Cambodia Turns Challenges into Opportunities for Australian Investors
By?Sangeetha Amarthalingam?on?July 11, 2023
Huge investment potential in Cambodian sectors such as automotive, agriculture development, tourism, technology and innovation, education, logistics and supply chains, and mining have been identified in the latest investment handbook.
They involve value-adding, technology know-how and sustainable solutions where investors are guided to look at the gaps in the industry which can be filled using their expertise and experience.
The Handbook on Investing in Cambodia, launched on July 10, is a product of the Council for the Development of Cambodia (CDC) and Australian Department of Foreign Affairs and Trade’s partnership to seize opportunities created by the Law on Investment to increase foreign direct investment (FDI) in Cambodia.
It was produced under a project sponsored by the Mekong Foreign Investment and Critical Infrastructure Initiative, an initiative run by the Australian government focused on engaging Mekong countries on foreign direct investment and critical infrastructure policy.
Australia Deepens Economic Ties with ASEAN
The 90-page handbook would guide Australian and other foreign investors by demystifying essential investment rules and processes in Cambodia, including the investment law, said Sok Chenda Sophea, secretary-general of CDC, and Justin Whyatt, Australian Ambassador to Cambodia.
“It is also an opportunity for Cambodia to highlight its strengths as an attractive investment destination, including its stable economic growth, strategic geographical position, favourable investment climate, rich natural resources, competitive labour market, strategic trade agreements, escalating infrastructure development, supportive legal framework, and sociopolitical stability,” they stated.
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In that, Australian and other foreign investors are encouraged to capitalise on mutual trade agreements, such as the Regional Comprehensive Economic Partnership.
“The handbook also serves to highlight potential investment benefits from the anticipated upgrade of the ASEAN-Australia-New Zealand Free Trade Area Agreement, set for official signing in 2023.
“Australia’s forthcoming Southeast Asia Economic Strategy to 2040 will highlight additional opportunities to bolster two-way trade and investment,” Sok Chenda and Whyatt wrote in the forward.
In addition, the handbook recognises the “transformative role of high-quality Australian investment in driving Cambodia's economic expansion and diversification”, and drew on the experience and advice of existing Australian investors in Cambodia.
“Their reflections, and the lessons they have learnt, may also be of use to investors from other countries.”
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Agriculture, supply chain
While investment is encouraged in Cambodia's economic mainstays, such as textile and apparels - which saw exports of $13 billion, or 63 percent of total export earnings, last year - as well as bicycle and parts, and tourism, other sectors are gaining steam.
For instance, in agriculture, niche markets such as organic products or sustainable agriculture are waiting to be tapped. Investors can also look at agricultural inputs and machinery, supply chain process, and contract farming to advance into the sector.
As farmers lack the technology and equipment, along with the need to raise efficiency and harvest quality, this makes agricultural inputs and machinery a segment that can be pursued.
Investors can consider importing machinery, fertilisers and insecticides, and seeds to grow the sector, the handbook stated.
Similarly, the supply chain process needs upgrading as most agriculture activities are upstream, meaning that agro-processing in rice milling and packaging is low, hence a push by the government to develop this segment.
Export advantages such as those within the most favoured nation framework and duty-free quotas are available to investors for this area.
Logistics hub
The handbook mentioned that Cambodia’s location is strategic, bridging trade between the” two largest greater Mekong subregion economies - Thailand and Vietnam”.
It said Cambodia’s road network is “potentially the most lucrative route” in ASEAN, namely the Southern Economic Corridor connecting three key ASEAN economies - Bangkok, Phnom Penh and Ho Chi Minh City.
In addition, it links two international deep seaports - the Saigon Port and the Dawei Deep Seaport in Myanmar, which is currently under development.
“Cambodia aims to become a 'sub-regional hub for logistics', bolstering its economic growth and integration into the global supply chain.
“To support these ambitious plans, the Cambodian government plans to invest approximately $30 billion to implement 150 projects aimed at modernising key logistics infrastructure.
