Tourism, automotive, electronics, power, franchising – the options are limitless, and if you want to be a part of one of the fastest growing economies in Asia, here are some tips on opening a business in Cambodia.
Now is the time to be a part of this growing nation’s economy.
Growth over the last 10 years
Cambodia has risen from a traumatic past like the proverbial phoenix rising from the ashes. From a country afflicted with conflict and poverty, Cambodia now has one of the fastest growing economies in Asia.
The country’s gross domestic product has grown by 7.5% since 2011 according to the Asian Development Bank, and is expected to reach 6.9% in 2018 and 6.7% in 2019. These figures are attributed to increased inflows of foreign direct investment from the export of footwear, electrical machinery and auto parts, amongst others.
These figures are predicted even with the competition received from other countries in the region like Myanmar and Vietnam.
Cambodia’s economy has been reclassified by the World Bank. It has changed from lower-income to lower-middle-income, which means that their GNI per capita income (PCI) has exceeded $1,026, while the lower-middle-income range tops out at $4,035.
Trade and investment policies in Cambodia
Cambodia became a member of the World Trade Organization (WTO) in 2004 and is a member of the Association of Southeast Asian Nations (ASEAN).
Being a member of ASEAN means businesses in Cambodia have the advantages of a single market of over 600 million people from the ten countries in the region. It also includes free trade agreements the ASEAN has with China, Japan, South Korea, India, Australia and New Zealand, while the US and the EU are Cambodia’s main export markets.
Cambodia has liberal trade and investment policies in place to help create an open business environment and attract foreign investment.
All sectors of the economy are open to foreign investment, and the government permits 100% foreign ownership of companies in most sectors.
Investment incentives available to foreign investors include corporate tax holidays of up to 9 years, a 20% corporate tax rate after the incentive period ends, duty-free import of capital goods and no restrictions on capital repatriation.
In addition, the country is competitive in terms of the corporate taxation, with one of the lowest headline tax rates in the region and a relatively competitive tax compliance system.
Cambodia, classified as a Least Developed Country (LDC), is eligible for duty free or preferential export access to many developed economies, including the EU and US.
Special economic zones in Cambodia
Special economic zones have been created to stimulate foreign direct investment into the region.
The largest special economic zone is in Sihanoukville with an investment capital of over US$ 610 million. There are 93 factories operating in this region, employing 16,000 people, and the goal is to house 300 businesses within 5 years.
Incentives are offered to projects within these zones. Benefits such as tax holidays, zero rate VAT and import duty exemption for raw materials, machinery and equipment are provided. The primary authority responsible for the special economic zones is the Cambodia Special Economic Zone Board (CSEZB).
Business opportunities in Cambodia
You will find opportunities in the following industries:
- Agribusiness and food processing
Agriculture is one of Cambodia’s largest economic sections. Rice is the main crop, followed by vegetables, sugarcane, cassava, soy bean and maize.
- Power generation
- Fast food and beverage franchises
- Garments and footwear
The garment industry has grown significantly over the past twenty years, contributing to one third of the country’s economy and employing over 700,000 in more than 1,000 garment factories. The two main export destinations for garments and footwear are the EU and the United States.
- Pharmaceuticals, medical supplies and equipment
Other industries include fishing, wood and wood products, rubber, cementa and gem mining.
RMA Group doing business in Cambodia
RMA Cambodia was established in 1992 in Phnom Penh, and has grown year-on-year to offer a wide range of products and services.
RMA Cambodia provides equipment, services, and comprehensive solutions that respond to commercial and humanitarian needs. It supplies and supports commercial enterprises that engage in automotive, infrastructure, agriculture machinery, warehouse solutions, financial solutions, car rental service, food franchise management and aid and development contractors. The RMA Group partners with these exclusive brands include: Ford, Jaguar Land Rover, John Deere, Avis, JCB, TCM, Megger, BSP Cambodia, The Pizza Company, Swensen’s, Dairy Queen, Krispy Kreme and Bar-B-Q Plaza.
With more than 2600 employees, RMA Cambodia’s operations extend throughout the country with 58 different offices and branches. It is a leader in the Automotive, Infrastructure, Engineering and Food Services sectors nationwide.
Challenges in doing business in Cambodia
Despite its improving business climate, there remain significant challenges to doing business in Cambodia.
The most common challenges faced by entrepreneurs include:
- a lack of transparency in government
- weak rule of law
- high energy costs
- red tape and corruption
- underdeveloped human resources, including inadequately trained resources and low education levels
- poor transport infrastructure.
Land appropriation and the lack of adequate intellectual property protection are also significant risks.
Human rights concerns remain, in particular with respect to freedom of expression, freedom of assembly and media freedoms.
Tips on opening a business in Cambodia
- Do your research. Get to know and understand more about Cambodia the country and culture, including the business environment.
- Network with local entrepreneurs. Relationships are important in doing business in Cambodia, and are often the key to successful business transactions.
- Find a Cambodian partner who can do any upfront groundwork for you. Find someone who knows the market and has their own network from which you can leverage. A local partner can facilitate and expedite market entry through market knowledge and established networks.
- Learn about barriers to market entry and local requirements; know what things to be aware of when entering the market for this country.
It is also important to understand how to act in the Cambodian business environment. Being respectful and polite and showing deference to the most senior person is part of the Cambodian culture. When in a group, you will always be introduced to the person of highest rank first.
Keep your handshakes firm, but not too firm as this might be seen as aggressive. The Cambodian people use subtle styles of communication to avoid causing any offence.
Great potential, great possibilities
Located in South East Asia bordering the Gulf of Thailand, the Kingdom of Cambodia is one of the most potential, developing markets in this region. This tropical area offers so many business opportunities, and is on the verge of climbing up the manufacturing value chain.
The question is – is your business plan drawn up yet?