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Cambodia saw solid growth during 2014, with GDP increasing by 7 percent. This growth is expected to trend upwards, with growth of 7.3 percent projected for 2015 and 7.5 percent for 2016, according to the Asian Development Bank. This strong performance is being largely driven by the continual expansion of the Kingdom’s key industries.

One of Cambodia’s key industries, the export of garments and footwear, reached $6 billion in 2014, an increase of 10.7 percent on the previous year. Other key industries such as light manufacturing, tourism and agriculture also experienced positive growth. In this issue, we talk to our panel of industry insiders about the progress of Cambodia’s key industries, the outlook for the future, and the impact of Special Economic Zones.

Read on to learn about the progress of Cambodia’s key industries, the outlook for the future, and the impact of Special Economic Zones.

  • Cambodia saw solid growth during 2014, with GDP increasing by 7 percent.
  • This growth is expected to trend upwards, with growth of 7.3 percent projected for 2015 and 7.5 percent for 2016, according to the Asian Development Bank.
  • This strong performance is largely being driven by the continual expansion of the Kingdom’s key industries.
  • One of Cambodia’s key industries, the export of garments and footwear, reached $6 billion in 2014, an increase of 10.7 percent on the previous year.
  • Other key industries such as light manufacturing, tourism and agriculture also experienced positive growth.
  • Growth in the garment sector is a significant success story for Cambodia’s recent economic development.
  • While the dominance of the garment industry is shrinking alongside new growth industries, garments and footwear production still represented 71 percent of total Cambodian exports in 2014, according to ANZ’s 2014 Global and Regional Outlook in Phnom Penh report.
  • As a result of the International Labour Organisation’s (ILO) “Better Factories Cambodia” social compliance programme and various Government reforms, the minimum wage has been increased and recent talks even suggest a new rent ceiling and employment benefits assurance for garment workers will be enacted in coming reforms.
  • The most respectable brands demand full and diligent audits on the factories they source from and try their best to ensure that these factories live up to the brands own corporate social responsibility policies too. However, not all do.
  • The labour and technology efficiencies are lower in Cambodia than in other established garment markets, such as Vietnam and China, but still the labour pool is younger, larger and lower-cost here. Training is part and parcel of operating in Cambodia, however, and specialised training must be accorded into predicted operations costs.
  • Cambodia also relies on imports for textile raw material—predominantly from China, Taiwan, Vietnam, South Korea and Japan. Potential investors might consider opening a factory in areas other than the traditional epicentres located in outer Phnom Penh.
  • Areas closer to the Thai or Vietnamese borders offer better access to a new labour pool of Cambodians rather than the currently oversaturated labour market located around Phnom Penh.
  • Likewise, Special Economic Zones, especially those located close to ports of export, offer advantages for setting up efficient garment production factories.
  • Always ensure any factory and its management are reliable and responsible before agreeing to any production contract -So many contracts fall down based on poor relationships between buyers, sellers and producers. To be sure, find an expert sourcer to seek the ideal factory for your needs.
  • Growth in the garment sector is a significant success story for Cambodia’s recent economic development.
  • While the dominance of the garment industry is shrinking alongside new growth industries, garments and footwear production still represented 71 percent of total Cambodian exports in 2014, according to ANZ’s 2014 Global and Regional Outlook in Phnom Penh report.
  • As a result of the International Labour Organisation’s (ILO) “Better Factories Cambodia” social compliance programme and various Government reforms, the minimum wage has been increased and recent talks even suggest a new rent ceiling and employment benefits assurance for garment workers will be enacted in coming reforms.
  • The most respectable brands demand full and diligent audits on the factories they source from and try their best to ensure that these factories live up to the brands own corporate social responsibility policies too. However, not all do.
  • The labour and technology efficiencies are lower in Cambodia than in other established garment markets, such as Vietnam and China, but still the labour pool is younger, larger and lower-cost here. Training is part and parcel of operating in Cambodia, however, and specialised training must be accorded into predicted operations costs.
  • Cambodia also relies on imports for textile raw material—predominantly from China, Taiwan, Vietnam, South Korea and Japan. Potential investors might consider opening a factory in areas other than the traditional epicentres located in outer Phnom Penh.
  • Areas closer to the Thai or Vietnamese borders offer better access to a new labour pool of Cambodians rather than the currently oversaturated labour market located around Phnom Penh.
  • Likewise, Special Economic Zones, especially those located close to ports of export, offer advantages for setting up efficient garment production factories.
  • Always ensure any factory and its management are reliable and responsible before agreeing to any production contract -So many contracts fall down based on poor relationships between buyers, sellers and producers. To be sure, find an expert sourcer to seek the ideal factory for your needs.
  • According to the ANZ report, exports are slowly moving away from traditional shipments of low value-added production. Although clothing, textiles, and shoes still make up almost three quarters of total exports, the share of ‘other’ items has risen to 19.5 percent in 2014, up from less than one percent in 2004.