“These investments are crucial to ensure the success of the supply chain for farmers and garment exporters,” it said.
Here, investors can consider becoming logistic consultants and international and regional logistics service providers or develop warehouses and distribution centres.
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Skills, digital training
The handbook talked about skills shortage, which is one of the biggest challenges for investors in Cambodia, with the need for qualifications and training increasing every year.
Other challenges include the lack of equal access to education, the need to improve the quality of training, including teacher training and professional development.
“There are many opportunities for Australian companies to provide affordable quality education and specialised education services.
“Additionally, there are high needs in language training (particularly English) and professional training courses (finance and accounting) to equip workers with the requisite skills for employment,” it stated.
As such, skills development centres, offering specialised courses and training for priority sectors in Cambodia (such as information technology, agriculture, financial services, and infrastructure) are crucial to make the transition from a labour-based to a knowledge-based economy.
“There is also potential in digital training (online platforms for digital and distance learning) and in educational content creation for public and private schools,” it shared.
Smart machines, robots
Similarly, digital tech and innovation, where its ecosystem is still in infancy, opportunities are present in three areas - advanced materials and manufacturing; AI, digital, robotics and smart machines; and energy and environment technologies.
Although that manufacturing sector is Cambodia’s biggest revenue generator and and employer, it faces significant global competition and needs to reduce costs but is constrained by limited efforts to innovate and digitalise.
On that, the handbook said there is a need for advanced materials and manufacturing in the construction sector, along with the incorporation of Internet of Things (IoT) in products and systems.
In line with that, an uptick in demand for smart machines and robots as companies look to increase their efficiency can be leveraged on with robotics continuing to play a key role in the demining activities in Cambodia.
At the same time, investors can take advantage of Cambodia’s commitment to developing policies and stimulating clean technology use to ensure energy security.
There is also demand in agricultural processing, planting and ploughing products, seeing that many small and medium-sized companies are not adopting technology.
Tourism skills training
Identifying the potential of growth in the tourism sector, the handbook asserted that it needs to diversify its offerings, to enable tourists to stay longer and spend more, as well as promote Cambodia as a “destination in its own right”, rather than as a satellite destination of its neighbours.
Areas to consider investing in are the development of hotels, resorts and restaurants, including operating medium-to-high end restaurants in potential tourist destinations.
Investors can also look at setting up tour companies and holiday packages linking ASEAN tourist destinations and promoting eco-tourism or cultural activities.
The lack of human resources with professional service experience and skills that meet international standards show that there is room for growth where investors can draw up skills-based training for Cambodians.
Why Cambodia
According to CDC, in 2022, 186 investment projects were approved with 53.5 percent representing local investment while FDI of $4.03 billion, consisted mostly by China, Thailand and Japan.
Up to 175 were new investment projects, showing the greenfield investment potential of the country. The investments were mainly in agriculture and agro-industry, tourism manufacturing and infrastructure.
Between 2018 and 2022, the tourism sector represented the largest portion of investment at $12.4 billion, followed by infrastructure and others ($10.3 billion) and industry ($8.7 billion).
Accordingly, the handbook shared that Cambodia’s competitive incentives, open economy and steady growth, duty and quota free access to the EU, US and UK markets and competitive operational and labour costs make it a conducive investment destination.
It said the priorities of middle-class consumers, which is a rapidly growing stratum, such as health and education are creating opportunities for investors.
“Technology, Covid-19 and economic development have impacted Cambodia, creating new trends and niche opportunities to address the growing needs of the country in the face of 21st century challenges,” it said.
Given these circumstances, the 2021 investment law reflects these trends, and has identified over 18 sectors and activities where investment incentives apply.
These incentives include income tax exemptions, deductions of capital expenditure through a special depreciation mechanism, and exemptions for export custom duties. It also pointed out that eligible investment projects could receive exemption of customs duties, special tax, value-added tax for the import of construction material, construction equipment, production inputs, and production equipment.
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