Cambodia: Southeast Asia’s emerging tiger and a place for new ventures?

Business News | 13 Aug |

Nearly a year on from the onset of the pandemic, budding entrepreneurs and businesses looking to expand to new markets should consider Cambodia.

Cambodia is facing the brunt of yet another wave of infections that have risen due to the delta variant of the COVID-19 virus. The economy is forecasted to grow by 2.5%, according to US credit rating agency Moody’s Investors Service.

In August, the government imposed a lockdown on border areas and it has imposed a late night curfew in Phnom Penh despite a 99% vaccination rate in the capital. Sandwiched between Vietnam and Thailand, two countries that are battling a much severe epidemic, Cambodia is in a precarious position.

Nevertheless, many foreigners and business persons are moving to Cambodia. A number of reasons account for this and astute investors, business persons, entrepreneurs and foreign companies should pay heed.

Integrating into the regional and global economy

Cambodia has signed a bilateral free trade agreement with China, its largest trading partner and foreign investor, and the China-Cambodia FTA set to come into effect this year. It will cover some 300 products and will further add to the boost that Cambodian goods and services will receive from participation in the Regional Comprehensive Economic Partnership (RCEP).

As Heimkhemra Suy, Phnom Penh-based development advisor, states the long-term benefits are clear as Cambodian companies will avoid non-tariff barriers within Asia and attract foreign direct investment as production is expected to be shared among member states reducing production cost and time for companies. Japanese agro-processing and manufacturing firms, for example, would be more keen to set up shop in the country as exports would be classified under a Single Rule of Origin (‘Made in ASEAN’) even if they were manufactured in Cambodia.

“Compared to existing preferential trade deals Cambodia is involved in — including the Everything but Arms (EBA) [with the European Union] and [the US’] Generalized System of Preferences (GSP) agreements — RCEP is more extensive and rule-based,” he wrote in the East Asia Forum.” As Cambodia develops, the EBA and GSP will, at some point, be phased out.” The latter two treaties, targeting the United States and Europe, already offer duty-free exports for Western markets.

As a dollarized economy that makes it easy for businesses to move money in and out of the country, Cambodia is remarkably well-connected to the outside world. With the stable US dollar as a commonly traded currency, the country imposes no foreign exchange controls, no pricing restrictions and allows full profit repatriation.

A pro-business government

The Cambodian government has shepherded an impressive set of reforms and offered pro-business governance over the past few decades. It has invested more than $1 billion to support various sectors hit by the pandemic and offered a strong safety net to the poorest Cambodians.

Two years back, it announced a number of economic reforms that have been designed to attract new business, investment and capital flows into the country. Apart from tax incentives, costs have been reduced for shipping while a number of investment measures and laws for a growing number of special economic zone laws were announced as well. Prime Minister Hun Sen predicted producers and exporters could save up to US$400 million every year.

The government also offers a simple tax system with several incentives, especially in select industries and those with operations in a Special Economic Zone.

Comprising elected members from the Cambodian People’s Party, the decision makers have presided over an era of stability and reform ensuring the country did not endure a recession at any time in the 20 before the pandemic – this included turbulent episodes like Asian financial crisis of the 1990s, the dot com bust in the early 2000s and the financial crisis in 2008.

Getting easier to own, invest or buy property

Cambodia is also one of the few countries in emerging Asia, an area of substantial prosperity, where companies can be 100% foreign-owned. That is making the country increasingly appealing for business persons to establish shops, especially with the presence of a large and cheap workforce that can be supplemented by talented professionals from within the Association of Southeast Asian Nations (ASEAN) region.

As a frontier market, it is not yet heavily dependent on the world’s biggest economies – China, the United States and Europe – than other developing economies. That has meant that many sectors have yet to see the entry of popular multinational companies leading to a heightened competition for new businesses. For example, H&M, the Swedish retailer, plans to open its first store in Cambodia in 2022.

For those looking to establish a new business, Cambodia also allows one to own 100% foreign-owned companies. That means one would not need to source a local partner and deal with conflicts of interests.

Last year, Cambodia also launched a Registration Services, a new online business registration system, that promises to speed up time to start a company from three months to eight days.

While it’s true that Cambodia does not rank highly in the World Bank’s annual Doing Business index, it has shown remarkable improvement. The cost of starting a business has fallen tenfold since 2003 – it now costs 53.4% of the average Cambodian’s annual income to set up a new venture, or around US$743. For foreigners, that could likely be quite an affordable sum.

Promising success stories

Cambodia has also seen the emergence of a number of new businesses that have shown that it’s possible for new entrants to the business landscape.

In a country where more than a third of the population is under 15 and where the minimum wage is lower than in neighboring countries like Thailand and Vietnam, many entrepreneurs have emerged in recent years.

Prince Holding Group, one of Cambodia’s largest and fastest growing corporate conglomerates, is one such example. Its key business units in Cambodia include Prince Real Estate Group, Prince Bank, Cambodia Airways, Canopy Sands Development and Belt Road Capital Management. Via its subsidiaries, it has over 80 businesses in Cambodia operating in real estate development, banking, finance, aviation, tourism, logistics, technology, food and beverages, and lifestyle sectors etc.

All of this was established just over a decade back by Neak Okhna Chen Zhi, a naturalized Cambodian entrepreneur and business person with origins in China. In that period, Chen Zhi (Cambodia) has brought in more than $2 billion in committed capital leading to the employment of thousands of Cambodians.

The fast-growing enterprise has also won plaudits internationally as it became the only company from the Kingdom to win a Stevie Award for its corporate response to the COVID-19 pandemic – it has been working hard to safeguard thousands of employees with over 90% of its employees vaccinated via internal and public vaccination drives so far. Meanwhile, the Group says that not a single employee has fallen ill due to COVID-19.

The new Asian Tiger? A place for tourists, expats and retirees

All of these factors mean that Cambodia could be the next Asian Tiger.

A number of Asian economies are vying for the position of an ‘Asian Tiger’ attributed to the Northeast Asian economies of South Korea, Taiwan, Hong Kong and Japan that grew from abject poverty to exemplars of export-led growth with gleaming metropolises that are now the envy of the other countries in the world.

Strategically located in the heart of Southeast Asia and sharing a border with Thailand, Laos, and Vietnam with the Gulf of Thailand to its south-west, Cambodia can follow their trajectory. Much like its northern neighbors, it is acting as a vital conduit for Chinese and international capital looking for returns. After the end of the pandemic, the access it enjoys to key world markets is expected to help the country diversify its economy as it aims to become a popular low-cost manufacturing base for industries that want to meet demand from consumers in other growing Asian economies.

To that end, the government has invested heavily to develop a nationwide network of transit routes, power and telecommunications with the help of foreign aid and capital. There has also been a focus on improving Cambodia’s links with neighbouring countries to advance trade and boost foreign investment.

Cambodia knows it needs to shift from garment and footwear manufacturing to higher value-added and capital-intensive industries such as construction, telecommunications and financial services and is doing its part to make it happen. Companies like Prince Group will play a key role.

Meanwhile, the country remains popular with tourists. With Southeast Asian countries a short plane ride away, it is one of the cheapest places in the world that is still open for travelers and one of the cheapest places to retire.

Over the past two decades, Cambodia has transformed and reached lower middle-income status in 2015. By the end of this decade, it could very well be on track to become an upper middle-income country like South Korea.

Now could be one of the best times to start a business in Cambodia.

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