Cambodia Investment Review
The International Business Chamber of Cambodia Open Meeting at Rosewood Phnom Penh brought together major leading industry leaders to review the past six months and discuss the outlook for the remainder of 2024. The event featured comprehensive analyses of eight key sectors, with detailed insights shared by prominent figures. This article focuses on four of these sectors: banking, technology, education, and tourism, with the remaining sectors to be covered in part two.
Banking Sector Faces High NPL Ratios but Sees Growth Opportunities
Manu Rajan, Division CEO of Wing, addressed the significant challenges facing Cambodia’s banking sector, including the highest non-performing loan (NPL) ratios in the market at 7.74%. This has led to slow growth in loans and a reduction in funding from investors. “Annual incremental loan disbursement has dropped to 50% of pre-2023 growth, resulting in a probable shortage of $2.5 billion in outstanding loan growth year-on-year in 2023,” Rajan explained.
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Despite these hurdles, the past six months have seen growth in loan volumes, albeit at a slower pace. Ticket sizes for large industry players have decreased, and the percentage contribution of commercial bank loans to total number of loans has dropped to 20% from 25% in 2023, excluding Wing Bank loans. “Substantial contributions from the Credit Guarantee Corporation of Cambodia (CGCC) and the Cambodian Banking Corporation (CBC) have mitigated risks and facilitated access to finance, with CGCC guaranteeing over $100 million already,” Rajan noted. Additionally, leading players are reducing the cost of funds, and the loan-to-deposit ratio has been adjusted to 90% from 94% in 2023 indicating healthier liquidity among banks.
Looking forward, there are several growth opportunities for the sector. Purpose-led lending which funds activities that propel economic growth and a collective focus on economic growth are needed to drive progress. Financial institutions will need to adopt unconventional thinking in priority sectors, with increased roles for CBC and CGCC. “The tourism sector needs to grow back to 12%-15% of GDP, as it was pre-pandemic.
The 4 main pillars of pre-pandemic economic growth, namely , tourism (tourist arrivals expected to grow back to pre-pandemic levels), Agriculture (marginal growth and no decline), Manufacturing (GFT Exports are growing YoY) and Construction (a lot of opportunities in the adversity with subjective decisioning to provide Access to Finance still being supported by the Banking sector) are slowly getting back to their growth ways. Platform banking / Embedded Finance is gaining popularity and acceptance, and offers better line of sight into into fund usage,” Rajan emphasized.
The expected drop in SOFR by around 25 basis points to approximately 50 basis points and enhanced ESG disclosure capabilities are set to boost future growth. “A focus on ESG disclosure will boost investor confidence and align with global export partner preferences,” Rajan concluded.
Technology Sector Faces Delays but Sees Potential in Cloud Services and Cybersecurity
Wilfrid Dutruel, Chief Operating Officer of Chaktomuk Data Center, discussed the current state and future outlook for the technology sector. Highlighting the rising demand for digital transformation across various industries and government sectors, Dutruel noted, “Increased demand is driving digital transformation, but commitments postponed due to COVID-19 are still pending.” The discussion also covered the status of key data centers such as MekongNet, Byte DC, NTC, Chaktomuk DC, and DP Datacentre.
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The past six months have seen the emergence of new actors like DP Group and Telcotech, while some projects have been delayed due to austerity measures in government spending. “Postponed projects, including the Tier4 Ministry of Telecommunication initiative, highlight the impact of reduced government spending,” Dutruel explained. Despite these challenges, the sector has maintained momentum with various ongoing and upcoming initiatives.
Looking ahead, several opportunities are anticipated for the technology sector. Cloud services are expected to cater to businesses migrating their operations to the cloud. “Cloud services offer significant potential for businesses looking to enhance their digital infrastructure,” Dutruel emphasized. Additionally, the focus on cybersecurity solutions will be crucial, with data centers capitalizing on providing enhanced security to their clients.
The sector is also poised to benefit from green initiatives, promoting energy-efficient practices and technologies. Furthermore, the data localization law presents a unique opportunity for local data centers to offer specialized services. “The data localization law will create new avenues for local data centers to support businesses in compliance and data management,” Dutruel concluded.
