Reasons to invest in Cambodia in 2023

Why should I invest in Cambodia in 2023?

The post-COVID era and the transition to 2023, despite a gloomy economic outlook, have seen investors searching for the who, what, and where when it comes to smart investment in the ASEAN region. While Cambodia’s recovery has been slow and steady, we talk through the reasons why Cambodia is still a rising giant in the region and what the good news is for businesses looking into the Kingdom.

As always, you can find the latest business and investment news from Cambodia’s leading in-market consultancy on our social media, by viewing our partnership services or getting in touch with one of our team to see how we can facilitate your business ambitions.

Content:

• Should I invest in Cambodia in 2023?
• How is Cambodia growing in 2023?
• Which laws are helping people invest in Cambodia in 2023?
• Why should I begin investing in Cambodia in 2023?
• What are some things to consider when investing in Cambodia in 2023?
• How has the garment industry improved in 2023?
• Will Cambodia become an Asian Tiger in 2023?
• How will foreign talent aid Cambodian development and attract investment?
• Do I need to get citizenship to invest in Cambodia?

Should I invest in Cambodia in 2023?

Cambodia still has a multitude of factors in its favour for business and investment, including a strong labor protection regime, favorable visa conditions, a young and eager workforce, solid laws and regulations surrounding investment – including tax incentives on investments in key sectors – notwithstanding a welcoming attitude towards foreigner talent and investment.

Indeed, despite the adverse effects of COVID-19, Cambodia remains a top-emerging economy in South East Asia. Now, with the pandemic largely behind, Cambodia is looking to regain its position as one of the fastest-growing economies in the region and resume the average 7% GDP pre-pandemic annual growth levels.

The World Bank (WB) estimated that economic growth in Cambodia will be around 4.8 percent at the end of 2022, helped by a rebound in tourism.

A report by WB said that Cambodia’s garment industry, travel goods, and footwear exports have also been resilient through the pandemic, further aiding the country’s economy.

It reported that “The services sector, especially travel and tourism, has done well since the introduction of the “Living with COVID-19” strategy in late 2021, and total international visitor arrivals have steadily increased, reaching 1.2 million in the first nine months of 2022.  Business and consumer confidence have risen and both domestic and foreign investments have increased.”

For this reason, many are looking to invest in Cambodia or set up businesses in Cambodia. In this article, we explore some of the favorable reasons for investing in Cambodia and cover some of the key sectors which will see exponential growth over the next 5 to 10 years, as the Kingdom aims for lower middle-income country status.

How is Cambodia growing in 2023?

Cambodia continues to be boosted by those who invest in Cambodia. Cambodia owes a considerable amount of its economic growth to Foreign Direct Investments (FDI), which have been flowing into the country over the last 10 years. In fact, FDI has increased by more than 800% in this period, which reached record GDP – some $3 billion US dollars in 2018 – before the pandemic temporarily halted the Kingdom’s march forward.

Indeed, between mid-1994 and the end-2021 inflows of FDI amounted to 168.8 trillion riels ($41.0 billion US Dollars), with the Greater China area remaining the Kingdom’s top source.

However, Cambodia saw a surge in new projects outside special economic zones (SEZ) approved by the Council for the Development of Cambodia (CDC) in January-October 2022 compared to the same period in the previous year due to the new investment law and international market access under the trade pacts, with the projects generating around 100,000 new jobs for local people.

The CDC issued final registration certificates for 116 new non-SEZ private investment projects in the ten months of this year, an increase of 24 projects year-on-year, the Ministry of Economy and Finance’s Socio-Economic Trends reported.

In the first 10 months of 2022, the investment situation showed a real improvement, with a total of 116 private investment projects, an increase of 24 projects, and a total investment of $2,758 million, an increase of 136.6 per cent compared to the same period last year.

This is not to mention that Cambodia is capable of producing about 45GWs of power and currently it’s producing 450MWs – that’s not even 0.1% of total capacity.

Cambodia also recently signed a cooperation deal with Singapore to act as a transmission hub for green energy from Laos to the city-state which could presage the country becoming a solar energy exporter.

Which laws are helping people invest in Cambodia in 2023?

