). And as the Kingdom is undergoing a period of transition, the Royal Government of Cambodia (RGC) is repositioning its policies to maintain the momentum of economic growth even as addressing various existential external challenges.
Prime Minister Hun Manet, who apart from graduating from West Point in defence studies also received a PhD in economics, understands Cambodia’s economy well. The ‘Pentagonal Strategy’ announced by the Premier in August last year gives a measure of his statesmanship to transform the Kingdom into a middle-income country by 2030 and a high-income country by 2050.
The government’s seriousness on diversification, infrastructure development and digital innovation as well as on governance issues, regulatory reforms and skills development are critical in fostering a robust and resilient investment environment in the country. But these can hardly be done in the absence of creating a favourable investment and trade climate that will determine Cambodia’s economic trajectory.
To start with, the latest report of the Council for the Development of Cambodia (CDC) showed that Cambodia’s ability to attract 315 fixed-asset investment projects worth $5.28 billion in the first nine months this year highlights the country’s ongoing appeal to investors, particularly in labour-intensive sectors and infrastructure development.
Key industries like garment, travel goods and footwear remain significant contributors, reinforcing the status of the Kingdom as one of the global production hub in these areas. The inclusion of sectors such as hotel development, hydroelectric power stations, freshwater ports, solar power plants, and special economic zones (SEZs) reflect a diversified strategy to drive economic growth and enhance infrastructure.
The creation of over 250,000 jobs in manufacturing sector also reinforces the country’s commitment in providing employment. The Ministry of Labour and Vocational Training (MLVT) recent enhancement of the minimum wage for the garment, footwear and travel goods (GFT) industries to $208 per month, an increase of $4 for 2025 will go a long way in encouraging employment in the country.
In trade, Cambodia’s export profile has transformed both products and trading partners. Although textiles remain a key export, the sector’s share of total exports has shrunk to 40 percent in 2020-2023 from 70 percent in 2011-2015.
A positive shift toward new export products such as machinery, plastics rubber, and vegetable products has started over the past decade.
Cambodia is also expanding and diversifying its markets across the US, EU and China to ASEAN.
Addressing the 20th Anniversary of Cambodia’s Accession to the World Trade Organization (WTO) on October 14, Prime Minister Hun Manet took the opportunity to dispel the misapprehensions about the Kingdom’s economic vision. He propounded five strategies that will help realize Cambodia achieve its targets.
The five strategies diversification of agriculture exports, expansion of overseas market accessibility, development of interconnected infrastructure, implementation of digital transformation and preparation to depart from the least development (LCD) status.
Commenting on Cambodia’s investment and trade climate, Thomas Schings, General Manager of RGX Digital Asset Exchange said, “Cambodia’s investment and trade climate presents significant potential, particularly in sectors such as energy, healthcare, food processing, manufacturing and digitalization in all sectors of the economy. The government has made notable strides in improving infrastructure and regulatory frameworks to also favour such investments.”
Speaking to Khmer Times, he said, “Looking ahead, Cambodia faces some exciting challenges that present opportunities for enhancement. For instance, refining the regulatory environment can create a more seamless experience for investors, fostering an even more attractive business landscape. By investing in education and vocational training, the government can cultivate a skilled workforce that meets the demands of a rapidly evolving economy.”
Additionally, strengthening environmental regulations will not only support sustainable development but also enhance Cambodia’s reputation as a responsible investment destination. Continued investment in infrastructure, particularly in transportation and energy, will further bolster the country’s growth trajectory and facilitate trade, Schings added.
Sustainability is also a significant challenge, said Schings, adding that as the country undergoes rapid industrialisation, strengthening environmental regulations will be essential to ensure that economic growth does not come at the expense of natural resources and potentially tourism.
“While infrastructure development has seen progress, further investment in transportation and energy is critical to support sustained economic growth.”
When asked how Cambodia can diversify its investment climate, the General Manager said, “Encouraging investments in sectors beyond textiles and agriculture, such as technology, renewable energy, and healthcare, could create a more balanced economy. Offering incentives for foreign investors, such as tax breaks or grants, can stimulate interest in underdeveloped sectors or regions.
“Besides, promoting local entrepreneurship can drive innovation and reduce dependency on foreign capital, fostering a more resilient business environment,” he added.
Schings emphasised that diversifying the investment landscape brings numerous benefits. A more varied economy can enhance resilience against global economic fluctuations, creating a stable environment for growth. New sectors will generate diverse job opportunities, reducing unemployment and empowering local communities.
Furthermore, fostering a range of industries can lead to balanced development, ensuring sustainability while minimising environmental impacts.
Talking about the potential sectors for foreign investors, he said that several promising sectors present exciting opportunities. “The renewable energy sector is particularly attractive, given the growing global demand for sustainable solutions and the Cambodian government’s commitment to green initiatives. The technology and IT services sector also holds great promise, especially with the country’s young, tech-savvy population driving digital transformation,” he stated.
He continued that tourism and hospitality remain vital areas, as Cambodia’s rich cultural heritage and natural beauty continue to attract international visitors, opening avenues for eco-tourism and sustainable travel. Agriculture and agro-processing are ripe for investment as well, given the abundant natural resources and the growing demand for organic and processed food products.
“The healthcare and pharmaceutical sectors are also expanding, driven by increasing healthcare needs and government support for improvements in health services and medical technology.
