Cambodia’s the Cool Kid on the Block

This article is a part of a three-part series adapted from Frank Booker’s piece for Arbeitskreis Deutsche Wirtschaft (German Business Group Cambodia). Next week, we’ll talk about efforts to create a clean business environment in the Kingdom.

Forget the dark days of civil strife, Cambodia is on the up. This seems to be the message from a wide range of experts, government officials and international business leaders. With the International Business Summit in Phnom Penh in just a few weeks, get to know the investment environment in Kingdom.

With some impressive GDP growth in the past 10 years – averaging more than 7% – and rates are estimated for 7.1% in 2017, Cambodia’s economic outlook looks good. “Cambodia is one of the world’s fastest-growing economies,”said Takehiko Nakao, president of the Asian Development Bank (ADB), in Phnom Penh in March. In the most recent forecast from the World Bank, Cambodia’s economic growth is expected to remain robust despite changes in global circumstances, particularly from the China and the United States. Exports have remained robust and low fuel prices have helped to strengthen Cambodia’s economic standing in 2016.

The ADB says that exports of garments and footwear – Cambodia’s two main industries – based on customs data, reached $6.0bn in 2014, rising by 10.7% but slowing down from the previous year. Shipments to the EU rose by 22% to $2.4bn, but those to the US fell by 5.4% to $2.0bn. In the same year, construction continued to expand, funded by inflows of foreign direct investment (FDI) and a 34.3% rise in bank credit for the segment. Industry as a whole grew by an estimated 9.8%.

More positive words came from Nakao as he praised the Cambodian government for controlling inflation and exchange rates, introducing its Industrial Development Policy, which will expand the country’s manufacturing industry, and for making efforts to tackle corruption, which we’ll explore more in depth next week.

It seems that a host of international companies have been taking note. As well as a booming garment and apparel sector – worth $5.75 billion in exports in 2014, according to government figures – producing clothing and shoes for brands such as Nike, Walmart, Marks and Spencer among many others, Other global giants are investing in the country’s future. Carmakers Porsche, BMW, Audi and Mercedes all have recently opened or upgraded showrooms in Phnom Penh. Since setting up in Cambodia in 2010, Bosch has seen double-digit growth, spurred by the use of its products in the burgeoning automotive and construction sectors, the latter of which saw approved construction projects worth $2.5 billion in 2014.

Key strengths of the Cambodian Market

  • Sustained political stability and security
  • High growth record over the past 15 years due to transformation to open market economy
  • Effective macroeconomic management in response to crises
  • Strong government-private sector consultation and responsiveness
  • Good geographic location in the centre of Asean
  • Steady inflow of foreign direct investment
  • Adaptable and open export-oriented economy:
  • 100% foreign ownership for any business in any sector
  • No fund transfer restrictions
  • Up to 50 year land lease etc.
  • Young, growing population and middle class with a median age of 23

Key challenges

  • Human resource capacity constraints: low education/skill level of workforce
  • Underdeveloped infrastructure
  • Need to diffuse corruption across sectors

Key reforms at a glance

Completed, current and upcoming initiatives by the Royal Government of Cambodia are vastly changing the business environment:

  • The creation of anti-corruption commissions within the National Assembly and the Senate
  • Improved transparency and simplified procedures, including the setting up of online systems for business registration and tax payments, by the Ministry of Commerce
  • The Ministry of Economics and Finance has undertaken a number of reforms in a bid to reduce corruption in the customs and tax sector, resulting in a noticeable increase in revenue
  • The issue of “ghost” civil servants (officials getting a government salary even though they do not actually work or even exist) has been addressed by a scheme to pay civil servants’ salaries through bank accounts
  • A one-window service managed by the Ministry of Interior – “providing citizen-friendly administrative services in an efficient, transparent and corruption-free manner” – has proved effective and is set for expansion
  • The Anti-Corruption Unit is set to work with the parliamentary anti-corruption commission on a whistleblower protection law
  • The Ministry of Interior, through the National Programme for Sub-National Democratic Development, is to commence the implementation of procedures to improve transparency and access to information at local level

Please log on to CambodiaSummit.com and join Cambodia International Business Summit 2017 to kickstart strategic partnerships with the Kingdom’s top leaders and decision makers.

See you at Cambodia’s Summit on Feb 14 and 15.

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