Cambodia’s Emerging Economy and Investment Potential

Cambodia is rapidly emerging as a thriving investment hub in Southeast Asia, attracting both domestic and foreign investors due to its robust economy and favourable business environment. Featuring a highly dollarized economy where the U.S dollar is widely accepted, it offers ease of doing business and economic stability to investors. The country has experienced remarkable growth in recent years, with an average annual GDP growth of over 7% in the past decade, and is on track to be the fastest growing economy in Southeast Asia.

The World Bank has identified several key factors contributing to Cambodia’s impressive economic growth:

• Economic reforms: Cambodia has implemented significant economic reforms, including trade liberalisation and investment promotion, creating a more favourable business and investment climate.
• Economic diversification: Previously reliant on the garment sector, Cambodia is rapidly developing in other areas, such as residential, commercial and industrial construction; tourism; manufacturing; and agriculture. This shift is broadening the country’s economic foundation.
• Improved investment climate: Cambodia is actively streamlining the investment process, reducing the cost of doing business, improving the regulatory environment, lowering taxes and protecting property rights, making it easier for businesses to invest in the country.
• Investment in people: Cambodia is investing in its people to enhance productivity and drive economic growth. This includes improving education and healthcare systems and providing training opportunities for the workforce.
• Governance enhancement: Cambodia is committed to improving governance quality to attract investment and establish a more efficient and transparent business environment. Measures include combating corruption, strengthening the rule of law and enhancing public accountability.
• Low inflation rate: Cambodia enjoys a relatively low inflation rate, currently standing at 2.9% (one of the lowest worldwide), ensuring price stability and economic resilience.

With these favorable economic conditions, Cambodia is emerging as a standout in regional economic forecasts. Insights from Seasia Stats, drawing on data from the IMF’s October 2023 Outlook and its January 2024 update, indicate that Cambodia leads Southeast Asia’s growth in 2024 with an expected 6.1% increase in GDP, surpassing the Philippines and Vietnam, which follow closely with projections of 5.9% and 5.8%, respectively. 

Emphasizing Cambodia’s progression, the robustness of its financial framework plays a crucial role. The country’s economic outlook sets the stage for discussing one of its unique aspects that further endorses investment potential: the highly dollarized economy. This not only simplifies transactions for international investors but also stabilizes the purchasing power within the country. It’s this blend of a strong growth forecast with a stable currency environment that exemplifies Cambodia’s maturing market. Now let’s delve into the advantages that this dual-currency system presents to the Kingdom’s economy.

The Benefits of a United States–Dollar Economy In Cambodia

The US dollar, alongside the Cambodian riel, are the official currencies of Cambodia. This means that the US dollar is recognised and accepted as legal tender in Cambodia and can be used to buy goods and services.

The US dollar is used more widely than the Cambodian riel in Cambodia because the US dollar is more stable and has a higher value than the Cambodian riel. Most businesses in Cambodia accept US dollars, and many people in Cambodia prefer to keep their savings in US dollars.

There are several benefits to a US-dollarised economy in Cambodia, including:

Currency stability

The US dollar is used more widely than the Cambodian riel in Cambodia because the US dollar is more stable and has a higher value than the Cambodian riel. Most businesses in Cambodia accept US dollars, and many people in Cambodia prefer to keep their savings in US dollars.

Worldwide access to funds

US dollars can be accessed from many ATMs worldwide; however, some countries may only dispense local currencies.

Reduced transaction costs

When two parties are transacting in the same currency, there are no currency conversion costs. This can save businesses and individuals money, as they do not have to pay fees to convert their currency.

Increased trade

The use of the US dollar makes it easier for Cambodia to trade with other countries. This is because the US dollar is widely accepted around the world, which effectively removes barriers between international trading partners.

Attraction of foreign investment

The use of the US dollar can make Cambodia more attractive to foreign investors. This is because foreign investors know that their investments will be protected in a stable currency.

This dual-currency system provides resilience against monetary fluctuations and significantly strengthens Cambodia’s unique stand in the global economy.