Harrison White
The official amount of Foreign Direct Investment (FDI) inflow to Cambodia last year remained steady at $3.5 billion down -1% compared to 2019, according to the National Bank of Cambodia Financial Review 2020 report.
China was the leading source of FDI inflows accounting for 51%, followed by Singapore (8.2%), Korea (7.9%), Japan (5.8%), the UK (4.4%), Malaysia (4.2%), and Thailand (3.3%). The FDI inflows from China are mainly to the garments and footwear, hydropower, real estate, finance, and accommodation sectors
FDI inflows contracted slightly in 2020 amid the contraction in non-banking sectors. The total FDI inflows, mainly to financial, construction and real estate, and manufacturing sectors, down -1% due to uncertainty over the evolution of the COVID-19 pandemic.
The financial sector, which accounted for about one-third of the total FDI, continued a positive growth rate of 12.8 percent in 2020 compared to 15.8 percent in 2019 due to an increase in reinvested earnings, additional capital injection of banks, newly opened banks, and status transformations from microfinance institutions to commercial banks.
Meanwhile, the FDI to non-banking sectors decreased by -9.4%, of which the FDI to the construction and real estate sector (17% share of the total FDI) decreased by -10.6%, and the FDI to manufacturing (16.2%), dropped by -7.4%.
In May, the Singaporean-based ASEAN+3 Macroeconomic Research Office (AMRO) urged the need for more diversification of FDI inflow predominately into Cambodia’s health, education, and infrastructure sectors over the near to mid-term (three to eight-years) period.
AMRO also encouraged more domestic industry development while attracting more quality FDIs into all priority sectors to diversify the economy, citing “the pandemic has exposed the risks of relying on a few export products and markets”.
According to the NBC, the effort of economic diversification was illustrated by the increase in FDI to non-garment industries, predicted to slowly expand.
“Sectors, such as travel goods, energy, electrical parts, vehicle spare parts, among others, have recently emerged as newly attractive industries for foreign investors. With appropriate support, these industries could boost the diversification in the manufacturing sector in the medium term,” the report stated.
“The RGC [Royal Government of Cambodia] has taken advantage of technological advancement by digitalizing several public services, including those related to trade, investment, and business registration, while FinTech, especially the payment system, has grown remarkably. This progress would lead to cost reductions and productivity enhancement with improved innovation, which are the key factors to attract more FDI,” it added.
