About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Print this page
Qzone

Cambodia: Market Profile

Picture: Cambodia factsheet
Picture: Cambodia factsheet

1. Overview

Cambodia attained lower-middle income status as of 2016, having sustained an average growth rate above 7% over the past decade, mainly driven by garment exports and tourism. Economic growth is expected to remain robust in the medium term as recovering tourism activity coupled with fiscal expansion compensate for some easing in garment exports and construction growth. Going forward, maintaining macroeconomic stability and enhancing economic diversification, export competitiveness and quality of public service delivery will be key to sustaining higher growth.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

February 2018
The Cambodian People’s Party (CPP) won all 58 seats of the Senate.

July 2018
China loaned Cambodia USD351 million to build a new road in the capital Phnom Penh.

July 2018
General elections were held in Cambodia on Sunday, July 29, 2018 to elect members of the sixth National Assembly. The ruling CPP won all 125 seats in the National Assembly.

September 2018
Chinese developer Union Development Group (UDG) was set to invest USD1.2 billion to build a project, known as Tourism Vacation City, in Cambodia's Koh Kong province. Construction is expected to start in early 2019.

October 2018
The European Union (EU) announced on October 5, 2018 that it will conduct a six-month review on Cambodia's special trade access to the bloc.

Sources: BBC country profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Cambodia real GDP and inflation
Graph: Cambodia real GDP and inflation
Graph: Cambodia GDP by sector (2017)
Graph: Cambodia GDP by sector (2017)
Graph: Cambodia unemployment rate
Graph: Cambodia unemployment rate
Graph: Cambodia current account balance
Graph: Cambodia current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: October 8, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Cambodia merchandise trade
Graph: Cambodia merchandise trade

e = estimate
Source: WTO
Date last reviewed: October 9, 2018

Graph: Cambodia major export commodities (2016)
Graph: Cambodia major export commodities (2016)
Note: Direct 2017 data not available
Graph: Cambodia major export markets (2016)
Graph: Cambodia major export markets (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import commodities (2016)
Graph: Cambodia major import markets (2016)
Graph: Cambodia major import markets (2016)

Note: Direct 2017 data not available
e = estimate
Sources: Trade Map, Fitch Solutions
Date last reviewed: October 9, 2018

4.2 Trade in Services

Graph: Cambodia trade in services
Graph: Cambodia trade in services

e = estimate
Source: WTO
Date last reviewed: October 8, 2018

5. Trade Policies

  • In April 2001, Cambodia joined the World Customs Organisation and in October 2004, it became a member of the World Trade Organization (WTO). Cambodia ratified the WTO Trade Facilitation Agreement (TFA) in February 2016. Cambodia has been awarded preferential Most Favoured Nation (MFN) status by China, France, Germany, the United Kingdom and the United States.

  • Cambodia joined the Association of Southeast Asian Nations (ASEAN) in April 1999 and served as ASEAN chair in 2012. ASEAN members have agreed to lower intra-regional trade tariffs through the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area. New members such as Cambodia have already gone a long way towards removing such tariffs, with almost 80% of their products being tariff-free, which helps to drive trade with Cambodia and the rest of the region.

  • Since 2015, many tariffs between ASEAN member states have been removed. The rewards of lower tariffs within the area have been seen, with regional trade booming in recent years, especially as Singapore is a major exporting partner. That said, the import tariff rates are high in Cambodia: the country's average import tariff rate of 9.8% is one of the highest in the East and South East Asia region. Cambodia ranks eighth in East and South East Asia for economic openness.

  • Cambodia imposes VAT, a special tax on certain imports, as well as taxes on gasoline and diesel imports. The highest ad valorem rate of 35% applies to finished agricultural products (processed meat, processed fruit and vegetables, and dairy products), finished industrial products, and petroleum products.

  • In addition to customs duties, Cambodia prohibits or restricts the importation of certain goods for a number of reasons including national security, public order, cultural, environmental, health and safety. Over 1,500 tariff lines are subject to import prohibition or licensing.

