Cambodia

Executive Summary

Cambodia has experienced strong economic growth, with average annual gross domestic product (GDP) growth near seven percent over the last decade, driven by growing exports (particularly in garment and footwear products) and domestic consumption. Tourism is another large contributor to growth, with tourist arrivals reaching 6 million in 2018. Cambodia’s GNI per capita stood at USD 1,230 in 2017, while the average annual inflation rate was estimated at 3.2 percent.

Investing in Cambodia can be a relatively straightforward process.  Foreign direct investment (FDI) incentives available to investors include 100 percent foreign ownership of companies, corporate tax holidays of up to eight years, a 20 percent corporate tax rate after the incentive period ends, duty-free import of capital goods, and no restrictions on capital repatriation.

Despite these incentives, Cambodia has not historically attracted significant U.S. investment. Apart from the country’s relatively small market size, there are other factors dissuading U.S. investors: corruption, a limited supply of skilled labor, inadequate infrastructure (including high energy costs), and a lack of transparency in some government approval processes. Failure to consult the business community on new economic policies and regulations has also created difficulties for domestic and foreign investors alike. Notwithstanding these challenges, a number of American companies have maintained investments in the country, and in December 2016, Coca-Cola officially opened a USD 100 million bottling plant in Phnom Penh.

The story of FDI in Cambodia cannot be told without mentioning China, which has increased its investments in Cambodia sharply in the past five years.  The rise in FDI highlights China’s desire for influence in Cambodia, and Southeast Asia more broadly. Moreover, the rise in investment from China indicates that Chinese businesses, many that are state-owned enterprises, may not assess the challenges in Cambodia’s business environment in the same manner as U.S. businesses. While figures vary, the World Bank estimates that Chinese FDI accounted for 60 percent of total FDI-funded projects in Cambodia in 2017, and that share rose to 90 percent in the first six months of 2018.

Physical infrastructure projects, including commercial and residential real estate developments, continue to attract the bulk of FDI. However, there has been a recent increase in investment in manufacturing industries, including garments and agro-processing.

Table 1: Key Metrics and Rankings