Trend of Foreign Direct Investment, Net Inflows

This series shows Net Inflows (new investment inflows less disinvestment) in an economy from foreign investors. Data are in U.S. dollars. The latest value for Net Inflows in Cambodia was USD 1,557,134,885 as of 2012. Over the past 9 years, the value for this indicator has fluctuated between USD 131,416,229 in 2004 and USD 1,557,134,885 in 2012. On the other hand, the latest value for Net Inflows in Bangladesh was USD 1,178,439,622 as of 2012. Over the past 9 years, the value for this indicator has fluctuated between USD 448,905,401 in 2004 and USD 1,178,439,622 in 2012. Source: http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?display=default Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cambodia 131,416,229 379,180,191 483,209,383 867,288,539 815,180,218 539,113,440 782,596,735 901,668,591 1,557,134,885 Bangladesh 448,905,401 813,321,972 697,206,284 652,818,719 1,009,623,164 732,809,636 918,172,638 1,137,916,361 1,178,439,622

A graphical comparison of Foreign Direct Investment, Net Inflows of these two countries is shown below

1,800,000,000 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cambodia Bangladesh

Factors that Attract Cambodia as Best FDI Destination

The influx in investment is credited to the following factors Safe Banking Sector

One of the authorities playing a key role in Cambodia's macro-economic success is the National Bank of Cambodia (NBC) which has overseen trade policies, market liberalization and low inflation that has defined the country's economic development. As the country's central bank and highest financial regulatory body, NBC determines the monetary and exchange policies within the framework of the economy and supervises the fast-growing banking sector and financial services industry. Among the notable achievements are the total banking sector assets reaching 80 percent of GDP in 2012 versus just 22 percent in 2005. Over the same nine year period, credits and deposits surged to 43 percent and 46 percent of GDP, respectively, from 09 percent and 15 percent. Cambodias strength in Greenfield projects in retail banking. Over the past decade, Cambodias banking sector attracted the most capital, US$2.3 billion, of any least developed country, and the second highest number of projects, at 56. Strong Bilateral Relations

Economic diversification is attracting substantial sums of FDI from China and beyond. Home to the fastest-growing economy in Southeast Asia, Cambodia enjoys excellent bilateral political and fiscal ties to the People's Republic of China that continue to strengthen after being formed 55 years ago. The NBC recently signed a Memorandum of Understanding (MOU) with the China Banking Regulatory Commission. Chea Chanto. The MOU will create an exchange of information and cooperation in banking supervision both inside and outside of the country. As a result, the Chinese authorities will be able to inspect and supervise branch activities while at the same time to help to improve the knowledge and skills of local workers. The State-owned authority recently opened a $28 million container terminal financed by a loan from the Chinese government. Small Businesses Serve as Backbone of Sustainable Economy

Historically, Cambodia has relied on the role of small- and medium-sized enterprises (SMEs) as the backbone of a sustainable economy. Generally, in Cambodia when we talk about SME economic activities, we are in fact talking about micro-small and medium-sized enterprises (MSMEs), as out of the more than 500,000 economic establishments or enterprises counted in the 2011 Cambodia Economic Census, some 493,000 of them employ only one to 10 employees. Growth in the number of MSMEs could help expand the economy, create more jobs, facilitate Foreign Direct Investment, and enlarge the tax collection base. The 2011 census shows that more than 500,000 economic establishments

were engaged in economic activities, employing more than 1.6 million laborers or approximately 20 percent of the total Cambodian labor force.

