Are you looking to learn more about Cambodia’s manufacturing industry?
Cambodia’s manufacturing industry is expected to experience a significant growth rate of 9.2% in 2023, driven by external demand, particularly in the garment and non-garment manufacturing sectors.
This growth will be further supported by a projected increase in the country’s economy, which is set to grow by 6.6% in 2023, aided by better trends in global demand and increased investor confidence amidst the relaxed and controlled COVID-19 situation. Despite the positive outlook, the country’s agriculture sector is still facing structural challenges, such as low growth in soil and labor productivity, weak commercialization, and shortage of investment in processing to gain value-added. This article delves into the growth and challenges of Cambodia’s manufacturing industry, using data and insights from the Cambodian government.
History of Cambodia’s Manufacturing Industry
Cambodia’s manufacturing industry has a significant contribution to the country’s economic development, particularly the garment manufacturing sector, which serves as a key driver of growth. The industry has a rich history dating back to the early 1990s when the Cambodian government implemented measures to boost the competitiveness of the industry in the international market. Today, the garment industry continues to support human capital development, employment generation, and foreign direct investment, employing over 600,000 people, making it the biggest employer in the country, and accounting for 16 percent of the GDP and 80 percent of Cambodia’s export earnings.
The garment industry in Cambodia mainly follows the cut-make-trim (CMT) model and is dominated by foreign-owned firms. The industry’s workforce primarily comprises low-skilled, labor-intensive activities, with the majority being women with minimum skills. Geographically, over 60 percent of Cambodia’s garment factories are located within or in close proximity to the capital city, Phnom Penh.
Cambodia offers several advantages to foreign investors, such as strategic location, competitive labor force, preferential market access, and supportive government policies. Cambodia’s membership in the ASEAN Free Trade Area and the World Trade Organization has increased its trade integration with the US and the EU, providing duty-free access to export goods. However, the country’s poor human rights record has led to the EU launching procedures to withdraw Cambodia’s benefits under the Everything but Arms Scheme (EBA), which allows duty-free access to the EU market for all export goods.
In conclusion, Cambodia’s manufacturing industry, particularly the garment sector, has a rich history of development and growth, serving as a vital source of employment, foreign investment, and export earnings for the country. The industry has several advantages for foreign investors, and despite challenges such as the EU’s proposed withdrawal of the EBA, the industry is poised for continued growth and expansion.
Current State of Cambodia’s Manufacturing Industry
According to a report by the Asian Development Bank (ADB), Cambodia’s manufacturing industry is expected to continue to play a crucial role in the country’s economic growth. The report states that Cambodia’s economy is projected to grow by 5.3% in 2022 and 6.5% in 2023, driven by strong merchandise exports and foreign direct investment inflows. Industry output is expected to increase by 8.1% in 2022 and 9.1% in 2023, with the Garments, Footwear, and Travel Goods Development Strategy playing a vital role in raising the competitiveness of the industry.
While goods and services exports are also projected to increase, the report calls for the diversification of Cambodia’s economy to ensure sustainable growth. The country can benefit from diversifying into light manufacturing, such as bicycles, electronic components, and wiring products, to make the economy more resilient to external demand shocks.
The reopening of the economy and a high level of vaccination coverage will allow for a gradual recovery in tourism, which will support demand for accommodation, food, transportation, and other in-person services. ADB is committed to supporting Cambodia’s economic development and recovery from the COVID-19 pandemic, with a lending pipeline for 2022-2025 that includes $1.44 billion of concessional lending and $37 million in grants.
Challenges Facing Cambodia’s Manufacturing Industry
Cambodia’s manufacturing industry faces several challenges that could affect its long-term growth and competitiveness. Some of the key challenges include:
- Competition from other countries: Cambodia faces competition from other low-cost manufacturing countries in the region, such as Vietnam, Thailand, and Indonesia. These countries have lower labor costs and more developed infrastructure, making it difficult for Cambodia to compete.
- Lack of skilled workers: The manufacturing industry in Cambodia requires a skilled workforce, but the country’s education system does not always provide the necessary skills and training. Many workers in the industry lack technical skills, and there is a shortage of engineers and other professionals.