Sources: WTO – Trade Policy Review, Fitch Solutions

6. Trade Agreements

6.1 Trade Updates

In 2017, Cambodia slightly increased the tariff protection for all agricultural products to an average of 16.1%, which remains higher than the 12.3% overall applied MFN average.

6.2 Multinational Trade Agreements

Active

  1. ASEAN: Cambodia is a member of ASEAN; members are Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Malaysia and Vietnam. ASEAN accounted for 37.2% of Cambodia's imports and 8.6% of Cambodia's exports in 2016. As a grouping, ASEAN would be Cambodia's largest import and fourth largest export partner. ASEAN has signed a number of Free Trade Agreements (FTAs).

  2. ASEAN-China: The ASEAN-China FTA covers goods and services. The FTA for goods came into force on January 1, 2005 for goods and July 1, 2007 for services. The Agreement aims to eliminate tariffs, encourage investment and address the barriers that impede the flow of goods and services. The ASEAN-China Free Trade Area (ACFTA) came into force on January 1, 2010 and was upgraded in 2014. In 2017, ASEAN was the recipient of 12.3% of China's exports and the source of 12.8% of imports. Total merchandise trade between ASEAN and China grew by 215% between 2005 and 2016. Sino-Cambodian trade more than doubled between 2012 and 2016, reaching USD5.1 billion.

  3. ASEAN-India: The Agreement came into force on January 1, 2010 for goods and July 1, 2015 for services with the aim of minimising barriers and deepening economic linkages between the parties. Cambodia joined the agreement in July 2011. The agreement will lead to the progressive elimination of tariffs on all goods. ASEAN accounted for 10.2% of India's imports and 12% of India's total exports in 2017.

  4. ASEAN-Korea: The ASEAN-Korea FTA (AKFTA) came into force in June 2007 and May 2009 for goods and services, respectively. The investment agreement entered into force in June 2009. The AKFTA aims to create more liberal, facilitative market access and investment regimes between the Republic of Korea and ASEAN. A business council was set up in December 2014 to enhance economic cooperation between parties and boost total trade to USD200 billion by 2020. ASEAN was the recipient of 11.2% of Korea's exports in 2017 and the source for 16.6% of imports. Total trade between ASEAN and Korea grew by 68% between 2007 and 2017.

  5. United States-Cambodia: A bilateral Trade and Investment Framework Agreement (TIFA) between the United States and Cambodia was signed on July 14, 2006 and allows favourable trade terms with the United States, which is Cambodia's largest exporting partner, accounting for 21.3% of Cambodia's exports in 2016. The TIFA provides a forum to address bilateral trade issues and allows Cambodia and the United States to coordinate on regional and multilateral issues. As Cambodia forms part of the United States' General System of Preferences scheme, many of its exports to the United States are exempt from tariffs.

  6. EU-Cambodia: Cambodia has been a major beneficiary of the EU's Generalised System of Preferences, which grants virtually all products – except arms and ammunition from less developed countries – duty-free and quota-free access to the EU market. EU trade accounts for approximately 42% overall of Cambodia's footwear and garments exports. In October 2018, the EU notified Cambodia that it would start the process for the withdrawal of their Everything But Arms preferences.

Ratification Pending

ASEAN-Hong Kong FTA: This was signed in November 2017, three years after the negotiations commenced in July 2014. According to the economic ministers from ASEAN member states, the ASEAN-Hong Kong FTA is the sixth such agreement between the ASEAN and external partners (China, Korea, Japan, India and Australia-New Zealand). The agreement is expected to come into force on January 1, 2019.

Sources: WTO Regional Trade Agreements database, ASEAN, Phnom Penh Post, Hong Kong Trade and Industry Department, European Commission, Government websites, Trade Map

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Cambodia FDI stock
Graph: Cambodia FDI stock
Graph: Cambodia FDI flow
Graph: Cambodia FDI flow

Source: UNCTAD
Date last reviewed: August 13, 2018

7.2 Foreign Direct Investment Policy

  1. Cambodia's 1994 Law on Investment established an open and liberal foreign investment regime. All sectors of the economy are open to foreign investment and 100% foreign ownership is permitted in most sectors. In a few sectors, foreign investment is subject to conditions, local equity participation, or prior authorisation from authorities. The Cambodian government has prioritised foreign investment in the export sector and has a relatively pro-investor policy and legal framework.

