Invest in Cambodia: A history of a highly-open marketplace

Feb. 16, 2017, 11:33 a.m.

Why Is Cambodia An Excellent Investment Opportunity?

The reasons to invest in Cambodia are many. Cambodia is a relatively young nation with a rich, old culture. It is a relatively untapped market, offering potentially substantial upside to foreign investors looking for green field investment opportunities. There is plenty of room for improvement in terms of the legal and judicial climate, but the current head of government -- Hun Sen -- has been in charge for more than 25 years, providing uncommon levels of stability in a country that was wracked by war not that many decades ago.  

Rami Sharaf, Member of International Advisory Council, APCO Worldwide, and a well-known advocate for the Cambodian market, says that, “the major attraction for foreign investors considering whether they should invest in Cambodia is the ASEAN-member nation’s steady economic growth; phenomenally steady growth: 7.5 per cent average for the last 5 years, year on year. This puts Cambodia as the number 21 worldwide in growth, and number 1 in the region.” 

The Current Outlook:

The country enjoys a relatively low cost of living, which helps keep wages low, thus making it a place investors can get their feet wet with relatively low risks. The government has liberal business policies and is actively seeking to attract additional foreign investment. It is a beautiful country with a rich heritage, fueling opportunities in tourism. It has an unusually good geographic position, giving it access to some of the largest, most active and growing markets in the world. Due to its membership in ASEAN, it has access to the ASEAN Free Trade Area.

ASEAN is kind of like the European Union for the Southeast Asian Nations. For comparison, the countries of the European Union have 508 million people and the ASEAN countries have 625 million people and are a less mature market, providing vastly more opportunity for growth. Additionally, Cambodia has been designated one of the Least Developed Countries (LDC), which gives it preferential access to both the European and North American markets. Cambodia joined the Association of South East Asian Nations (ASEAN) in 1999.

This multinational organization has substantial goals of economic development for the group of countries located roughly between Australia and China, many of them island nations. If ASEAN were a single country, it would have the seventh largest economy in the world, after the US, China, Japan, Germany, France and the United Kingdom. Please note that Germany, France and the United Kingdom are all members of the European Union, the organization ASEAN is hoping to emulate to some degree.

Additionally, Cambodia is midway between China and India. Very recently, India displaced China as the world's fastest growing economy. Due to its location, Cambodia has excellent geographic access to both of this huge, emerging markets. The wealth of the future is practically guaranteed to be determined by who has access to these extremely large and very fast growing markets. In 2010, the China–ASEAN Free Trade Area (CAFTA) became a reality, giving member nations access to a trading block of 1.7 billion people. ASEAN also has an agreement with Australia and New Zealand that creates yet another free trade area in the other direction (AANZFTA).

In addition, talks are under way between India and ASEAN, which could create a similar trade block. Last, Cambodia's LDC status gives it preferential access to some of the richest markets in the world for certain products.

In 2003, the Heritage Foundation's Index of Economic Freedom ranked Cambodia 35th among 170 countries in terms of economic freedom. This puts in on par with Japan and places it well ahead of many of its neighbors in the ASEAN community. Thus, it constitutes one of the most open economies in the region. At that time, the Index of Economic Freedom commented on positive governmental policies.

Obviously, the country's qualification as one of the Least Developed Countries has some downsides, such as limited infrastructure and widespread poverty. But, increasingly, there is evidence that foreign companies typically provide both better pay and better working conditions for local nationals. This means that investing in an LDC can be a case of doing good while doing well.

You can feel good about the improvements your investment is bringing to the country while also being happy with the benefit to your own bottom line. In fact, the poverty rate in Cambodia has dropped dramatically from 47.50 percent in 1993 to just 23 percent in 2011. So while it is still a poor country, it is seeing incredible forward progress. This fact helps ensure that investment will be profitable for the investors.

Cambodia has been noticed for its unusual degree of market-friendliness for an LDC. The areas of note include:

Opportunities in Tourism:

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Unlike its neighbors, such as Thailand and Vietnam, Cambodia explicitly desires to attract foreign investment in its tourism sector. Tourism is the area in which Cambodia rightly most wants to attract foreign investment. This goal is little different than its neighbors like Thailand , Vietnam and most recently even Laos. In recent years, tourism to Cambodia has exploded, enjoying double digit increases many years and hitting 4.5 million tourists in 2014. In 1992, Angkor Wat, the world's largest religious monument, was named a World Heritage Site. It attracts significant interest, fueling growth of hotels and other amenities in the nearby town of Siem Riep. While it is certainly the best known site in Cambodia, there is no shortage of cultural heritage and natural beauty for attracting additional tourism dollars to the country. Development of hotels, golf courses and other amenities are a strong market. The government has a track record of dealing progressively with this development segment, such as at the Phnom Penh International Airport.

Agricultural Investment Opportunities:

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An abundance of water and fertile land combined with affordable local labor creates significant opportunity for agricultural investment and development, such as in organic farming and agro-processing. Foreign partners bring not only capital, but also essential knowledge and skill to the table. The combination of forces is very often a win/win for both sides. Although land cannot be owned by foreign investors, access to land is readily available via 99-year leases and joint ventures where a local partner owns at least 51 percent of the equity. Some hot agricultural areas include: fisheries, rubber processing, sugar processing, jute, palm oil refineries, and large varieties of tropical fruits and organic produce.

Foreign Direct Investment (FDI):

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Throughout the 1990s, Cambodia attracted increasing amounts of Foreign Direct Investment. Malaysia got in early and captured a great deal of "first mover" benefit, as well as concessions for their investments, such in mining and forestry. Cambodia has come a long way since Malaysia first took notice of the country in terms of internal improvements and development, yet there remains a great deal of room for additional growth. The good track record of improvement combined with so much remaining upside is a situation that is extremely attractive for investors.  

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