The COVID-19 pandemic has had a significant adverse impact on Cambodia’s economy. Despite a surge of cases in 2021, Cambodia’s economy demonstrated resilience in some sectors (agriculture, manufacturing) and showed signs of gradual recovery from the previous year’s economic disruptions, achieving 2.2 percent gross domestic product (GDP) growth. This follows a 3.1 percent contraction of its GDP in 2020. Having adopted a “living with COVID” stance to reopen its economy and attract international tourists, the Royal Government of Cambodia (RGC) in March 2022 dropped all quarantine and testing requirements for fully vaccinated travelers. The World Bank predicts Cambodia’s GDP growth to rebound to 4.5 percent in 2022.
The RGC has made attracting investment from abroad a top priority, and in October 2021 passed a new Law on Investment. Foreign direct investment (FDI) incentives available to investors include 100 percent foreign ownership of companies, corporate tax holidays, reduced corporate tax rates, duty-free import of capital goods, and no restrictions on capital repatriation. In response to the COVID-19 pandemic, the government enacted economic recovery measures to boost competitiveness and support the economy, including a long-awaited Competition Law, a Public-Private Partnership Law, and provided tax breaks to the hardest hit businesses, such as those in the tourism and restaurant sectors. The government also delayed the implementation of a capital gains tax to 2024 and established an SME Bank of Cambodia to support small- and medium-sized enterprises.
Despite these incentives, Cambodia has not attracted significant U.S. investment. Apart from the country’s relatively small market size, other factors dissuading U.S. investors include: systemic corruption, a limited supply of skilled labor, inadequate infrastructure (including high energy costs), a lack of transparency in some government approval processes, and preferential treatment given to local or other foreign companies that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment. Foreign and local investors alike lament the government’s failure to adequately consult the business community on new economic policies and regulations. In light of these concerns, on November 10, 2021, the U.S. Departments of State, Treasury, and Commerce issued a business advisory to caution U.S. businesses currently operating in, or considering operating, in Cambodia to be mindful of interactions with entities involved in corrupt business practices, criminal activities, and human rights abuses. Notwithstanding these challenges, several large American companies maintain investments in the country, for example, Coca-Cola’s $100 million bottling plant and a $21 million Ford vehicle assembly plant slated to open in 2022.
In recent years, Chinese FDI — largely from state-run or associated firms — has surged and has become a significant driver of growth in Cambodia. Chinese businesses, many of which are state-owned enterprises, may not assess the challenges in Cambodia’s business environment in the same manner as U.S. businesses. In 2021, Cambodia recorded FDI inflows of $655 million, with approximately 52 percent reportedly coming from the PRC.
Physical infrastructure projects, including commercial and residential real estate developments, continue to attract the bulk of FDI. However, there has been some increased investments in manufacturing, including garment and travel goods factories, as well as agro-processing.
In 2022, both the Cambodia-China Free Trade Agreement (CCFTA) and the Regional Comprehensive Economic Partnership (RCEP) agreement entered into force.
Climate change remains a critical issue in Cambodia due to its vulnerability to extreme weather occurrences, high rates of deforestation, and low environmental accountability.
|TI Corruption Perception Index||2021||157 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||109 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||1994-2021||$1.58 billion||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$1,500||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Cambodia has a liberal foreign investment regime and actively courts FDI. In 2021, the RGC enacted a new Law on Investment to attract more FDI in emerging sectors including agro-processing, electronics/machinery, health, industrial parts, infrastructure, and green energy. The government permits 100 percent foreign ownership of companies in most sectors. In a handful of sectors, such as cigarette manufacturing, movie production, rice milling, and gemstone mining and processing, foreign investment is subject to local equity participation or prior authorization from authorities. While there is little or no official legal discrimination against foreign investors, some foreign businesses report disadvantages vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment.
The Council for the Development of Cambodia ( CDC ) is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment in question. QIPs are then eligible for specific investment incentives.
The CDC also serves as the secretariat to Cambodia’s Government-Private Sector Forum (G-PSF), a public-private consultation mechanism that facilitates dialogue within and among 10 government/private sector working groups.
Cambodia has created special economic zones (SEZs) to further facilitate foreign investment. As of 2021, there are 25 SEZs in Cambodia. These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Cambodia offers incentives to projects within the SEZs such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery, and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is in Sihanoukville and hosts primarily Chinese companies.
There are few limitations on foreign control and ownership of business enterprises in Cambodia. Foreign investors may own 100 percent of investment projects except in the sectors mentioned above. According to Cambodia’s new Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality nor discrimination against foreign investors except for land ownership as stipulated in the Constitution of the Kingdom of Cambodia.