  2. There are few restrictions to foreign ownership of companies; a corporate tax holiday of up to eight years; a 20% corporate tax rate after the incentive period ends; duty-free imports of capital goods; and no restrictions on capital repatriation.

  3. Under the Law on Investment, foreigners are restricted from owning land but are allowed to hold long-term leases for up to 50 years (renewable for another 50 years) as well as freehold ownership of specified condominiums.

  4. The most popular sectors for foreign investment include garment manufacturing, agriculture, the services industry and tourism, which is one of Cambodia's key growth areas. The country's biggest investors tend to come from within the Asia region, with China, Malaysia, Vietnam and Thailand being major sources of foreign investment, along with the United States.

  5. Cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone-carving production and silk-weaving are some of the sectors/activities that are subject to conditions such as local equity participation, or prior authorisation from authorities.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, KPMG Investing in Cambodia

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Qualified Investment Projects (QIPs)The Council for the Development of Cambodia (CDC) is the main authority on all strategic and regulatory aspects of QIPs and the development of Special Economic Zones (SEZs) in Cambodia.

QIP may choose between a profit tax exemption or to use special depreciation.

– A profit tax exemption holiday period is composed of "Trigger period" plus 3 years plus a "Priority Period" to a maximum of 9 years. A QIP shall be subject to a profit tax rate after its tax exemption period as determined in the Law on Taxation.

– Production equipment, construction materials and production input to be used in the production of exports goods for a QIP benefits from exemption from import duties. Other incentives include:

   *40% special depreciation allowance on the value of the new or used tangible properties used in the production or processing

   *Duty free import of production equipment, construction materials and similar items

   *A QIP located in a designated SPZ or EPZ is entitled to the same incentives and privileges as other QIPs

   *The rights, privileges and entitlements of a QIP can be transferred or assigned to a person who has acquired or merged a QIP subject to the approval of the CDC

   *A QIP shall be entitled to 100% exemption of export tax, except for activities as stipulated in laws in effect
The Cambodia SEZs Board has approved 25 SEZs, of which nine are in operation. These SEZs are located near the borders of Thailand and Vietnam, as well as in Phnom Penh, Kampot and Sihanoukville, facilitating regional trade. Others are still at different stages of development and some remain undeveloped.

With the exception of Sihanoukville Port SEZ, which is a public-private joint venture, Cambodia’s SEZs are almost entirely privately owned and managed.
The main sectors of investment in SEZs include garments, shoes, bicycles, food processing, car and motorcycle assembly and electrical equipment industries.

The government’s purpose in establishing SEZs was to promote diversification of the industrial base beyond electronics, to establish economic linkages between urban and rural areas and to promote industrial investment outside Phnom Penh.

The exemption period for the Tax on Profit shall be provided for a maximum period of nine years, in compliance with article 14.1 of the Law on the Amendment to the Law on Investment.

– The import of equipment and construction materials to be used for infrastructure construction in the zone shall be allowed and exempted of import duties and other taxes.

– The Zone Developer shall receive custom duty exemption on the import of machineries, equipment for the construction of the road connecting the town to the zone, and other public services infrastructures for the public interests as well as for the interests of the zone.

– The Zone Developer may request, under the form of a temporary admission, the import of means of transport and machineries used for the construction of the infrastructures in accordance with the laws and regulations in force.

– The Zone Developer may obtain a land concession from the state for establishing the SEZ in areas along the border or isolated region in accordance with the Land Law, and may lease this land to the Zone Investors.
Zone investors and developersZone Developers, Investors or foreign employees have the right to transfer all the income derived from the investment and salaries received in the zone to banks located in other countries after payment of tax.

The Zone Developer and the Zone Investor are entitled to obtain the investment guarantees as stated in Article 8, Article 9 and Article 10 of the Law on Investment in the Kingdom of Cambodia and other relevant regulations: non-discriminatory treatment as foreigners, non-nationalisation and no price fixing.

