Cambodia has experienced rapid economic growth over the last decade, with average annual gross domestic product (GDP) growth topping seven percent. GDP per capita stood at USD $1,300 at the end of 2016. The tourism, garment, construction and real estate, and agriculture sectors accounted for the bulk of the growth. According to the Asian Development Bank (ADB), the percentage of the population living in poverty decreased to 13.5 percent in 2016. The average annual inflation rate was estimated at 2.8 percent.
Cambodia has an open and liberal foreign investment regime with a relatively pro-investor legal and policy framework. Foreign direct investment (FDI) incentives available to foreign 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 historically not been able to attract significant U.S. capital due to various factors including pervasive corruption, a limited supply of skilled labor, inadequate infrastructure (including high energy costs), and a lack of transparency in government approval processes. Failure to consult the business community on new economic policies and regulations has created difficulties for domestic and foreign investors alike. Notwithstanding these challenges, American companies such as Tiffany & Co., which has a diamond polishing facility in Phnom Penh, and American Licorice, which manufactures hard candy, have maintained investments in the country. In December 2016, Coca-Cola officially opened its USD $100 million bottling plant.
The total stock of FDI for registered capital from 1994 to 2016 was USD $6 billion. The stock of fixed assets in Cambodia was USD $32.5 billion over the same period. According to the Council for the Development of Cambodia, FDI in terms of registered capital increased by 34 percent from 2015 to 2016 to USD $462 million. In 2016, U.S. FDI registered capital in Cambodia consisted of a garment factory and a hotel project, totaling USD 6.4 million. Asian countries top the list of the largest sources of FDI in Cambodia, with the Japan investing USD $118 million, Vietnam investing USD $96 million, and China investing USD $74 million during the course of 2016.
|TI Corruption Perceptions Index||2016||156 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||131 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||95 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in Cambodia ($M USD, stock positions)||1994-2016||USD 100||Council for the Development of Cambodia|
|World Bank GNI per capita||2015||USD 1,070||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Having begun the transformation from a command market to a free market economy in the late 1980s, Cambodia is now integrating into the regional and world trading framework. Cambodia joined the Association of Southeast Asian Nations (ASEAN) in 1999 and served as its chair in 2012. In 2001, the country joined the World Customs Organization, and in September 2004, it became one of the first Lesser Developed Countries to become a member of the World Trade Organization (WTO). After years of sustained growth, the country graduated in 2016 to the status of lower-middle income as measured by the World Bank with a Gross National Income (GNI) per capita of $1,070.
The primary law governing investment in Cambodia, the 1994 Law on Investment, established an open and liberal foreign investment regime. All sectors of the economy are open to foreign investment, and the government permits 100 percent foreign ownership of companies in most sectors. In a few sectors, such as cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone carving production, and silk weaving, foreign investment is subject to local equity participation or prior authorization from authorities. There is little or no discrimination against foreign investors either at the time of initial investment or after investment. Some foreign businesses, however, have reported that they are at a disadvantage vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s poor enforcement of laws and regulations. The Cambodian Bar Council has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms. More information about investment and investment incentives in Cambodia may be found on the Council for the Development of Cambodia’s website at: .
In 1999, the Government-Private Sector Forum (G-PSF), consisting of eight sectoral working groups, was created by the Cambodian government as a mechanism for public and private sector consultation on investment issues ranging from policy to day-to-day operations. However, draft policies, laws, and regulations are nevertheless often issued with little or no consultation with the private sector. Chaired by the Prime Minister, the G-PSF in theory supposed to hold two plenary meetings a year. The most recent G-PSF meeting (the 17th meeting), however, was held in 2014. Only small working group meetings have been held since then.