For property, land title must be held by one or more Cambodian citizens. For state-owned enterprises, the Law on Public Enterprise provides that the Cambodian government must directly or indirectly hold more than 51 percent of the capital or veto rights in state-owned enterprises.
For agriculture investments, foreign investors may request economic land concessions, if they meet certain criteria including provisions on land use, productivities, job creation, and environmental protection and natural resource management.
There are some limitations on the employment of foreigners in Cambodia. A QIP allows employers to obtain visas and work permits for foreign citizens as skilled workers, but the
employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available among Cambodia workers. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.
The OECD Investment Policy Review of Cambodia in 2018 is available at the following link .
The World Trade Organization (WTO) last reviewed Cambodia’s trade policies in 2017, which can be found at this link .
All businesses are required to register with the Ministry of Commerce (MOC), the General Department of Taxation (GDT), and the Ministry of Labor and Vocational Training (MOLVT). Registration with MOC is possible through an online business registration portal at this link , while the GDT’s online portal is also available here . To further facilitate the process, the Ministry of Economy and Finance (MEF) in 2020 launched the “ Single Portal ” – found at here , where businesses can register at the three ministries through a single online platform.
In addition, new businesses may also be required to register with other relevant ministries governing their sector and business activities. For example, travel agencies must also register with the Ministry of Tourism, and private universities must also register with the Ministry of Education, Youth, and Sport.
There are no restrictions on Cambodian citizens investing abroad. Some Cambodian companies have invested in neighboring countries – notably, Thailand, Laos, and Myanmar. Cambodia’s foreign direct investment abroad reached approximately $127 million in 2020.
3. Legal Regime
Cambodia’s regulatory system, while improving, still lacks transparency. This is the result of a lack of legislation and the limited capacity of key institutions, which is further exacerbated by a weak court system. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, and 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. 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. More recently, investors have regularly expressed concern overdraft 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 and inconsistently 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 laws and regulations, publishes a list of updated laws and regulations on its website.
Businesses are not required to have audited financial statements or publish their financial reports unless they are financial institutions (banks/microfinance institutions) or publicly listed companies.
The RGC does not mandate companies to make environmental, social, and governance (ESG) disclosures with respect to investments.
As a member of ASEAN since 1999, Cambodia is required to comply with certain rules and regulations regarding 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 member of the WTO since 2004, 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 Other Investment Policy Reviews.
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 this link .
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, and other institutions. Foreign investors often build into their contracts clauses that dictate that investment disputes must be resolved in a third country, such as Singapore.
Cambodia’s new Law on Investment, passed in October 2021, regulates the approval process for FDI and provides incentives to potential investors, both domestic and foreign. Sub-decree No. 111 (2005) lays out detailed procedures for registering a QIP with the CDC and provincial/municipal investment subcommittees.
The new Law on Investment introduces an online registration process for QIP applications and shortens the timeline for the CDC’s issuance of a Registration Certificate to 20 working days. The portal for QIP registration with CDC can be found at this link .
Information about investment procedures and incentives in Cambodia may be found on the CDC’s website .
Cambodia’s Competition Law was signed in October 2021, following the enactment of a Law on Consumer Protection in 2019. Cambodia’s Consumer Protection Competition and Fraud Repression Directorate-General ( CCF ), is mandated to enforce these laws and investigate complaints. When disputes arise, individuals or businesses can file complaints with the CCF, with courts acting as the final arbitrator.
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 the 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 at 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 General Department of Taxation inflated the assessment to pressure the newspaper to halt operations. The action took place in the context of a widespread government crackdown on independent media in the country.
Cambodia’s 2007 Law on Insolvency is 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 applies to the assets of all businesspeople and legal entities in Cambodia.
In 2012, Credit Bureau Cambodia (CBC) was established 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 new Law on Investment offers varying types of investment incentives for projects that meet specified criteria. Investors seeking incentives as part of a QIP must submit an application to the CDC and 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 new Law on Investment provides investment incentives to QIPs classified into three types: basic incentives, additional incentives, and special incentives. Basic incentives include income tax exemptions, special depreciation rates, and eligibility for customs duty exemptions and VAT exemptions for the import of construction equipment and materials. Additional incentives include VAT exemptions for the purchase of locally produced production inputs, while special incentives may be granted to investment projects that have a high potential to contribute to national economic development.
Investment projects located in designated special promotion zones or export-processing zones are also entitled to the same incentives. More information about the criteria and investment areas eligible for incentives can be found at the following link .
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 for investment proposals that will have a negative impact on the environment or the government’s long-term strategy.
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 25 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.
Cambodia permits investors to hire foreign nationals for employment as managers, technicians, or skilled workers if the qualifications/expertise are not available in Cambodia. According to Cambodia’s Labor Law, the number of foreign employees should not exceed ten percent of the total number of Cambodian employees. In practice, Cambodia can request an increase in this allotment from the Ministry of Labor.
