Cambodia's economy enters a new phase in 2024. Growth is expected to be driven by infrastructure upgrades, foreign investment and a rebound of tourism
With an underwhelming performance during 2023 in the rear-view mirror, Cambodia’s economic outlook has experts tempering optimism with caution for 2024. A host of factors are likely
to influence the country’s financial state, from geopolitical developments and foreign investment to the steady return of international tourism to the Kingdom. The nation’s real-estate sector, once a key driver of the national economy, is expected to stay muted, with an eventual turnaround on the horizon.
At the macro level, the outlook is positive. Cambodia’s economic growth rate in 2023 reached a respectable 5.4 percent. According to the World Bank’s semiannual economic outlook, it is expected to reach 5.8 percent in 2024 and 6.1 percent the following year. The Asian Development Bank’s (ADB) predictions are slightly more optimistic, with key sectors such as tourism and manufacturing expected to push economic growth to 6.0 percent in 2024. The International Monetary Fund’s (IMF) analysis is aligned with the ADB estimates, while the National Bank of Cambodia (NBC) predicts growth for 2024 to reach 6.6 percent. Apart from this main economic indicator sparking optimism, there are other important trends to be on the lookout for.
Foreign investment
An important source of capital that has driven the economy in recent years, foreign direct investment (FDI) is likely to increase in 2024. According to FDI Intelligence, a research and data analysis firm, Cambodia leads in FDI capital expenditure as well as FDI projects.
Topping the group’s annual FDI Standouts Watchlist, “Cambodia is expected to carry the strongest investment momentum into 2024.” Compound annual growth rates for these indicators both saw significant improvement, earning the Kingdom an “FDI Momentum Index Score” of 96.11 out of 100.
China continued to dominate the inflows of foreign capital into the Kingdom. Since 2021, the country has been responsible for two-thirds of greenfield FDI entering Cambodia with most investment going towards infrastructure and logistics construction.
As the manufacturing sector continues to drift away from the still crucial garment exports, industry and trade is likely to be a growing driver of FDI in the coming years. A number of bilateral free-trade agreements, as well as the Regional Comprehensive Economic Partnership (RCEP) with 14 other Indo-Pacific nations, give hope that international commerce will bounce back in 2024. The Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates was also finalised, while progress is being made in negotiations for a free-trade agreement with India.
With these trade agreements offering paths for Cambodian products to reach broader markets, some observers expect renewed interest from foreign businesses looking to capitalise on the expansion of Cambodia’s manufacturing sector. Likewise, as large companies pursue China Plus One strategies and the appeal of ASEAN as an alternative manufacturing base continues to grow, Cambodia will likely benefit from inflows of foreign capital to and from the region.
With the removal of Cambodia from the Financial Action Task Force’s greylist for money laundering and terrorism funding in 2023, there are hopes that sources of FDI will become more diversified. The nation’s reputation on the global stage as a safe and lucrative investment destination continues to improve.
Tourism and infrastructure
Another key contributor to Cambodia’s national economy, tourism is expected to continue its recovery since the sector was ground to a halt by the COVID pandemic in 2020. The country saw international and domestic tourism earn more than 3 billion USD in 2023, with a total of 5.45 million international visitors entering the Kingdom. There was also a notable return of Chinese tourists, a previously significant demographic that all but disappeared following the pandemic. Nearly 550,000 visitors from China entered the Kingdom in 2023. While promising in light of the collapse of the industry in recent years and representing a meaningful increase from 2022, these are still well below the pre-COVID tourism figures.
There are also hopes that some of the recent bilateral trade agreements and the establishment of closer economic ties with target nations will boost tourism to Cambodia.
Though likely to have a delayed impact, ongoing investment in infrastructure across the country will drive economic growth in the long term. Along with the new airport in Siem Reap, Phnom Penh’s Techo International Airport is scheduled to be operational by the first half of 2025. It will be a 4F-Class airport that is capable of receiving long-distance international flights.
Additionally, coastal Kampot’s 200 million USD tourist seaport was completed in 2022 with a larger, 1.5 billion USD commercial deep-sea port having begun construction the same year.
There have been speedy developments in overland infrastructure, notably the Phnom Penh-Sihanoukville expressway. Opened in 2022, the highway cut driving time from the capital to the coast from six hours to two. Fast roads are being developed between Battambang and Sisophon, Kampot and Takeo, and Phnom Penh and Bavet (connecting to Ho Chi Minh City). Within the capital, new bridges rise as the city expands.
Real estate
Across the real-estate sector, subdued market sentiment has reeled in the bustling growth of the pre-COVID era.
One key trend influencing the sector has been a rise in interest rates. From June 2022 to October 2023, rates on term loans rose from 8.48 to 10.7 percent as reported by the National Bank. According to Credit Bureau Cambodia, consumer finance debt reached 15 billion USD for the first time, accompanied by a 9.7 percent increase in late payments exceeding 30 days.
This led to the imposition of lending limits by financial institutions and a reduction in the launch of new projects across the sector. Approved investment in construction in the last quarter of 2023 was down 54 percent from 2019. The restrictive lending landscape and ongoing oversupply has tilted the market in favour of the consumer, as developers, property owners and landlords compete for a smaller pool of renters and buyers.
While this slowdown has some in the industry concerned, many experts see it as a natural reaction to overabundance and an opportunity for the market to absorb the existing supply. In 2023 alone, more than 108,000 square metres of office space, 14,300 square metres of retail space, and 17,400 units of unsold condominium inventory were all absorbed into the market, according to commercial property management firm CBRE. Government efforts to kickstart stalled developments in Sihanoukville will likely further drive this trend (see page 22).
In the immediate future, Cambodia’s economy will likely see steady but subdued growth, as the real-estate market undergoes a price correction and tourism continues to recover. In the long term, the interaction and synergy between key trends is likely to improve Cambodia’s economic trajectory.
Continued investment in infrastructure will improve the Kingdom’s attractiveness as a destination for FDI, while inflows of foreign capital – notably into manufacturing and value-added agricultural products – could drive new industries. As Southeast Asia becomes an increasingly popular alternative to China for international businesses, Cambodia is well positioned to leverage its strategic location and reform-oriented governance to ride a rising wave.
