Cambodia: The main economic highlights

QR-Code payment, new airlines, construction, electricity and rubber all feature in this business review.

Phnom Penh. Photo CG

Cambodia's recent graduation, the price of success

As an LDC, Cambodia benefits from trade advantages for its exports, such as the Everything But Arms (EBA) regime. In May 2024, the United Nations Economic and Social Council validated the Kingdom's good economic results and its graduation from the list of LDCs in 2029. This success, with the loss of commercial advantages it represents, is also a challenge. To mark the 20th anniversary of Cambodia's accession to the WTO, CHAM Nimul, Minister of Trade, announced the trade strategy designed to manage this transition.

The country plans to strengthen its free trade agreements, improve the business environment, accelerate digitisation and online trade... However, there are no plans at this stage for the policies to be implemented to benefit from privileged access to the European market under the GSP+ regime. This requires full compliance with international conventions - all signed and ratified by the Kingdom - on human rights and trade union rights.

Borderless QR-code payment

Since Monday, the Alipay+ QR code payment system, developed by the Chinese group Alibaba in 2020, has been accepted in Cambodia. Symmetrically, Cambodian consumers will use their own QR code payment systems in shops offering Alipay+. This interoperability is made possible by the Bakhong system, a genuine clearing house set up by the National Bank of Cambodia - and secured by blockchain - including across borders. Until now, only tourists from Korea, Laos, Malaysia, Thailand and Vietnam have had QR code payment systems recognised in Cambodia.

The recognition of Alipay+ by Bakhong will enable Chinese, Singaporean and Filipino tourists to facilitate their transactions with the three million or so Cambodian businesses recognised by the Bakong system. This will boost the activities of the corresponding businesses, especially as Alipay+ claims 1.6 billion users, most of them Chinese.

More tickets for Angkor

From next month, two new air routes will serve Siem Reap international airport, linking Bangkok (Thai Airways) and Phuket (AirAsia). The first will open on 27 October, and the second on 29 October. A third route, scheduled to open on November 9, will link Singapore to Siem Reap (AirAsia). The reduction in Cambodian taxes on airlines is undoubtedly helping. According to the Kingdom's Ministry of Tourism, Siem Reap welcomed 650,000 international tourists in the first eight months of the year (+31% compared to the same period in 2023).

However, this is still less than the 1.2 million international tourists for the same period in 2019. The international tourists who landed in Siem Reap came from the United States, the United Kingdom and France (in that order), without further details.

A two-speed construction sector

In the first 5 months of 2024, Cambodia approved just 1,330 construction projects, down 9% on the same period the previous year. The sector, largely deserted by Chinese companies and investors, is in a slump. However, a recent report by the international real estate agency CBRE notes that this is not the case for luxury apartment complexes or industrial property. This partly explains the 59% rise in iron and steel imports for January-August 2024 (USD 404m compared with USD 254m for the same period in 2023).

This phenomenon can be explained by companies setting up operations in the country and the development of Cambodian infrastructures, such as Honda, which has just announced that it wants to increase its motorbike sales and therefore its production capacity in Cambodia, or the start of construction of a new Minebea Mitsumi factory (electronics) in Pursat province.

Electricity, more electricity, always more electricity

During a visit to China this week, Cambodian Deputy Prime Minister SUN Chanthol told Chinese investors about Cambodia's growing energy needs. As a reminder, Cambodia has drastically improved its electricity network since the early 2000s, to the point where almost all villages are now electrified (99%), compared with just 25.3% in 2004. This effort has been made possible in part thanks to the expertise of a number of French companies, including EDF, which has helped to modernise the control and monitoring of the Cambodian network.

Today, Cambodia has a production capacity of 4 GW. With its transport electrification and carbon neutrality projects, electricity demand for 2040 will require around 10 GW of capacity. As a result, the country is increasingly calling on foreign investors. For the record, Electricité du Cambodge does not produce any electricity, which is delegated to 28 independent producers. On 6 September, Japan approved a highly subsidised loan of USD 55 million to Cambodia for the maintenance and improvement of the Phnom Penh electricity network.

Eight months on, nothing new

Cambodia's foreign trade reached USD 36.5 bn between January and August 2024 - up 16.5% on the same period in 2023, according to the latest data from Cambodian Customs. Cambodian exports rose by 16.7% to USD 17.6 bn and imports by 16.2% to USD 18.9 bn. The trade balance deteriorated to USD -1.3bn, compared with USD -588m for the same period in 2023. As in 2023, the majority of exports were destined for the United States, the EU and Vietnam (USD 12.1 bn). It should be noted that of the 3 countries, sales to Vietnam saw the strongest growth (+39% compared with 2023, or USD 2.5 bn).

The products exported are mainly clothing (+25%, USD 7.6 bn), electrical equipment (-38%, USD 1.4 bn) and leather goods (+27%, USD 1.4 bn), the same trend as in 2023. Cambodian imports continue to come mainly from China, Vietnam and Thailand (USD 14 bn). It should be noted that imports from China have increased more rapidly than those from its other neighbours (+25%, USD 9 bn). As in 2023, Cambodia mainly imports hydrocarbons (+17%, USD 2.7 bn), textile inputs (+17%, USD 2.1 bn) and electrical equipment (+30%, USD 1.3 bn). The trade deficit could therefore worsen in 2024, in a classic dynamic where exports are directed towards America and the EU, and imports are dominated by China.

More tyre manufacturers, more demand for local rubber?

Two new Chinese tyre factories are to be set up in Cambodia, representing a total investment of almost USD700m. They will be located in the provinces of Kratie (in north-east Cambodia) and Svay Rieng (on the border with Vietnam). The country hopes that these two projects will not only create 35,000 jobs, but also help to support local production. There are currently three tyre factories operating in the country.

They import natural rubber from neighbouring countries to feed their production lines. Local qualities do not always meet the needs of manufacturers based in Cambodia. The challenge facing the rubber industry is simple: produce rubber of stable quality and add value to it, rather than exporting it raw to Vietnam, in particular, only to re-import it processed. According to Cambodian customs, Cambodian exports of rubber products reached USD 919m in 2023, including USD 528m of natural rubber and USD 380.7m of tyres.

Source: Treasury Department