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Cambodia Business Environment 

Since last year, Cambodia has become Lower Middle Income nation. The government has reported that the economic growth for Cambodia was 7% in 2016, and has projected a growth rate of around 7% for 2017 and 2018. The strong growth projection was also made by World Bank (WB), Asia Development Bank (ADB), and (The International Monetary Fund (IMF). In 2016, Cambodia’s nominal GDP was USD19.8 billion making the GDP per capita at USD1,300. The inflation rate remained low at around 2.9% due to theSince last year, Cambodia has become Lower Middle Income nation. The government has reported that the economic growth for Cambodia was 7% in 2016, and has projected a growth rate of around 7% for 2017 and 2018. The strong growth projection was also made by World Bank (WB), Asia Development Bank (ADB), and (The International Monetary Fund (IMF). In 2016, Cambodia’s nominal GDP was USD19.8 billion making the GDP per capita at USD1,300. The inflation rate remained low at around 2.9% due to thedrop in oil prices. Garment and textile, construction and real estate, and tourism are still driving factors to support the economic growth. Although the trade deficit of Cambodia remains high in the year USD2.2 billion. Cambodia’s total export value increased about 3.06% to about USD9.86 billion from USD9.56 billion in 2015, and total imports were more than USD12 billion, a 5.10% increase, making the total trade value in 2016 to USD21.93 billion, up about 4.18% from USD21.02 billion in 2015. Foreign direct investment was up 25% for the year 2016, reaching to USD2.15 billion, most of which was channeled into the financial sector, manufacturing, real estate, and agriculture. Japan is the third largest investor in Cambodia, behind China and South Korea. ADB has also earmarked an additional USD1 billion against the previous allocation in developmental  loans  and  grants  to  Cambodia  for  projects that boost infrastructure development, increase  agricultural competitiveness and enhance education for the next 4 years.

However, World Bank experts identified several key challenges facing the Cambodian economy-particularlya weak agricultural sector, poor education, and rapid credit growth. Some other challenges include US Monetary policy and the decline of global economic growth, but we also can benefit from the planned integration of ASEAN, the Asia Infrastructure Investment Bank (AIIB) and zero tariff for export to US and European countries.

Agriculture - This year, the prices of the main agricultural products for export -- cassava, rubber, and rice -- declined to record lows, creating economic hardship to the growers, mainly those with loans. Hot competition in the international markets also put more pressure on Cambodian agriculture products because of the high cost of production. Cambodia exported rice to 65 countries amounting to 542,144 tons in 2016, 0.7%Agriculture - This year, the prices of the main agricultural products for export -- cassava, rubber, and rice -- declined to record lows, creating economic hardship to the growers, mainly those with loans. Hot competition in the international markets also put more pressure on Cambodian agriculture products because of the high cost of production. Cambodia exported rice to 65 countries amounting to 542,144 tons in 2016, 0.7%up from last year, with China and France being the biggest importers. Export of rubber was 150,000 tons, up from 120,000 tons in 2015. 

 

Tourism and Flight Traffic – Total international tourists visiting Cambodia in 2016 was about 5 million, a 5% increase. The tourism industry directly employed some 620,000 workers, earning about USD3 billion. Cambodia has been ranked 4th among the 10 most  popular budget destinations for tourists in 2017. Also, Cambodia’s famed UNESCO Angkor Wat was ranked by Lonely Planet travel publication as the number one destination in the list of the world’s most beautiful places beating 500 other tourist destinations and mesmerizing millions of investors. Ticket sales revenue for the Angkor archaeological Park increased by 4.2% last year, topping 2.19 million visitors and generating nearly USD63.6 million.

Real Estate - The Kingdom’s construction industry saw formidable growth in 2016 with a total of 2,636 projects having been undertaken nationwide with the total investment in the sector growing a staggering 156% and reaching USD8.5 billion. 

Garment – In 2016, the garment sector increased by about 12%. The US withdrawal from the Trans-Pacific Partnership (TPP) will boost the competitiveness of Cambodia’s domestic garment and footwear industry and return Cambodia to closer parity with neighboring Vietnam, a signatory of the free-trade agreement. The continued Chinese shift from low-value added production to products of higher value is of great benefit to Southeast Asian countries, including Cambodia.

Bank and Microfinance Development

Even though some international institutions have warned of rapid growth of credit and real estate-linked risk, the financial sector in Cambodia is still healthy because, from the National Bank of Cambodia (NBC)’s point of view, the lending was made across many different sectors, the rate of NPL is still in a good position, and funding sources for lending is also stable. Collection of saving has also increased across Cambodia.

