Cambodia Investment Review
An independent assessment commissioned by NagaCorp Ltd. and conducted by the Political and Economic Risk Consultancy, Ltd. (PERC) has identified economic risks as the primary concern for Cambodia moving into 2024. The review, which examined political, social, and macroeconomic factors, focused on the investment environment surrounding NagaCorp’s casino, hotel, and entertainment operations. It offers a detailed analysis of the country’s domestic political stability, institutional strengths and weaknesses, infrastructure issues, and external economic pressures.
Political Stability Following Leadership Transition
According to the findings, Cambodia’s political landscape is stable following a smooth leadership transition from former Prime Minister Hun Sen to his son, Hun Manet. The report notes that the new government’s policies have been consistent with the previous administration, which has bolstered confidence in the nation’s stability. This transition, along with strong support from various factions of the ruling Cambodian People’s Party (CPP), has been key in maintaining a secure political environment for both local and international investors. Hun Manet’s leadership is further characterized by his reliance on a small group of trusted advisors and a growing dialogue with private sector leaders to ensure that business concerns are addressed.
Economic Challenges Predominate in 2024
However, despite the political stability, PERC’s review underscores that Cambodia faces significant economic challenges. The country’s economy has not yet fully recovered from the effects of the COVID-19 pandemic, and growth is expected to remain below pre-pandemic levels for the foreseeable future. External factors, such as reduced demand for Cambodian exports in the U.S. and Europe, a slowdown in Chinese economic activity, and ongoing global conflicts, continue to hinder Cambodia’s economic recovery. The report highlights that these external risks are largely beyond the control of the Cambodian government, making them difficult to resolve in the near term.
Key sectors that once drove Cambodia’s economic expansion, including construction and real estate, are undergoing corrections. The luxury condominium and office markets, in particular, have struggled, while low wage growth and limited job creation are expected to stifle consumer spending. The financial sector also faces challenges, with a rise in non-performing loans posing risks to broader economic stability. These factors, combined with sluggish demand for exports and reduced tourism from Mainland China, suggest that Cambodia’s overall growth in 2024 will remain subdued.
Infrastructure and Labor Productivity Remain Key Concerns
On the positive side, the report points to several developments that could benefit Cambodia’s economy in the coming years. One such factor is the potential increase in foreign direct investment as multinational corporations diversify their supply chains and reduce reliance on China. This trend could bring more investment into Cambodia’s manufacturing and export sectors. Additionally, the tourism sector has seen some recovery, with a growing number of visitors from Russia, Eastern Europe, and neighboring ASEAN countries.
Despite these opportunities, infrastructure remains a major concern for investors. The high cost of utilities, especially electricity, coupled with underdeveloped waste management systems and poor maintenance, continue to be significant obstacles to growth. The report also highlights that Cambodia’s reliance on coal, while still substantial, may shift as the new government explores greener energy alternatives, which could benefit sectors like sustainable tourism.
Labor productivity in Cambodia has declined since the pandemic, mainly due to a shift in the workforce from higher-productivity manufacturing jobs to lower-productivity sectors like agriculture. This has exacerbated the country’s skills gap, with a shortage of well-educated and specialized workers hindering the government’s efforts to transition the economy to a more skills-driven model. The report stresses that improvements in Cambodia’s education system will be crucial for long-term economic growth, but progress is expected to be slow.
While the overall assessment of Cambodia’s political stability is positive, PERC’s report notes that perceptions of risk, especially regarding political instability and personal security, are often exaggerated. Cambodia remains more stable than it is sometimes portrayed, and aligning these perceptions with reality will be key to attracting further investment. For international investors, such as NagaCorp, navigating Cambodia’s evolving economic landscape will require balancing these risks while capitalizing on emerging opportunities in sectors like manufacturing and tourism.
