Despite being one of the poorest countries in south-east Asia, Cambodia has seen a steady rise in gross domestic product (GDP) in recent years. Its growth coupled with a new administration is presenting a tipping point in the country’s foreign direct investment (FDI) landscape.

“The most important thing to keep in mind is the wholesale transition that occurred in government from the old guard to the new guard,” says Lawrence Lennon, managing director for Cambodia at CBRE.

“It’s an extremely interesting time to be here as we’re observing an administration which is very active in its work to try and improve the FDI landscape.”

In August 2023, Cambodia’s national assembly elected the eldest son of outgoing premier Hun Sen to be the country’s new prime minister. Hun Manet took power following his father’s Cambodian People’s Party winning all but five of 125 seats in the Lower House in the July polls.

The results raised significant controversy after the main opposition party was barred from running.

Despite the dynastic-style succession of power, the Western-educated and relatively young prime minister at 46 years old presents a new generational shift that could reset trade relations.

“A lot of the new ministers are English-speaking, so it’s positive to see the ways they interact with external stakeholders,” adds Mr Lennon.

Since the beginning of the year, the new prime minister has visited France, Japan, Australia and China. “So within a relatively short period of time, he has worked extremely hard in doing the role of a prime minister and foreign minister all in one to promote the country,” says Mr Lennon.

Banking on past successes

The new administration has inherited a strong economic growth landscape from the past decade. According to the Asean+3 Macroeconomic Research Office, Cambodia has experienced robust FDI inflows for the past 10 years. From 2013 to 2022, the average annual value of FDI rose to 12.1% of GDP, and it exceeded that level in the first three quarters of 2023 (13.1%). Garment and electronics continue to account for the lion’s share of inbound FDI. 

“Cambodia is poised for robust economic growth,” says Jyotsana Varma, Cambodia country director at the Asian Development Bank. “Thanks to forward-looking policy reforms, the country stands in an excellent position to attract substantial FDI.”

Banking on Cambodia’s growth momentum, the new administration introduced a ‘Pentagonal Strategy’ in August 2023, to enhance the investment climate. This new socio-economic policy agenda will be implemented over the next 25 years.

It centres around five core pillars: human capacity development; development of digital economy and society; economic diversification and competitiveness enhancement; resilient and inclusive development; and development of private sector employment.

“Compared with the previous administration, the current prime minister is focusing on people first, so he sees a great need to enhance the skill sets of the labour force,” says Phebe Len, co-founder of Sir Stamford Raffles Group, a Singapore-based property developer building a township in Cambodia. 

Mr Manet has promised to reform and prioritise the education sector by strengthening the governance of higher education institutions and increasing scholarships for the poor.

The new government is also working to improve policies surrounding LGBT+ rights in Cambodia, a significant move forward for the country’s human rights climate, which has come under heavy criticism from the EU.

In August 2020, the EU rescinded the preferential export tax treatment Cambodia had been receiving citing “the need for Cambodia to respect human rights and labour rights”. The withdrawal of preferential customs duties access affected around 20% of Cambodia’s exports to the EU. 

“It’s been very difficult to see to what extent the sanctions actually had an effect on Cambodia,” says Jason Chumtong, country director of Konrad-Adenauer-Stiftung Cambodia, a German-based political foundation and think tank. “However, what we observe is that the government intends to enhance the education and healthcare sectors, hopefully with significant effects on individual human rights.”

In August 2023, Cambodia entered into a $41.4m project with the World Bank to improve access to education. However, improvements on issues related to freedom of speech, press freedom or forms of political dissent remain slow in arriving.

Energy and infrastructure

Despite strong FDI growth momentum, the new administration also inherited a swathe of issues related to high energy costs and poor infrastructure.

“Cambodia still underperforms regionally in terms of infrastructure development, hence there is a need for further development of transportation, logistics and utilities to support the expanding industries and facilitate efficient business operations,” says Chunyu Yang, an economist at Amro.

Currently, there are major plans to build a $1.5bn international airport a short drive away from the capital Phnom Penh. The airport is expected to accelerate infrastructure development in and around the capital, with Singapore’s SSRG already committing to build a township in nearby Kandal Province.

High energy costs in Cambodia also pose an additional challenge for prospective investors. Despite efforts to diversify energy sources and enhance efficiency, Cambodia still grapples with relatively expensive energy. 

“If you’re an investor looking into Cambodia for manufacturing or agriculture, then lowering the cost of energy is probably one of the highest priorities because currently we have the highest energy cost in the region,” adds Mr Chumtong.

Despite the various challenges Cambodia faces there is optimism among investors eager to see the fruits of the new government’s labour.

“On the ground, I see a lot more energy as the younger leaders of the country work on better reform policies,” says Ms Len. “Cambodia is now entering its enhanced phase, where we may need a few more quarters to see what actionable strategies are in place and we’re really excited about that.”

Natasha Teja is a freelance journalist based in Singapore

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This article first appeared in the April/May 2024 print edition of fDi Intelligence.