Opportunities for Cambodia - Market Insights by Enterprise Singapore's Regional Directors

Enterprise Singapore's deputy director for Southeast Asia (Cambodia) Yeoh Choon Jin identifies the sectors that are expected to grow in Cambodia and makes the case for why Singapore companies should consider this growing market.

1. What are some of the latest developments in Cambodia right now?

Cambodia has seen steady growth of around 8 per cent per annum from 1995 to 2018 and is now the sixth fastest growing economy in the world.

To improve productivity and strengthen its competitiveness, Cambodia is investing in training and human capital to capture opportunities in higher-skilled industries and add value to their supply chains.

This strategy is supported by the fact that Cambodia has a young population. More than half its population of 16 million people is under 25 years old - the workforce is increasingly well educated, and eager to learn and work with global companies.

Cambodia recognises the need to diversify beyond traditional industries like garment manufacturing and footwear. It has put in place business-friendly policies and economic reforms to attract more foreign direct investment (FDI) in the manufacturing sector, especially in its Special Economic Zones (SEZs).

For example, its Industrial Development Policy (IDP) - the country's first economic ten-year masterplan - will provide the framework for the manufacturing and agro-processing industries to grow through the development of industrial zones and economic corridors. This will help ensure Cambodia's integration into regional and global production networks. For example, it has plans to:

i) Promote investments through additional incentives and development of SEZs;

ii) Modernise SMEs by providing better access to technology and incentives;

iii) Improve regulatory environments through facilitating trade and export promotion measures in addition to other supporting policies.

2. What are some of the biggest opportunities? Why should Singapore businesses consider entering?

Cambodia is undergoing rapid urbanisation. This will bring about opportunities for companies, primarily in energy, urban solutions and connectivity.

i) Energy

Currently, more than 50 per cent of electricity generated comes from hydropower, with coal contributing another 35-40 per cent. Cambodia is facing a power shortage which has been exacerbated by the extremely hot and dry season. The country's seven hydropower dams are unable to produce enough energy due to the lack of rain. In a bid to end ongoing blackouts, the government is ramping up efforts to purchase power from neighbouring countries such as Thailand, Vietnam and Laos. In the longer term, the government has been looking at various ways to diversify its energy sources and safeguard its energy security.

There are also plans to rely more on solar and LNG solutions over the next few years. Following Singapore company Sunseap's successful solar pilot project in Bavet City, the government invited private sector participation in the development of a national solar park in February 2019. Efforts are also ongoing to lower costs, improve reliability and increase coverage of the country's power transmission and distribution network which presents more opportunities for the private sector as well.

ii) Urban Solutions

As the country industrialises, the government is now focusing on reducing plastic waste, the collection and disposal of waste, and wastewater management in urban centres. The Ministry of Environment will be piloting waste-to-energy projects in cities such as Phnom Penh and Siem Reap. With the mushrooming of small-scale projects, primarily involving the recycling and combustion of industrial waste as fuel, there are opportunities to set up facilities or provide equipment for organic, plastic and combustible waste.

iii) Connectivity

In terms of physical connectivity, we are seeing a growth in the logistics and transport solutions sector, and expect demand to rise further.

Cambodia recently finalised the Logistics Master Plan Development, aimed at resolving the country's demand for greater logistical capacity. It focuses on the development of three main international border gates in Sihanoukville, Bavet and Poipet, which will facilitate greater connectivity and the import/export of 90 per cent of Cambodia's trade volume.

A new container development project at Sihanoukville to increase the port's depth is on the way. This would allow larger container ships of 5,000 TEUs to berth there. Freight rates are in turn expected to fall due to economies of scale, making Sihanoukville Autonomous Port a much more attractive port of call for vessels passing through the region.

In the northern regions, Phnom Penh Autonomous Port (PPAP) is promoting the use of inland waterways instead of land transportation. To aid the movement of agricultural goods, PPAP plans to develop small-scale feeder terminals along the Mekong and Tonle Sap rivers, which would increase the port's capacity to 500,000 TEUs. There are also plans to build facilities such as a logistics centre with rice processing facilities, and a cold/dry warehouse.