- Inadequate infrastructure: Cambodia’s infrastructure, including roads, ports, and power supply, is underdeveloped compared to other countries in the region. This can lead to delays and higher costs for manufacturers, and may discourage foreign investment.
- Dependence on a few large companies: Cambodia’s manufacturing industry is highly concentrated, with a few large companies dominating the sector. This can limit competition and innovation, and may make the industry vulnerable to economic shocks or changes in the business environment.
To address these challenges, the government and industry stakeholders are taking several measures. These include investing in infrastructure, promoting skills development and training programs, and improving the business environment through regulatory reform. The government has also established special economic zones to attract investment and support the growth of the manufacturing industry.
Opportunities for Growth in Cambodia’s Manufacturing Industry
Despite the challenges facing Cambodia’s manufacturing industry, there are several opportunities for growth and development in the sector. Some of the key opportunities include:
- Increasing productivity and efficiency: Cambodia’s manufacturing industry has relatively low productivity and efficiency levels compared to other countries in the region. By investing in technology, training, and management practices, the industry could improve its competitiveness and attract more foreign investment.
- Expanding into new markets: Cambodia’s manufacturing industry has traditionally focused on a few key sectors, such as garment and footwear production. However, there are opportunities to expand into new sectors, such as electronics, automotive parts, and medical devices, which could provide higher value-added products and diversify the country’s export base.
- Investing in research and development: Cambodia’s manufacturing industry has not traditionally invested heavily in research and development. By doing so, the industry could develop new products, improve existing products, and increase its competitiveness in the global market.
- Developing a skilled workforce: By improving the education system and promoting skills development and training programs, Cambodia could develop a more skilled and productive workforce that is better equipped to meet the needs of the manufacturing industry.
If Cambodia’s manufacturing industry can capitalize on these opportunities, it could become a more important driver of the country’s economic growth and development.
Cambodia’s manufacturing industry has come a long way since its inception in the 1950s, and has become a major contributor to the country’s economic growth and development. Despite facing challenges such as competition from other countries, a lack of skilled workers, and inadequate infrastructure, the industry has continued to grow and diversify in recent years.
To ensure the continued growth and success of Cambodia’s manufacturing industry, the government and industry stakeholders must take proactive measures to address these challenges and capitalize on new opportunities. By investing in infrastructure, promoting skills development and training programs, and improving the business environment through regulatory reform, Cambodia’s manufacturing industry could become a more important driver of the country’s economic growth and development.
There are several opportunities for growth and development in the manufacturing industry, including increasing productivity and efficiency, expanding into new markets, investing in research and development, and developing a skilled workforce. For investors who are interested in investing in Cambodia’s manufacturing industry, the Manhattan Special Economic Zone offers an excellent opportunity. As one of the largest SEZs in Cambodia, the Manhattan SEZ provides investors with a range of benefits, including tax incentives, streamlined procedures, and access to a skilled workforce.
Overall, Cambodia’s manufacturing industry has made significant progress, and with continued investment and support, it has the potential to become a key driver of economic growth and development in the country. Investors who are interested in learning more about the opportunities available in Cambodia’s manufacturing industry should consider the Manhattan SEZ as a potential investment destination.
- Khmer Times. (2022, March 4). Cambodia’s Industry is Expected to Grow by 9.2 Percent in 2023. Retrieved from https://www.khmertimeskh.com/501100710/cambodias-industry-is-expected-to-grow-by-9-2-percent-in-2023/
- Dezan Shira & Associates. (2019, July 25). Cambodia Garment Manufacturing Industry. Dezan Shira & Associates Library. Retrieved from https://www.dezshira.com/library/industry-profile/cambodia-garment-manufacturing-industry.html?1564040284.
- Asian Development Bank. (2022, March 1). Cambodia Economy to Accelerate in 2022 and 2023: ADB. ADB News. Retrieved from https://www.adb.org/news/cambodia-economy-accelerate-2022-and-2023-adb.