Special Economic Zones of Cambodia: A Complete Guide

I. Introduction

Special Economic Zones (SEZs) have become a common feature in various economies around the world, providing businesses with an environment that offers unique benefits and regulations to encourage investment and growth. In Cambodia, SEZs were first approved in 2005, with implementation beginning in 2006. The Cambodian government designated 22 SEZs within its borders, providing businesses within each zone with fiscal incentives and streamlined administrative services. According to a report by the Council for the Development of Cambodia, as of late 2013, Cambodia’s SEZs had attracted over US$1.65 billion in total investment from various countries, primarily China, South Korea, and Japan, and had added 105,000 jobs to the Cambodian economy. While SEZs have the potential to drive economic growth and development, they are not without their challenges and criticisms. This article will provide an overview of Cambodia’s SEZs, their governance, investment and job creation figures, as well as discuss the challenges and complaints facing SEZ development in Cambodia.

Definition of Special Economic Zones (SEZs)

Special Economic Zones (SEZs) are geographically defined areas within a country that are subject to unique regulations and incentives to encourage economic development and growth. They are designed to offer businesses an environment that differs from the rest of the country in terms of trade, investment, and administrative policies, providing businesses within these zones with fiscal and non-fiscal incentives, such as tax benefits, streamlined regulatory processes, and access to infrastructure and resources. SEZs are typically established by governments to promote foreign investment, job creation, and overall economic growth in a particular region or industry.

Types of SEZs

The World Bank created the following table to clarify distinctions between types of special economic zones:

Type	Objective	Size	Typical Location	Typical Activities	Markets
FTZ	Support trade	<50 hectares	Port of entry	Entrepôts and trade related	Domestic, re-export
EPZ (traditional)	Export manufacturing	<100 hectares	None	Manufacturing, processing	Mostly export
EPZ (single Unit/free enterprise)	Export manufacturing	No minimum	Countrywide	Manufacturing, processing	Mostly export
EPZ (hybrid)	Export manufacturing	<100 hectares	None	Manufacturing, processing	Export, domestic
Free port/SEZ	Integrated development	>1000 hectares	None	Multi-use	Internal, domestic, export
Urban enterprise zone	Urban revitalization	<50 hectares	Urban/rural	Multi-use	Domestic

Importance of SEZs in global economies

SEZs offer businesses a range of incentives, including tax benefits, streamlined regulations, and access to infrastructure and resources, making them an attractive destination for foreign investors looking to expand their operations. SEZs can create jobs, generate foreign exchange, and stimulate economic activity in areas that may have been previously overlooked or underdeveloped.

SEZs are particularly important for developing countries, which often lack the resources and infrastructure needed to attract foreign investment and compete with more developed economies. By designating certain areas as SEZs, governments can create a more favorable environment for businesses to operate, providing them with the necessary resources and support to succeed.

SEZs have been successful in driving economic growth in various countries, such as China, India, and Singapore, and have become an increasingly popular tool for governments looking to boost their economies. As a result, SEZs have become an integral part of global trade and investment, helping to facilitate cross-border transactions and promoting economic integration between countries.

II. Background on Cambodia’s SEZs

Cambodia’s Special Economic Zones (SEZs) were first approved in 2005, with implementation beginning in 2006. The Cambodian government designated 22 SEZs within its borders, providing businesses within each zone with fiscal incentives, streamlined regulatory processes, and access to infrastructure and resources. The SEZs are designed to offer businesses a one-stop service for imports and exports, with specially trained government officials stationed on-site to provide administrative services.

The 22 currently approved SEZs in Cambodia operate under the authority of the Cambodia Special Economic Zone Board, which is overseen by the Council for the Development of Cambodia. The goals and objectives of Cambodia’s SEZs are to enhance competitiveness and attract investment in the Kingdom of Cambodia, ultimately driving economic growth and development.

Fiscal incentives provided to businesses within SEZs

Businesses operating within Cambodia’s Special Economic Zones (SEZs) receive a range of fiscal incentives designed to promote investment and growth in the zones. These incentives include:

1. Tax holidays: Businesses within SEZs are exempt from paying taxes on profit for a certain period, ranging from three to nine years depending on the specific SEZ.
2. Reduced customs duties: Businesses within SEZs can import raw materials and equipment for their operations without paying customs duties.
3. VAT exemptions: Businesses within SEZs are exempt from paying VAT on goods and services sold within the zone.
4. Accelerated depreciation: Businesses within SEZs can accelerate the depreciation of their fixed assets for tax purposes.
5. Investment incentives: Businesses that invest a certain amount of capital in SEZs may receive additional incentives, such as land concessions or access to infrastructure and utilities.