By end of 2015, the Council for the Development of Cambodia had recorded approximately USD 100 million in U.S. registered capital investments since August 1994, equivalent to 0.5 percent of Cambodia’s GDP. Major U.S. business investments in Cambodia include: Caltex, which has a nationwide chain of service stations and a petroleum holding facility in Sihanoukville; Coca-Cola, GE; Crown Beverage Cans Cambodia Limited, which produces aluminum cans; CBREGroup, Inc.; Motorola Solutions Inc; Coca Cola; Tiffany and Co., which has a diamond polishing factory; American Licorice; Otis Elevators; DuPont; and W2E Siang Phong Co., Ltd., a biogas power generation joint venture between U.S. and Dutch investors. U.S. franchises and brands with local distribution include: John Deere, Ford, Chevy, Gallo Wines, Swensen’s Ice Cream, Dairy Queen, Krispy Kreme doughnuts, Carl Jr’s, Cold Stone Creamery, Microsoft, Kohler, Domino’s Pizza, Burger King, Hard Rock Café; Coffee Bean and Tea Leaf, Starbucks Coffee, and Burger King. There are also U.S. investors in several Cambodian garment factories.
Major non-U.S. foreign investors in Cambodia include Asia Pacific Breweries (Singapore), Asia Insurance (Hong Kong), ANZ Bank (Australia), BHP Billiton (Australia), Oxiana (Australia), Infinity Financial Solutions (Malaysia), Total (France), PTT Cambodia (Thailand), Cambodia Airport Management Services (CAMS) (France), Forte Insurance (France), Manulife Cambodia PLC (Canada), Prudential (United Kingdom), Smart Axiata Co., Ltd (Malaysia), Thakral Cambodia Industries (Singapore), Petronas Cambodia (Malaysia), Charoeun Pokphand (Thailand), Siam Cement (Thailand), Bank of China (China), Cambrew (Malaysia), Aeon shopping mall (Japan), Parkson mall (Malaysia), and Metfone (Vietnam).
Limits on Foreign Control and Right to Private Ownership and Establishment
There are few limitations on foreign control and ownership in Cambodia. Foreign investors may own 100 percent of their investment projects except in the sectors mentioned above. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in real property or state-owned enterprises. Both the Law on Investment and the Amended Law on Investment state that the majority interest in land, however, must be held by one or more Cambodian citizens. Pursuant to the Law on Public Enterprise, the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms.
Other Investment Policy Reviews
In compliance with WTO requirements, Cambodia conducted its first review of trade policies and practices in November 2011. The next review will be conducted in November 2017. Cambodia’s full trade policy review report can be found on the WTO . In 2017 Cambodia will also undergo an Organisation for Economic Co-operation and Development (OECD) investment policy review.
In response to the WTO trade policy review recommendations, Cambodia completed the following reforms:
- Elimination of the Certificate of Origin requirement for exports to countries where a certificate is not required;
- Implementation of online business registration;
- Adoption of a competitive hiring process for Ministry of Commerce staff;
- Implementation of risk evaluation measures for the Cambodia Import-Export Inspection and Fraud Repression Directorate General (CamControl) and creation of a CamControl risk management unit;
- Enactment of the Law on Public Procurement;
- Enactment of three judicial system laws: the Law on Court Structures, the Law on the Duties and Discipline of Judges and Prosecutors, and the Law on the Organization and Functioning of the Supreme Council of Magistracy;
- Creation of the Commercial Court as a specialized Court of First Instance;
- The creation of a credit bureau;
- Establishment of a Telecom Regulator of Cambodia (TRC); in 2012, the Ministry of Posts and Telecommunication transferred its regulatory role to the TRC;
- Enactment of the Law on Telecommunications in December 2015; and
- Enactment of the Law on Animal Health and Production in February 2016.
Areas of ongoing or planned reforms include a law on Special Economic Zones, amending the Standards Law, and enacing laws on competition, food safety, and e-commerce.