When investing in Cambodia, it’s important to learn as much as possible about investment rules and also Qualified Investment Projects (QIPs). Make sure you keep up with the Aquarii website and social media channels for the latest developments.

These QIPs mean that registered foreign companies that qualify can enjoy tax exemptions or special tax depreciations for their business. Some of these benefits are outlined below:

• Special Tax Depreciation: This is equivalent to 40% of the production materials, should a business quality for QIP status.
• Tax exemption: Foreign investors are eligible for a tax holiday of 3 years. The holiday starts when they receive a Final Registration Certificate. They also need to register with the Council for the Development of Cambodia.
• Ongoing tax exemptions: After the 3 years tax holiday, there is another 3 years priority period. This is another 3-year exemption. Duration depends on the type of project and invested capital.
• Special Economic Zones (SEZs): These zones are built around the country. SEZs have special privileges for industries that bring in FDI. These zones have privileges like an additional budget for infrastructure and public works. There are also stationed government officials that provide immediate help if needed.

To read more about business and investment law in Cambodia, view our free library of laws section here.

Why should I begin investing in Cambodia in 2023?

Compared to other neighboring countries in the region, investing in Cambodia is relatively straightforward.

There is a track record for Cambodia in its development, undergoing rapid development since achieving political stability in the 1990s and recording record levels of GDP growth year on year throughout the 2010s. The government is firmly behind this development and has a range of strategies that plan for 2030 and beyond, with key laws created to benefit foreigners who bring capital into Cambodia.

In 2022, Cambodia has also made key trade pacts with countries which will see more investment in Cambodia. The Regional Comprehensive Economic Partnership free trade pact and bilateral free trade agreements are among the key factors attracting foreign direct investment to Cambodia, a senior official says.

In addition to the RCEP free trade agreement Cambodia has bilateral free trade agreements with China and South Korea, and “these pacts are a factor for the attraction of investments to our country.

China has also pledged to increase trade between the two countries further, with the pair committing to increasing bilateral trade to $10 billion by 2023, from $8 billion, according to the Cambodian Ministry of Commerce

The Council for the Development of Cambodia (CDC) also announced in 2022 that it had approved final registration certificates for 10 investment projects across various sectors worth a staggering total of nearly $1.90 billion and expected to create 7,014 jobs.

It also has exciting prospects for powering itself through renewable, clean energy going forward which could see it become an energy exporter in the region.

Cambodia also has a welcoming attitude towards foreigners and foreign investment and garnering foreign investment in Cambodia is very much part of the government’s strategy for development. The ex-pat population in Cambodia is between 100,000 and 150,000 and this is expected to grow in line with foreign investment going forward, meaning a strong and connected community of investors.

Who is recommending investing in Cambodia in 2023?

CEO of Quantum Engineering and Manufacturing, Richard Yim – who was recently selected as ASEAN Top 40 Under 40 – said Investing in Cambodia is a great choice if you’re looking at emerging markets.

“Cambodia is home to more than 16 million people. In recent years, the country’s economy has expanded and undergone significant changes. As a result of this, the market has become more appealing to entrepreneurs and investors.”

“The Cambodian economy has been growing at a staggering pace for over twenty years. Based on statistics, Cambodia’s economy was the sixth fastest growing in the world between 1995 and 2017. Some economists predict that Cambodia’s economy will keep expanding in the years ahead.”

“Ultimately, Cambodia is a promising and dynamic investment destination due to its quick economic growth. With sustained economic development and technological advancement, it stands to further compete to cement its position as a leading Southeast Asian economic powerhouse. As an emerging market, Cambodia is ripe for investment”

To read more about Mr. Yim’s take on Cambodia’s development in 2023 click here.

What are some things to consider when investing in Cambodia in 2023?

