Cambodia’s Manufacturing Sector: Opportunities And Challenges In 2024


A new publication from EuroCham produced as part of a grant provided by the Business Scouts for Development Programme of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, titled “Alternative Manufacturing and Special Economic Zones in Cambodia – Guidebook 2024” was released. So what does the report say about investing in this sector in the Kingdom?

Cambodia’s Manufacturing Sector: Opportunities And Challenges In 2024
A wood flooring factory inside Sihanoukville Special Economy Zone in 2023./ B2B Cambodia

Cambodia Manufacturing Sector Overview 

Cambodia’s manufacturing sector is export-oriented, with a focus on producing goods for international markets. The country has actively pursued trade agreements and preferential access to major markets. Some of these these agreements and targeted markets include:

  • Regional Comprehensive Economic Partnership (RCEP)
  • European Union (Everything But Arms scheme – EBA)
  • United States (Generalised System of Preferences)
  • Free Trade Agreements with neighbouring and regional partners to promote exports and attract foreign direct investment (China, South Korea etc).

Accounting for 80 per cent of exports in 2022, the garment and footwear industry is the backbone of Cambodia’s manufacturing sector. For 2023, the Ministry of Economy and Finance (MEF) reported that the sector grew 5.0 per cent and they have predicted 8.5 per cent growth in 2024.

This sector attracts significant foreign investment and has been a key driver of Cambodia’s economic growth and development. However, new manufacturing sectors, such as electronics and automotive parts, are gaining ground in Cambodia and attracting increasing amounts of foreign investment and diversifying the manufacturing output.

Cambodia’s Garments, Textiles, Footwear, and Travel Goods Industry

Cambodian factories produce a wide range of garments, including apparel, sportswear, and fashion accessories. 

The Cambodian garment sector has flourished due to factors such as:

  • Low labour costs
  • Preferential trade agreements, and
  • The availability of a large, predominantly young female workforce.

Furthermore, TMX, an Asia-Pacific business transformation consultancy, conducted a study to compare the operating costs of manufacturing industries across ASEAN surmised that Cambodia has one of the lowest operating costs. The average manufacturing costs ranged from USD $63,000 – $220,000 per month.

Exports of garments, footwear, and travel goods (GFT) have experienced a significant increase, from USD $962 million in 2000 to USD $12.6 billion in 2022.

The pandemic in 2020 brought about transformative changes for the garment industry as COVID-19 impacted consumption and value chains worldwide, alongside the partial removal of the EBA scheme. During that year, GFT exports recorded their first negative growth rate since the global financial crisis of 2008, with a 10 per cent decrease in value compared to 2019.

The General Department of Customs and Excise reported Cambodia exported USD $11.12 billion worth of garment, footwear and travel products to international markets in 2023 which was a slight dip compared to the previous year.

However, GFT exports have generally rebounded since the pandemic and Cambodia’s manufacturing sector’s growth is bolstered by the country’s continued recovery in garment and non-garment manufacturing and diversification.

Agricultural Processing In Cambodia

Only a fraction of Cambodia’s agricultural output is processed domestically, and even less of it is exported as processed goods. Most of the production is exported unrefined to neighbouring countries as the agro-processing sector is underdeveloped, with the exception of part of the local rice milling and some basic rubber and pepper processing.

According to the Trade Data Monitor, Cambodia exported more than 3.5 million tonnes of paddy to Vietnam in 2022 and 2023. This can be attributed to several challenges, which include unreliable and expensive electricity, unofficial payments for licenses and paperwork, a lack of knowledge and skills, difficulties in acquiring development finance, and limited access to technology and equipment.

The report suggested Cambodia needs to attract private investment in post-harvest handling and processing to take advantage of the economic opportunities created by adding value to its agricultural products.

Some of the other targeted crops in Cambodia are cassava and cashews with the Cambodian government predicting a 25 per cent growth in the cashew sector by 2027 and 50 per cent by 2032.

Cambodia’s Alternative Manufacturing Sectors

Cambodia’s manufacturing sector benefits from its proximity to larger manufacturing hubs like Thailand and Vietnam, which have strong industries in electronics, machinery, automotive, and transportation. As a result, Cambodia has become a supplier of supporting products to these industries.

