Introduction
The Kingdom of Cambodia (“Cambodia”), situated in a rapidly developing Southeast Asia, is an ideal destination for Foreign Direct Investment (FDI) due to its strategic location, young and growing workforce, and recent advancements in infrastructure[i]. Cambodia’s government has demonstrated a strong commitment to economic openness, demonstrated by significant projects like the Phnom Penh-Sihanoukville Expressway, which aims to integrate the country more fully into regional trade networks[ii]. While the Handbook on Investing in Cambodia 2023 highlights these national advantages, Cambodia’s FDI appeal is also grounded in broader regional dynamics, as Southeast Asia collectively becomes an epicenter of global FDI[iii].
The Role of FDI in Cambodia
FDI is pivotal to Cambodia’s economic development, not only supporting job creation but also facilitating technology transfers and economic diversification. The government has prioritized FDI to achieve its Vision 2030, aiming to transition from a low-income to a middle-income economy[iv]. Vital sectors like manufacturing, agriculture, and tourism are at the forefront of this initiative, promising significant economic impact[v]. Cambodia’s recent and ongoing policy reforms reflect a strategic shift towards sustainable and inclusive economic growth, making FDI essential for achieving these broader development goals[vi].
Challenges and Opportunities
Despite its promise, Cambodia faces challenges that may deter investors, including regulatory inconsistencies, limited foreign land ownership rights, and a perceived risk of corruption[vii]. To address these issues, Cambodia enacted the 2021 Law on Investment, which includes provisions to enhance regulatory transparency and align the nation’s policies with international standards[viii]. This legal framework protects investors against expropriation and promotes fair treatment, which has improved investor confidence and regional competitiveness[ix].
Critical Components of a Legal Framework for FDI in Cambodia
1. Clear and Transparent Regulations
Cambodia’s Investment Law of 2021 lays the groundwork for a more defined regulatory environment, providing clarity on tax incentives, operational guidelines, and investor protections. Simplifying tax and land regulations could further reduce bureaucratic obstacles, enhancing transparency and business ease.
2. Legal Protections for Investors
A robust legal framework is essential to ensuring investor rights, including enforceable contracts, secure property rights, and dispute resolution mechanisms. Cambodia has and continues to adopt international dispute resolution frameworks, like the International Centre for Settlement of Investment Disputes (ICSID), which offer additional assurances for foreign investors and is critical to Cambodia’s appeal[x].
3. Anti-Corruption Measures
Establishing independent anti-corruption agencies and a commitment to public service transparency has significantly enhanced Cambodia’s investment climate. For example, The Competition Law of 2021 has helped foster Cambodia’s competitive economy. This law prohibits harmful practices like price-fixing, collusion, and abuse of market power that could distort fair competition. By establishing the Cambodia Competition Commission (CCC), the law creates a dedicated authority to monitor compliance and take action against violations[xi].
Incentives for Sustainable Investment
In line with global trends, Cambodia offers incentives for sustainable investments, including tax breaks for renewable energy projects and technology-based enterprises. The Asian Development Bank underscores that incentives tied to Corporate Social Responsibility (CSR) initiatives could further bolster Cambodia’s attractiveness to socially responsible investors[xii]. The Cambodian government’s provision of tax deductions of up to 150% for green technology, R&D, and workforce training illustrates its commitment to aligning FDI with sustainable development goals.
Case Studies and Applications
The effectiveness of Cambodia’s special economic zones (“SEZs”) exemplifies its commitment to creating investment-friendly environments[xiii]. Southeast Asian SEZs are particularly successful in attracting foreign investment by offering streamlined customs and dedicated infrastructure[xiv]. Cambodia’s SEZs serve as models for other regions within the country and represent a practical application of its FDI strategy[xv].
Another initiative, the Cambodia-Australia Partnership for Resilient Economic Development (CAP RED), focuses on the agri-food sector and showcases Cambodia’s dedication to building resilient, high-value industries. Through CAP RED, the Agri-food Investment Desk simplifies investment processes for international partners, reflecting a proactive approach to attracting sector-specific investments that align with sustainability and economic diversification goals[xvi].