A number of things to consider when investing in Cambodia are the following:

• Business registration – you need to make sure that the business and or businesses which you invest in are fully registered and follow the required guidelines within the country. There are a number of ministries and governmental departments, such as the General Department of Tax, which businesses must register with and ongoing requirements too.
• Navigating the local landscape – It is advised to get the services of a Cambodia-based business consultancy service when doing business or investing in Cambodia. This is because they will have many of the essential contacts available to make doing business a lot easier
• The banking system – An issue when investing in Cambodia in the past has been limited access to capital when doing business in Cambodia. This has changed, with commercial banks being a primary source of funding.
• Currency – The Cambodian economy is classified as partially dollarized because the US dollar (USD) circulates alongside the national currency. However, some 80 per cent of deposits and credits in the banking system are made in USD. There is a push from within the government to covert to Riel use in the future and this is worth noting when attempting to embark on business in the Kingdom.

How will Cambodia’s currency protection help investors in 2023?

According to the AmCham President, dollarisation has protected the Khmer Riel and limited the inflationary pressures, while other regional currencies have depreciated as the US dollar is the strongest it has been in two decades.

He said that Cambodia has an open economy and a stable government, and it continues to provide investment incentives. The country has entered into and continues to enter into key trade treaties, and is continually and rapidly upgrading its infrastructure, particularly roads and ports.

The International Monetary Fund (IMF) is projecting that Cambodia will be the region’s fastest-growing economy by 2025. The Kingdom has a remarkable near zero unemployment rate and is finally creating better jobs with rising incomes.

Will the high level of dollarization help Cambodia attract investors in 2023?

Phnom Penh President of Global Real Estate Association Vichet Lor said that the high level of dollarization has helped the country to attract large foreign investments as it protects investors from major currency fluctuations.

He said that with Cambodia being a fully liberalized economy, it attracts foreign investment to key infrastructure projects such as roads, airports, oil drilling and mining,

Lor said, adding that the Kingdom is also having one of the lowest corporate taxes in Asia and will continue to be so for the foreseeable future with the introduction of the New Investment Law that offers tax incentives and tax holidays for up to nine years.

The stability of the economy is also underscored by the fact that the Gross National Debt is only about 40 per cent of the GDP prompting financial institutions like ADB, IMF and World Bank to rate Cambodia as financially safe for the medium term.

Another huge advantage of Cambodia becoming the next ‘Asian Tiger’ is that it has a young population of about 70 per cent under the age of 40 and its unemployment rate is near zero.

In Vichet’s opinion, a bi-lingual or tri-lingual population in Phnom Penh increases the competitiveness and attractiveness of FDIs. After, Singapore and Malaysia, Cambodia is considered to have the largest English-speaking population in the region.

The revised Taxation Law to be adopted by the National Assembly soon will further enhance investor confidence in Cambodia. Emerging capital markets including Cambodia Securities Exchange (CSX) will take the economy to greater heights.

The country also has many unexplored areas for growth such as in fintech and e-commerce that could attract more investment in the near future. The absence of restrictions in foreign currency exchanges or transfers has also boosted the country’s standing in attracting investments from abroad.

Indeed, a rising tax collection year on year has provided the government with more room and flexibility to invest, he added.

What is seen as Cambodia’s leading factor in 2023 growth?

Cambodia’s Special Economic Zone (SEZ) policy is also playing a leading role to stimulate the manufacturing sector as the country has greatly benefitted from the Free Trade Agreements with China and South Korea besides the Regional Comprehensive Economic Partnership (RCEP) Agreement.

The hosting of the South East Asian (SEA) Games next year and the inauguration of the new Phnom Penh International Airport, which is the world’s 9th largest airport, likely in 2023, will further cement Cambodia’s position as an investment destination with adequate infrastructure and facilities to accommodate a burgeoning economy.

Will Cambodia become an Asian Tiger in 2023?

While expressing his confidence in the fast-growing Cambodia economy, Anthony Galliano, President of AmCham, said that the country deserves to be recognised as one of the world’s most attractive investment destinations given its historical economic achievements and by being one of the most promising prospects in the region.

As a result of almost near-perfect governmental management of the Covid-19 pandemic, in maintaining a balance of health and social safety and economic security and stability, Cambodia also emerged as one of the least blemished economies with one of the lowest mortality rates due to the pandemic, Anthony pointed out.

According to him, some of the advantages of investing in Cambodia include 100 per cent ownership of companies of foreign investors except in some categories such as cigarette manufacturing, movie production, rice milling, gemstone mining and processing.