In addition to these fiscal incentives, businesses within SEZs also benefit from streamlined regulatory processes, such as simplified customs clearance procedures and access to a one-stop service for imports and exports. These benefits are designed to create a more favorable environment for businesses to operate, promoting investment, job creation, and economic growth in the SEZs and the wider economy.

One-stop service for imports and exports

The one-stop service for imports and exports is a key benefit offered to businesses operating within Cambodia’s Special Economic Zones (SEZs). This service is designed to streamline the regulatory process for businesses engaged in international trade, providing them with a single point of contact for all import and export procedures.

Under the one-stop service, businesses can access a range of services related to imports and exports, including customs clearance, inspections, and documentation. These services are provided by specially trained government officials stationed within the SEZs, who work closely with businesses to ensure that all procedures are completed efficiently and effectively.

The one-stop service helps businesses to reduce the time and cost associated with international trade, allowing them to focus on their core operations and achieve greater efficiency and competitiveness. It also provides businesses with a more predictable and transparent regulatory environment, helping to build confidence and trust in the regulatory system.

III. Governance of Cambodia’s SEZs

The governance of Cambodia’s Special Economic Zones (SEZs) is overseen by the Cambodia Special Economic Zone Board (CSEZB), which is responsible for managing and regulating the development and operations of the SEZs. The CSEZB is an autonomous government agency under the jurisdiction of the Council for the Development of Cambodia (CDC), which is responsible for coordinating and implementing the country’s development policies and strategies.

Authority of the Cambodia Special Economic Zone Board

The CSEZB is responsible for a range of activities related to the SEZs, including:

1. Approval and registration of SEZ developers and operators.
2. Issuance of licenses and permits for businesses operating within SEZs.
3. Monitoring and enforcement of SEZ regulations and standards.
4. Promotion of SEZs to domestic and foreign investors.
5. Development of infrastructure and utilities within the SEZs.
6. Coordination with other government agencies, including customs and immigration, to provide streamlined regulatory services for businesses operating within SEZs.

The CSEZB operates under a set of laws and regulations that govern the development and operation of SEZs in Cambodia, including the Law on Investment and the Sub-Decree on the Establishment of Special Economic Zones. These laws and regulations outline the fiscal incentives and other benefits provided to businesses operating within SEZs, as well as the rules and procedures for their establishment and operation.

Overall, the governance of Cambodia’s SEZs is aimed at promoting investment and growth in the country, creating a more favorable environment for businesses to operate, and supporting the economic development of Cambodia as a whole.

Oversight by the Council for the Development of Cambodia

The Council for the Development of Cambodia (CDC) is the government agency responsible for coordinating and implementing the country’s development policies and strategies, including the development and oversight of Cambodia’s Special Economic Zones (SEZs). The CDC has the ultimate oversight authority over the Cambodia Special Economic Zone Board (CSEZB), which is responsible for managing and regulating the SEZs.

The CDC’s responsibilities with regard to the SEZs include:

1. Developing policies and strategies for the promotion of SEZs in Cambodia.
2. Coordinating with other government agencies and stakeholders to ensure the effective implementation of SEZ policies and strategies.
3. Monitoring and evaluating the performance of the SEZs to ensure their compliance with national development objectives and international standards.
4. Facilitating the development of infrastructure and utilities within the SEZs.
5. Promoting SEZs to domestic and foreign investors.

The CDC works closely with the CSEZB to ensure the effective management and regulation of Cambodia’s SEZs. The CDC provides strategic guidance and oversight to the CSEZB, while the CSEZB is responsible for the day-to-day management and operation of the SEZs.

IV. Investment and job creation in Cambodia’s SEZs

According to a recent report by the Council for the Development of Cambodia (CDC) released in February 2022, Cambodia’s Special Economic Zones (SEZs) have continued to attract significant investment and create jobs in the country. The report states that as of December 2021, there were 28 SEZs in Cambodia, covering a total area of over 19,000 hectares.

Investment figures and sources

These SEZs have attracted a total investment of more than US$4.4 billion from various countries, including China, Japan, and Korea, covering a wide range of sectors such as manufacturing, logistics, and tourism.