Cambodia’s 1994 Law on Investment created an investment licensing scheme to regulate the approval process for foreign direct investment and provide incentives to potential investors. In March 2003, the government simplified the licensing scheme and increased transparency and predictability by enacting the Law on the Amendment to the Law on Investment (Amended Law on Investment). The licensing scheme for investments of less than USD $2 million was clarified in February 2005 in a sub-decree on the Establishment of the Subcommittee on Investment in the Provinces-Municipalities of the Kingdom of Cambodia. Sub-decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, issued in September 2005, lays out detailed procedures for registering a Qualified Investment Project (QIP), which is entitled to certain taxation incentives, with the Council for the Development of Cambodia and provincial/municipal investment subcommittees. The of the Council for the Development of Cambodia, provides a list of laws, rules, procedures and regulations which could be useful for foreign investors.
All businesses are required to register with the Ministry of Commerce (MoC) and the General Department of Taxation (GDT). In January 2016, the Ministry of Commerce launched an online business registration portal that allows all existing and new businesses to register their companies at: . Information about the online business registration process is available on the website of the MoC at . The link also provides sources of information for various types of business registration documents. New business registration takes approximately two weeks. Depending on the types of business activities, new businesses are also required to register with other relevant ministries. For example, travel agencies must register with the Ministry of Tourism and private universities must register with the Ministry of Education, Youth and Sport, in addition to registering with the MoC and the GDT. The World Banks 2017 Ease of Doing Business Report ranks Cambodia 180 of 190 countries globally for the ease of registering a business. The report notes that it includes 9 separate procedures and can take up to three months to complete all business, tax, and employment registration processes.
There are no restrictions on domestic citizens investing abroad. A number of local companies have already invested in neighboring countries, particularly Laos and Myanmar, in various sectors including banking, IT services, legal and consulting services, and the entertainment industry.
2. Bilateral Investment Agreements and Taxation Treaties
Bilateral investment treaties (BITs) provide reciprocal national treatment to investors, excluding benefits deriving from membership in future customs unions or free trade areas and agreements relating to taxation. These agreements preclude expropriations except those that are non-discriminatory, undertaken for a lawful or public purpose, and accompanied by prompt, adequate, and effective compensation at the fair market value of the property prior to expropriation. The agreements also guarantee repatriation of investments and provide for settlement of investment disputes via arbitration. Cambodia has signed BITs with Austria, Belarus, Bangladesh, China, Croatia, Cuba, Czech Republic, Democratic People’s Republic of Korea, France, Germany, Hungary, Indonesia (later terminated), Japan, Kuwait, Laos, Malaysia, the Netherlands, Pakistan, the Philippines, the Republic of Korea, Russia, Singapore, Switzerland, Thailand, Vietnam, and the Organization of the Petroleum Exporting Countries. Future agreements are planned with Algeria, , the Belgium-Luxembourg Economic Union, Bulgaria, Egypt, Hungary, Israel, Iran, Libya, Macedonia, Malta, Qatar, Turkey, the United Kingdom, and Ukraine.
Cambodia has also signed several regional Free Trade Agreements including ASEAN Australia New Zealand Free Trade Agreement, ASEAN India Free Trade Agreement, ASEAN China Free Trade Agreement and ASEAN Investment Comprehensive Agreement. Cambodia is also negotiating ASEAN-Hong Kong, China Investment Promotion and Protection Agreement; Regional Comprehensive Economic Partnership Agreement (RCEP); and ASEAN-Republic of Korea Investment Agreement under the Framework Agreement.
In July 2006, Cambodia signed a Trade and Investment Framework Agreement (TIFA) with the U.S. to promote greater trade and investment in both countries and provide a forum to address bilateral trade and investment issues. In February 2016, the third TIFA meeting was held in Phnom Penh. Cambodia does not have an existing BIT with the U.S., however, in August 2012, the two countries agreed to begin exploratory discussions on a potential bilateral investment treaty (BIT). Additional exploratory talks on a BIT were held in February 2016.
Cambodia does not have a bilateral taxation treaty with the U.S.
