Cambodia has experienced an extended period of strong economic growth, with average annual gross domestic product (GDP) growth hovering at seven percent over the last decade, driven by growing exports (particularly in garment and footwear products), increased investment, and domestic consumption. Tourism is another large contributor to growth, with tourist arrivals reaching 6.61 million in 2019. Cambodia’s GDP per capita stood at $1,674 in 2019, while the average annual inflation rate was estimated at 3.2 percent.
The government has made it a priority to attract investment from abroad. 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 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 $100 million bottling plant in Phnom Penh.
In recent years, Chinese FDI has surged and become a significant driver of growth. The rise in FDI highlights China’s desire for influence in Cambodia, and Southeast Asia more broadly, and 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. The World Bank estimates that Chinese FDI accounted for 60 percent of total FDI-funded projects in Cambodia in 2017; that share rose significantly in 2018. In 2019, FDI hit $3.6 billion – a record – with 43 percent reportedly coming from China.
Physical infrastructure projects, including commercial and residential real estate developments, continue to attract the bulk of FDI. However, there has been some increase in investment in manufacturing, including garment and travel goods factories, as well as agro-processing.
|TI Corruption Perceptions Index||2019||162 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||144 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||98 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in Cambodia ($M USD, historical stock positions)||2018||USD 165||https://apps.bea.gov/international/
|World Bank GNI per capita||2018||USD 1,390||http://data.worldbank.org/indicator/
3. Legal Regime
Transparency of the Regulatory System
In general, Cambodia’s regulatory system, while improving, still lacks transparency. This lack of transparency is a result of the lack of legislation and limited capacity of key institutions, and is exacerbated by a weak court system. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or influenced by corruption. For example, in May 2016 in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies. And, in April 2017, the National Bank of Cambodia introduced an interest rate cap on loans provided by the microfinance industry with no consultation with relevant stakeholders. In the past years, investors have expressed concern as well over draft legislation that has not been subject to stakeholder consultations.
Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively available for public consultation with relevant non-governmental organizations (NGOs), private sector or other parties before their enactment. Approved or passed laws are available on websites of some
Ministries but are not always up to date. The Council of Jurists, the government body that reviews law and regulations, publishes a list of updated laws and regulations on its website.
International Regulatory Considerations
As a member of the ASEAN since 1999, Cambodia is required to comply with certain rules and regulations with regard to free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, among others.
As a WTO member, Cambodia has both drafted and modified laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee only after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.
Legal System and Judicial Independence
Although the Cambodian Constitution calls for an independent judiciary, both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, many commercial disputes are resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, or other institutions. Foreign investors often build into their contacts clauses which dictate that investment disputes must be resolved in a third country, such as Singapore.
The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at www.cambodiainvestment.gov.kh/decree-38-referring-to-contract-and-other-liabilities_881028-2.html.
Laws and Regulations on Foreign Direct Investment
Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. In 2003, the government amended the law to simplify licensing and increase transparency (Amended Law on Investment). Sub-decree No. 111 (2005) lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.
Information about investment and investment incentives in Cambodia may be found on the CDC’s website.
Competition and Anti-Trust Laws
A draft antitrust and competition law is near completion and may be finalized in 2020. Once enacted, it will be enforced by Cambodia’s Import-Export Inspection and Fraud Repression Directorate-General (CAMCONTROL).
Expropriation and Compensation
Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership because of official policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections and then using force to displace communities to make way for commercial enterprises.
In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.
projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.
The government has shown willingness to use tax issues for political purposes. For instance, in 2017, a U.S.-owned independent newspaper had its bank account frozen purportedly for failure to pay taxes. It is believed that, while the company may have had some tax liability, the action taken by Cambodia’s General Department of Taxation, notably an inflated tax assessment, was politically motivated and intended to halt operations. These actions took place at the same time the government took steps to reduce the role of press and independent media in the country as part of a wider anti-democratic crackdown.
ICSID Convention and New York Convention
Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960.
Investor-State Dispute Settlement
International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005. In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013, the tribunal rendered an award in favor of Cambodia.