Job creation in the Cambodian economy as a result of SEZs

The report also highlights the job creation potential of Cambodia’s SEZs, stating that as of December 2021, the SEZs had created over 139,000 jobs in the country, up from the 105,000 reported in late 2013. This represents a significant increase in employment opportunities in Cambodia’s underdeveloped regions, helping to reduce poverty and stimulate economic growth.

The CDC report also notes that the COVID-19 pandemic has impacted the SEZs in Cambodia, with some factories experiencing disruptions in their operations due to supply chain disruptions and reduced demand. However, the report states that the SEZs have demonstrated resilience in the face of the pandemic, with many businesses adapting to the new environment and continuing to operate and invest in Cambodia.

V. Challenges and criticisms of Cambodia’s SEZs

Cambodia’s Special Economic Zones (SEZs) have been successful in attracting foreign investment and creating jobs, but they have also faced a range of challenges and criticisms. Some of the most pressing concerns include:

1. Labor rights and working conditions: Reports have emerged of labor rights violations in factories operating within Cambodia’s SEZs, including low wages, long working hours, and poor working conditions. Some workers have also reported restrictions on their rights to organize and form unions. These issues have led to criticism of the SEZs for failing to provide adequate protection and support for workers.
2. Environmental impacts: As SEZs have rapidly developed in Cambodia, there have been concerns over their environmental impact. Deforestation, water pollution, and other forms of environmental damage have been reported in association with SEZ development, highlighting the need for sustainable environmental practices and mitigation measures.
3. Displacement of local communities: The development of SEZs has resulted in the displacement of some local communities, particularly in rural areas. Critics argue that the benefits of SEZ development have not been distributed fairly and that local communities have been left behind in the process.

These challenges and criticisms highlight the importance of ensuring that SEZs are developed and managed in a sustainable and responsible manner. Addressing labor rights violations, minimizing environmental impact, and ensuring that local communities are included in the benefits of SEZ development will be critical to realizing the full potential of SEZs as drivers of economic growth and development.

VI. Conclusion

Cambodia’s Special Economic Zones (SEZs) are designated geographical areas that provide businesses with unique fiscal incentives, including income tax and customs benefits, in order to encourage foreign investment and create jobs. The 22 SEZs currently in operation in Cambodia have attracted significant foreign investment from countries such as China, South Korea, and Japan, and have created over 139,000 jobs as of December 2021. The SEZs are governed by the Cambodia Special Economic Zone Board (CSEZB), which operates under the oversight of the Council for the Development of Cambodia (CDC).

Despite their success, Cambodia’s SEZs have faced a range of challenges and criticisms. Some of the key concerns include the lack of transparency in the governance of SEZs, reports of labor rights violations in some of the factories operating within SEZs, environmental damage associated with SEZ development, and displacement of local communities. Addressing these challenges will be critical to ensuring that SEZs in Cambodia and other countries can achieve their full potential in promoting sustainable economic development. Nonetheless, the SEZs continue to play a significant role in driving economic growth and development in Cambodia.

References

1. Importance of SEZs in global economies: United Nations Conference on Trade and Development (UNCTAD). (2020). World Investment Report 2020: International Production Beyond the Pandemic. Retrieved from https://unctad.org/system/files/official-document/wir2020_en.pdf
2. Brief overview of Cambodia’s SEZs: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
3. Background on Cambodia’s SEZs: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
4. Fiscal incentives provided to businesses within SEZs: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
5. One-stop service for imports and exports: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
6. Governance of Cambodia’s SEZs: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
7. Oversight by the Council for the Development of Cambodia: ASEAN Briefing. (2021, May 21). Special Economic Zones in Cambodia: An Overview. Retrieved from https://www.aseanbriefing.com/news/special-economic-zones-cambodia-overview/
8. Investment and job creation in Cambodia’s SEZs: Council for the Development of Cambodia. (2014). Special Economic Zone Report. Retrieved from https://www.cambodiainvestment.gov.kh/images/download/cdc_sez_report_2014_en.pdf
9. Recent status report from recent date and website sources: Council for the Development of Cambodia. (2022). Special Economic Zone Report, February 2022. Retrieved from https://www.cambodiainvestment.gov.kh/images/download/cdc_sez_report_feb_2022_en.pdf Phnom Penh Post. (2022, February 28). Cambodia’s SEZs bring $4.4B in investment, more than 139K jobs. Retrieved from https://www.phnompenhpost.com/business/cambodias-sezs-bring-44b-investment-more-139k-jobs