Cambodia has emerged as an attractive destination for foreign investors seeking to diversify their production bases and access a fast-growing local market. Although infrastructure is still underdeveloped, foreign companies will find Cambodia offers some unique advantages.
Being one of Asia’s most liberised economies, with very few limitations on foreign businesses. Infrastructure is reasonably adequate, and conditions for exporters are favourable. Exporters to Europe and the United States benefit from preferential tariff treatment under the Generalised System of Preferences (GSP). Foreign currency risk is moderate because the economy is largely “dollarised”.
“Cambodia is the first least-developing country (LDC) to join the World Trade Organization (WTO). With the government’s move towards free market economic policies, this will bring more opportunities in term of investment to Cambodia,” said Chananyarak Phetcharat, Managing Director of DHL Express Thailand-Indochine.
The implementation of the ASEAN Economic Community (AEC) 2015 will also make Cambodia as well as the region, even more attractive to foreign investors. With regional economic integration, ASEAN will have more influence and become a more interesting place to conduct business. In addition to more investment, AEC will encourage free movement in the region in terms of goods, services, skilled labour and capital regionally.
“Cambodia will need to continue to invest in improving their infrastructure and upgrade the skills of their labour force in order to better compete and meet the challenges in the business environment following the implementation of AEC,” Phetcharat added.
The economy had grown fast during recent years, at more than 8 percent per year from 2004 to 2012, according to the World Bank. The ongoing construction boom in Phnom Penh will sustain growth and boost consumption for years to come. The economy is gradually transitioning from one purely based on agriculture and low-cost, light manufacturing towards one that gains strength and stability from higher domestic consumption.
Cambodia’s laws and government policies welcome foreign investors, giving them the same rights and treatment as local corporations. In order to better support foreign investment, the Ministry of Commerce (MoC) and the Council for the Development of Cambodia (CDC) have considered much of their governmental functions to provide one-stop services.
The MoC deals mostly with company registrations. But foreign investments that involve manufacturing or exports also require approval by the CDC, which is responsible for reviewing a project to consider whether it meets the criteria for “Qualified Investment Project” (QIP).
If approved, a QIP is eligible for various investment incentives such as a low 20 percent corporate tax rate, three-year tax holidays, 40 percent depreciation rate for tangible assets, exemption of customs duties and repatriation of profits, reported Angus Chapman, former Senior Manager of Grant Thornton Cambodia.
He also noted, “The interesting thing about QIPs is that a company can apply for a QIP more than once, so the assessment is based on the project rather than the company itself.”
Over the past two decades, Cambodia has primarily attracted investment in labour-intensive manufacturing, such as garments and production of elementary parts for shipment to final-stage assembly plants in Thailand and Vietnam.
Despite political turmoil, the garment and textile sector still grows and remains the key driver of Cambodia’s economy with apparel export earnings of $5.52 billion in 2013 and 20 percent rise over 2012, according to the Cambodian Commerce Ministry.
The readiness of public infrastructure remains one of the top constraints to doing business in Cambodia, according to 2013 World Economic Forum (WEF) country report, which also cited government corruption, bureaucratic inefficiency and a lack of skilled labour.
But despite these concerns, Cambodia is now, and will continue to be, one of the best places for foreign businesses to invest. As Cambodia moves ahead on its path of economic development and modernisation, foreign companies should consider the opportunities.