Cambodia performs impressively in Investment Monitor’s 2022 Inward FDI Performance Index. The index measures a country’s inward investment levels against its gross domestic product (GDP) using GlobalData’s FDI Projects Database, which tracks greenfield projects. 

This means that Cambodia, with a score of 3.26, received more than three times its fair share of inward greenfield foreign direct investment (FDI) compared with what could be expected given its level of GDP. In that regard, Cambodia is punching well above its weight in FDI terms. Cambodia places third for FDI into Asia-Pacific based on the aforementioned index, attracting 15 projects in 2021. Singapore ranks first with an index score of 4.9 while New Zealand places second scoring 3.31.

FDI into Cambodia has been slow to recover from the global pandemic

FDI peaked in Cambodia in 2019, with GlobalData’s FDI Projects Database recording 43 projects. In terms of capital investment this represented a 15.5% increase on 2018’s figures, to $3.7bn, according to the UN Conference on Trade and Development’s 2020 World Investment Report. FDI experienced a step decline in 2020 due to the global coronavirus pandemic, with project numbers dropping by 65.1% to 18. Cambodia did not manage the same rebound from the pandemic as the wider Asia-Pacific region, which saw an average FDI increase of 21.2% in 2021. Instead, the total number of FDI projects in Cambodia in 2021 fell further to 15.

The majority of inward FDI in 2021 went to Cambodia’s capital Phnom Penh which recorded eight investments. Sihanoukville, a coastal city in the capital of Preah Sihanouk province ranked second, while Siem Reap in the north-west and Aoral district in Kampong Speu province in central Cambodia ranked joint third.

Tourism, the leading sector for FDI in Cambodia in 2019 and 2020, remained top in 2021, ranking joint first alongside business and professional services. Tourism projects decreased from seven in 2020 to three in 2021 as the world grappled with the effects of lingering travel restrictions.

Business and professional services returned to its 2019 level of three projects in 2021, having dipped to two projects in 2020. Rubber, which previously recorded no investments in 2019 and 2020, ranked joint third for FDI into Cambodia in 2021 with two investments. Rubber was also the leading sector in terms of job creation and capital investment, with China-based conglomerate Hodo Group announcing it planned to invest $300m to open a tyre factory in Sihanoukville. The new facility is expected to create 1,600 new jobs when it becomes operational at the end of 2022 and will be located at Sihanoukville Special Economic Zone.

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Asia Pacific-based companies top the list for Cambodian investment

GlobalData’s FDI projects database shows that between 2019 and 2021, FDI into Cambodia has been driven, almost exclusively, by companies based in Asia-Pacific, North America, and western Europe. In 2021, Cambodia received no inward investment from the Middle East, Africa, eastern Europe or Latin America. Asia-Pacific was the top source market for investment accounting for 11 out of the 15 FDI projects, North America invested in three projects and western Europe, one.

Singapore replaced China (which held the top position in both 2019 and 2020) as the leading investing country in 2021, accounting for six projects, or 40% of Cambodia’s inward FDI. China dropped to joint second, alongside the US, recording three projects, respectively. Myanmar, Hong Kong and the Netherlands made up the remaining investments.

Investment from Japan to Cambodia declined sharply in the three years to 2021. While Japan was the second-ranked source country of FDI into Cambodia in 2019, with ten projects (almost a quarter of all projects), in 2020 this had fallen to just one project, and in 2021 there were none. Likewise, Switzerland and the UK, which made multiple investments in 2019, dropped off the list in 2020 and 2021 after recording no FDI into Cambodia.

Of the 15 projects recorded in 2021, 14 were new FDI projects while only one was an expansion investment, showing that Cambodia is significantly above the global average when it comes to attracting greenfield FDI.

How does Cambodia plan to heighten its appeal to investors?

Unlike many of its Asian counterparts, Cambodia has not yet secured itself an established position for attracting inward investment. China, Hong Kong, Singapore, and Vietnam, among others, are already well recognised hubs for both international and domestic companies. They have invested heavily in necessary infrastructure, set up stable supply chains and pushed through enticing legislation to lure greenfield FDI. Less popular investment locations in the region, such as Cambodia, must work that bit harder to persuade international investors to look their way.

Although Cambodia continues to face economic challenges, it has progressed significantly in terms of democracy and stability. The year 1999 was a milestone for the country, marking the end of three decades of civil conflict and the beginning of the country’s transformative years. Cambodia has since emerged as one of the fastest growing economies with per capita income now reaching close to $1,600 compared to $260 in the late 1990s. Similarly, poverty rates have dropped dramatically from 54% in 1993 to less than 10% in 2019. 

In recent years local authorities have worked hard to improve living standards and have now put a focus on attracting foreign investment to further strengthen the economy. Traditionally, Cambodia relied heavily on agribusiness (rice farming in particular) and textile industries, however, keen to diversify, several new initiatives have been put in place.

The local government is keen to encourage FDI

In 2020, the government launched an online investment application system whereby new companies can get approval within eight working days to establish their operations in the country. In October 2021, authorities put a new law in place to help strengthen investment. The new law will replace existing legislation and aims ‘to create an open and transparent legal framework for investment, as well as to attract and promote quality, efficient and effective investment tailored to support socio-economic development’. Cambodia now offers no limits on shareholding or capital controls, or fund transfers out of the country, as well as 100% foreign ownership for foreign companies setting up operations in Cambodia.

Cambodia, aware of its reliance on neighbouring countries, signed free trade agreements with China and South Korea in 2022 to foster Cambodian exports and encourage further FDI. China and Cambodia have pledged to increase bilateral trade to $10bn by 2023, up from $8bn in 2021, according to Cambodian Ministry of Commerce.

The government has also announced a $50bn 10-year infrastructure master plan which ‘will encompass about 330 projects, including road construction, renovations; connectivity improvements to speed up travel and freight transport; and supporting infrastructure at international border checkpoints’. These crucial initiatives will help Cambodia achieve its ambitious plan to become a high-middle-income country by 2030.

The country’s economy has progressed significantly, yet it can still offer investors low-cost land and labour, attributes which more developed Asian countries are no longer able to provide. Cambodia has been hit hard by the global pandemic and has made a slower recovery than many of its counterparts. International investors, themselves more wary, have been reluctant to put their money in emerging markets, instead favouring ‘safer’ economies which has further hindered Cambodia’s progression.

Nevertheless, the government’s ambitious plans have already helped drive international investment. Cambodia has recorded more FDI projects thus far in 2022 than the full year in 2021, while the first four months of 2022 saw its total international exports increase by 32.1% year-on-year to $7.6bn. These figures show that Cambodia's recovery from the pandemic may be picking up pace and could be driven by increasing foreign investment.