  • Low costs of labour make Cambodia attractive for the labour intensive stages of light manufacturing production tasks including wire harnessing, producing parts for digital information appliances, chassis and auto body components, bicycle manufacture, and even gemstone polishing.
  • Increasingly, global companies are outsourcing these parts of the production process to Cambodia, especially to SEZs.
  • Still, most components, parts and raw materials are sourced from neighbouring countries including Thailand, Vietnam, China and Malaysia.
  • Cambodia’s light manufacturing assembly sector, located primarily but not exclusively in special economic zones, covers principally labour intensive operations.
  • This includes in bicycle manufacturing, electronics and electronic manufacturing and assembly, and a mix of other light manufacturing products.
  • Global light manufacturing trade in electrical and electrical equipment was worth approximately $2.3 million in 2012.
  • In 2013, Cambodia’s bicycle exports showed a 55% increase to 1.8 million making it the second largest exporter to Europe after Taiwan. Currently there are six bicycle manufacturers in Cambodia, five of which are of Taiwanese origin.
  • Duty-free status for exports to Europe for a number of manufactured goods such as bicycles has brought investors to move production from neighbouring countries to Cambodia.
  • Southeast Asia remains one of the fastest growing tourist markets in the world with Cambodia also benefiting from “side-trips” from Thailand, Vietnam and other regional hotspots. The tourism industry has continued to grow rapidly in Cambodia, in part due to regional low-cost airlines opening new direct lines and the simplification of visa procedures.
  • This year, Cambodian tourism is demonstrating its lowest growth rate since the global financial crisis, as suggested by the Ministry of Tourism in March 2015. Regardless, the number of visitors reached 4.5 million last year, which is still a 7 percent rise from 4.2 million in 2013.
  • Commentators suggest the industry was affected in the early part of 2014 by the domestic political stalemate. Chinese tourists also appear to have lessened after political upheaval in Thailand and anti-China demonstrations in Vietnam in early 2014. Vietnamese are still the largest demographic of tourists to Cambodia, with the Chinese coming in second.
  • Growth is predicted to pick up to about 15 percent in 2015. Though most tourists spend a small amount of time in the country generally, their stays are gradually lengthening as remote provinces like Sihanoukville, Kampot, Kep, Mondulkiri and Ratanakiri begin to attract tourists away from the temples at Siem Reap.
  • Despite rapid growth in garments and tourism, Cambodia remains an agrarian society, with over half the population engaged in the agriculture sector. Regionally too, agriculture is the dominant industry. Hence, products are intensively traded with neighbouring countries. Duty-free access granted to Cambodia by the EU and Russia has been a key driver of rapid export growth since 2009.
  • Rice production is extensive and widespread. The cost of rice paddy production in Cambodia is one of the lowest in the world. Cambodia’s rice exports between January and May 2014 increased by one percent from the year prior to 148,262 metric tonnes, according to figures from the Federation of Cambodian Rice Exporters.
  • Cambodia also has a long history of rubber cultivation, dating back to French colonial times, and it remains an important crop. There has been a 34 percent rise in dry rubber exports in 2013 according to Ministry of Commerce figures released at the start of 2014.
  • Agricultural growth generally decelerated in 2014, responding to declining world agricultural prices, according to the latest World Bank economic outlook on the region. The Government is taking efforts to improve rice milling and logistical costs throughout Cambodia, which would further help improve trade competitiveness.
  • Meanwhile, the Cambodian organic export markets in the USA and Europe continue to expand, especially for organic rice, pepper and moringa. With higher prices offered globally for organic rice, producers and post-harvest processors are well rewarded for converting fully to international organic standards.
  • Rice is a traditional crop of cultural and historical significance and its production is extensive and widespread.
  • The cost of rice paddy production is one of the lowest in the world.
  • Duty-free access granted to Cambodia by the EU and Russia has been a key driver of rapid export growth since 2009.
  • Cambodia’s rice exports between January and May 2014 increased by 1 % from the same time last year, to 148,262 metric tonnes according to figures from the Federation of Cambodian Rice Exporters.
  • The main rice export destinations are Malaysia, France, Poland, Gabon and China. Global trade in milled rice is expected to remain at near record volumes over medium term at 30+ million metric tonnes per year.
  • However, Myanmar is likely to re-emerge as a large low cost rice exporter and major competitor as it gained its duty-free status from July 2014.
  • Cambodia has a long history of rubber cultivation that began in French colonial times and it remains an important crop.
  • There has been a 34% rise in dry rubber exports in 2013 according to Ministry of Commence figures released at the start of 2014, thanks to rising global demand.
  • The revenue earned through rubber equates approximately $170 million up from $160 million the year before.
  • The main trading partners for rubber are China, South Korea, Singapore, Malaysia and some European countries.
  • The sector is also seeing an increasing number of domestic farmers as well as foreign investors who use land- concessions to build large scale rubber plantations.