Cambodia does not have any forced localization policy that obligates foreign investors to use domestic contents in goods or technology. Cambodia also does not currently require foreign information technology providers to turn over source code.
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 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. Most 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.
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 some of the 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 in its annual Special 301 Report, which identifies trade barriers to U.S. companies due to the IPR environment.
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 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 2020, the U.S. Patent and Trademark Office concluded a memorandum of understanding (MOU) with Cambodia on accelerated patent recognition, creating a simplified procedure for U.S. patents to be registered in Cambodia. The patent recognition application form can be found at this link .
For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at this link .
6. Financial Sector
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, with nine listed companies, it has taken steps to increase the number of listed companies, including attracting SMEs. In 2021, market capitalization stood at $2.4 billion, and the daily trading value averaged $246,000.
In September 2017, the National Bank of Cambodia (NBC) adopted a regulation on the Conditions for Banking and Financial Institutions to be listed on CSX. The regulation 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 several regulations covering public offering of debt securities, the accreditation of bondholders’ representatives, and the accreditation of credit rating agencies. The country’s first corporate bond was issued in 2018, and there are currently eight corporate bonds listed on the CSX. There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors in 2022.
The NBC regulates the operations of Cambodia’s banks. Foreign banks and branches are freely allowed to register and operate in the country. There are 54 commercial banks, 10 specialized banks (set up to finance specific turn-key projects such as real estate development), 79 licensed microfinance institutions (MFIs), and five licensed microfinance deposit taking institutions in Cambodia. The NBC has also granted licenses to 17 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage lending to small- and medium-sized enterprise customers.
The banking sector’s assets, including those of MFIs, rose 16 percent year-over-year in 2020 to KHR 241 trillion ($59.4 billion) and customer loans increased 15 percent to KHR 151 trillion ($37.3 billion). In 2020, the number of deposit accounts reached 8.9 million (out of a population of roughly 17 million), while credit accounts reached 3.2 million.
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 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 response to the COVID-19 pandemic, the NBC adopted measures to maintain financial stability and ensure liquidity in the banking system. These measures included allowing banks to maintain their capital conservation buffer at 50 percent, reducing the reserve requirement rate, and allowing banks to restructure loans for clients impacted by COVID.
Financial technology (Fintech) in Cambodia is developing rapidly. Available technologies include mobile payments, QR codes, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for checks and credit remittances. A “Fast and Secure Transfer” (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 automated teller machines (ATMs) and point of sale (POS) machines.
In February 2019, the Financial Action Task Force (FATF) 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 RGC committed to working with FATF to address these deficiencies through a joint action plan, although Cambodia remains on the grey list as of 2022. Should Cambodia not take appropriate action, FATF could move it to the “black list,” which could negatively impact the cost of capital as well as the banking sector’s ability to access international capital markets.
In addition to Cambodia’s weak AML/CFT regime, vulnerabilities include a largely cash-based, dollarized economy and porous borders. Both legal and illicit transactions, regardless of size, are frequently conducted outside of regulated financial institutions. Cash proceeds from crime are readily channeled into land, housing, luxury goods and vehicles, and other forms of property, without passing through the banking sector. Moreover, a lack of judicial independence and transparency constrains effective enforcement of laws against financial crimes. The judicial branch lacks efficiency and cannot assure impartiality, and judicial officials, up to and including the chief of the Supreme Court, have simultaneously held positions in the political ruling party. Refer to Section II: “Illicit Finance and Corrupt Activities in Cambodia” of the U.S. government’s Cambodia Business Advisory on High-Risk Investments and Interactions released on November 10, 2021, for more information.
Cambodia does not have a sovereign wealth fund.
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 most 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 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.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
Cambodia ranks among the most vulnerable countries to climate change, and environmental problems such as deforestation and natural resource exploitation are increasingly rampant. Despite growing number of legal environmental frameworks, regulatory enforcement remains weak. The government estimates Cambodia could lose over $15 billion or 10 percent of its GDP by 2050 due to the impacts of climate change.
In the Global Green Growth Index 2019, Cambodia obtained a score of 34.5 points, revealing a gap to reach the sustainability target of 100. “Green economic opportunities dimension” scores the lowest among all dimensions at 5.9, due to low green trade, green employment, and green innovation.
