With its neighbours still reeling from COVID-19 and political upheavals, should Cambodia anticipate more FDIs?

The stability of the Kingdom during such a time may deem attractive to investors, but the country’s institutional setbacks could pose a problem 

In September 2020, the Council for the Development of Cambodia authorised 121 fixed asset projects, amounting to USD5.9 billion. ShaneWPWongperk/Shutterstock

The wide array of internal issues faced by Southeast Asian nations have caused a stir with foreign investors, to the point that have decided to withdraw their investments and reevaluate their options.

In Myanmar, 
for instance, the Phnom Penh Post reported that the military takeover of the government, as well as the declaration of the year-long state of emergency have flusterred investors, particularly with the impending sanctions to be imposed by the US and India.

The case is similar for other countries in the region that are still battling the short- and long-term effects of the pandemic. These uncertainties have prompted developers to either suspend or delay their projects indefinitely, causing a major strain in the industry in each country.

Fortunately, Cambodia’s political stability and impressive management of the pandemic, boasting zero deaths thus far, has made it an attractive recourse for foreign investors. In fact, analysts project the economy to grow about four percent in 2021 from achieving a record 3.1 percent surge a year before.

With these in mind, should the Kingdom expect more investments from China and other investors?

David Van, public-private partnership senior associate of Platform Impact Co Ltd, said that it is still uncertain, seeing as Singapore garnered most FDIs in 2020, accumulating a 12-year high of SGD17.2 billion (USD12.9 billion).

“No country [is able] to record good economic growth withou a strong manufacturing base as the services and real estate sector [alone] cannot contribute substantial percentage of GDP as basic manufacturing,” explained David.

Nevertheless, he commended Cambodia’s efforts in recognising and focusing on crucial industries that will propel the country into the digital era.

“We have been stuck with low-based garment and footwear manufacturing for decades. The government is gearing up education and skills enhancement for Industry 4.0. [It is also attracting] investments in research and development including in-country value-added processing of agricultural products,” he added.

From January 2014 to July 2020, the approved FDI by sector was led by construction and real estate at USD5 billion, followed by non-garment industries at USD3.3 billion, tourism at USD2.4 billion, garment at USD2.6 billion, agriculture and food processing at USD1.2 billion, and others at USD0.4 billion.

Among the real estate developments that have taken advantage of the inflows included  the PropertyGuru Cambodia Property Awards‘ major titleholders Meridian International Holding (Cambodia) Ltd., Urban Hub (Cambodia) Co., Ltd., Peng Huoth Group, and Urbanland Investment Co., Ltd.

In September 2020, the Council for the Development of Cambodia authorised 121 fixed asset projects, amounting to USD5.9 billion.

Eventhough the Kingdom’s FDI has increased substantially over the past years, the CEO of Cambodian Investment Management Co Ltd Anthony Galliano revealed that most of these were from China, which exceeded other sources combined.

More: Chinese investment in Cambodia reach $860 million in first 11 months of 2020

To be able to draw more FDI, economist Dr Chheng Kimlong recommended improvements in policy coordination amongst government ministries, regulatory governance, and public administration.

He also suggested smarter economic diplomacy, more effective economic policy, and faster implementation of these policies. The country would also have to challenge any concern regarding perceptions international investors may have to be able to expand and grow FDI.

The high cost and robustness of energy supply, particularly in the heavy industry; the underdeveloped infrastructure; the shortage of skilled labour; and the lack of transparency in the legal system are among the setbacks that have raised such concerns.

Be that as it may, tides are turning for Cambodia.

Meas Soksensan, spokesman at the Ministry of Economy and Finance, disclosed that Cambodia will soon benefit from the China-Cambodia Free Trade Agreement, and the projected investments and reshoring of GVC activities in ASEAN.

For now, he said that domestic investments have gradually improved, which now makes up for 40 percent of total investments in the country.

This upward trend reflects the improved confidence and business environment among the Kingdom’s local investors.

“It also shows enhanced entrepreneurship, which is a critical outcome from the government’s long-term actions,” he added.

In the long run, David of Platform Impact reiterated that a more refined inter-ministerial coordination and an extensive integrated approaccan lead to greater progression among regional peers and result in Cambodia reaching a higher middle income status.

“The government is well aware of such hiccups and is making every effort to address them and only time will tell how effective these efforts are,” concluded David.

Know of any award-worthy homes, condos, flats, or other real estate projects in Cambodia? Nominate them for the 6th Cambodia Property Awards by 9 July 2021. Simply visit asiapropertyawards.com/award/cambodia-property-awards for more details.