The same incentives on customs duty and tax as other QIPs shall be available.

The same incentives on customs duty and tax as other QIP shall be entitled.

The Zone Investor entitled to the incentive on Value-added tax (VAT) at the rate of 0% shall record the amount of tax exemption for every import. Said record shall be disregarded if the production outputs are re-exported.

If the production inputs are imported into the domestic market, the Zone Investor shall refund the amount of VAT recorded in comparison with the quantity of export.

Source: Council for the Development of Cambodia

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Localisation Requirements

Under the Cambodian Labour Law, the percentage of foreign workers is capped at a maximum of 10% of all the staff working for an enterprise. The Ministry of Labour may approve a request for an exemption to the above-mentioned 10% limit, particularly if the business is in need of specific skills currently unavailable in Cambodia.

The application for a 'foreign quota approval' from the Ministry of Labour must be submitted between September 1 and November 30 every year if the aforementioned limit is exceeded.

Failure to comply with the foreign employee quota and work permit requirements could (among other things) result in the imposition of fines of up to USD180 and retroactive penalties, in the amount of USD100 for each year that a foreigner has worked in Cambodia without a valid work permit.

9.2 Obtaining Foreign Worker Permits for Skilled Workers

The Labour Law stipulates that no foreigner is allowed to work in Cambodia without a valid work permit and an employment card issued by the Ministry of Labour. Under current practice, foreign nationals working or doing business in Cambodia and holding either an E visa (also known as a 'business visa' or 'ordinary visa') or a K visa (also known as a 'permanent visa') are required to have a work permit and employment card.

There are two types of work permits in Cambodia: temporary work permit, which lasts for the duration of the individual's visa; and permanent work permit, which is mostly reserved for major investors. A work permit usually cost USD100.

Furthermore, foreign nationals wishing to work in Cambodia must also meet the additional conditions such as not suffering from communicable diseases.

9.3 Visa/Travel Restrictions

Nationals of most countries can be issued with a visa on arrival – except citizens of Indonesia, Thailand and Vietnam, who do not require a visa before travelling to Cambodia for a stay of up to 30 days. All foreign nationals are legally required to have a work permit if intending to work in Cambodia.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sB2 (Stable)
17/03/2017
Standard & Poor'sNot ratedNot rated
Fitch RatingsNot ratedNot rated

Sources: Moody's, Fitch Ratings, S&P

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
128/189131/190135/190
Ease of Paying Taxes Index
95/189124/190136/190
Logistics Performance Index
73/160N/A98/160
Corruption Perception Index
156/176161/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index
123/202
Short-Term Economic Risk Score45.845.649
Long-Term Economic Risk Score44.946.747.8
Political Risk Index
120/202
Short-Term Political Risk Score62.162.162.1
Long-Term Political Risk Score59.358.358.3
Operational Risk Index  129/201
Operational Risk Score44.440.842.5

Source: Fitch Solutions
Date last reviewed: October 8, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Cambodia's economic risk scores are low, a reflection of the country's reliance on external financing and the lack of capital markets. The economic growth subsection supports both indices as we expect to see 5-6% real GDP growth due to rapid investment in the tourism, garment and agricultural sectors over the coming years. Finally, the currency peg with the United States dollar affords some stability in monetary policy, but acts as a restriction in terms of policymakers' ability to respond to economic shocks.

OPERATIONAL RISK
Cambodia has emerged as one of the fastest-growing markets in the South East Asia region after decades of internal conflict. Investors stand to benefit from the large labour pool, low wages and openness to foreign direct investment, which help to make the country an attractive investment destination. However, there are considerable risks presented by a lack of adequate education and the underdeveloped transport network.