  • Cambodia exported 300,000 tonnes of fresh and dry cassava in 2013, down 58% compared with the 720,000 tonnes in 2012, according to recent figures released by the Ministry of Commence.
  • Cassava, which is used to produce animal feed and ethanol, has been sold mainly to Thailand, Vietnam, South Korea and China.
  • The decline was explained by the previous years’ flooding which destroyed many crops, however, farmers are discouraged to continue growing these types of crops.
  • These crops are also subject to disease.
  • A number of large international mining companies are currently prospecting in Cambodia.
  • There is large potential for production of a number of minerals such as gold, copper and other base metals, bauxite, iron ore, coal as well oil and gas, both on and off shore.
  • Despite the potential, gold has not yet been mined on a commercial scale in Cambodia.
  • Renaissance Minerals, however, are in the process of completing a scoping and feasibility study on their 1.2 million-ounce Gold deposit in Mondulkiri. The next stage is permitting and development of the mine. It will be at least two years before completion of this phase when operations can begin.
  • MESCO Gold Cambodia Limited will complete their environmental impact assessment and licensing process within the next six to twelve months as part of the permitting process prior to commencement of construction of their planned underground gold mine (in association with Angkor Gold Corporation, a Canadian Company).
  • Oil also exists off the coast of Cambodia. KrisEnergy of Singapore has recently purchased Chevron’s interest in Block A, an offshore block in the Gulf of Thailand. Since purchasing this block, KrisEnergy is in the process of final negotiations of their production sharing agreement with the Government. The steps after this final agreement shall be permitting and production.
  • KrisEnergy acquired Chevron’s 30 per cent stake of Block A in August 2014, adding to its existing 25 per cent stake, giving it a controlling stake. At the time, the energy company said it expected to pump out 10,000 barrels of oil per day from Block A.
  • The KrisEnergy deal was finally brokered only after Chevron and the Cambodian government spent years unsuccessfully trying to reach an agreement over taxation and profits.
  • Current low oil prices may, however, slow exploration and development.
  • The Japanese Government Oil Company and the Vietnamese Government Oil Company have carried out exploration and seismic surveys of their onshore blocks, suggesting they will begin drilling sometime in the near future.
  • A new petroleum law, the country’s first legislation governing the extraction of oil from onshore and offshore fields, is currently being drafted.
  • Another reform to be passed in conjunction with the petroleum law, addresses the inconsistencies between tax rates that could apply to the oil sector.
  • In 2013, Cambodia had eight Special Economic Zones (SEZs) operational- Phnom Penh, Sihanoukville SEZ I & SEZ II, Manhattan (the first developed SEZ in Cambodia), Tai Seng Bavet, Neang Koh Kong, Poi Pet O’Neang and Goldfame Pak Shun, with operators from Cambodia, Japan, China, Thailand and Taiwan. An additional 14 SEZs have been created, however, there are currently no investors in these zones. Sihanoukville Port SEZ is the only SEZ managed by the Cambodian Government.
  • In 2013, 94 companies operating in SEZs, including 37 in Phnom Penh SEZ, 18 in Manhattan SEZ, and 18 in Sihanoukville SEZ II. As of 2013, Cambodian SEZs are host to 69 light manufacturing companies, 17 garment companies and six footwear manufacturers.
  • This number continues to grow.
  • SEZs provide better infrastructure in terms of water, waster water treatment, logistics and communications, then elsewhere in Cambodia. However, according to the World Bank, SEZs are not yet delivering the benefits expected by foreign investors and needs to be addressed to improve the competitiveness of firms in Cambodia.
  • Firms located in SEZs benefit from Qualified Investment Project (QIP) status. QIP grants new investors both within and outside SEZs a number of investment and tax incentives, however these do not apply to investment expansion.
  • Government officials on site provide a one-stop shop to handle foreign investors; submissions, requests and complaints, and streamlined trade administrative procedures.
  • Special Economic Zones may be established by the State, private enterprise or a joint venture between the State and private enterprise.
  • The zone developer has to possess sufficient capital and means to develop the required infrastructure in the zone, including the human resources to manage the activities in the zone.
  • They also require the legal rights to possess the land for establishing the SEZ, lease the land and provide services to zone investors and arrange security personnel.
  • The size of the land must be more than 50 hectares with precise geographical boundaries.
  • Fences should be installed to surround the export processing zone, free trade area and the premises of each investor in the zone.
  • Special Economic Zones are special areas created for the development of economic sectors which bring together all industrial and other related activities. Including general industrial zones and export processing zones with production and free trade areas, service areas and some residential areas.
  • A good example of the benefits of SEZs occurred recently when The Coca-Cola Company announced it will build a second factory in Cambodia, investing $100 million into a new plant in the Phnom Penh Special Economic Zone, which will enable it to triple its current output.
  • The PPSEZ met all the criteria that the multinational company needed to significantly expand its operations within Cambodia: capacity, utilities and and onsite services. [/content]