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 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 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 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|