The return of foreign direct investment to pre-pandemic levels is considered as critical to economic growth

Cambodia Compass report, 15th June - While Covid-19 has had a detrimental impact on global FDI, Cambodia appears to be prepared to weather the storm as multinational corporations seek to diversify their investments in the country.

In Asia, FDI declined by 27% to $9 billion in 2019, according to the Enhanced Integrated Framework (EIF), a multinational cooperation focused to aiding least developed countries (LDCs). This was the first time in eight years that Asia saw a drop in FDI.

Despite this, Cambodia received $3.7 billion in foreign direct investment in 2019, according to UNCTAD's 2020 World Investment Report.

China, which supplied 43 percent of FDI to Cambodia, was followed by South Korea, which provided 11 percent, Vietnam, which provided seven percent, and Japan and Singapore, which each contributed six percent.

According to Coface, global credit insurer, foreign direct investment (FDI) fell by 49% in the first semester of 2020 compared to the same time in 2019.

Cambodia should gain from a diversification of investments from nations that have historically invested in infrastructure, according to Sven Callebaut, an EIF international trade advisor to the Ministry of Commerce.

Free trade agreements (FTAs), according to Callebaut, have aided in this diversification. While most FDI in LDCs is focused on extracting natural resources, these FTAS have aided in the growth of other sectors such as agribusiness.

China, Cambodia's largest investor, has invested in mango producing facilities, for example.

These investments, according to Callebaut, are more lucrative because they can benefit both the local community and small and medium-sized businesses. He stated that Cambodia has been receiving less official development assistance (ODA) while receiving more foreign direct investment (FDI), which he believes is a beneficial trend.

Rather than investing in hard infrastructure such as roads and airports, countries such as Japan and South Korea are increasingly focusing on soft infrastructure such as logistics and education.

While the pandemic has had a significant impact on SMEs, Callebaut believes that they can still gain from FDI by becoming suppliers to big global corporations.

“We want to see SMEs enhance their standards to the point where they can be suppliers to large corporations investing in Cambodia,” he said.

He believes that the current difficulty is recruiting the proper investors to the proper priority sectors, and that an upcoming investment law from the Council for the Development of Cambodia will offer these parameters in order to attract more investment.

He believes that laws like these are critical to luring multinational companies.

According to the EIF, Cambodia, Bangladesh, Myanmar, Ethiopia, and Mozambique were among the top LDC receivers of FDI in 2019.

In a brief, the EIF stated, "Most FDI in LDCs goes towards resource exploitation, which provides limited employment or value-added advantages to LDC economies, leaving them among the least integrated into global value chains."

According to the UN Conference on Trade and Development (UNCTAD), LDCs received only 1.4 percent of global FDI, valued at $21-22 billion, from 2017 to 2019.

According to the EIF, a lack of accurate and relevant information for potential investors, “poorly conceived investment policy frameworks that result in worse investment competitiveness,” and “higher perceptions of political risk” are among the reasons for low FDI in LDCs.

Source: Cambodia Compass comprehensive arrangement

Editor: Malinda         Chief Editor: Sunnie         General in Chief/Executive Producer: Nicole

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