With GDP growth averaging around 9% for the past decade, Cambodia is
certainly attracting interest from potential investors. It has possibly the
most investor-friendly environment in Asean with no exchange controls, no
restrictions on repatriation of profit, and no discrimination between foreign
and local investors.
Moreover, corporate income tax is
20% and there are tax holidays of up to nine years. Foreigners can also take
out leases on land for up to 99 years and foreign companies can buy land.
For Thai investors, the interest
so far has been in Cambodia’s growing footwear and garment industry. This is
Cambodia’s biggest employer and key export earner and there are over 300
garment or textile factories. Low wages – about one-third the level of Thailand’s
– are a big attraction for investors, even though the minimum wage for garment
workers in Cambodia rose from $61 a month to $66 earlier this year. Cambodian
garments and footwear also enjoy favourable tariff-free access to markets in
the United States and Europe.
Many American and European brands
are already outsourcing their production to Cambodia. One of the benefits for
these companies is the unionised workforce and labour laws in Cambodia, as it
is assumed that basic rights of workers are protected. This provides insurance
for big-name brand companies concerned about possible consumer boycotts over
poorly treated workers.
There are challenges, however,
for investors in Cambodia’s textile and garment industry. For example, there
are already signs of labour shortages – earlier this year the Cambodian
industry association said that many vacancies had gone unfilled as more young
people were being lured to work overseas.
Another potential problem is
strong competition from Myanmar as economic sanctions fade and investors from
developed economies begin establishing businesses there.
A third problem facing all
manufacturers is the electricity supply – electricity in Cambodia is expensive and access is largely restricted
to urban centres, with only 20% of households nationwide connected to the power
grid.
However, these issues do not seem
to be a major concern to Japanese investors who last year more than doubled
their investment in Cambodia to around $75 million. According to the Japan
Times, Japanese investors are focusing on Cambodia as labour costs are rising
in Thailand, China and Vietnam. Although Japanese investors are interested in
the garment and textile industry, they are also concentrating on food
processing, agriculture and tourism, retail, transport services and natural
resources development.
The Japanese government has also
worked with the Cambodian government to develop the Sihanoukville Special
Economic Zone near Thailand’s eastern border. This industrial zone adjoins the
Sihanoukville Port, which is the only deep-water port in Cambodia, and the
infrastructure is being developed by Japanese engineers and contractors.
Sihanoukville Port is being
prepared for listing on the Cambodian Stock Exchange later this year and is
expected to attract great interest, given the success of the Exchange’s first
listing, in April this year, when the IPO of the Phnom Penh Water Supply
Authority was many times oversubscribed.
As one of the frontier economies
of Southeast Asia, and a close neighbour, Cambodia should certainly be of
interest to Thai SMEs considering expanding their production base. Although
Cambodia has been mainly limited up until now to small scale enterprises
dominated by tourism and the garment and textile industry, the new developments
taking place are a sign of things to come.
Business & Investment Opportunities
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