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.
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.
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.