Other advantages include low corporate tax, minimum capital requirement of just $1,000 to set up a company and a youthful population of around eight million under 25 years, Anthony said, adding that “Cambodia is perhaps the safest place on earth to live in.”

How will foreign talent aid Cambodian development and attract investment?

The business community in Cambodia has said it takes not only Cambodia leading the way in post-Covid, but that attracting and fostering the migration of foreign talent is key to a resumption of pre-pandemic growth levels.

The Managing Director of CoGen Consulting Group Narath Chheav said foreign talent is uniquely placed to give a positive impact for the Kingdom.

“While our workforce remains in general a young one, Khmer people are eager to learn knowledge and skills from foreigners, especially professionals, and harness foreign investment that has been generating significant and positive impacts on the Cambodian workforce and the economy as a whole.”

“The sharing and transfer of knowledge exemplify how foreigns and the skills they bring can be beneficial to the country and its economic and social development.”

He continued that foreign professionals bring with them not only technical but different management and leadership styles.

Echoing the statements, Soreasmey Ke Bin, Chairman of the French Cambodian Chamber of Commerce said, “If we want our economy to grow faster, we need more talent. Whether that comes locally, through expatriates, or from Cambodians overseas.”

“The contribution will continue to be as significant across all sectors and this should be valued by employers in the Kingdom. The Cambodian market definitely needs more ex-pats both to create new businesses and to join existing companies.”

“The good management of the pandemic by the Cambodian government and also by the community itself gives even more reason for foreign talents to consider Cambodia as their next place to work,” he added.

How will expat migration positively affect Cambodia’s growth in 2023?

Co-founder of Cambodian-based HR solutions company Next Step International, Josh Downs said that the current foreign workers estimates ¬– which are around 80,000 to 100,000 – will grow and boost Cambodian development in 2023.

“Expat numbers in Cambodia amount to only 0.6 per cent of the population. Yet, the country’s favorable conditions for foreign business and investment will continue to put Cambodia on the map as a destination to live and work.”

“At Next Step, we see the opportunity for international talent coming to Cambodia, which has been proven to aid Cambodia’s development going forward. The effective recruitment of global talent not only helps businesses optimize productivity and performance but help upskill local talent to meet emerging sector demands.

“Especially for middle to upper-level management across burgeoning sectors, there is a huge demand for foreign talent to share skills from other developed countries.”

The Asian Development Bank reports Cambodia’s labor force still has relatively low skills and low educational attainment, a problem facing its overall development agenda.

Therefore, Downs said that foreign migration and employment within the workforce will only be beneficial for Cambodia’s aim for graduation from an LDC within the next five years.

“Therein lies an opportunity for Cambodia, to enhance skillsets on the ground by integrating global workforces in-country,” Downs added. To read more, click here

Do I need to get citizenship to invest in Cambodia?

One of the advantages of investing in Cambodia or owning a business or real estate in Cambodia is that you can enter the market without a change in citizenship.

For businesses, it is 100 per cent legal for foreigners to invest and own companies in Cambodia. They can have 100% ownership and there are no trade restrictions (depending on the type of investment they make, which can be suited to the business in question). Investors can put up any type of business in the country.

Also, there is zero price control in place, which means they can put any price they want on the items that they sell. Money is also allowed to be sent back to home countries.

In the real estate market, foreigners can buy properties thru a Strata title or nominee structure. This is done by 51 per cent of any property being under the name of a Cambodian National, with the remaining 49 per cent being owned by the Foreigner. The property is secured by the pair entering into a Mortgage Agreement, which doesn’t allow nominees to sell, transfer, move or make any changes to the property.

To note: Foreigners are allowed to lease land for 50 years or more. They can build structures or re-purpose the land as long as the lease agreement is in place. As long as it is not stipulated in the lease, the foreigner can do whatever they need to do on the land.

Where do I find in-market consultancies to help me invest in Cambodia in 2023?

Aquarii is a leading in-market consultancy enabling businesses and investors to enter the Cambodian market. If you want expert advice for your ambitions within the Kingdom of Cambodia we offer bespoke services, tailored partnerships and free business resources via our online platform. We also welcome you to chat with one of our team who is ready to assist you and your business ambitions, today.