Cambodia’s Economic Outlook

Cambodia, a dynamic player in the Southeast Asian market, is expected to exhibit strong economic performance in 2023. We hope to provide an exploration of the upcoming trends, opportunities, and challenges in the Cambodian economy. Specifically, we’ll underscore the role the hospitality industry, such as our company Thalias Hospitality, plays in boosting the nation’s economic development. Despite ranking amongst the lower-tier in the Association of Southeast Asian Nations (ASEAN) in terms of GDP per capita, Cambodia presents a fascinating economic paradox. This country, abundant in underdeveloped sectors, has been one of the fastest-growing economies in ASEAN for over two decades. The International Monetary Fund forecasts that by 2025, Cambodia might emerge as Southeast Asia’s fastest-growing economy. The country’s rapid growth has been fueled by several factors. The need for infrastructure development, such as road construction and internet connectivity expansion, combined with a bourgeoning middle class, has significantly boosted economic expansion. Moreover, Cambodia’s low labor costs have been attracting Foreign Direct Investment (FDI), leading to the production of goods like garments and sneakers for worldwide consumption. The Cambodian government has shown enthusiasm in welcoming international finance as a means to foster national development and gain public legitimacy. Efforts to diversify export markets have led to the establishment of several Free Trade Agreements (FTAs) with key trade partners including China. Phnom Penh, the capital of Cambodia, has yet to gain the trust of Western nations like the US and EU. The country’s limited human capital, coupled with its close ties with China, has led these nations to perceive Cambodia as an unreliable manufacturing hub for critical goods. For Cambodia to sustain medium and long-term growth, structural reforms and a geopolitical rethink are crucial. Without these changes, the nation risks missing opportunities for “friend-shoring” and may face potential stagnation. Source here The World Bank’s Cambodia Economic Update: Post -COVID-19 Economic Recovery, suggests that Cambodia’s economic recovery solidified in 2022, with real growth accelerating to 5.2%. A strong rebound in the services sector, especially trade, travel, and hospitality, has helped Cambodia return to pre-COVID-19 growth levels. The agriculture sector expansion, due to improved access to regional markets following newly ratified trade agreements, is forecast to further speed up economic growth to 5.5% in 2023. The services sector, specifically trade, travel, and hospitality, has been instrumental in reviving Cambodia’s economy. As the country hosts the Southeast Asian Games and ASEAN Para Games, foreign arrivals have accelerated, bolstering the tourism industry. Furthermore, easing domestic prices due to stabilizing global oil and food prices have also contributed to the economic recovery. In the medium term, Cambodia’s growth is projected to rise to 6 percent, spurred by robust goods and services exports and a significant increase in investment, especially under public-private partnerships for major infrastructure projects such as seaports and roads. The resurgence of the services sector, particularly hospitality, has played a pivotal role in Cambodia’s economic recovery. Companies like Thalias Hospitality, have contributed to this revival by offering premium services, creating jobs, and promoting sustainable tourism. Looking ahead, the hospitality industry will continue to play a vital role in Cambodia’s economic outlook for 2023. To safeguard its economic recovery, Cambodia needs to diversify its tourism products and destinations. This diversification can boost the nation’s trade competitiveness by enhancing connectivity, reducing trade barriers, and streamlining customs procedures. The hospitality industry also contributes to job creation and stimulates the local economy. As more tourists visit Cambodia, demand for local products and services increases, boosting local businesses and fostering economic growth. The hospitality industry plays a crucial role in promoting sustainable tourism. By adopting eco-friendly practices and supporting local communities, companies like Thalias Hospitality contribute to the sustainable development of the Cambodian economy. One of the key drivers of Cambodia’s economic growth in 2023 is the robust performance of merchandise exports and foreign direct investment inflows. The industry output is expected to grow by 8.1% in 2022, rising further to 9.1% in 2023. – Source here The Garments, Footwear, and Travel Goods sector is expected to play a significant role in this growth. This sector is expected to be buoyed by the implementation of the Garments, Footwear, and Travel Goods Development Strategy aimed at enhancing competitiveness. Goods and services exports are forecast to grow in 2022 and 2023 on strong external demand for Cambodian products, supported by a recovery in tourism services. This growth is expected to contribute significantly to the country’s economic outlook. While increasing trade and tourism are crucial for Cambodia’s economic growth, these alone will not be enough to sustain high economic growth. The nation, which has traditionally focused on producing and exporting garments, travel goods, and footwear, can benefit from diversification into light manufacturing such as bicycles, electronic components, and wiring products. Diversification is especially crucial for making the economy more resilient to external demand shocks. This resilience can help the nation manage economic uncertainties and maintain consistent growth in the long run. FDI plays a significant role in promoting economic diversification. With FDI inflows, Cambodia can tap into new technologies, expertise, and markets, further boosting its economic growth. FDI plays a critical role in Cambodia’s economic growth. The Royal Government of Cambodia (RGC) has prioritized attracting investment from abroad and has passed a new Law on Investment in 2021, offering FDI incentives such as 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. FDI can significantly boost economic growth by bringing in capital, creating jobs, and promoting technological transfer. It can also help the country diversify its economy and become more resilient to external shocks. Cambodia has signed bilateral investment treaties (BITs) with 27 countries and implemented its first and second bilateral free trade agreement (FTA) with the PRC and the Republic of Korea in 2022. The country is also a party to several regional free trade agreements and double taxation agreements, which contribute to its economic outlook by fostering trade and investment. In July 2006, Cambodia signed a … Read more