NBC records 3.9% drop in FDI inflows in 2021

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Foreign direct investment (FDI) inflow to Cambodia in 2021 was recorded at $3.5 billion, down 3.9% from the previous year, according to the Financial Stability Report 2021 , recently published by the National Bank of Cambodia (NBC).

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A slowdown in capital investment by banks led to a 3% drop in FDI in the financial sector, which accounts for one-third of total FDI. FDI in the non-financial sector also fell by 4.4%, with the flow of foreign capital into housing down by 43%, agriculture by 22.3% and telecommunications by 11.1%.

However, other sectors such as manufacturing and construction recorded an improvement in FDI inflow in 2021 with an increase of 21.3% and 1.1% compared to the previous year. The hydroelectricity and energy sector, which accounted for 4.3% of total FDI inflows, recorded a 2.6 times increase in 2021 compared to 2020, indicating the success of the government’s efforts to attract more foreign capital investment in energy projects with the avowed aim of lowering electricity costs.

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“High energy costs have been cited as an impediment to accelerating the country’s economic growth for many years,” the report said.

A good portion of FDI in Cambodia came from the Asian region, with China remaining in the lead, accounting for nearly 50% of total foreign direct investment. Chinese investments have mainly been invested in manufacturing, finance, construction, real estate and accommodation.

Other Asian contributors included Singapore with 8.3%, Republic of Korea 8.1%, Japan 5.9%, Thailand 4.4% and Malaysia 3.8%.

But the government hoped to improve FDI inflow in 2022 and this was clearly stated in the post-Covid 2021-23 policy framework and stimulus package released in December 2021. The forecast of a reasonably healthy 5% growth for Cambodia’s economy in 2022 by NBC could also bolster investor confidence and lead to an acceleration in the inflow of foreign capital this year.

Amendments to the Foreign Investment Law by the government in November 2021 were also aimed at boosting the inflow of foreign capital. The new law allows 100% foreign ownership of companies, corporate tax holidays of up to nine years (followed by a staggered return to the maximum corporate tax payable of 20%), a deduction of 150% costs on human resources and employee welfare purchases, customs duties. free importation of capital goods and no restrictions on the repatriation of capital.

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