4. Industrial Policies
All investments must be registered with the Ministry of Commerce. 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 must submit an application to the Cambodian Investment Board within the Council for the Development of Cambodia (CDC). Investors who wish to apply are required to pay an application fee of KHR 7 million (approximately USD $1,750), which covers securing necessary approvals, authorizations, licenses, or registrations from all relevant ministries and entities, including stamp duties. Under a 2008 sub-decree, the CDC is required to seek approval from the Council of Ministers for investment proposals that involve capital of USD $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.
Qualified Investment Projects are entitled to receive different incentives such as profit tax exemptions, special depreciation, and duty-free import of production equipment and construction materials. 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 a three-year profit tax exemption, may be available in the agriculture and agro-industry sectors. Agricultural materials used as inputs in export industries may be exempt from the value-added tax. More information about the criteria and investment areas eligible for incentives can be found at the following link: .
Investment activities excluded from incentives are detailed in the September 2005 Sub-Decree on the Implementation of the Amendment to the Law on Investment. These include the following sectors: retail, wholesale, and duty-free stores; entertainment establishments (including restaurants, bars, nightclubs, massage parlors, and casinos); tourism service providers; currency and financial services; press and media-related activities; professional services; and production and processing of tobacco and wood products. Incentives also may not be applied to investments in the production of certain products if the investment is less than USD $500,000. This includes food and beverages; textiles, garments, and footwear; and plastic, rubber, and paper products. Investors are not required to place a deposit guaranteeing their investment except in cases involving a concession contract or real estate development project.
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). In December 2005, the government adopted the Sub-Decree on Special Economic Zones to speed up the creation of the zones by detailing the procedures, conditions, and incentives for investors. The Government is also drafting the law on Special Economic Zones, which is now undergoing technical review within the CDC. There are currently 15 special SEZs, which are located in Phnom Penh, Koh Kong, Kandal, Kampot, Sihanoukville, and near 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.
Performance and Data Localization Requirements
The Law on Investment permits investors to hire foreign nationals for employment as managers, technicians, or skilled workers if the qualifications and/or expertise are not available in Cambodia. According to the Cambodian Labor Law, the number of foreign employees should not exceed ten percent of the total number of Cambodian employees. In practice, companies can request an increase in this ratio.
Under Cambodian law, most foreign investments and foreign investors are subject to the following taxes: corporate profits tax (20 percent), tax on individual salaries (0 to 20 percent), withholding taxes (4 to 15 percent), value-added taxes (0 to ten percent), and import duties (0 to 35 percent).
Cambodia does not have any forced localization policy that obligates foreign investors to use domestic contents in goods or technology. Cambodia also does not require foreign Information Technology providers to turn over source code. The General Department of Information and Communications Technology (ICT) in the Ministry of Post and Telecommunications oversees ICT-related policy in Cambodia.
6. Financial Sector
Capital Markets and Portfolio Investment
In a move designed to address the need for capital markets in Cambodia, the Cambodian Securities Exchange (CSX) was launched on July 11, 2011. In April 2012, the Phnom Penh Water Supply Authority, a state-owned enterprise, was the first domestically registered company on the CSX. In June 2014, Grand Twins International (Cambodia) Plc, a garment factory from Taiwan, became the second company to list on the CSX. Phnom Penh Autonomous Port and Phnom Penh SEZ Plc. listed their companies in December 2015 and May 2016, respectively. Two other state-owned enterprises, the Autonomous Port of Sihanoukville and Telecom Cambodia, and a private local company, Express Food Group Co., Ltd, are preparing for initial public offerings, but listing dates have yet to be announced. In November 2006, the National Assembly passed legislation to permit the government to issue bonds to address the country’s budget deficits. The Securities and Exchange Commission of Cambodia is working toward the issuance of Cambodia’s first government bond by 2018. In 2007, the government also passed the Law on the Issuance and Trading of Non-government Securities.
Money and Banking System
In March 2017, Moody’s Investor Services affirmed Cambodia’s issuer rating at B2 with a stable outlook. The long-term foreign currency bank deposit ceiling is unchanged at B3. The overall B2 rating was based on Cambodia’s strong revenue collection and macroeconomic stability. However, there are several potential threats such as financial system risks, a weak institutional framework, low incomes, and a fractious political environment.
