BizCLIR

Cambodia’s high supply of a low-wage labor force has enabled significant growth in the garment manufacturing industry, and garments account for nearly 90 percent of the country’s exports. Since the termination of the Multi-Fiber Agreement on January 1, 2005, Cambodia has experienced an influx of garment investors – raising the number of garment companies from approximately 250 to 300 in 2005, with many more having received government approval – who have moved their operations away from Central America and other regions where labor or general industrial costs are currently higher. Nonetheless, the Asian Development Bank noted that the garment sector “is likely to be hurt by increased competition in world markets, especially from the Peoples’ Republic of China where production costs are up to 30% lower.”

At this time, other than garments, the primary industries attracting outside investment are cement, petroleum, wood processing, and, to a lesser extent, mining, energy, and food processing. Agriculture, beyond some limited investment, particularly in rubber, has not achieved its potential. While agriculture accounts for about 43 percent of GDP and provides for 70 percent of the country’s workforce, it accounts for just five percent of exports. However, there is potential for growth in these industries, and Cambodia’s growing attractiveness as an investment destination is unmistakable: a November 2007 investor’s forum attracted 600 paid participants, about half from outside of the country.

At this time, companies that invest in Cambodia typically do so for the purpose of developing products for export, rather than for accessing local markets. With a real per capita income of only $512 per annum (although purchasing power is five times greater), Cambodians cannot afford many of the products they manufacture. That said, trade statistics show that Cambodia is importing more goods than ever before, much of which is for domestic consumption.

Relative to its neighbors, Cambodia offers a number of advantages that are of interest to investors. These include a relatively competitive economy that is not dominated by state-owned enterprises; a location at the heart of Southeast Asia, including a deep-water port; a robust civil society and non-government organization (NGO) sector; and its progressive Labor Law. Cambodia’s central challenges with respect to developing foreign investment include development and implementation of its legal infrastructure; vast curbs on corruption; continued cultivation of its human resources; continued development of its physical infrastructure; and reduction of energy costs.