Cambodia Investment Review
The recently released EuroCham Business Survey for 2023 has offered a panoramic view of Cambodia’s evolving business ecosystem, indicating an optimistic landscape rife with both opportunities and challenges.
According to the survey, a significant majority of businesses operating in Cambodia have met or exceeded their profitability targets for the year. The data showcases an impressive turnaround from the fiscal stress of the Covid-19 pandemic, which had a substantial influence on the 2021 survey results. “There’s a renewed sense of optimism and willingness among companies to invest in their operations within Cambodia,” said a EuroCham representative.
This positivity comes despite persistent challenges such as declining access to finance and a diminishing pool of skilled labor. The survey revealed that Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) programs are gaining traction. “Businesses are beginning to understand their roles extend beyond profitability to contributing to societal and environmental wellness,” noted an industry insider.
Cheap Labor as Cambodia’s Primary Advantage Is Dwindling
On the trade front, the survey touched upon the effects of the European Union’s withdrawal of the Everything But Arms (EBA) trade preferences. A surprising 71% of businesses reported negligible impact on their operations due to the withdrawal, while 23% did note a negative impact.
In terms of governance, the survey highlights an overall improvement in business climate transparency and a notable decrease in unofficial fees. However, the issue of declining access to finance has emerged as a new hurdle. “This is an area requiring targeted interventions by stakeholders,” warned a senior financial analyst based in Phnom Penh.
A significant shift indicated in the survey is the changing perception of Cambodias competitiveness in labor costs. The view that cheap labor is Cambodia’s primary advantage is dwindling. “We are observing a gradual transition away from labor-intensive industries,” mentioned a human resource expert. However, this has introduced a new challenge: retaining skilled labor for emerging sectors.
Unofficial Fees Have Reduced, But Remain a Significant Obstacle
Regarding Cambodia’s regional competitiveness, 69% of survey respondents felt Cambodia is competitively average when compared to other ASEAN countriesa significant increase from 2021, when only 15% felt similarly. Low human resource costs continue to be seen as an advantage, but 56% of companies emphasized concern over the relatively low skills and educational levels of workers. Beneficial taxation rates are also becoming increasingly noted as an advantage.
Still, challenges persist. “Although unofficial fees have reduced, they remain a significant obstacle,” said a business owner who participated in the survey. Issues around human resources, unfair competition, and taxation also linger.
The survey found that recent policy reforms have had mixed impacts. A total of 22% of respondents found these reforms beneficial, but a substantial 69% felt they had little to no effect on their operations. Respondents indicated a desire for greater transparency, simpler bureaucratic procedures, and easier customs processes as the key areas requiring improvement.
Despite Hurdles, The Outlook Remains Generally Positive
In spite of these hurdles, the outlook remains generally positive. A remarkable 73% of businesses met or exceeded their annual profitability targets, and 33% significantly surpassed these targets. “This is particularly uplifting when contextualized against the backdrop of the Covid-19 pandemic,” stated a EuroCham spokesperson.
Read more: Cambodian SMEs Risk Losing Out To Regional Competitors That Are More ESG-Ready
However, businesses did express reservations about the ease of doing business in the Kingdom. While some felt that the business environment had improved, others found it more challenging. “It’s a mixed bag, but the overall trend indicates an increasing ease in doing business here,” summarized a Phnom Penh-based business consultant.
The survey also detailed how global challenges continue to have a substantial impact on businesses in Cambodia. Covid-19 remains the most detrimental, followed by inflation and the Ukraine war. “These issues affect us in a context-specific way, emphasizing the need for agility and adaptability,” commented an executive from an international corporation operating in Cambodia.
As Cambodia navigates its path through these complexities, the surveys results are reflective of a business community that remains optimistic yet cautious. With rising attention to CSR and ESG programs, decreased reliance on cheap labor, and increasing focus on tackling challenges head-on, the Kingdom’s business landscape is clearly in the midst of a significant transformation.