As the central bank, 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 37 commercial banks, 13 specialized banks (set up to finance specific turn-key projects such as real estate development), 54 licensed microfinance institutions, and seven licensed microfinance deposit taking institutions in Cambodia. The National Bank has also granted licenses to 11 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.
The government does not use 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 March 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. MFIs had no opportunity to consult about the decision, and were given just three weeks to implement the interest rate cap. Interest rates on USD loans from commercial banks and specialized banks averaged 12.60 percent in 2016. A law addressing secured transactions, which includes a system for registering such secured interests, was promulgated in May 2007.
In 2008, the NBC raised the minimum capital reserve requirements for banks from USD $13 million to USD $37.5 million. In March 2016, the NBC doubled the minimum requirement to USD $75 million for commercial bank and USD 15 million for specialized banks. Based on the new regulations, microfinance deposit taking institutions are required to increase capital reserves from USD $2.5 million to USD $30 million and other microfinance institutions need to increase to USD $1.5 million.
Cambodia’s financial system is dominated by banking institutions (commercial and specialized banks), whose assets comprise approximately 90 percent of the total assets in the financial system. By the end of 2016 (the latest figure available), total assets in banking institutions had reached USD $23.76 billion, an increase of 21 percent from 2015 and equivalent to 118.20 percent of the GDP. ACLEDA bank and Canadia bank, both local bank, have the most assets in the market, amounting to 19.30 percent and 13.80 percent of the national total, respectively. The increasing maturity of the financial sector was evidenced by the public’s improved understanding of financial services, the expansion of financial intermediation, and the increasing diversity of financial products and services. In 2016, the number of depositors increased by 13.4 percent to 2,993,386, and the number of borrowers went up by 45.72 percent to 746,930. Loans and deposits rose by 20.52 percent to USD $13.83 billion and 21.82 percent to USD $13.75 billion, respectively.
The ratio of non-performing loans increased by 0.4 percentage points to 2.4 percent in 2016.
Foreign Exchange and Remittances
Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are in wide 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 USD $100,000 to the National Bank of Cambodia 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.
Cambodia has a largely dollarized economy. The exchange rate between the Khmer 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. Daily fluctuations of the exchange rate are low, typically under three percent. The Foreign Exchange Law allows the National Bank to implement exchange controls in the event of a foreign exchange crisis. In the event of such a crisis, the National Bank may impose certain temporary restrictions for a maximum period of three months on the activity or foreign exchange position of authorized intermediaries or on any loans in domestic currency extended to non-residents. The Embassy is not aware of any cases in which investors have encountered obstacles in converting local currency to foreign currency or in sending capital out of the country.
Article 11 of the Law on the Amendment to the Law on Investment of 2003 states that Qualified Investment Projects 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. The Cambodian government is finalizing legislation that would regulate the establishment of a corporate bond market and plans to find a suitable private sector company to pilot the first issuance. The government expects the legislation to be enacted by the end of 2017.
7. State-Owned Enterprises
State-owned enterprises (SOEs) in Cambodia include Electricité du Cambodge, which is in charge of producing and distributing power nationwide; the Phnom Penh Water Supply Authority, which is responsible for water treatment and supply; the Rural Development Bank, which services and refinances loans to financial institutions, banks, MFIs, associations, development communities, and SMEs that take part in rural development in Cambodia; the Green Trade Company, which manages Cambodia’s national reserve of rice through purchases and sales made at market prices; Phnom Penh Autonomous Port; and Sihanoukville Autonomous Port. In March 2015, the Cambodian government through the Ministry of Mines and Energy announced that it is exploring the possibility of establishing a national oil company to invest in the oil and gas sector, however no tangible steps have been announced.
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. These entities 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 privaitize existing SOEs.
