Is it Safe to Invest in Cambodia?

UPDATED on July 3, 2023

Cambodia has emerged as an enticing destination for investors seeking new opportunities in a rapidly developing market. The country has experienced significant economic growth, driven by a young and dynamic population, a strategic geographical location, and an increasingly open business environment. 

While Cambodia offers numerous investment prospects, it is essential for potential investors to understand the unique challenges and risks associated with investing in this emerging Southeast Asian economy.

This article provides an overview of the Cambodian investment landscape, addresses key factors that contribute to its appeal, and examines the safety of investing in this promising market.

Cambodia 101

រាជធានីភ្នំពេញ

Cambodia’s bustling capital city is located at the confluence of the Mekong and Tonle Sap rivers. As the nation’s economic, political, and cultural center, it is home to a growing number of businesses and industries. 

ខេត្តសៀមរាប

Siem Reap is an enchanting Cambodian city steeped in history and culture. It serves as the gateway to the renowned Angkor Wat temple complex, a UNESCO World Heritage Site that attracts millions of visitors each year. 

Apart from its ancient temples, Siem Reap offers a rich cultural experience through traditional dance performances, local food, and bustling markets.

ខេត្តព្រះសីហនុ

Sihanoukville, a coastal city in southwestern Cambodia, is famous for its pristine beaches, crystal-clear waters, and growing number of luxury resorts. Its strategic location and deep-water port make it an essential hub for trade and tourism. 

The city’s potential for growth, particularly in the tourism sector, has attracted significant international investment in recent years, paving the way for its future as a leading tourist destination in Southeast Asia.

Demographics

Cambodia’s population size, age distribution, and urban-rural divide play a significant role in shaping its economic landscape and investment opportunities.

Population Size

As of 2023, Cambodia’s population is estimated to be around 16.9 million people. This relatively small but growing population provides a sizable market for various industries, such as retail, healthcare, and technology.

Age Distribution

One of Cambodia’s most notable demographic features is its young population, with a median age of around 26 years. Approximately 60% of the population is under the age of 25, creating a large and dynamic workforce that can drive innovation and economic growth. 

This youthful demographic also represents a significant consumer market with evolving preferences and increasing purchasing power.

Urban-Rural Divide

Cambodia’s population is predominantly rural, with around 79% of its people residing in rural areas. However, rapid urbanization is taking place, particularly in cities such as Phnom Penh, Siem Reap, and Sihanoukville. 

This urban growth presents opportunities in infrastructure development, real estate, and the expansion of various services catering to the needs of the growing urban population. At the same time, the rural population offers potential in sectors such as agriculture, renewable energy, and rural development projects.

Foreigner Population

Many expats are doing business in Cambodia, creating jobs and stimulating economic growth. They often invest in industries such as hospitality, tourism, and real estate, thereby contributing to the country’s overall development.

Expats also contribute to Cambodia’s cultural landscape, enriching its society through the exchange of ideas, traditions, and values. They help to foster greater global understanding and connections, which can lead to further economic partnerships and collaborations.

The growing expat population in Cambodia creates demand for a variety of goods and services, such as international schools, healthcare facilities, and entertainment options. This demand drives the growth of these sectors, generating additional investment opportunities for both local and foreign investors.

Read also: Top 4 Real Estate Investment For Expats in Cambodia

Why Does Cambodia Attract Foreign Investors?

Cambodia has become an attractive destination for foreign investment due to a combination of factors that make it an appealing choice for businesses and individuals alike. 

Here are five key factors driving foreign investment in the country:

1. Robust Economic Growth: Cambodia has experienced consistent economic growth over the past two decades, with an average annual growth rate of around 7%. This strong performance has been fueled by the country’s expanding sectors.

2. Strategic Location: Cambodia’s strategic location in the heart of Southeast Asia provides convenient access to emerging markets in the region, such as Vietnam, Thailand, and Laos. 