International Commercial Arbitration and Foreign Courts
Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013. Arbitral awards issued by foreign arbitrations are admissible in the Cambodian court system. An example can be drawn from its recognition and enforcement of arbitral award issued by the Korean Commercial Arbitration Board in 2014.
Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The Law on Insolvency applies to the assets of all business people and legal entities in Cambodia. The World Bank’s 2020 Doing Business Report ranks Cambodia 82 out of 190 in terms of the “ease of resolving insolvency.”
In 2012, Credit Bureau Cambodia (CBC) was established in an effort to create a more transparent credit market in the country. CBC’s main role is to provide credit scores to banks and financial institutions and to improve access to credit information.
4. Industrial Policies
Cambodia’s Law on Investment and Amended Law on Investment offers varying types of investment incentives for projects that meet specified criteria. Investors seeking an incentive – for examples, incentives as part of a qualified investment project (QIP) – must submit an application to the CDC. Investors who wish to apply are required to pay an application fee of KHR 7 million (approximately $1,750), which covers securing necessary approvals, authorizations, licenses, or registrations from all relevant ministries and entities, including stamp duties. The CDC is required to seek approval from the Council of Ministers for investment proposals that involve capital of $50 million or more, politically sensitive issues, the exploration and exploitation of mineral or natural resources, or infrastructure concessions. The CDC is also required to seek approval from the Council of Ministers for investment proposals that will have a negative impact on the environment or the government’s long-term strategy.
QIPs are entitled to receive different incentives such as corporate tax holidays; special depreciation allowances; and import tax exemptions on production equipment, construction materials, and production inputs used to produce exports. Investment projects located in designated special promotion zones or export-processing zones are also entitled to the same incentives. Industry-specific investment incentives, such as three-year profit tax exemptions, may be available in the agriculture and agro-industry sectors. More information about the criteria and investment areas eligible for incentives can be found at the following .
Foreign Trade Zones/Free Ports/Trade Facilitation
To facilitate the country’s development, the Cambodian government has shown great interest in increasing exports via geographically defined special economic zones (SEZs). Cambodia is currently drafting a law on Special Economic Zones, which is now undergoing technical review within the CDC. There are currently 23 special SEZs, which are located in Phnom Penh, Koh Kong, Kandal, Kampot, Sihanoukville, and the borders of Thailand and Vietnam. The main investment sectors in these zones include garments, shoes, bicycles, food processing, auto parts, motorcycle assembly, and electrical equipment manufacturing.
5. Protection of Property Rights
Mortgages exist in Cambodia and Cambodian banks often require certificates of property ownership as collateral before approving loans. The mortgage recordation system, which is handled by private banks, is generally considered reliable.
Cambodia’s 2001 Land Law provides a framework for real property security and a system for recording titles and ownership. Land titles issued prior to the end of the Khmer Rouge regime (1975-79) are not recognized due to the severe dislocations that occurred during that time period. The government is making efforts to accelerate the issuance of land titles, but in practice, the titling system is cumbersome, expensive, and subject to corruption. The majority of property owners lack documentation proving ownership. Even where title records exist, recognition of legal titles to land has not been uniform, and there are reports of court cases in which judges have sought additional proof of ownership.
Foreigners are constitutionally forbidden to own land in Cambodia; however, the 2001 Land Law allows long and short-term leases to foreigners. Cambodia also allows foreign ownership in multi-story buildings, such as condominiums, from the second floor up. Cambodia was ranked 129 out of 190 economies for ease of registering property in the 2020 World Bank Doing Business Report.
Intellectual Property Rights
Infringement of intellectual property rights (IPR) is prevalent in Cambodia. Counterfeit apparel, footwear, cigarettes, alcohol, pharmaceuticals, and consumer goods, and pirated software, music, and books are examples of IPR-infringing goods found in the country.
Though Cambodia is not a major center for the production or export of counterfeit or pirated materials, local businesses report that the problem is growing because of the lack of enforcement. To date, Cambodia has not been listed by the Office of the U.S. Trade Representative (USTR) in its annual Special 301 Report.
