Foreign Investment in Agriculture in Cambodia CDRI Working Paper ...

3
Extent and Nature of Foreign Investment
in Agriculture in Cambodia
After its transition to a free market economy in the early 1990s, Cambodia took steps
to promote investment, both private domestic and foreign, through the privatisation of stateowned
resources and the promulgation of the Law on Investment in 1995, which provided
tax and administrative incentives to and protected domestic and foreign investors. Investment
started to flourish, gaining more momentum when Cambodia achieved genuine peace and
stability in the late 1990s after the Khmer Rouge collapsed and rebel fighters were incorporated
into the government defence forces.
Data from the Cambodia Investment Board (CIB) of CDC for the period 2000 to June
2010 indicate upward trends of investment. The critical turnaround in total investment occurred
in 2005; it stemmed primarily from considerable engagement from China, Thailand and Korea.
Total investment continue to expand into 2008. However, the pace of expansion slowed in
2009 as a result of the impacts of the global economic crisis on the Cambodian economy: total
investment in that year fell sharply to twice as low as that in 2008. Rostow (1960), among
others cited in Todaro and Smith (2003: 115), indicates that countries able to save or generate
investment of around 15 to 20 percent of GDP can grow at a much faster rate than those that
save less, and that this growth will then be self-sustaining. However, it is difficult to apply
this to the Cambodian case given the absence of data on actual implementation of approved
investment projects in the country.
Private domestic and foreign investments were about equal between 2000 and 2010 with
the average share of FDI in total investment at around 58 percent. FDI showed an upward trend
but slowed in 2009 after the global economic crisis hit. Among foreign investors, China stood
out, followed by Korea, the USA, Thailand, Vietnam, Malaysia, Singapore and Taiwan, in that
order. Traditional investors, like China, Korea, Malaysia and Thailand, have been injecting more
funds into the Cambodian economy since 2000, which reflects their growing trust and confidence
in the country’s investment environment. Additionally, countries such as Vietnam, Japan and the
USA have shown rising interest in the past couple of years. This is a promising sign for overall
output growth in the medium and long term, despite the shocks in 2008 and 2009.
3.1. Approved Investment by Sector
In terms of distribution by sector, tourism and industry have absorbed a great deal of
investment during the past decade, followed by services. Tourism was a champion, with share
in total investment averaging 35 percent between 2000 and June 2010, followed by industry
(32 percent) and services (25 percent). Investment in agriculture was sluggish during the same
period (Figure 9). In terms of accumulation of approved investment, tourism took the lead with
58 percent, followed by services (19 percent) and industry (17 percent), whereas agriculture
(6 percent) contributed the smallest share. High capital inflows into tourism are attributable to
the government’s 1997 Open Sky Policy, the achievement of peace and political stability in
1998 and the gradual improvement of hard infrastructure, particularly road connectivity and
bridges.
CDRI Working Paper Series No. 60
11