Cambodia’s manufacturing industry is poised for significant growth, projected to rise by 9.2% in 2023. This growth is largely fueled by strong external demand, particularly in the garment and non-garment sectors. The overall Cambodian economy is expected to grow by 6.6% in the same year, benefiting from increased global demand and a favorable COVID-19 recovery. However, Cambodia’s agriculture sector still faces challenges, such as low growth in soil and labor productivity, weak commercialization, and limited investment in value-added processing. This article examines the growth, challenges, and opportunities within Cambodia’s manufacturing sector.
Cambodia’s manufacturing industry began to develop in the early 1990s when the government introduced measures to enhance the competitiveness of the sector on the global stage. Today, the garment industry remains a key driver, providing employment to over 600,000 people—mainly women—and accounting for 16% of the GDP and 80% of the country’s export earnings. While the garment sector predominantly follows the cut-make-trim (CMT) model and is largely foreign-owned, it continues to be an essential part of the economy.
According to the Asian Development Bank (ADB), Cambodia’s manufacturing industry plays a vital role in the country’s economic performance. The manufacturing sector’s output is expected to grow by 9.1% in 2023, largely driven by garment production, footwear, and travel goods. To diversify and ensure long-term resilience, Cambodia is encouraged to expand into light manufacturing, such as electronics, bicycles, and medical devices.
The reopening of the economy post-pandemic also provides a boost, especially with tourism recovery fueling demand for services like food, accommodation, and transportation. ADB is committed to supporting Cambodia’s growth through substantial investments in infrastructure and grants.
Despite Cambodia’s growth prospects, several challenges threaten its manufacturing competitiveness
- Regional Competition: Countries like Vietnam, Thailand, and Indonesia offer lower labor costs and better infrastructure, making it difficult for Cambodia to remain competitive.
- Lack of Skilled Workforce: Cambodia’s education system is not always aligned with the needs of the manufacturing sector. There is a shortage of skilled technical workers, including engineers and other specialized professionals.
- Inadequate Infrastructure: The country’s infrastructure—roads, ports, and power supply—is underdeveloped, causing delays and driving up production costs.
- Dependence on Few Large Players: Cambodia’s manufacturing sector is concentrated in a few large companies, which limits innovation and makes the industry vulnerable to external economic shocks.
Despite these challenges, Cambodia’s manufacturing sector presents several growth opportunities:
- Productivity and Efficiency Improvements: Cambodia has relatively low productivity compared to other Asian manufacturing hubs. By investing in technology, skills training, and management practices, the sector can become more competitive.
- Market Diversification: While the garment sector remains dominant, Cambodia has significant potential to diversify into electronics, automotive parts, and medical devices, providing higher-value products.
- Research and Development (R&D) Investments: There is room for growth by increasing investments in R&D. This will allow manufacturers to innovate and improve their products, boosting their global competitiveness.
- Workforce Development: A concerted effort to enhance the skills of the Cambodian workforce through education and training programs can help bridge the skills gap and meet the growing demand in the manufacturing sector.
Cambodia’s manufacturing sector has made substantial strides since its early development and has emerged as a key driver of the economy. However, it faces competition from other regional manufacturing hubs, along with challenges such as a skills shortage, inadequate infrastructure, and reliance on a small number of large companies. To secure continued growth, Cambodia must prioritize infrastructure development, skills enhancement, and market diversification.
Opportunities to drive future growth exist in improving productivity, expanding into new markets, and investing in R&D. Special Economic Zones, such as the Manhattan Special Economic Zone (SEZ), offer attractive incentives for investors, including tax benefits, streamlined processes, and access to a skilled labor force.