8. Responsible Business Conduct
The government does not have policies to promote responsible business conduct (RBC) or corporate social responsibility (CSR). However, there is increasing awareness of RBC among larger and multinational companies in the country. In 2015, a group of private sector and NGO representatives formed a National CSR Working Group to urge the government to adopt a national CSR framework. Initiated by the NGO Forum on Cambodia and Oxfam, the group meets quarterly to discuss CSR practices and seek solutions to problems caused by state and private investments. 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.
The Anti-Corruption Law was adopted in 2010 to combat corruption through education, prevention, and more effective enforcement. Under this law, all civil servants are obligated to declare their financial assets to the government every two years. The fourth round of asset and debt declaration took place during January 2015. The Anti-Corruption Unit (ACU), which was formed in 2010, has launched several high-profile prosecutions against public officials, including members of the police and judiciary. The ACU has also been accused of deliberately targeting the political opposition.
Despite the passage of the Anti-Corruption Law and creation of the ACU, business people, both local and foreign (including U.S. companies), have identified corruption, particularly within the judiciary, customs services, and tax authorities, as the single greatest deterrent to investment in Cambodia. Corruption was cited by a plurality of respondents to the World Economic Forum survey as the most problematic factor for doing business in Cambodia. The minimum salary for administrative civil servants was raised from USD $138 to $175 per month in 2016, however, these wages still remain below the level required to maintain a suitable quality of life in Cambodia. As a result, public employees remain susceptible to corruption. Local and foreign businesses report that they must often pay facilitation fees to expedite business transactions. Even though the Cambodian government has published the official fees of public services since early 2013, the practice of paying additional fees remains common. Furthermore, the process for awarding government contracts is not transparent and is susceptible to corruption. The ACU has been criticized for initiating a series of politically motivated investigations in 2016 while being slow to investigate government corruption. Transparency International’s Corruption Perception index ranks Cambodia 156th of 176 countries globally, the worst ranking of all ten ASEAN member states and the third worst in the Asia Pacific region, with only North Korea and Afghanistan receiving worse rankings.
In 2015, the ACU, in collaboration with the private sector, established guidelines encouraging private companies to create internal codes of conduct prohibiting bribery and corrupt practices. The guidebook is publicly available on the website of the ACU at . Private companies can sign a Memorandum of Understanding (MoU) with the ACU pledging to operate corruption-free and cooperate on anti-corruption efforts. Since the program started in 2015, there more than 80 private companies have signed an MoU with the ACU. In early 2017 alone, the ACU signed an MoU with 60 companies located inside the Sihanoukville special economic zone.
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
Government point of contact:
President, Anti-Corruption Unit
Building No. 54, Preah Norodom Blvd, Sangkat Phsar Thmey 3, Khan Daun Penh, Phnom Penh
NGO point of contact:
Executive Director, Transparency International Cambodia
10. Political and Security Environment
The risk of political violence directed at foreign companies operating in Cambodia is low. 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, there are tensions in the political system, as the governing party has moved to limit the opposition party and restrict civil society. The ruling Cambodia People’s Party (CPP) retains a tight grip on power, with Prime Minister Hun Sen holiding office since 1993, his fifth consecutive term. In April 2016, the deputy leader of the CNRP was threatened with multiple prosecutions from various government agencies, including the Anti-Corruption Unit, based on private phone conversations he had that were leaked to the public. Though he was pardoned in December 2016, four members of the Cambodian Human Rights and Development Association (ADHOC) and one member of the National Election Committee, who were arrested on charges related to the opposition leader’s alleged crimes, remain in pre-trial detention. In July 2016, an independent political analyst was shot to death in broad daylight; many suspected political involvement in his death. In February 2017, the government passed legislation giving it broad authority to restrict the activities of or even dissolve political parties for a broad number of vaguely described infractions. Some companies have reported a slight economic downturn ahead of the 2017 commune and 2018 national elections due to concerns about political instability.