In addition to developments in physical connectivity, Cambodia is also making a concerted shift towards a more digitalised economy. Digital technology providers will find keen early adopters among local businesses and consumers alike.

Cambodia's digital infrastructure is growing - and rapidly, too. Over the past two decades, mobile operators have expanded their coverage to rural areas, with 57 per cent of the population having access to 4G technology today. As a result, the number of Internet users in 2018 stands at 12.5 million users - a 15.7 per cent year-on-year increase.

Cambodia's Ministry of Posts and Telecommunications recently announced Digital Cambodia 2019, an initiative to get more businesses and individuals to tap digital solutions. It encourages businesses to embrace digital technology and incorporate it into their day-to-day operations to stay competitive. More and more individuals are moving towards e-commerce platforms and social media, which in turn generates opportunities for businesses as more consumers go online to purchase goods.

The Cambodia Security Commission is developing regulations to help ease the entry of tech firms into the market. This means opportunities for companies with unique digital solutions in Fintech (digital payments, Peer-to-Peer lending), digital media and advertising, e-commerce, digital marketplaces and other development services.

Currently, 80 per cent of Cambodia's population do not have access to secure and efficient payment methods, as communities in remote areas do not have access to banks and other financial institutions. There is thus a strong demand for inclusive and agile digital solutions for online payment.

In Case You Missed It: Another resource you might find useful is this list of useful business contacts.

3. What are some misconceptions that businesses have about this market?

Cambodia has largely slipped under the radar due to a lack of awareness about the country's rapid development in recent years. Some continue to have the misconception that Cambodia is an underdeveloped country, with an economy driven by traditionally low-value and labour-intensive activities such as garment manufacturing and agriculture.

The reality is far from that.

Cambodia is actively moving away from traditional industries and diversifying its economy, supported by its developing digital infrastructure. The government has announced plans to install fifth-generation (5G) Wi-Fi technology in Siem Reap's Angkor area to improve its Internet and online services for tourists. This is just one part of the nation's broader efforts to strengthen national infrastructure, with the goal of harnessing digital opportunities to boost trade, government services, as well as the economy, thereby increasing Cambodia's overall standard of living.

Given these developments, Cambodia presents an attractive destination for Singapore companies.

4. What are some of the biggest challenges that businesses would face and how can they overcome these challenges

Venturing into Cambodia for the first time is not very different from entering others, especially emerging markets; companies should be prepared for uncertainty. Cambodia is in the early stages of development and still building up its data quality, laws and enforcement.

The government is progressively moving towards a decentralised business model, which would give provincial governments more autonomy in making decisions, but this will take time.

In some sectors such as infrastructure, new entrants face strong competition from foreign companies who are already well established in the market. Singapore companies should therefore adopt a collaborative approach and work closely with other Singapore firms to offer comprehensive solutions.

For example, when it comes to urban planning, considerations such as energy requirements, connectivity and waste management come into play; all of these provide opportunities for companies with complementary capabilities to band together towards holistic solutions.

Enterprise Singapore is working with Singapore firms and local communities to identify particular areas or provinces for pilot developments.

5. What's your top piece of advice for SMEs thinking of entering this market?

Personal relationships can be key to successful business deals in Cambodia. Even though it is possible for foreign companies to retain full ownership of businesses set up in Cambodia, Singapore companies looking to venture into Cambodia should consider working with a trusted local partner with both extensive networks and deep market knowledge, especially in areas such as local customs and regulations. The younger generation of Cambodian business owners are more global in their mindset and are open to working with foreign companies.

Companies looking to learn more about doing business in Cambodia can attend Enterprise Singapore's seminars, while those looking to explore specific sectors can participate in relevant business missions with us. They can also get in touch with Singapore Club Cambodia, who has a membership of about 150 Singapore companies situated in the market, to build their networks and gain in-depth insights into navigating the local market.

For more market insights on ASEAN and information on how Enterprise Singapore can work with your business to venture to the region, please visit www.enterprisesg.gov.sg/ASEAN