In 2021, Cambodia’s exports to Thailand and Vietnam reached USD $1.9 billion and USD $898 million, respectively, forming a significant portion of the country’s total exports. 

Cambodia can be seen as a “Thailand Plus One” or “Vietnam Plus One” investment destination, one tier below these manufacturing destinations.

  • Cambodia’s exports to Thailand include textiles, agricultural products, gems, raw materials and semi-finished products. The two nations have targeted USD $15 billion trade by 2025.
  • Cambodia’s exports to Vietnam were valued at USD $2.97 billion in 2023, an increase of 37.1 per cent compared to 2022, according to the General Department of Customs and Excise (GDCE).

The sector’s advancement is supported by enhancing human resources productivity and deeper integration into the regional and global economy, which are two of the key priorities outlined in Cambodia’s Pentagonal Strategy Phase 1 introduced in 2023.

As the manufacturing sector grows, it is expected to diversify into higher-value products, such as electronics and machinery, so Cambodia has the potential to become a major producer of high-value manufactured goods.

Electronics and Electrical Appliances

The “Alternative Manufacturing and Special Economic Zones in Cambodia – Guidebook 2024” report highlighted that investment in Cambodia’s electronics and electrical appliances sector has surged, with significant production growth in wire harnesses and lighting cables, for example.

This growth is attributed to favourable investment policies, tax incentives, and access to regional markets. Exports in this sector have increased from almost zero in 2012 to around USD $2 billion in 2022, with the United States being the most important export market. The government is also investing in improving technical skills and supporting research and development in this field.

In the first nine months of 2023, Cambodia witnessed a significant increase in imports of electrical machinery, equipment, and related products, totalling over USD $1.1 billion. With increasing production capacity, electronics and electrical part exports are expected to play a growing role in Cambodia’s industry diversification in the coming years.

Automotive Parts 

Cambodia is developing its automotive parts manufacturing sector, taking advantage of its strategic location and connectivity in the region.

There is a growing trend of international companies establishing production facilities in Cambodia to manufacture components for automobile assembly in neighbouring countries. The Cambodian government recently published a roadmap for the development of its automotive and electronics sectors.

The roadmap aims to increase automotive sector exports by USD $500 million and with 4 automotive assembly plants currently in operation (Hyundai Camko Motor, Daehan Auto, RMA Cambodia & K Cambodia) and 5 in the planning phase (HGB Motors Assembly, EM Automotive, GTV Motor, Toyota Tsuho Manufacturing & China Matrix Technology Group-Horche), this sector offers opportunities for further growth and diversification of the manufacturing industry, confirmed the report.

Challenges For Manufacturing Investment In Cambodia 

The manufacturing industries in Cambodia still face several challenges according to the report:

  1. High electricity costs – despite significant progress in improving access to electricity, the national grid does not cover all areas, particularly rural parts, and expanding the renewable energy sector is hindered by a lack of regulatory framework and limited access to affordable financing.
  2. The low level of labour skills – this impacts productivity as the sector is seen as having a shortage of skilled workers in certain areas, leading to the occasional need to rely on foreign workers. Additionally, the education and training of local managers fall below international standards, contributing to lower productivity levels.
  3. Logistical issues – There are concerns for businesses in Cambodia as the country’s highway system and road network connecting it to neighboring countries like Thailand and Vietnam are often criticised for their poor condition. However, many new infrastructure projects are under development with more being studied.

Cambodia’s Manufacturing Sector In 2024 

The manufacturing sector in Cambodia is poised for positive growth in 2024, with a strong emphasis on the recovery of both garment and non-garment manufacturing industries.

In addition to the projected sector growth outlined by the MEF, the government has identified increased demand from the United States and the European Union as key drivers behind the growth of Cambodia’s garment industry.

To further enhance the industry’s prospects, the government has introduced the ‘Garment, Footwear, and Bag Development Strategy 2022-2027’. This strategic initiative aims to create a more favorable investment climate and promote healthy competition within the sub-sector.

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