Tractus in Cambodia

Cambodia began its slow transformation into a market driven economy in 1995 – and now retains untapped potential

With a population of 16 million and a nominal GDP of US$27.09 billion it remains one of the smallest economies in ASEAN and the least industrialized. However, Cambodia has made great strides in the past two decades as GDP grew at an average annual rate of over 8% between 2000 and 2010, and about 7% since 2011. In 2016, The World Bank formally reclassified Cambodia as a lower middle-income country because of its continued rapid economic growth over the past several years. Uniquely situated between its fast-growing neighbor, Vietnam, and more the more mature markets in Thailand, Cambodia offers intriguing opportunities as one of ASEAN’s ‘frontier’ economies.

Cambodia’s economy is still largely agrarian with 39% of output coming from agriculture, 29% from manufacturing and 31% from the services industry. Unlike almost all other fast-growing economies, Cambodia’s agriculture industry is growing in importance relative to manufacturing and services. Construction and tourism dominate the services industry; within manufacturing, the cut and sew garment sector employs over 800,000 workers and accounts for the vast majority of exports.

With almost one-half of the population employed in agriculture, significant room exists for farmers earning less than US$1 a day to move out of agriculture and into manufacturing and higher value service jobs. Cambodia is an especially promising labor market as almost 70% of the population is under 25 years old and in the prime working age demographic. Cambodia’s manufacturing sector is almost completely comprised of low-value added cut and sew garment operations seeking to benefit from Cambodia’s low loaded wage rates.

Service businesses are preferentially concentrated in its two largest cities – Phnom Penh, the nation’s capital, and Siem Reap, its primary tourist destination centered on the ancient ruins of Angkor Wat. Service sector employment is highly concentrated in tourism-related business. While there are a number of domestically oriented shared dedicated service delivery operations the country has been off the radar screen of foreign operators, but this is likely to change as the traditional BPO markets in India and the Philippines are starting to show signs of saturation.

John Evan’s, Tractus’ co-founder and managing director, previously served on the advisory board for H.E. Chantol Sun, the Cambodian Minister of Commerce, and was also sub-committee chair for Trade and FDI. Presently, Tractus has strategic partners in country that are uniquely networked on both a very senior level and mid-management level of government and interact with key business and legislative influencers from the Ministries and the private sector. Our team brings an intimate knowledge as to how to navigate within Cambodia’s system combined with a unique understanding of Cambodia’s FDI complexities for those companies wishing to enter and operate within this emerging marketplace.