Country Report Cambodia February 2010

Economic performance: Approved foreign investment fell sharply in 2009

Amid the global recession, foreign direct investment (FDI) in Cambodia fell sharply in 2009, according to the Council for the Development of Cambodia, the official body chaired by the prime minister that deals with foreign investments. The total value of approved investment projects fell to US$5.9bn in 2009, from US$10.9bn in 2008, representing a decline of 46.2%. The main reason for the fall was a US$4.8bn drop in approvals for tourism-related projects, which fell by 54.7% to only US$4bn. However, not all industries have experienced a decline in investment. The agricultural sector attracted FDI approvals of US$590m in 2009, up by 457%, mainly owing to projects undertaken by Vietnamese companies. Approved investment in the telecommunications sector was also up, at US$235m, representing a rise of 170% (although this was for a single project), while approved investment in the energy sector also rose, to reach US$665m.

Although there were no comparable investment figures for the garment sector, one of Cambodia's most important industries, the Ministry of Labour and Vocational Training has said that more than 90 garment factories closed in the first 11 months of 2009, leaving around 38,000 workers jobless. Garment exports have plunged amid collapsing demand in the US. In October (the most recent month for which export data are available) garment exports were down by 6.6% year on year to US$199.4m, according to the Ministry of Commerce. In the first ten months of the year garment exports were down by 20% year on year. The fall in garment exports in October was the slowest rate of contraction recorded since December 2008. But Cambodia's garment exports are taking much longer to recover than has been the case in other garment-producing countries, raising concerns over the country's export-competitiveness. The head of the Garment Manufacturers Association of Cambodia, Ken Loo, has said that October's export results do not provide sufficient evidence to support suggestions that the sector is recovering. US trade results for November confirm that Cambodia's garment exports are still some way from making a recovery. US imports from Cambodia (a proxy measure for Cambodian exports to the US) were down by 22.8% year on year in that month, taking the cumulative decline in the first 11 months of the year to 21.7% year on year, according to the US Census Bureau. The US is Cambodia's main export market, accounting for about 54% of its exports.

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