Cambodia has enacted several laws pursuant to its WTO commitments on intellectual property. Its key IP laws include the Law on Marks, Trade Names and Acts of Unfair Competition (2002), the Law on Copyrights and Related Rights (2003), the Law on Patents, Utility Models and Industrial Designs (2003), the Law on Management of Seed and Plant Breeder’s Rights (2008), the Law on Geographical Indications (2014), and the Law on Compulsory Licensing for Public Health (2018).
Cambodia has been a member of WIPO since 1995 and has acceded to a number of international IPR protocols, including the Paris Convention (1998), the Madrid Protocol (2015), the WIPO Patent Cooperation Treaty (2016), The Hague Agreement Concerning the International
Registration of Industrial Design (2017), and the Lisbon Agreement on Appellations of Origin and Geographical Indications (2018).
To combat the trade in counterfeit goods, the Cambodian Counter Counterfeit Committee (CCCC) was established in 2014 under the Ministry of Interior to investigate claims, seize illegal goods, and prosecute counterfeiters. The Economic Police, Customs, the Cambodia Import-Export Inspection and Fraud Repression Directorate General, and the Ministry of Commerce also have enforcement IPR enforcement responsibilities; however, the division of responsibility among each agency is not clearly defined. This causes confusion to rights owners and muddles the overall IPR environment. Though there has been an increase in the number of seizures of counterfeit goods in recent years, in general such actions are not taken unless a formal complaint is made.
In early 2020, the U.S. Patent and Trademark Office concluded an MOU with Cambodia on accelerated patent recognition, creating a simplified procedure for U.S. patents to be registered in Cambodia.
6. Financial Sector
Capital Markets and Portfolio Investment
In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. It currently has five listed companies, including the Phnom Penh Water Supply Authority, Taiwanese garment manufacturer Grand Twins International, the Sihanoukville Autonomous Port, Phnom Penh SEZ Plc, and Sihanoukville Autonomous Port.
In September 2017, the National Bank of Cambodia (NBC) adopted a Prakas on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The Prakas sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately $15 million).
Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of the Prakas on Public Offering of Debt Securities, the Prakas on Accreditation of Bondholders Representative, and the Prakas on Accreditation of Credit Rating Agency. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc., Advanced Bank of Asia Limited, Phnom Penh Commercial Bank Plc, and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed. There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.
Money and Banking System
The National Bank of Cambodia (NBC) regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 44 commercial banks, 14 specialized banks (set up to finance specific turn-key projects such as real estate development), 74 licensed microfinance institutions, and seven licensed microfinance deposit taking institutions in Cambodia. NBC has also granted licenses to 12 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage more lending to small-and medium-sized enterprise customers.
Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel ($34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel ($20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans remained steady at 2.4 percent in 2017.
The government does not use the regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition between local institutions has led to a gradual lowering of interest rates from year to year. However, in April 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by micro-finance institutions (MFIs) at 18 percent per annum. The move was designed to protect borrowers, many of whom are poor and uneducated, from excessive interest rates.
In March 2016, the NBC doubled the minimum capital reserve requirement for banks to $75 million for commercial banks and $15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a $30 million reserve requirement, while traditional microfinance institutions have a $1.5 million reserve requirement.
In March 2020, the National Bank of Cambodia (NBC) issued several regulations to ensure liquidity and promote lending amid the outbreak of COVID-19. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April, 2020; and (5) reducing the liquidity coverage ratio.
Financial technology (Fintech) in Cambodia is still at early stage of development. Available technologies include mobile payment, QR code, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for cheques and credit remittances. A FAST payment system was introduced in 2016 to facilitate instant fund transfers. The Cambodian Shared Switch (CSS) system was launched in October 2017 to facilitate the access to network ATM and POS machines.
In February 2019, the Financial Action Task Force (FATF), an intergovernmental organization whose purpose is to develop policies to combat money laundering, cited Cambodia for being “deficient” with regard to its anti-money laundering and countering financing of terrorism (AML/CFT) controls and policies and included Cambodia on its “grey list.” The government has committed to working with FATF to address these deficiencies through a jointly-developed action plan, although progress to date appears minimal. Should Cambodia not address the deficiencies, it could risk landing on the FATF “black list,” something that could negatively impact the cost of capital as well as the banking sector’s ability to access the international capital markets.