11. Labor Policies and Practices
Cambodia’s economy is primarily focused on four sectors: agriculture, garment production, tourism, and construction. The agricultural sector employees some 65 to 70 percent of the labor force. Around 700,000 people, the majority of whom are women, are employed in the garment and footwear sector; 500,000 are employed in the tourism sector; and a further 50,000 people in construction. According to the 2013 Inter-Censal Population Survey of Cambodia, the latest survey available, the country’s annual population growth rate was 1.46 percent from 2008 to 2013. Around 55 percent of the population is under the age of 25. The United Nations has estimated that around 300,000 new job seekers enter the labor market each year.
Given the severe disruption to the Cambodian education system and loss of skilled Cambodians during the 1975-1979 Khmer Rouge period, along with a failure to effectively restore the education system in the intervening 36 years, workers with higher education or specialized skills are few and in high demand. The Cambodia Socio-Economic Survey conducted in 2014 (the latest report available) found that about 36 percent of the labor force had completed an primary education. Only 7 percent of the labor force had completed secondary education. The 2015-2016 Global Competitiveness Report of the World Economic Forum identified an inadequately educated workforce as one of the most serious problems to doing business in Cambodia. Most middle management positions in the formal garment sector are filled by foreign nationals.
Cambodia’s 2016 Trade Union Law (TUL) erects barriers to the right 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, while acknowledging that the full effects of the law will depend upon its implementation. The TUL imposes new limits on the right to strike, facilitates government intervention in internal union affairs, and excludes certain categories of workers from joining unions, relegating them to “organizations,” a status regulated by a separate law. While unions may affiliate freely, the law does not explicitly address their right to affiliate internationally. The Cambodian government does not prohibit hiring foreign nationals. According to the Ministry of Labor and Vocational Training (MOLVT), the number of foreign workers should not exceed 10 percent of the total number of Cambodian workers. However, companies can request permission to increase the ratio of foreign workers.
Unresolved labor disputes are mediated first on the shop-room floor, after which they are brought to the MOLVT for conciliation. 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. The parties may choose whether to consider the council’s decisions as binding. If neither party objects to the arbitral award within eight days of its issuance, it automatically becomes binding. Individual disputes may be brought before the courts, although the judicial system is neither impartial nor transparent. The 2016 TUL calls for implementing legislation on the establishment of a labor tribunal. Although the law on tribunals has not yet been presented to the national assembly, a widely disseminated draft law promises a radical reduction to the influence of the Arbitration Council, with many of its powers to interpret labor law being reabsorbed into the MOLVT.
The TUL requires trade unions to submit a good deal of paperwork to achieve legal recognition, including: 1) application for registration, 2) copy of union statutes based on contents approved by the Ministry of Labor and Vocational Training (MoLVT); 3) copies of administrative regulations based on the contents approved by MoLVT; 4) names of all leaders and persons responsible for administration with their specific residing addresses; 5) letters of self-declaration regarding criminal records of all leaders and persons responsible for administration; 6) biography of leaders and persons responsible for the administration; 7) minutes of the election to form a union; 8) voter list for union formation; 9) letter of undertaking providing bank account details; 10) resident permit and permanent address provided by the competent authorities (for foreign members); and 11) recent photos of leaders and persons responsible for the administration.
Regulations on collective bargaining require a single union within an enterprise to demonstrate “most representative status” (MRS), meaning that the union represents the largest number of workers in a bargaining unit, and at least 30 percent of all workers in an enterprise. Once a union has obtained MRS, it has the exclusive right to collective bargaining within that enterprise, and for filing collective complaints on behalf of employees.
Civil servants, including teachers, judges, and military personnel, as well as household workers, do not have the right to form or join a trade union. Teachers and other civil servants have regularly sought the right to organize. Personnel in the air and maritime transportation industries are free to form unions but are not entitled to social security and pension benefits and are exempt from the limitations on work hours prescribed by the labor law. The law stipulates that workers can strike only after several requirements have been met, including the failure of other methods of dispute resolution (such as negotiation, conciliation, or arbitration), a secret-ballot vote of the union membership, and seven days’ advance notice to the employer and the MOLVT. There is no law prohibiting strikes by civil servants, workers in public sectors, or workers in essential services. Legal protections are in place to guard strikers from reprisal, though these laws have been of limited use to those suffering illegal termination.