Education Sector Sees Growth Amidst Regulatory Challenges
Trevor Sworn, Director of Enduring Consultancy, provided a comprehensive overview of the education sector in Cambodia. He highlighted the buoyant market driven by a young population, high urbanization rates, and significant parental investment in education. “With over one million individuals aged between 1 and 24 in Phnom Penh, there’s a robust demand for quality education, including international schools, local private institutions, and tertiary education,” Sworn noted. The quality of schools is currently categorized into three tiers, ranging from international standards to lower-quality local schools.
The past six months have seen significant developments in the education sector. Notably, De Montfort University is set to open in 2024, marking the first UK university in Cambodia to offer full UK degrees. Additionally, the digital math platform “Everybody Counts” has gained traction, enhancing math education through technology. However, the sector faces regulatory challenges, with the Ministry of Education, Youth and Sport (MoEYS) imposing restrictions on new schools due to concerns that private institutions are drawing teachers away from public schools. “The perception that private schools are attracting public school teachers has led to a halt in the approval of new schools,” Sworn explained.
Looking ahead, there are numerous opportunities for growth in the education sector. Franchise opportunities and new market entries are anticipated, along with increased private equity investment in existing schools. Education technology (EdTech), online learning, and e-learning platforms are set to play a crucial role in the sector’s evolution. “EdTech and online learning are transforming education delivery, making it more accessible and efficient,” Sworn emphasized.
Additionally, there is a growing demand for English language education and tertiary and post-graduate education, driven by the need for a skilled workforce. “Investments in English language programs and higher education will cater to the increasing demand for skilled professionals in Cambodia,” Sworn concluded.
Tourism Sector Sees Recovery and New Opportunities
Cyril Girot, Chief Executive Officer of Cambodia Airports (concessionaire of Phnom Penh and Sihanoukville International Airports, and subsidiary of VINCI Airports,), provided a detailed review of the tourism and airport sector. Cyril highlighted the positive recovery of Phnom Penh International Airport (PNH), with non-China markets showing very good recovery thanks to Cambodia Airports’ commercial action.
“SEA markets are dominating, with a notable very positive showing from South Korea. For China, the recovery is gradual, mainly driven by two airlines, CZ and MF,” Cyril Girot explained. However, the Sihanoukville International Airport (KOS) faces challenges as it was highly dependent on Chinese market in 2019.
Over the past six months, several significant changes have taken place. The launch of Air Asia Cambodia, with domestic flights and offered new connections in Kuala Lumpur, is a game-changer. Emirates has also restarted its flights to Dubai, marking the second route linking with the Gulf region after the resuming of Doha’s direct route (with Qatar Airways) at the end of 2023.
“This summer, the launching of direct Indian flights from Phnom Penh to Delhi by Cambodia Angkor Air, and new routes by Xiamen Air as well as Air Asia’s service between Kuala Lumpur and Sihanoukville are pivotal developments,” Cyril Girot noted. These initiatives are expected to enhance connectivity and boost tourism.
Looking forward, the sector sees numerous opportunities. The expanding Indian market presents new growth potential, and exploring non-served and underserved markets will be crucial. “We are excited about the prospects of Air Asia Cambodia expanding its domestic and international flights by year-end,” Girot emphasized.
The upcoming establishment of the Cambodia Tourism Board (CTB) aims to reenergize the tourism sector, while the government’s efforts to revitalize Sihanoukville are expected to bolster the region’s appeal. “Sustaining the aviation business through decarbonization efforts is also a key focus area,” Cyril Girot concluded, highlighting the sector’s commitment to sustainability.
Resilience And Adaptability Of Cambodia’s Key Sectors Amid Challenges
The IBC Open Meeting highlighted the resilience and adaptability of Cambodia’s key sectors amid challenges. With strategic investments and innovative approaches, the banking, technology, education, and tourism sectors are poised for growth. The forthcoming part two of the report will delve into the remaining industries, offering a complete picture of the nation’s economic trajectory.