Foreign Exchange and Remittances
Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are widely in circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors.
Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding $100,000 to the NBC on a regular basis.
Loans and borrowings, including trade credits, are freely contracted between residents and nonresidents, provided that loan disbursements and repayments are made through an authorized intermediary. There are no restrictions on the establishment of foreign currency bank accounts in Cambodia for residents.
The exchange rate between the riel and U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years. Daily fluctuations of the exchange rate are low, typically under three percent. In the past several years, the Cambodian government has taken steps to increase general usage of the riel but, as noted above, the country’s economy remains largely dollarized.
Article 11 of the Cambodia’s 2003 Amended Law on Investment states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include: payment for imports and repayment of principal and interest on international loans; payment of royalties and management fees; remittance of profits; and, repatriation of invested capital in case of dissolution.
Sovereign Wealth Funds
Cambodia does not have a sovereign wealth fund.
7. State-Owned Enterprises
Cambodia currently has 15 state-owned enterprises (SOEs): Electricite du Cambodge, Sihanoukville Autonomous Port, Telecom Cambodia, Cambodia Shipping Agency, Cambodia Postal Services, Rural Development Bank, Green Trade Company, Printing House, Siem Reap Water Supply Authority, Construction and Public Work Lab, Phnom Penh Water Supply Authority, Phnom Penh Autonomous Port, Kampuchea Ry Insurance, Cambodia Life Insurance, and the Cambodia Securities Exchange.
In accordance with the Law on General Stature of Public Enterprises, there are two types of commercial SOEs in Cambodia – one that is 100 percent owned by the state, the other is a joint-venture in which a majority of capital is owned by the state and a minority is owned by private investors.
Each SOE is under the supervision of a line ministry or government institution and is overseen by a board of directors drawn from among senior government officials. Private enterprises are generally allowed to compete with state-owned enterprises under equal terms and conditions. SOEs are also subject to the same taxes and value-added tax rebate policies as private-sector enterprises. SOEs are covered under the law on public procurement, which was promulgated in January 2012, and their financial reports are audited by the appropriate line ministry, the Ministry of Economy and Finance, and the National Audit Authority.
There are no ongoing privatization programs, nor has the government announced any plans to privatize existing SOEs.
8. Responsible Business Conduct
There is a small, but growing awareness of responsible business conduct (RBC) and corporate social responsibility (CSR) among businesses in Cambodia despite the fact that the government does not have explicit policies to promote them. RBC and CSR programs are mostly commonly found at larger and multinational companies in the country. U.S. companies, for example, have implemented a wide range of CSR activities to promote skills training, the environment, general health and well-being, and financial education. These programs have been warmly received by both the general public and the government.
A number of economic land concessions in Cambodia have led to high profile land rights cases. The Cambodian government has recognized the problem, but in general, has not effectively and fairly resolved land rights claims. The Cambodian government does not have a national contact point for Organization for Economic Cooperation and Development (OECD) multinational enterprises guidelines and does not participate in the Extractive Industries Transparency Initiative.
Corruption remains a significant issue in Cambodia for investors, and is a widespread practice. An increase in foreign investment from investors willing to engage in corrupt practices, combined with sometimes opaque official and unofficial investment processes, has served to facilitate an overall rise in corruption, already at high levels. In its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134th out of 141 countries for incidence of corruption. Transparency International’s 2019 Corruption Perception index ranked Cambodia 162 of 180 countries globally, the lowest ranking among ASEAN member states.
Those engaged in business have identified corruption, particularly within the judiciary, customs services, and tax authorities, as one of the greatest deterrents to investment in Cambodia. Foreign investors from countries that overlook or encourage bribery have significant advantages over foreign investors from countries that criminalize such activity.
