Cambodian Journalists Alliance Association

Chinese FDI shifting away from Cambodian manufacturing

Construction building at Boeung Kak lake. Panha Chhorpoan

Amid industry headwinds of possible trade sanctions and further rises in the minimum wage, investment from China appears to be shifting away from agriculture and manufacturing into tourism, construction and real estate, according to the World Bank and an industry association.

“The sector composition of FDI is changing rapidly, shifting from the tradeable sectors such as agriculture and manufacturing to tourism, construction and real estate,” says the World Bank’s Country Partnership Framework for Cambodia for 2019-2023.

“These shifts from tradeable to non-tradeable sectors suggest an erosion of Cambodia’s external competitiveness,” says the report, released in May.

In 2017, the combined tourism, construction and real estate sectors captured 61 percent of total approved FDI, increasing to three quarters of the total FDI inflows in the first half of 2018, it says.

“In the longer term, emerging challenges include the erosion of external competitiveness in the context of rapidly rising wages and the loss of preferential access to key markets,” it says.

The report adds that foreign investment is increasingly dominated by China, rising to 93 percent of all FDI in the first half of 2018.

“Foreign Direct Investment inflows into Cambodia continue to be strong, but sourcing is highly concentrated,” it says.

Kaing Monika, deputy secretary general at Garment Manufacturers Association of Cambodia, said investment in the manufacturing sector had become lukewarm.

“We still have new investments in the manufacturing sector, but it seems slow,” said Monika via message. “The current minimum wage level is really a challenge for attracting investment in the manufacturing sector.”

The minimum wage for garment sector workers starting next year was raised on Friday by $8 to $190 per month, worrying some unions and factories amid uncertainty over an EU investigation into possible sanctions.

In February, the EU announced it would review Cambodia’s duty-free access to its markets via the Everything But Arms scheme due to concerns over a deterioration in democracy and human rights.

A suspension of the deal could cause a loss of $514-654 to garments and footwear exports if the EBA is suspended, according to the World Bank.