Cambodia has emerged as one of Southeast Asia’s most attractive destinations for foreign direct investment (FDI), with a record $6.9 billion in FDI in 2024, marking a 40% increase from the previous year. This surge reflects the country’s strong economic momentum, with a projected GDP growth of 6.1% in 2024. Cambodia’s economic transformation is driven by strategic trade agreements, infrastructure development, and a competitive labor market, positioning it as a new frontier for global business.
Key Drivers of Cambodia’s Investment Boom:
Strategic Trade Agreements
Cambodia’s participation in the Regional Comprehensive Economic Partnership (RCEP) and bilateral free trade agreements with China and South Korea has opened new markets and reduced tariffs. These agreements benefit sectors like manufacturing and agriculture, making Cambodia an increasingly attractive destination for investors.
Infrastructure Development
Cambodia is investing heavily in infrastructure to improve logistics and connectivity. Projects like the $1.5 billion Techo International Airport and the $1.7 billion Funan Techo Canal are set to enhance Cambodia’s transport links, making it a more viable option for international trade and business operations.
Competitive Labor Market
The country’s young, cost-effective workforce is a significant advantage for labor-intensive industries. Cambodia’s garment and footwear sectors have flourished, with exports of clothing and footwear reaching $11.66 billion and $3.5 billion, respectively, in 2024. The availability of affordable labor makes it an attractive location for companies seeking to reduce production costs.
Sectoral Growth
Manufacturing: Cambodia’s manufacturing sector continues to thrive, with over 2,000 factories employing more than 1.1 million people. Investment is also increasing in non-garment industries, reflecting the broader diversification of Cambodia’s industrial base.
- Automotive: The automotive sector is gaining momentum with significant foreign investment, such as BYD’s $1.2 billion electric vehicle factory in Sihanoukville. This project is expected to produce 10,000 vehicles annually by 2025.
- Energy and Infrastructure: Cambodia’s infrastructure projects, including port expansions and improved transportation networks, are designed to facilitate growth in trade and manufacturing, making the country more competitive globally.
Benefits for Local Industries
Job Creation
FDI is a key driver of job creation, with major investments projected to generate thousands of jobs. For instance, a $443 million investment announced in September 2024 is expected to create 25,000 jobs, significantly boosting the local economy.
Technology Transfer
Foreign investors bring advanced technologies and management practices to Cambodia, enhancing local industries’ efficiency and competitiveness. Collaborations with South Korean firms in textiles are a prime example of this positive impact.
Economic Diversification
As Cambodia attracts investment in sectors like automotive, energy, and infrastructure, its economy is diversifying, reducing reliance on traditional industries such as agriculture and textiles.
Challenges and Considerations
Despite the positive trends, Cambodia faces challenges:
- Environmental Concerns: Large infrastructure projects like the Funan Techo Canal raise environmental concerns, particularly regarding the Mekong River ecosystem.
- Geopolitical Tensions: Cambodia’s close ties with China, especially regarding the development of the Ream Naval Base, have led to international scrutiny over the geopolitical implications of these relationships.
- Social Impacts: Rapid development has displaced local communities, raising concerns about social equity and the need for effective compensation mechanisms.
Cambodia’s rising foreign investment marks a pivotal shift in its economic landscape. With strong trade agreements, infrastructure investment, and a competitive workforce, the country is becoming a leading destination for global business. However, addressing environmental, geopolitical, and social challenges will be crucial for sustaining this growth and ensuring its benefits are widely shared.