3. Favorable Investment Climate: The Cambodian government has implemented various policies aimed at attracting foreign investment, including tax incentives, investment protection agreements, and special economic zones. 

4. Young and Growing Workforce: As mentioned, Cambodia has a young and growing population. This demographic offers a vast pool of potential workers for various industries, helping businesses scale and meet the demands of their target markets.

5. Developing Infrastructure: The Cambodian government has prioritized the improvement of the country’s infrastructure, including transportation, energy, and telecommunications. As a result, investors can capitalize on the opportunities presented by these developments, such as enhanced connectivity and greater access to resources.

What Type of Economy Does Cambodia Have?

Cambodia has a developing mixed economy that is still heavily reliant on agriculture but has a growing industrial and service sector. The country has experienced steady GDP growth over the past few years, with a contraction of 3.1% in 2020 due to the COVID-19 pandemic, but a rebound to an estimated 3.0% growth in 2021 and 4.8% in 2022. It is now forecast to grow at 5.5% in 2023 and 6.0% in 2024.

Cambodia is recovering well after COVID-19, but global headwinds could pose risks to a positive outlook in the months to come, according to a World Bank report released in December 2022. 

The report also states that key reforms could include clear rules and regulations on living with COVID-19 under the “new normal,” regulatory and fiscal measures that support revival in the tourism sector, and an enabling environment that will allow the drivers of growth to accelerate.

Additionally, the World Bank’s December 2021 Cambodia Country Economic Update states that as the economic recovery takes shape, Cambodia can start rebuilding its fiscal space, continue to monitor asset quality, and improve confidence in the banking system. 

Foreign Direct Investment (FDI)

FDI has significantly contributed to Cambodia’s economic growth by developing various sectors, creating jobs, and transferring technology and knowledge. Key industries, such as garment manufacturing, construction, and tourism, have attracted investments, boosting production and exports.

FDI-generated employment reduces poverty and increases consumption, while the transfer of advanced technologies enhances productivity and competitiveness. Furthermore, FDI aids infrastructure development, making Cambodia more attractive to investors and fostering a cycle of growth. 

Status of Cambodia’s Major Industries in 2023

Manufacturing and Trade

Cambodia’s manufacturing and trade sectors have experienced steady growth, with a focus on garments, textiles, and electronics. As Cambodia continues to attract foreign investment and develop its infrastructure, the growth prospects for these sectors remain positive. Efforts to diversify production and improve trade policies will further bolster their potential.

Agricultural Sector

Agriculture remains a vital sector in Cambodia, employing a significant portion of the population. Challenges include limited access to modern technology, vulnerability to climate change, and land disputes. However, opportunities for growth lie in adopting sustainable practices, enhancing value-added production, and promoting crop diversification.

Read also: How to Invest in Agricultural Real Estate in Cambodia

Tourism Industry

As Cambodia recovers from the pandemic, the tourism industry is expected to rebound. Emphasis on sustainable and eco-friendly tourism, investment in infrastructure, and marketing efforts to showcase the country’s rich cultural heritage will drive growth in this sector.

Real Estate and Construction Sector

. Cambodian real estate and construction sectors have experienced rapid growth in recent years. Urbanization, foreign investment, and improved infrastructure have driven demand for residential and commercial properties. In 2023, opportunities for development and investment are likely to continue, with a focus on affordable housing, commercial spaces, and infrastructure projects.

Read also: How to Invest in Real Estate in Cambodia

Conclusion

Cambodia offers a wealth of investment opportunities across various sectors, such as manufacturing, agriculture, tourism, and real estate. The country’s ongoing economic growth, strategic location, and improving infrastructure make it an attractive destination for foreign investors.

Investors considering Cambodia should conduct thorough due diligence and partner with local experts to navigate the unique business environment. By doing so, they can seize the numerous opportunities that the country offers and contribute to the nation’s continued development and prosperity. 

Overall, investing in Cambodia presents promising potential for those willing to embrace the risks and rewards associated with an emerging economy.

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