Source: Fitch Solutions
Date last reviewed: October 11, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Cambodia short term political risk index
Graph: Cambodia short term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia long term political risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia short term economic risk index
Graph: Cambodia long term economic risk index
Graph: Cambodia long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: October 8, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Cambodia Score42.546.746.037.739.5
East and Southeast Asia Average55.256.555.754.054.4
East and Southeast Asia Position (out of 18)1415141413
Asia Average48.750.647.746.350.1
Asia Position (out of 35)2119192226
Global Average49.649.749.949.149.8
Global Position (out of 201)129121121138134

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Cambodia vs global and regional averages
Graph: Cambodia vs global and regional averages
Country
Operational Risk
Labour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Singapore83.177.8
89.9
74.9
89.7
Hong Kong81.671.2
88.5
77.0
89.5
Taiwan73.366.4
74.3
73.4
79.2
South Korea70.963.5
67.5
79.6
73.1
Malaysia67.861.6
73.5
75.7
60.5
Macau62.864.2
66.9
52.0
68.0
Brunei61.462.8
57.2
55.0
70.6
Thailand58.956.7
65.2
68.4
45.2
China56.753.9
52.2
66.3
54.4
Vietnam53.752.6
55.5
55.6
51.3
Indonesia52.651.5
53.9
56.8
48.4
Mongolia51.357.8
52.4
40.9
54.1
Philippines43.151.3
47.3
42.4
31.3
Cambodia42.546.7
46.0
37.7
39.5
Laos38.344.2
38.0
34.2
36.7
North Korea33.149.6
20.3
31.5
30.8
Myanmar32.145.5
28.2
30.0
24.9
Timor-Leste30.140.5
26.6
21.0
32.5
Regional Averages55.256.555.754.054.4
Emerging Markets Averages46.848.047.545.7
46.0
Global Markets Averages49.649.749.9
49.1
49.8

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: October 8, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Cambodia

Graph: Major export commodities to Cambodia (2017)
Graph: Major export commodities to Cambodia (2017)
Graph: Major import commodities from Cambodia (2017)
Graph: Major import commodities from Cambodia (2017)

Note: Graph shows the main Hong Kong exports to/import from Cambodia (by consignment)
Date last reviewed: October 10, 2018

Graph: Merchandise exports to Cambodia
Graph: Merchandise exports to Cambodia
Graph: Merchandise imports from Cambodia
Graph: Merchandise imports from Cambodia

Note: Graph shows Hong Kong exports to/import from Cambodia (by consignment)
Exchange rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: October 8, 2018


2017
Growth rate (%)
Number of Cambodian residents visiting Hong Kong20,4912.7

Sources: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: October 8, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Cambodian companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and Agreements between Hong Kong and Cambodia

China and Cambodia signed an agreement for the DTA on October 13, 2016 and Investment Promotion and Protection Agreements which came into effect on February 12, 2000. Hong Kong and ASEAN signed a FTA and an Investment Agreement on November 12, 2017. The agreements are expected to come into force on January 1, 2019.

Source: Hong Kong Trade and Industry Department

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Hong Kong-ASEAN Economic Cooperation Foundation Limited
The main activities of HKAECF are to contribute to the fostering, promoting and facilitating of economic cooperation between Hong Kong and the 10 member countries of ASEAN ('1+10'), and between the ASEAN region and China ('10+1') with Hong Kong serving as a high value-adding and facilitating key international hub, bridge, connector, promotor and investor.

Address: G.P.O. Box 12779, Hong Kong
Email: secretariat@hk-asean.com

Source: Hong Kong-ASEAN Economic Cooperation Foundation Limited

Royal Consulate General of Cambodia in Hong Kong SAR and Macao SAR
Address: Unit 1218, 12/F, Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong
Email: camcg.hk@mfaic.gov.kh
Tel: (852) 2546 0718
Fax: (852) 2803 0570

11.5 Visa Requirements for Hong Kong Residents

Hong Kong SAR passport holders need a visa to visit Cambodia.

Source: Visa on Demand
Date last reviewed: October 10, 2018

Content provided by Picture: Fitch Solutions – BMI Research
Comments (0)
Shows local time in Hong Kong (GMT+8 hours)

HKTDC welcomes your views. Please stay on topic and be respectful of other readers.
Review our Comment Policy

*Add a comment (up to 5,000 characters)