As of now, there are 37 commercial banks, 15 specialized banks, 7 Micro Deposit-Taking Institutions (MDIs), 63 Microfinance Institutions (MFIs), and 170 credit operators. Others include 12 leasing companies, 7 representative offices and 2,261 money exchanges. Total assets of the sector was USD27.8 billion in 2016. Credit growth has gradually slowed from 31% in 2015 down to 23% in 2016. Overall credit issued by banks and MFIs was USD16.9 million last year while deposits grew by about 21% to USD15.1 billion spurred by a strong base of customers beginning to use financial  services. Last year, the annual average exchange rate was KHR4,050 per USD1, with monthly variance less than 1%. Interest rates on credit continue to go down. More development of products and services have been increasing gradually through such services as transfer, ATM, and internet banking.

In the Microfinance sector, under the Cambodia Microfinance Association (CMA), there are 58 members, including Sathapana which just moved to become a commercial bank, an increase of 9 from 2015. Loan outstanding of all CMA members including Sathapana reached to some USD3,676 million, up 24.55%, borrowing accounts were 2,043,220, about 1% up from 2015, non-performing loan (PAR30+ and write off) was at 1.57%, the amount of savings collected reached USD2,073 million, up 57.3%, the number of saving accounts was 1,81million, 27.60% up from 2015.

To support economic growth and mitigate associated risks, the NBC in 2016 issued some new Prakas (regulations), including launching a new operation  called  a  Liquidity-Providing  Collateralized Operation (LPCO) to provide liquidity  in  Riel in response to the need of banks  and  microfinance  institutions. The financial institutions who want to use LPCO will need to place Negotiable Certificates of Deposit (NCDs) with NBC. It is a step towards the development of interbank lending in Cambodia. Also, the NBC released a new Prakas to set a minimum of 10% of outstanding (KHR) as local currency loan to all Cambodian financial players with a deadline by end of December 2019. Non acceptance of national legal tender subject to a fine 100 times the amount is also described in another Prakas.

FAST Payment, one of the remarkable milestonesFAST Payment, one of the remarkable milestonesof the financial sector, was initiated by the NBC and launched mid-2016 with some financial institutions serving as pioneer members, including KREDIT. FAST Payment aims at providing an alternative channel that is safe, fast, efficient, and reliable for commercial banks and MDIs to execute interbank fund transfers and payment transactions in Riel for their customers all over the country. The NBC has planned to launch a central share switch in 2017 to create easier access to funds. People holding locally issued debit and ATM  cards will be able to use them to check out at registers  and withdraw money at cash machines owned by  other banking institutions. Once all domestic institutions are connected, we can then connect to other  national share switches within ASEAN and beyond. The NBC also wants to increase the usage of mobile banking services, especially in far-flung rural areas, by encouraging Cambodians to open bank accounts and avail themselves of the convenience and secure nature afforded by digital banking. This will also bring more people into the formal banking segment. Under partnership with some development partners, the NBChas also focused on financial inclusion to improve financial knowledge of Cambodian people. The goal of the NBC is to promote the use of Riel currency, financial stability, and economic development. has also focused on financial inclusion to improve financial knowledge of Cambodian people. The goal of the NBC is to promote the use of Riel currency, financial stability, and economic development. 

With support from Good Return, the NBC and the Ministry of Education, Youth and Sport (MoEYS) has arranged the official launch of a financial literacy booklet, called “Let Talk about Money” in early 2017. Under this plan, they will print and distribute the book to all schools nationwide. They also plan to incorporate financial literacy into school curriculum.

The Cambodia derivatives market officially started and up to now, there are at least 5 companies which have been granted licenses by the Securities and Exchange Commission of Cambodia (SECC) to operate as a central counterparty and as a derivatives broker.

The Cambodian insurance market saw more growth in 2016. More insurance companies arrived: Dai-ichi  Life  Insurance  will  become  the  first  Japanese  life  insurer in Cambodia. AIA, Asia's largest insurer, is  interested in making a full-fledged entrance into Myanmar, while Cambodia is another market AIAThe Cambodian insurance market saw more growth in 2016. More insurance companies arrived: Dai-ichi  Life  Insurance  will  become  the  first  Japanese  life  insurer in Cambodia. AIA, Asia's largest insurer, is  interested in making a full-fledged entrance into Myanmar, while Cambodia is another market AIAis waiting to "open  more  fully." Dhipaya, Thailand’s  second-largest insurer, Bangkok Life and Muang Thai  Life will also start setting up operations in Cambodia.China Export and Credit Insurance Corporation (Sinosure) is also in talks with officials to enter the country’s insurance market.