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Cambodia

Country Profile

The Kingdom of Cambodia, as it is officially known, is one of the fastest growing economies in the world and is projected to be one of the top economic giants in the coming decades.

The country is very rich in history and there are many ancient structures in Cambodia which stand as testament to the former glory and greatness of the Southeast Asian nation. The Angkor Wat, for example, is one of the greatest and most extensive temples in the world, and is considered a World Heritage Site. For a long time, the Khmer kingdom has dominated much of Southeast Asia. However, the kingdom was invaded by Ayutthaya, a Siamese king, in the 15th century. Since then until the establishment of the French protectorate late in the 18th century, Cambodia was a vassal state by many of its neighboring kingdoms.

The country had experienced numerous internal and external conflicts during the early and mid 19th century. Vietnam invaded the country in 1978 and disposed of the authoritarian Khmer Rouge accused of killing hundreds of thousands of Cambodians. Today, members of the Khmer Rouge are facing trial for their past war crimes. (take this out, every country had crisis, not to be mentioned in investment website)

With a growing population of 16 million, the country has experienced huge leaps in development. Cambodia has maintained a 7% increase of its economy for the last 12 years, and is expected to maintain the momentum for a foreseeable period. Today, Cambodia is identified by the IMF as one of the Next Eleven countries – countries which are perceived to occupy the economic top spots in the world.

Economy Overview

According to the World Bank, Cambodia is increasingly integrating with the region and has enjoyed a decade of macroeconomic stability and growth. Over the past two decades, Cambodia has undergone a significant transition, reaching lower middle-income status in 2015. Authorities aspire to attain upper middle-income status by 2030. 

Driven by garment exports and tourism, Cambodia’s economy has sustained an average growth rate of 7.7% between 1995 and 2018, making it among the fastest-growing economies in the world. As global demand peaked in 2018, economic growth is estimated at 7.5%, compared to 7% in 2017 and is expected to remain robust over the medium term. 

 

Poverty continues to fall in Cambodia. According to official estimates, the poverty rate in 2014 was 13.5% compared to 47.8% in 2007. About 90% of the poor live in the countryside. However around 4.5 million people remain near-poor, vulnerable to falling back into poverty when exposed to economic and other external shocks.

Cambodia’s economy will contract two per cent in 2020 before swiftly recovering to four per cent growth this year, the World Bank projects, citing effective government measures that respond to the specific needs of the most affected sectors – including tourism, garments and textiles, and construction. These figures are similar to the government’s projections of a 1.9 per cent contraction for 2020 before a return to 3.5 per cent growth this year.

 

Cambodian Prime Minister Hun Sen said Tuesday that the country’s long-awaited first commercial extraction of oil has finally begun. Speaking nationwide on state television, Hun Sen said the first drop of oil was extracted on Monday by KrisEnergy, a Singapore-based oil and gas company, from a well in offshore Block A in the Gulf of Thailand, west of the coastal Cambodian province of Preah Sihanouk.

“The start of production is a blessing for our Cambodia,” Hun Sen said. “It is a first important step for Cambodia to boost its capacity to reach its goal as an oil and gas production country.”

Latest Foreign Direct Investment (FDI) report

According to the World Bank, in its Cambodia economic update in May 2019, Cambodia performed better than expected, driven primarily by rapid expansion of exports and robust internal demand, as well as a surge in Foreign Direct Investment. 

FDI inflows to Cambodia have grown exponentially in the last few years due to sound macroeconomic policies, political stability, regional economic growth and an open investment market; reaching USD 3.1 billion in 2018, up from USD 2.7 billion in 2017. The total stock of FDI stood at USD 23.7 billion in 2018, representing around 96.8% of the country’s GDP (2019 World Investment Report by UNCTAD). The main investing countries are China (Chinese FDI alone surpassed all other FDI sources combined), Hong Kong, the US and the Netherlands.

 

The construction industry attracts the largest share of foreign investors, followed by infrastructure, industry (primarily textiles), agriculture and tourism. New railways are under construction, ranging from Phnom Penh to Siem Reap all the way to the Vietnamese border in the other direction; this project also uses Chinese funding. Additional agreements with China include an economic and technical cooperation pledge and a USD 65 million grant to expand the capacity of Preah Ket Mealea military hospital in Phnom Penh. The China National Heavy Machinery Corporation has also invested USD 1.4 billion in the 246-megawatt Stung Tata hydropower plant in the Koh Kong province.

Cambodia has a generally open and liberal foreign investment regime. Incentives to investors include: 100% foreign ownership of companies, corporate tax holidays of up to eight years, a 20% corporate tax rate after the incentive period ends, duty-free import of capital goods, and no restrictions on capital repatriation. To facilitate foreign investment, Cambodia has created special economic zones (SEZs), which provide companies with ready access to land, infrastructure and other services to facilitate the set-up and operation of businesses. According to the US Department of State, in recent years the Phnom Penh Special Economic Zone alone has attracted more than USD 100 million from American companies such as Coca-Cola, American Licorice and Tiffany & Co.

 

Chinese direct investment in Cambodia reached $860 million in the first 11 months of last year, up 70 per cent from the same period in 2019, the Chinese embassy in Phnom Penh has announced. The embassy said major Chinese investment projects in the Kingdom have stayed their courses, sidestepping the brunt of Covid-19. Construction of the 190km Phnom Penh-Sihanoukville Expressway, which the embassy listed as the most important and costly Chinese-invested project, is around 39 per cent complete.

Agriculture Sector

Eighty percent of Cambodia’s population resides in rural areas, and around 44 percent of the total population was directly engaged in the agriculture sector in 2017.  

The primary agricultural commodity is rice.  Other major crops include cassava, maize, mung bean, and soybean.  As a matter of policy, the Cambodian government encourages investment in agriculture, diversification of agricultural products, and investment in improved irrigation and water control.  The sector accounted for approximately 25 percent of GDP in 2017.  

The Cambodian government set a goal of exporting one million tons of milled rice by 2015, but actual exports totaled only 538,396 tons.  In 2017, 635,679 tons of milled rice was exported.  Most of the current demand for water pumps, well-drilling machines, tractors, tilling equipment, rice milling, drying, and packaging equipment, fertilizers, insecticides, and seed comes from private agribusiness investors and NGOs. The government of Cambodia’s Industrial Development Policy 2015-2025, launched in 2015, included the goals of reducing logistics and electricity costs in food processing.  

Cambodia During Covid

Cambodia has barely been impacted by covid 19 with no deaths reported as of December 2020 and less than 400 cases since the beginning of the crisis.

The first imported case in Cambodia was detected in Sihanoukville on 27 January 2020. Although a number of imported cases and transmission to direct contacts were confirmed throughout 2020, no community transmission was detected until 29 November. 

 

United Nations Development Programme predicted in October 2020 that the poverty rate in Cambodia could double to 17.6% and unemployment could rise to 4.8% as a result of the COVID-19 recession.The economy is projected to shrink only by 5.5% in 2020, following 7% growth in 2019.

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