Lastly, the textiles and apparel industry, particularly with a focus on sustainability, remains a well-established sector with access to international markets,” the RGX General Manager added.
On the unprecedented growth of Cambodia’s trade and foreign direct investment, Anthony Galliano, Group CEO of Cambodian Investment Management Holdings (CIM) threw some interesting insights, “The Kingdom’s trade and foreign direct investment with China has underpinned a large part of its growth, complimented by its export relationship with the United States and EU. China has and continues to be the largest investor and the US is the largest export market, now at close to 40 percent of all exports going to the US market. Most of the raw materials for these exports are imported from China.”
Further he said, “ASEAN region foreign direct investment flows increased to $224 billion in 2022, breaking an all-time record, however, last year the record was shattered again with FDI to the region reaching $236 billion in 2023.”
“There are historical global transformations that are attracting foreign investment and creating new and stronger trade alliances. This is a substantially more secure and diverse supply chain which generally involves a de-risking from China, to reduce reliance on a single supplier and to protect against potential economic or geopolitical events.”
“A version of this is adopting a ‘China Plus One’ diversification strategy, beneficiaries in the region being India, Indonesia, Thailand, and Vietnam gaining manufacturing share from China,” Galliano said.
To take advantage of the shift, a country must be committed to building its manufacturing capabilities while having the infrastructure and logistics to support efficient and inexpensive movement of goods, market size, reasonable wages, competitive electricity costs, tax incentives and competitive customs and excise, he added.
“The Kingdom’s trade and foreign direct investment with China has underpinned a large part of its growth, complimented by its export relationship with the United States and EU. China has and continues to be the largest investor and the US is the largest export market, now at close to 40 percent of all exports going to the US market. Most of the raw materials for these exports are imported from China.”
These economic concentrations in imports, exports, and foreign direct investment are being addressed and efforts to diversify trade and investment relationships are receiving the right attention and effort. In a rapidly changing world where geopolitics and friendshoring are critical factors in investment and trade, concentration is the highly risky and diversification is the best risk mitigant strategy, the CIM CEO added.
“Undoubtedly, China has and continues to dominate the investment capital in Cambodia at 56 percent based on CDC report,” Currie Sun Min Lee, Esq., Korea Desk Head at Bun & Associates told Khmer Times, adding, “Korean investors perceive the country as a relatively small market with underdeveloped infrastructure and regulatory opacity. However, there has been a recent resurgence in interest by Korean investors.”
Regarding the concern that Cambodia has a relatively small market, “Cambodia is strategically situated in the region which provides foreign investors with Plus One leverage, it has a growing middle class which correlates into increased consumer spending power and a dynamic labour force which is relatively low-cost but young and proficient in both technology and English,” she noted.
Regarding the concern of Cambodia’s underdeveloped infrastructure and regulatory opacity, “RGC has been taking initiatives and making inroads to address these issues. There has been an increasing influx of investment/interest in infrastructure developments — promoting multisectoral growth, and substantial/substantive regulatory revisions to the legal regime — protecting foreign investors.”
Moreover, the relevant ministries have been collaborative and cohesive in their multilateral implementation of the government’s initiatives to (re)position Cambodia as a regionally competitive investment destination, Lee added.
Under the leadership of Prime Minister Hun Manet and Sun Chanthol, Deputy Prime Minister and First Vice Chairman of CDC, the government have been implementing inclusivity initiatives to provide equal investment incentives and favorable tax benefits to all investors regardless of nationality.
Notably, the new 2021 Investment Law and 2023 implementational Sub Decree 139, with increased incentives/benefits/protections from both a regulatory and commercial perspective, are equally applicable to investors from all countries. These regulations collectively create a simplified/streamlined process that enhances not only transparency, efficacy/efficiency and sustainability but also ensures inclusivity for Korean and other non-Chinese investors, she said.
“The government has also been engaging in proactive and practical economic missions, with the private sector, to differing countries under the mandate of diversifying the influx of investment to be more inclusive.”
She said that “investment diversification efforts by the government are also evidenced in the CDC’s strategic establishment of EU, Japan, China and Korea Desks to provide specialised services for the particularized requirements of diverse investor profiles.”
When asked on potential sectors for foreign investors, Lee responded, “Geopolitically, Korean investors are increasingly interested in Cambodia as an ideal China-derisk investment destination given its political stability, demographic dividend, geographic location (including its strategically situated SEZs), investment incentives and regionally competitive growth potential.”
She went on to add: “Immediate interest in the manufacturing sector, especially for investors leveraging the regional Plus One or China de-risking. Though sectoral diverse, Korean investors have been notably exploring automotive assembly plant investments: some operational, such as Hyundai Camko Moto and Daehan Auto (Ssangyong); and, others in the planning phase, such as the pending project with HGB Motors Assembly (Kia).”
Lee stressed, “The necessity of creating and capturing investments in high value and value-added products within the supply chain for sustainable development as Cambodia grows and graduates from a least developed to a developing country.” To note, the latest industry value added from 2023 is $12.22 billion, an increase from $11.18 billion in 2022; whereas, the latest manufacturing value added from 2023 is $5.82 billion, an increase from $5.55 in 2022, according to the World Bank.
She listed the following notable sectors for potential investment interest including infrastructure – from roads to bridges (with the Cambodian-Korean Friendship Bridge and several national/provincial roads), renewable energy, logistics, transportation, manufacturing, healthcare, digital development and the agro-processing sector.