Strategic Position

Home to the fastest-growing economy in Southeast Asia, Cambodia enjoys a strategic position. Established in 1986, Phnom Penh Autonomous Port is the country's second largest international port and boasts a strategic position at the intersection of four major rivers in the heart of the country. Business Climate

Rich in history and culture and blessed with wonderful natural and human resources that are driving its impressive economic growth and attracting record sums of foreign direct investment (FDI), the Kingdom of Cambodia offers investors a modern, friendly and welcoming business climate. Investment Protection

The Investment Law and Sub-decree of Cambodia contain a number of important guarantees for the investors: Equal treatment of all investors No requirement of local equity participation No price controls on products or services No restriction on ForEx convertibility Free remittance of foreign currencies abroad

There are several investment incentives such as 20% Corporate Tax Tax holidays of 3 years Full Import Duty Exemption Repatriation of profit (withholding tax) Reinvestment of earning (special depreciation) Labor Intensive Economy

Many major international companies have invested hundreds of millions of dollars in laborintensive garment and manufacturing industries to take advantage of the country's young population and duty free access to a number of lucrative markets such as the EU.

Businesses are looking to cut costs in labor intensive industries, particularly the garment sector. Cambodia is touted as a bright spot in Southeast Asia, where overall FDI increased by only 2%. Special Economic Zones (SEZs)

Cham Prasidh, senior minister and minister of Commerce, has played a key role in Cambodias emergence as leading FDI destination and in the creation of more than 20 strategically-located Special Economic Zones (SEZs) around the country which ensure better infrastructure and One Stop Services/SEZ Zone Administration, including SEZs near the borders with Thailand and Vietnam. 22 SEZs have been authorized and are being developed by private investors/operators. Five SEZs are currently in operation, the remainders are in various stages of development. Pro-business Government:

The government has committed to a Pro-business/Investor Model which resulted in the formation of Government-Private Sector Forum (GPSF) which includes the followings o o o o Steering Committee for the Private Sector Development: Sub-steering committee on Investment Climate Sub-steering committee on Trade Facilitation Sub-steering committee on SME Development

There are 9 Working Groups chaired by Government and Private Sectors representative who meet on a monthly basis to address the issues relating to doing business and investment in Cambodia. GPSF conducted in every six months, presided over by Prime Minister to ensure o Easy access to Government Officials o Prompt response to all inquiries

Challenges
Corruption Although the businesses in Cambodia are optimistic of the countrys economy, its appeal as an investment destination lags behind most of its neighbors due to the perception of endemic corruption. There are several benefits of doing business in Cambodia as mentioned above. For companies already operating in Cambodia, the profit outlook was overwhelmingly positive.

Yet foreign companies not based in the country were less excited about making the move to Cambodia, which placed 8th out of the 10 ASEAN countries, behind Laos and Brunei. Reasons cited by companies were a shortage of skilled workers, unfavorable laws and regulations and underdeveloped infrastructure .But the major worry for most of the investors is corruption. Accuracy of the Statistics

For the first time in recent memory, the Ministry of Economy and Finance has released growth projections for the first half of the year, and the numbers are good. The ministrys preliminary data claims that from January through June, economic growth stood at 7.6 percent, an announcement that critics are questioning not only for accuracy but also for timing. Risk of Credit Growth

The World Bank has warned that the rapid growth of lending by Cambodias Banks is still a concern, despite a recent slow-down in credit disbursals. Credit growth, which has been driven largely by wholesale and retail financing, and starting in 2011 agriculture financing, has eased to 29.2 percent (year on year) in January 2013. The annualized rate of lending growth was 34 percent in December and as high as 34.6 percent in January 2012. Limited Access to Capital

Commercial banks are a primary source of funding. Limited access to capital is one of the constraints of doing business in Cambodia. In 2011, the key players in Cambodias financial sector are 31 Commercial banks, 2 Representative Offices, 7 specialized banks and 32 microfinance institutions, 28 micro-finance NGOs and 11 insurance companies. The top-4 hold over 70% of total deposits and loans in the banking system. Ownership and Use of Land

The Law on Investment of Cambodia restricts foreigners from owning land in Cambodia since land ownership is reserved to natural and legal Cambodians. Employment of Foreigners

A business is entitled to obtain visas and work permits for the employment in Cambodia of foreign citizens as managers, technicians and skilled workers, if the qualification and expertise are not available in Cambodia.