Cambodia occupies a strategic location in Southeast Asia, and despite its struggles in the latter half of the twentieth century, the country has come on leaps and bounds. Its economic situation has improved significantly since the early 2000s, and today, Cambodia represents an attractive market for international investors.
The Cambodian Civil War and the advent of the Khmer Rouge in the 1970s wreaked havoc across the country, bringing mass poverty and genocide. By the time peace and stability had been re-established, the country lagged behind many of its Southeast Asian neighbours in terms of development. However, it was quick to begin its ascent.
The Rise of the Cambodian Economy
Cambodia boasts one of the fastest-growing economies in the world, having registered an average annual rate of 7.7% between 1998 and 2019. Its GDP totals $27.2bn, and GDP per capita stands at $1,716—compared to $260 in the late 1990s.
Its economic growth has largely been fuelled by the tourism, garment, construction and real estate, and agriculture industries.
Furthermore, the country reached lower middle-income status by 2015, and it is now set to achieve upper middle-income status by 2030.
Last year, Cambodia’s economy increased by 5.1%, outperforming the World Bank’s 4.8% forecast. Given the pressures of the pandemic, rising inflation, and China’s delayed reopening, the country’s economy has fared relatively well and proved itself resilient.
GDP is expected to grow by 6.2% over 2023, according to the Asian Development Bank. This would place it among the top three countries with the highest GDP growth in Southeast Asia, above both Thailand and Indonesia.
The Future of Tourism
Tourism is a major driver of the Cambodian economy. Tourism revenue reached an all-time high of $5.31bn in 2019, constituting almost 20% of gross domestic product. Moreover, the industry is well on its way to recovery with over 2 million international visitors last year.
Thailand, Vietnam, and China were its largest markets, shortly followed by the USA and other European contenders such as the UK and France.
China finally reopened its borders in January—and visitor numbers grew eightfold. In the coming months, the return of China’s tourism market will continue to brighten the economic situation in Cambodia.
Last month, the Southeast Asian Games were held in Phnom Penh. Eleven nations competed in 580 events, drawing between an estimated 250,000 to 500,000 visitors to the capital. And that’s not all. The country will also host the ASEAN Para Games this June, solidifying Cambodia’s strong standing in the region.
Expanding Infrastructure
To continue to improve its economic situation, Cambodia will need to keep expanding its infrastructure. This will not only improve trade and connectivity but also create new opportunities within tourism. To achieve this, the Cambodian government is working towards a 10-year infrastructure masterplan comprising $50bn of proposed projects.
The expansions of Techo-Ta Khmau International Airport and Siem Reap Angkor International Airport will also boost tourism by increasing passenger capacity to 50 million and 20 million respectively by 2050.
Attracting International Investment
Foreign investment in Cambodia has tripled in the past 10 years, driven by companies based in Asia-Pacific, North America, and Western Europe. Placing third for FDI in the Asia-Pacific region, it attracts three times the level of expected FDI for a country of its GDP.
China alone has helped to double FDI since 2016, and the reopening of its borders will provide a significant boost to tourism and trade.
Neighbouring countries such as China, Hong Kong, Singapore, and Vietnam all represent established business hubs and make for strong rivals. Cambodia must therefore push forward to establish itself as an attractive destination for businesses and investors. In 2020, it launched an online application system where companies can get approval within eight working days to establish their operations in Cambodia. It also grants 100% foreign ownership for overseas companies that establish a base in the country.
What Is Next For Cambodia?
As an export-orientated economy, Cambodia is threatened by slowing demand in the U.S. and Europe. To continue its rapid growth, the country must diversify exports; expand infrastructure and education into rural areas, and establish new tourism destinations.
And the country is well on its way to doing so. Its economy remained resilient throughout the pandemic and is now coming out the other side. Meanwhile, tourist numbers are building quickly.
Thanks to stabilising food and energy prices, inflation has eased to 0.7%—in contrast to the high inflation levels which continue to plague the U.S. and Europe. With this, Cambodia is naturally becoming an increasingly attractive location for real estate investors.
What’s more, as an emerging economy, Cambodia offers low entry costs and high growth potential, making now the ideal time to invest.
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