Cambodia Investment Review
Stephen Higgins, Managing Partner at Mekong Strategic Capital delivered an in-depth analysis of Cambodia’s economic performance in 2023 and 2024 while shedding light on the opportunities and challenges expected in 2025. Hosted by the Cambodian Institute of Directors (Cam-IoD), the keynote provided valuable insights into macroeconomic trends, sectoral performances, and strategic considerations for businesses operating in the Kingdom.
Read More: E109 – Stephen Higgins on Charting Cambodia’s Economic Course in a Post-Pandemic Era
Revisiting 2023: A Recession in Disguise?
Higgins scrutinized Cambodia’s 5% GDP growth rate reported in 2023, challenging its validity. A substantial portion—2.1%—was attributed to non-garment manufacturing, primarily solar exports. However, the absence of significant solar panel manufacturing infrastructure in Cambodia raised questions about this growth’s sustainability. The economy exhibited signs of recession, evidenced by a sharp contraction in garment exports, plummeting VAT and excise collections, and a 44% decline in vehicle imports, a proxy for discretionary spending.
“2023 was marked by economic stagnation,” Higgins noted. “The decline in domestic demand and underperformance in key sectors reinforced recessionary pressures, despite official figures suggesting otherwise.”
2024: Recovery Amid Sectoral Divergences
In 2024, Cambodia witnessed a remarkable turnaround in exports, excluding solar products, which surged by 25%, outpacing Vietnam’s 14% growth. Garment exports rebounded, and consumption taxes rose modestly, signaling a recovery in domestic demand. Vehicle imports also improved, with a 28% year-on-year increase.
Tourism offered a mixed picture. While air arrivals grew by 29% compared to 2023, they remained 47% below pre-COVID levels. Higgins emphasized reputational issues as a barrier to full recovery, despite Cambodia’s compelling tourism offerings.
Property Sector and Banking Challenges
The property market remains a significant concern. Higgins described it as “ugly,” with oversupply leading to falling prices and stagnating volumes. Loan arrears, driven by declining incomes, along with active restructured loans, have reached 14% of the total loan portfolio, reflecting systemic vulnerabilities.
“Resolving non-performing loans will necessitate substantial property sales in the coming years, which could further depress prices,” Higgins remarked.
On a brighter note, deposit growth in the banking sector outpaced loan growth in 2024, creating surplus liquidity. While this is reducing interest rates on deposits, banks are now offering better deals for quality borrowers.
What Lies Ahead in 2025?
Higgins outlined a cautiously optimistic outlook for 2025, driven by key factors:
- Export Growth Moderation: After a stellar 2024, export growth is expected to slow.
- Tourism Recovery: Continued improvement in tourist arrivals, albeit still below 2019 levels.
- Domestic Demand: A critical growth driver, supported by infrastructure investments.
- Property Market Struggles: Persistent challenges due to oversupply and price corrections.
- Global Uncertainty: External pressures, including geopolitical and trade issues, could weigh on the economy.
The World Bank projects a GDP growth rate of 5.5% for Cambodia in 2025, with inflation remaining low at 2.2%. However, Higgins cautioned that risks are weighted to the downside for GDP growth, and to the upside on inflation, depending on domestic reforms and international dynamics.
Strategic Recommendations for Businesses
Higgins urged businesses to prioritize agility and financial prudence amid economic uncertainties. “Cash is king,” he stated, emphasizing the importance of cash-generating ventures. He also advised reducing operational leverage and capitalizing on competitive banking offers.
For the long-term, Higgins highlighted that Cambodia remains a fundamentally high growth economy, driven largely by manufacturing as the cornerstone of Cambodia’s economic future.
Launched in early 2024, the Cambodian Institute of Directors (Cam-IoD) provides board directors and executives in Cambodia with internationally certified corporate governance training, professional development, and exclusive networking opportunities.