Cambodia has a complex and overlapping series of legislative and regulatory measures that govern environmental protection. A Royal Decree in 1993 defined the country’s first protected areas. The Law on Environmental Protection and Natural Resource Management was promulgated in 1996, followed by subsequent environment-related sub-decrees on water, air, noise, land, forests, and fisheries. The government has also released its National Strategic Plan on Green Growth 2013–2030, Cambodia Climate Change Strategic Plan 2014-2023, and the National Environment Strategy and Action Plan 2016–2023. In 2020, the government issued ministerial proclamation (Prakas) No. 021 on the Classification of Environmental Impact Assessment (EIA) for the Development Project 2020, an implementing measure of a Sub-Decree on the 1999 EIA Process, which requires all public and private companies to have environmental protection contracts and conduct environmental impact assessments. Cambodia unveiled its Long-term Strategy for Carbon Neutrality 2050 at the end of 2021. The Environmental and Natural Resources Code remains in draft and has not yet been finalized.
These laws and regulations do not have specific goals or targets for private companies to reach and most have yet to be widely and effectively implemented. Corruption, lack of transparency and accountability, and poor enforcement remain the major barriers to Cambodia’s transition to sustainable development.
The new Law on Investment redefines incentives for priority sectors: environmental management, biodiversity conservation, the circular economy, green energy, and technology contributing toward climate change adaptation and mitigation. Details on how the incentives are to be determined are to be spelled out in a forthcoming sub-decree.
Corruption in Cambodia is endemic and widespread. An increase in foreign investment from investors willing to engage in corrupt practices, combined with sometimes opaque official and unofficial investment processes, further drives the overall rise in corruption. In its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134th out of 141 countries for incidence of corruption. Transparency International’s 2021 Corruption Perception index ranked Cambodia 157 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. In light of these concerns, on November 10, 2021, the U.S. Departments of State, Treasury, and Commerce issued a business advisory to caution U.S. businesses currently operating in, or considering operating, in Cambodia to be mindful of interactions with entities involved in corrupt business practices, criminal activities, and human rights abuses.
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.
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 an 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 an 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.
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.
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
Incidents of violence directed at businesses are rare. The Embassy is unaware of any incidents of political violence directed at U.S. or other non-regional interests. In the past, authorities have used force to disperse protestors.
Nevertheless, political tensions remain. After relatively competitive communal elections in June 2017, where Cambodia’s opposition party won 43 percent of available seats, the government banned the opposition party and imprisoned its leader on charges of treason. With no meaningful opposition, the Cambodian People’s Party (CPP) swept the 2018 national elections, winning all 125 parliamentary seats. 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 COVID-driven economic problems persist and if a large percentage of the population remains disenfranchised.
11. Labor Policies and Practices
The COVID-19 pandemic has had a significant impact on Cambodia’s labor sector. In particular, 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, experienced severe disruptions due to COVID-19. Cambodia’s labor force numbers about 9.2 million people. A small number of Vietnamese, Thai, and Bangladeshi migrant workers are employed in Cambodia, and in recent years Chinese-run infrastructure projects and other businesses imported an increasing number of Chinese laborers, who typically earn more than their Cambodian counterparts. Cambodia’s garment sector employs 800,000 people, mostly female. Most of Cambodia’s factories producing for export are foreign-owned, and top managers are also almost all foreign.
Around 65 percent of the population is under the age of 30. The United Nations estimates that around 300,000 new job seekers enter the labor market each year. The agricultural sector employs about 40 percent of the labor force.
The country has a substantial number of informal workers. Estimates vary, but only 19 percent of the nearly 9.2 million-strong workforce enjoy social protection under the National Social Security Fund, with the remaining 81 percent therefore meeting a common definition of informal workers. Such workers dominate the agricultural sector. These workers are not covered by wage, hour and occupational safety and health laws and inspections.
Cambodia’s 2016 Trade Union Law (TUL) erects barriers to freedom of association and the rights to organize and bargain freely. The International Labor Organization (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 does not fully address ILO, 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. All labor laws apply in Cambodia’s SEZs, but independent unions report that zone and SEZ factory management are often hostile to unions and that union formation and activity is particularly difficult in SEZs.
Unresolved labor disputes are mediated first on the shop floor, after which they are brought to the Ministry of Labor and Vocational Training. If reconciliation 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.
A strike and demonstration at Cambodia’s largest casino and hotel complex that began in December 2021 has drawn global attention from the ILO, international unions, and media, and may pose an investment risk. Rights groups and the ILO have expressed concerns in particular about the criminalization of peaceful union activity; government authorities charged 11 union leaders and members with “incitement” and put them in pre-trial detention for more than two months. In response to this dispute and broader concerns over freedom of association, the ILO sent a fact-finding mission to Cambodia in March 2022.
14. Contact for More Information
Economic and Commercial Officer
U.S. Embassy Phnom Penh
No. 1, Street 96, Sangkat Wat Phnom, Phnom Penh, Cambodia
Phone: (855) 23-728-000