On November 3, 2023, the Marketing Department of China National Textile and Apparel Council (CNTAC), and the Sub-Council of Textile Industry, China Council for the Promotion of International Trade (CCPIT TEX) jointly released the Outbound Investment and Cooperation Guide by Country for the Textile Industry (2023) at the 6th Belt and Road Textile Conference. This report introduces and analyzes the investment environment of 20 countries around the world. It provides information and guidance for textile enterprises to engage in “Belt and Road” cooperation.

South Asia - Cambodia

Geography:

Cambodia is located in the southern part of the Central-South Peninsula of Asia, bordering Vietnam, Laos and Thailand in the east, north and west respectively, and facing the sea in the southwest. The Mekong River runs through the entire country from north to south, covering an area of about 181,000 square kilometers. It has a tropical monsoon climate with two seasons, the rainy season from May to October and the dry season from November to April.

Natural Resources:

Cambodia has abundant natural resources, including oil, natural gas, phosphate, gold, bauxite, and other minerals. It also has 61.4% forest coverage and large timber reserves. Water resources are relatively abundant, and Tonle Sap Lake is the largest natural freshwater lake in Southeast Asia.

Macroeconomy:

Cambodia relies on foreign aid and investment for its economic development, as it is primarily an agricultural country with a limited industrial base. It has an open and free market economy with a high degree of economic activity liberalization. In recent years, Cambodia has been actively participating in regional and sub-regional cooperation, joining the infrastructure construction of the regional connectivity program, and attracting more investment. Agriculture, textile- and construction-led industry, tourism, and foreign direct investment are the four main drivers for the economy. According to Cambodian statistics, the gross domestic product (GDP) reached US$ 30 billion in 2022, with a per capita GDP of US$ 1,785 and an inflation rate of 5.3%. The World Bank’s Doing Business 2020 report shows that Cambodia ranks 144th out of 190 economies in the world. The United Nations World Investment Report 2023 reveals that Cambodia received foreign investment flows of US$ 3.58 billion in 2022, with a total investment stock of US$ 44.54 billion.

Status of Textile Industry

Cambodia’s textile industry chain is dominated by garment processing. Garment is the main industry in Cambodia and the largest export sector. 1,100 garment factories in the country, providing more than 800,000 jobs and accounting for 60% of the country’s exports. Cambodia’s garment processing industry continues to primarily focus on processing materials for export. International garment brands such as GAP, UNIQLO and ZARA have garment factories in Cambodia. Cambodia has not yet fully developed its industrial system, and there is an insufficient domestic supply of textile raw materials. The industry chain has weak resistance to risks due to the absence of middle and upper processes like weaving, dyeing, and finishing. Moreover, the supporting products for the industry chain predominantly depend on imports from countries such as China, Thailand, Vietnam, and Pakistan. But the import of raw materials is not subject to special control.

The Cambodian government highly values the garment processing industry as a crucial sector for promoting economic development. The Industrial Development Policy 2015-2025 aims to increase the contribution of the garment processing industry to the GDP from 15.5% to 20% by 2025. It also emphasizes the development of the supporting sectors both upstream and downstream in the industrial chain as a key direction for manufacturing industry growth. In July 2022, the Council for the Development of Cambodia announced eight major national investment projects, four of which are garment factories, expected to create more than 10,000 jobs.

International Trade

The structure of Cambodia’s textile and garment trade is quite simple, with garment exports dominating and fabric imports taking the lead. According to the data from the General Department of Customs and Excise of Cambodia, in 2022, the exports of Cambodia’s textile and garment industry reached US$ 9.34 billion. The main export destinations include the United States, the European Union, Canada, Japan, and the United Kingdom, with the United States being a key market, accounting for 35.1% of the total. From the point of view of export categories, garments are the main export products, accounting for 96.8% of the total textile and garment exports, of which knitted garments accounted for 68.2%. During the same period, textile and garment imports amounted to US$ 5.71 billion, China is Cambodia’s largest source of imports, accounting for about 65% of the total, followed by Vietnam, Taiwan, China, Thailand, Hong Kong, China and so on. The main imported products are knitted fabrics and crocheted fabrics (51%), chemical fiber staples and fabrics (21%), cotton yarns and cotton woven fabrics (19%), and 2.6% of garments.

Summary and Suggestion for Investment

(1) Cambodia has a young population and relatively abundant labor resources. Due to the frequent workers’ movement, the wage level of workers is relatively high compared to neighboring countries such as Vietnam and Bangladesh. The minimum wage has been raised to US$ 194 per month in 2022, but the quality of the labor force and productivity are not exceptional compared to neighboring countries.

(2) Cambodia has abundant hydropower resources, but the lack of development and inadequate supporting infrastructure have resulted in power supply shortages and high costs for water, electricity, and gas. The infrastructure conditions are relatively poor, with road transportation being the main mode of transport and limited progress in air cargo development.

(3) The garment processing industry is the largest industrial sector in Cambodia, with a strong industrial foundation. Currently, export processing remains the primary focus of the industry, and textile fabrics are still reliant on imports, placing Cambodia in a relatively low-end position in the international supply chain. The major export markets are the United States and Europe, which are highly susceptible to changes in global economic conditions. At this stage, Cambodia urgently needs to develop the middle and upper reaches of the textile industry chain. Enterprises may want to invest in weaving, dyeing, and finishing based on the demand from related industries. However, due to unreliable electricity supply, they may have to consider installing their own power generation equipment. Additionally, the water of the surrounding areas of Phnom Penh is hard. Potential investors in printing and dyeing enterprises should carefully consider the technical requirements or refrain from investing in this area for now.

(4) Cambodia’s favorable investment policies are appealing, with some developed countries and regions granting Cambodia the Generalized System of Preferences (GSP) treatment. This means that goods such as textiles and garments can be further reduced or exempted from Most Favored Nation (MFN) tariffs.

Source: CHINA TEXTILE LEADER Express