The labor code prohibits forced or compulsory labor, establishes 15 as the minimum allowable age for paid work, and sets 18 as the minimum age for anyone engaged in work that is hazardous, unhealthy, or unsafe. The statute also guarantees an eight-hour workday and 48-hour work week, and provides for time-and-a-half pay for overtime or work on an employee’s day off. To increase competitiveness of garment manufacturers, the labor code was amended in 2007 to establish a night shift wage of 130 percent of daytime wages.
Cambodia maintains a minimum wage for workers in the garment and footwear sector. The minimum wage for garment workers was set at USD 153 per month in 2016 by the Labor Advisory Committee (LAC), a tripartite group comprised of representatives from the government, labor, and manufacturers. The LAC meets annually to set the wage for the coming year. Since 2010, the wage rate for workers in the sector has increased from USD 61 to USD 153. In theory, the LAC follows a formula, accounting for multiple factors in order to establish an adequate wage for workers in the sector. In practice, however, the determination of the ultimate rate appears to have an arbitrary element. The Prime Minister has decreed a USD five addition to the last two recommended raises. The MOLVT is currently circulating a draft law on minimum wages that would largely codify the present system. The current draft also proposes penalizing any independent research on wages, any complaints against the minimum wage determination process, and any complaints about the minimum wage itself.
The labor law stipulates that a worker is entitled to indemnity if laid off for reasons of health or if the contract is terminated by the employer alone, except in the case of a serious offense by the worker. Enforcement of many aspects of the labor code is poor, and many labor disputes involve workers simply demanding conditions to which they are legally entitled. This issue has grown in concern during the reporting period, as some 2,400 workers failed to receive their pay after five factories were closed in the first three months of 2017 alone.
The U.S. government, the International Labor Organization (ILO), and others have been working closely with Cambodia to improve enforcement of the labor code and workers’ rights in general. The 1999 U.S.-Cambodia Bilateral Textile Agreement linked Cambodian compliance with internationally recognized core labor standards with the textile quota the United States granted to Cambodia. The U.S. government committed to increase the size of Cambodia’s textile export quota if Cambodia demonstrated improvements in labor standards. This was the first bilateral trade agreement to positively link market access with progress in compliance with labor obligations. The ILO, which works with the government to monitor adherence to international labor standards in the garment sector, succeeded in improving compliance with workplace standards, virtually eliminating the worst labor abuses, such as forced labor and child labor. While the quota regime ended on January 1, 2005, following Cambodia’s accession to the WTO, the ILO’s Better Factories Cambodia program continues to monitor and report on working conditions in garment factories. All export garment factories in Cambodia must agree to be monitored by the program in order to receive an export license. Monitoring reports summarizing compliance issues, tracking trends, and analyzing progress in Cambodia’s garment and footwear industries have been available online since March 2014.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
According to International Monetary Fund (IMF) data, total foreign direct investment in Cambodia as reported by counterpart economies has reached USD $3 billion in 2015, with South Korea eating up the largest share, at 43 percent of total investment. The other top four foreign direct investment countries in Cambodia were Malaysia, Thailand, France, and Mauritius. The number of Cambodian investments outside the country was still quite small compared to inward foreign direct investment. In 2015, outward foreign direct investment totaled USD 283 million (a 21 percent increase compared to 2014). Singapore remained the top outward investment destination for Cambodia, with 52 percent share to total outward investment in 2015. China and South Korea ranked the second and third top countries that Cambodia invested in 2015. The IMF’s 2016 data is not yet available.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||3,039||100%||Total Outward||283||100.00%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Sources: IMF CDIS Table 3 on Direct Investment Position 2015 Data
Table 4: Sources of Portfolio Investment
IMF CPIS Data for Cambodia is not available.