Economic Development in Cambodia

Cambodia is one of the strongest frontier markets in the world boasting a young population . Before the pandemic, Cambodia had sustained an average real growth rate of 7.7 percent between 1998 and 2019. More than 75% of the population lives in the countryside and is still devoted to farming and other forms of agriculture but a steady growth in garments exports, tourism and real estate development has helped transform key economic hubs like Phnom Penh, Sihanoukville and Siem Reap.

Within the ASEAN region, Cambodia is increasingly becoming an influential voice. Sihanoukville is set to host the 2022 ASEAN Summit (previously, Phnom Penh had hosted the annual gathering of leaders from the region in 2002 and 2012) and it has one of the lowest GDP per capita levels in Southeast Asia with only Myanmar registering a lower figure.

Nevertheless, it’s closely integrated through trade links via the Regional Comprehensive Economic Partnership (RCEP), the China-Cambodia Free Trade Agreement while plans are also under way to begin free trade negotiations with the United Kingdom, the United States, Japan, Mongolia and India. Cambodia is rapidly becoming a sustainable source of agricultural and aquaculture products for the Chinese market. Exports include milled rice, mangoes, and cassava while work is underway for a number of other food items.

The Cambodian currency is linked right now to the US dollar and investment opportunities in real estate, logistics and private equity have attracted the interest of institutional investors. A number of local venture capital, private equity and real estate investment companies exist in Cambodia that are willing to manage foreign capital on behalf of foreign investors.

According to the United Nations Population Division, Cambodia’s population numbered 16.7 million people last year. Cambodia has been relatively fortunate over the course of the COVID-19 pandemic suffering less than 2,000 fatalities. Also, Cambodia has a relatively young society as more than two-thirds of the population is under the age of 30.

key industries in Cambodia

The key industries in Cambodia are garment and footwear exports, tourism, agriculture and tourism. Before the pandemic, garment, travel and footwear contributed 17% of annual GDP. Garments and footwear account for almost 80% of Cambodia’s exports. While more than half of all Cambodians work in agriculture, an increasing proportion of Cambodians are moving into manufacturing. More than 1.5 million manufacturing jobs were created in the ten years ending in 2019.

The country is governed by the Cambodian People’s Party (CPP) led by Prime Minister Hun Sen. The CPP has been in power since 1991 and marked the 70th anniversary of its founding in 2021. Cambodia is a constitutional monarchy – the current king is Norodom Sihamoni. Cambodia most recently held elections in 2018 and has been part of the Association of Southeast Asian Nations (ASEAN) since 1999.

More than 95% of the population belong to the majority Khmer ethnic group while 2% belong to the Cham ethnic group who practice Islam.

Why Cambodia’s economic rise is worth paying attention to and what it spells out for investment interests, particularly in terms of foreign direct investment and for institutional investors

In a similar manner to the rise of erstwhile frontier economies like Thailand, Malaysia, Indonesia, Turkey or Mexico, Cambodia has the potential to continue its pace of steady economic growth and become a diversified economy that depends less on tourism and more on a domestic source for income growth.

The Cambodian government has encouraged foreign investors and has sped up approvals for foreign businesses allowing them to establish a presence. Many leading international food and beverage brands have opened (or are in the process of launching) their first outlets in the country, such as Chili’s, H&M and Maserati.

With the Cambodian riel linked to the US dollar and the government offering foreigners the chance to buy property on a freehold basis, Cambodia is becoming increasingly an attractive option for companies that want to tap into the rising middle class. Further, it stands to benefit from the growing presence of Chinese corporations in Southeast Asia with the ongoing Belt & Road Initiative, a multi-decade infrastructure investment drive spearheaded by the Chinese government across emerging parts of the world.

Chinese tourists rank Cambodia highly with more than 4 million visiting the country in 2019. Chinese tourists are expected to account for a fifth of all travelers by the end of the decade and an increasing proportion are set to travel to nearby markets such as Vietnam and Cambodia while Thailand remains a perennial favourite.

Tapping the middle class

For investors looking to tap on the opportunities in Cambodia, there are ample private equity and venture capital investment opportunities in the areas of financial technology, digital media, e-commerce and software services. There is an urgent need to upgrade the logistics sector as well to deal with the rising demands of a growing economy.

Meanwhile, a growing middle class that is swiftly moving to the cities has opened up opportunities for real estate developers. In particular, there is an urgent need to contribute to Cambodia’s green growth as the country is among the three countries in Asia most vulnerable to climate change, according to the UN Development Programme.

Private equity firms like Belt Road Capital have backed several local start-ups while a new generation of companies have emerged like Prince Bank, Canopy Sands Development (a developer of sustainable real estate) and Cambodia Airways. Unlike some of the established companies, they are more efficient, younger, dynamic, efficient and possess a diverse workforce. Investors would do well to offer capital to emerging companies that are keen to meet growth targets and have shown a willingness to bring in expertise from around the region.

Canopy Sands Development, for example, is looking to build Ream City, a sustainable residential and commercial hub along the Ream Bay that has the potential to attract $16 billion in total investment.

With investors around the world keen to contribute to greening efforts, the real estate project will be built in accordance with a master plan devised by Surbana Jurong, a renowned Singaporean urban consultancy that has advised on similar projects around the region. It will mean that architects, urban planners, sustainability consultants, construction firms and building managers will need to adhere to guidelines that would ultimately ensure compliance with environment, social and governance (ESG) mandates.

according to a recent Deloitte report, Southeast Asia could lose trillions if it fails to make investments towards a climate-driven transformation. Meanwhile, there are also several firms that are looking to modernise and digitalise Cambodia in order to ensure equal access to goods and services. Ream City, for example, will surely attract the attention of a number of companies like electric bus providers, electric vehicle manufacturers and smart home tool providers.

Investing in dynamic new companies who have a track record and that are willing to live up to local and international standards can ensure long-term growth of capital for astute investors.

A growing Cambodia will offer opportunities for many individuals, businesses and investors. The work to re-build the country in the aftermath of the COVID-19 pandemic and efforts to help the government diversify its economic base and accelerate green growth has only just begun.