Policy Recommendations for Cambodia
To maximize the benefits of FDI, Cambodia should consider several strategic initiatives:
- Strengthen Institutional Capacity: The Cambodian Government is already investing heavily in training for its regulatory bodies; for example, the Ministry of Post and Telecommunications is moving rapidly to modernize digital infrastructure (https://mptc.gov.kh/en/). Investing in training for regulatory bodies and adopting digital infrastructure can streamline processes, reduce corruption risks, and enhance transparency. The Asian Development Bank highlights the importance of institutional capacity-building to support investment reforms[xvii].
- Promote Regional and International Cooperation: Participating in ASEAN initiatives, such as the ASEAN Comprehensive Investment Agreement (ACIA), helps harmonize standards and reduce investment barriers, making Cambodia a more attractive destination within the region[xviii].
- Encourage Public-Private Partnerships (PPPs): Cambodia can leverage PPPs to attract private capital for public infrastructure projects. Establishing a legal framework that protects public interests while ensuring fair returns for investors is essential for sustainable PPPs. PPPs are instrumental in bridging investment gaps in emerging markets[xix].
- Enhance Legal Education and Training: Training a local legal workforce that understands international investment laws is vital for long-term success. Collaborating with institutions like the American University of Phnom Penh to develop legal expertise would enhance Cambodia’s standing as an investment hub.
Conclusion
Through continuous policy advancements and targeted incentives, Cambodia continues to create a transparent, sustainable, and supportive investment environment. By addressing its regulatory challenges, reinforcing anti-corruption measures, and fostering regional cooperation, Cambodia is well-positioned to attract high-quality FDI. The government’s commitment to sustainable development, evidenced by incentives for green industries and infrastructure projects, aligns with global investment trends. With these efforts, Cambodia is poised to solidify its position as a premier destination for foreign investment in Southeast Asia, paving the way for a resilient, inclusive, and sustainable economy.
Endnotes
[i] HKTDC Research. ASEAN Ascends: Cambodia in Focus – An Overview. Hong Kong Trade Development Council, November 2024.
[ii] Phnom Penh-Sihanoukville Expressway, Ministry of Economy and Finance – General Department of Public-Private Partnerships.
[iii] Council for the Development of Cambodia & Government of Australia. Handbook for Investing in Cambodia 2023. Phnom Penh, 2023.
[iv] Iammarino, Simona, Muth Sumontheany, and Nith Kosal. 20 Years of FDI in Cambodia: Towards Upper Middle-Income Status and Beyond. CDRI Working Paper Series No. 149. Cambodia Development Resource Institute (CDRI), Phnom Penh, October 2024.
[v] Id.
[vi] National Bank of Cambodia. National Bank of Cambodia Partners with IFC to Boost Green Finance, Support Climate Action. International Finance Corporation, December 19, 2023.
[vii] Transparency International. “Corruption Perceptions Index 2022.” Berlin, 2022.
[viii] Royal Government of Cambodia. “Investment Law of Cambodia, 2021.” Phnom Penh, 2021.
[ix] Id.
[x] International Centre for Settlement of Investment Disputes. “Dispute Resolution and Arbitration in Southeast Asia.” Washington D.C., 2021.
[xi] Kingdom of Cambodia, Law on Competition, promulgated October 5, 2021, translated by the Cambodia Competition Commission (CCF), available in Final-08112021ENG_CAM_Law-on-Competition.pdf.
[xii] Asian Development Bank. “Promoting Green Investments in ASEAN.” Manila, 2021.
[xiii] Warr, Peter, and Jayant Menon. Cambodia’s Special Economic Zones. ADB Economics Working Paper Series No. 459. Asian Development Bank, October 2015.
[xiv] Id.
[xv] Special Economic Zones in ASEAN: Opportunities for US Investors. ASEAN Briefing, Dezan Shira & Associates, originally published June 13, 2013, updated June 5, 2020.
[xvi] Cambodia-Australia Partnership for Resilient Economic Development (CAP RED). “Agri-food Investment Desk.” Phnom Penh, 2023.
[xvii] Asian Development Bank. Country Partnership Strategy Final Review: Cambodia 2019–2023. February 2023.
[xviii] ASEAN Comprehensive Investment Agreement: A Guidebook for Businesses and Investors. ASEAN Secretariat, Jakarta, December 2015.
[xix] International Finance Corporation. Public-Private Partnerships. Accessed November 10, 2024. Available on the IFC website.