Cambodia adopted an Anti-Corruption Law in 2010 to combat corruption by criminalizing bribery, abuse of office, extortion, facilitation payments, and accepting bribes in the form of donations or promises. Under the law, all civil servants must also declare their financial assets to the government every two years. Cambodia’s Anti-Corruption Unit (ACU), established the same year, has investigative powers and a mandate to provide education and training to government institutions and the public on anti-corruption compliance. Since its formation, the ACU has launched a few high-profile prosecutions against public officials, including members of the police and judiciary, and has tackled the issue of ghost workers in the government, in which salaries are collected for non-existent employees.
donations or promises. Under the law, all civil servants must also declare their financial assets to the government every two years. Cambodia’s Anti-Corruption Unit (ACU), established the same year, has investigative powers and a mandate to provide education and training to government institutions and the public on anti-corruption compliance. Since its formation, the ACU has launched a few high-profile prosecutions against public officials, including members of the police and judiciary, and has tackled the issue of ghost workers in the government, in which salaries are collected for non-existent employees.
The ACU, in collaboration with the private sector, has also established guidelines encouraging companies to create internal codes of conduct prohibiting bribery and corrupt practices. Companies can sign a Memorandum of Understanding (MOU) with the ACU pledging to operate corruption-free and to cooperate on anti-corruption efforts. Since the program started in 2015, more than 80 private companies have signed a MOU with the ACU. In 2018, the ACU completed a first draft of a code of conduct for public officials, which has not yet been finalized.
Despite the passage of the Anti-Corruption Law and creation of the ACU, enforcement remains weak. Local and foreign businesses report that they must often make informal payments to expedite business transactions. Since 2013, Cambodia has published the official fees for public services, but the practice of paying additional fees remains common.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
Cambodia ratified the UN Convention against Corruption in 2007 and endorsed the Action Plan of the Asian Development Bank / OECD Anti-Corruption Initiative for Asia and the Pacific in 2003. Cambodia is not a party to the OECD Convention on Combating Bribery.
Resources to Report Corruption
Om Yentieng President, Anti-Corruption Unit
No. 54, Preah Norodom Blvd, Sangkat Phsar Thmey 3,
Khan Daun Penh, Phnom Penh
Transparency International Cambodia
#13 Street 554, Phnom Penh
10. Political and Security Environment
Foreign companies have been the targets of violent protests in the past, such as the 2003 anti-Thai riots against the Embassy of Thailand and Thai-owned commercial establishments. More recently, there were reports that Vietnamese-owned establishments were looted during a January 2014 labor protest. Authorities have also used force, including truncheons, electric cattle prods, fire hoses, and even gunfire, to disperse protestors. Incidents of violence directed at businesses, however, are rare. The Embassy is unaware of any incidents of political violence directed at U.S. or other non-regional interests.
Nevertheless, political tensions remain. After relatively competitive communal elections in June 2017, where Cambodia’s opposition party won nearly 50 percent of available seats, the government took steps to strengthen its grip on power and eliminated meaningful political activity. In September 2017, the head of the country’s leading opposition party was arrested and charged with treason, and in November 2017, the same opposition party was banned. In July 2018, Prime Minister Hun Sen won a landslide victory, and his ruling party swept all 125 parliamentary seats, in a national election that was criticized by the United States as being neither free nor fair. The government has also taken steps to limit free speech and stifle independent media, including forcing independent news outlets and radio stations to cease operations. While there are few overt signs the country is growing less secure today, the possibility for insecurity exists going forward, particularly if a large percentage of the population remains disenfranchised.
11. Labor Policies and Practices
The global COVID-19 pandemic has had significant impact on Cambodia’s labor sector, the full extent of which are not yet known. Cambodia’s garment and manufacturing sector, which is heavily reliant on global supply chains for inputs and on demand from the United States and Europe, is experiencing severe disruptions due to COVID-19. The government estimates that as of May 2020, 180,000 of Cambodia’s approximately 1 million factory workers have been furloughed. In addition, approximately 90,000 of Cambodia’s 1.3 million migrant workers returned from abroad (mostly from Thailand) due to COVID-19 related job losses.
