HomeReportsBureau of Economic and Business Affairs2023 Investment Climate Statements…Cambodia

# 					2023 Investment Climate Statements: Cambodia			

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													EXECUTIVE SUMMARY											

                -  EXECUTIVE SUMMARY 
                -  1. Openness To, and Restrictions Upon, Foreign Investment                    -  Policies Towards Foreign Direct Investment 
                  -  Limits on Foreign Control and Right to Private Ownership and Establishment 
                  -  Other Investment Policy Reviews 
                  -  Business Facilitation 
                  -  Outward Investment 
                -  2. Bilateral Investment and Taxation Treaties 
                -  3. Legal Regime                    -  Transparency of the Regulatory System 
                  -  International Regulatory Considerations 
                  -  Legal System and Judicial Independence 
                  -  Laws and Regulations on Foreign Direct Investment 
                  -  Competition and Antitrust Laws 
                  -  Expropriation and Compensation 
                  -  Dispute Settlement                      -  ICSID Convention and New York Convention 
                    -  Investor-State Dispute Settlement 
                    -  International Commercial Arbitration and Foreign Courts 
                  -  Bankruptcy Regulations 
                -  4. Industrial Policies                    -  Investment Incentives 
                  -  Foreign Trade Zones/Free Ports/Trade Facilitation 
                  -  Performance and Data Localization Requirements 
                -  5. Protection of Property Rights                    -  Real Property 
                  -  Intellectual Property Rights 
                -  6. Financial Sector                    -  Capital Markets and Portfolio Investment 
                  -  Money and Banking System 
                  -  Foreign Exchange and Remittances                      -  Foreign Exchange 
                    -  Remittance Policies 
                  -  Sovereign Wealth Funds 
                -  7. State-Owned Enterprises                    -  Privatization Program 
                -  8. Responsible Business Conduct 
                -  Additional Resources                    -  Climate Issues 
                -  9. Corruption                    -  Resources to Report Corruption  
                -  10. Political and Security Environment 
                -  11. Labor Policies and Practices 
                -  12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs 
                -  13. Foreign Direct Investment Statistics 
                -  14. Contact for More Information 

## EXECUTIVE SUMMARY

After reopening fully in late 2021, the Cambodian economy has continued to recover gradually, with a projected GDP growth of 5.2 percent in 2023, according to the World Bank. A rebound in tourism and Cambodia’s growing exports, led by the garment, footwear, and travel goods sector, are the drivers of the recovery. However, some external challenges remain, including global economic uncertainties and the impact of Russia’s invasion of Ukraine, which caused inflation to peak at 5.3 percent in 2022 from 2.9 percent in 2021. Inflation is projected to decrease to 2.5 percent in 2023, per the National Bank of Cambodia.

The Royal Government of Cambodia (RGC) has prioritized attracting investment from abroad, and in 2021 passed a new Law on Investment.  Foreign direct investment (FDI) incentives available to investors include 100 percent foreign ownership of companies, corporate tax holidays, reduced corporate tax rates, duty-free import of capital goods, and no restrictions on capital repatriation.  Despite these incentives, Cambodia has not attracted significant U.S. investment. Apart from the country’s relatively small market size, factors dissuading U.S. investors include: systemic corruption, a limited supply of skilled labor, inadequate infrastructure (including high energy costs), a lack of transparency in some government approval processes, and preferential treatment given to local or other foreign companies that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment. Foreign and local investors alike lament the government’s failure to adequately consult the business community on new economic policies and regulations.

In light of these concerns, on November 10, 2021, the U.S. Departments of State, Treasury, and Commerce issued a business advisory to caution U.S. businesses currently operating, or considering operating, in Cambodia to be mindful of interactions with entities involved in corrupt business practices, criminal activities, and human rights abuses. Despite these challenges, several large American companies maintain investments in the country, including Coca-Cola’s $100 million bottling plant and Ford’s $21 million vehicle assembly plant.  The Financial Action Task Force (FATF) removed Cambodia from its “grey list” of jurisdictions under increased monitoring in February 2023, after FATF assessed  that Cambodia had made progress in improving its anti-money laundering/countering the financing of terrorism (AML/CFT) regime. FATF called on Cambodia to continue to work to sustain its improvements in its AML/CFT system.

In recent years, Chinese FDI – largely from state-run or -associated firms – has surged and has become a significant driver of growth in Cambodia.  Chinese businesses, many of which are state-owned enterprises, are not subject to laws like the U.S. Foreign Corrupt Practices Act. In 2022, Cambodia recorded FDI inflows of $1.2 billion, with approximately 80 percent reportedly coming from the PRC, according to the Council for Development of Cambodia (CDC). Physical infrastructure projects continue to attract the bulk of FDI. The $2 billion Phnom Penh-Sihanoukville expressway, for example, was inaugurated for public use in October 2022. Planning for further similar infrastructure projects is underway. Additional sectors attracting foreign investment include manufacturing and agricultural processing.

In 2022, three bilateral and regional free trade agreements came into effect: the Cambodia-China Free Trade Agreement (CCFTA), the Cambodia-Korea Free Trade Agreement (CKFTA), and the Regional Comprehensive Economic Partnership (RCEP).

Climate change remains a critical issue in Cambodia due to its vulnerability to extreme weather occurrences, high rates of deforestation, and low environmental accountability.