Cambodia’s labor force includes about 10 million people. A small number of Vietnamese and Thai migrant workers are employed in Cambodia, and Chinese-run infrastructure and other businesses are importing an increasing number of Chinese laborers, who typically earn more than their Cambodian counterparts. Given the severe disruption to the Cambodian education system and loss of skilled Cambodians during the 1975-1979 Khmer Rouge period, there are few Cambodian workers with higher education or specialized skills. Around 55 percent of the population is under the age of 25, a fact reflected in Cambodia’s young workforce. The United Nations has estimated that around 300,000 new job seekers enter the labor market each year. The agricultural sector employees about 40 percent of the labor force. Some 37 percent of the non-agricultural workforce, or 2.2 million workers, are in the informal economy. The pandemic has caused mass suspensions and layoffs across all non-agricultural sectors.
Unresolved labor disputes are mediated first on the shop-room floor, after which they are brought to the Ministry of Labor and Vocational Training. If conciliation fails, then the cases may be brought to the Arbitration Council, an independent state body that interprets labor regulations in collective disputes, such as when multiple employees are dismissed. Since the 2016 Trade Union Law went into force, Arbitration Council cases have decreased from over 30 per month to fewer than five, although that number began to increase again in 2019 due to regulatory changes.
Cambodia’s 2016 Trade Union Law (TUL) erects barriers to freedom of association and the rights to organize and bargain freely. The ILO has stated publicly that the law could hinder Cambodia’s obligations to international labor conventions 87 and 98. To address those concerns, Cambodia passed an amended TUL in early 2020, but the amended law still does not go far enough to fully address ILO, U.S. government, labor NGO, and union concerns about the law’s curbs on freedom of association. In addition, Cambodia has only implemented and enforced a minimum wage in the export garment and footwear sectors.
In early 2020, the government also began consultations with businesses and unions on amending the Labor Law. Unions generally oppose the proposed amendments, seeing them as too pro-business. One proposed change, for example, would reduce extra pay for night shift work.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Through 2019, a number of Cambodian companies have received financing from the Overseas Private Investment Corporation (OPIC), including loans to financial institutions for the purposes of onward lending. OPIC’s successor agency, the Development Finance Corporation (DFC), is expected to carry these programs forward in Cambodia.
The Export-Import Bank of the United States (Ex-Im Bank) provides financing and insurance to local companies to help them purchase U.S. made products and services; repayment terms are generally up to seven years. In 2018, Ex-Im Bank facilitated the sale of a U.S.-made grain silo through a loan guarantee, its first commercial transaction in Cambodia. Cambodia is also a member of the Multilateral Investment Guarantee Agency of the World Bank, which offers political-risk insurance to foreign investors.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
There has been a surge in FDI inflows to Cambodia in recent years. Though FDI goes primarily to infrastructure, including commercial and residential real estate projects, it has also recently favored investments in manufacturing and agro-processing. Cambodia reports its total stock of FDI reached $42 billion in 2019 in terms of fixed assets, up from $38.5 billion in 2018.
Investment into Cambodia is dominated by China, and the level of investment from China has surged especially the last five years. Cambodia reports that its stock of FDI from China reached $16.6 billion by the end of 2019. Other major sources of FDIs stock in Cambodia include South Korea ($4.7 billion), United Kingdom ($3.8 billion), Malaysia ($2.7 billion), and Japan ($2.4 billion), through 2019. In 2019 alone, Chinese investment in Cambodia reached $1.3 billion, followed by Hong Kong ($913 million), and the United Kingdom ($822 million).
|Direct Investment from/in Counterpart Economy Data (through 2018)|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||23,246||100%||Total Outward||840||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Data retrieved from IMF’s Coordinated Direct Investment Survey database presents a much different picture of FDI into Cambodia as compared to that provided by the Cambodian government. For example, the Council for Development of Cambodia reports $38.5 billion stock FDI in term of fixed asset through year-end 2018, while the IMF reports only $23 billion.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
David Ryan Sequeira, CFA
U.S. Embassy Phnom Penh
No. 1, Street 96, Sangkat Wat Phnom, Phnom Penh, Cambodia
Phone: (855) 23-728-401