Why Preah Sihanouk is the Key Engine for Cambodia’s Economic Growth?

Preah Sihanouk province, often referred to as the “Rising Star of the Southwest,” is emerging as a key driver of Cambodia’s economic growth. The Royal Government of Cambodia is actively transforming this coastal province into a vibrant hub for investment, development, and innovation. With its strategic location, advanced infrastructure, and growing industrialization, Preah Sihanouk is poised to become a leading economic engine within Cambodia and the broader ASEAN region. Let’s explore the reasons why this province holds the key to Cambodia’s economic future.

1. Strategic Location and Infrastructure Development

Preah Sihanouk’s geographical advantage plays a pivotal role in its transformation. Situated along Cambodia’s southwestern coast, the province is connected to Phnom Penh via the modern Phnom Penh-Sihanoukville Expressway – a 187-km high-speed route that reduces travel time between the two cities to just two hours.

The province is also home to the Sihanoukville Autonomous Port, Cambodia’s only deep-water port, which serves as a crucial gateway for international trade. This port is a cornerstone for maritime trade and logistics, providing opportunities for businesses to import and export goods efficiently.

Adding to its strategic importance is the Sihanoukville Special Economic Zone (SSEZ), a flagship project under China’s Belt and Road Initiative (BRI). The SSEZ hosts over 170 enterprises from various countries, contributing significantly to Cambodia’s industrial growth and creating thousands of jobs.

2. A Beacon for Foreign Investment

Preah Sihanouk has become a magnet for foreign investors, thanks to the government’s efforts to attract high-value investments. The recent Special Program to Promote Investment in Preah Sihanouk Province 2024, spearheaded by Prime Minister Hun Manet, has set ambitious targets to accelerate the province’s development.

During the recent investment summit titled “Preah Sihanouk Province: Cambodia’s Rising Star,” Hean Sahib, Secretary of State at the Ministry of Economy and Finance, highlighted the province’s remarkable achievements. Over $6.03 billion in investment capital was approved, far surpassing the initial target of $1 billion. This massive influx of investment has led to the approval of 213 projects, creating nearly 40,000 jobs in diverse sectors, including real estate, tourism, and industrial development.

This impressive growth reflects the province’s evolving role as an attractive destination for both local and international investors from countries such as China, South Korea, the United States, and the European Union.

3. Robust Industrialization and Job Creation

Preah Sihanouk’s industrial sector is a major contributor to Cambodia’s economic growth. With projects spanning manufacturing, logistics, and technology, the province is becoming a hub for industrial activity. Key highlights include:

• Real Estate Development: 86 projects (40% of total) have been approved, with investments totaling $215 million.
• Tourism Sector: 60 tourism-focused projects worth $218 million aim to boost the province’s hospitality and travel infrastructure.
• Industrial Sector: 35 projects, representing $1.19 billion, have established manufacturing and production facilities, further driving industrialization.

These initiatives are not only creating jobs but also promoting sustainable economic growth. For instance, aluminum production plants and facilities for manufacturing household appliances for export to Europe and the Americas demonstrate the province’s potential to become a global manufacturing hub.

4. Tourism: A Pillar of Economic Development

Preah Sihanouk’s pristine coastline, beautiful beaches, and vibrant cultural scene make it a key destination for tourism. The province attracts both domestic and international travelers, with projections indicating it will welcome 5.4 million tourists annually by 2038. This influx of visitors is expected to significantly boost the local economy and create thousands of jobs in hospitality, entertainment, and related industries.

The government’s investment in modern infrastructure, including upgraded airports, luxury hotels, and eco-friendly resorts, is setting the stage for sustainable tourism development.

5. Vision for a Smart, Sustainable Future

One of the most exciting aspects of Preah Sihanouk’s transformation is its commitment to becoming a model green, sustainable city. Under current development plans, the province is rebranding itself as a smart city with modern infrastructure, renewable energy initiatives, and technological innovations.

Projections suggest that by 2038, Preah Sihanouk will become a high-income region 12 years ahead of the rest of Cambodia. The province’s gross domestic product (GDP) is expected to contribute 10% of Cambodia’s national economy.

This vision is supported by projects like the Smart City initiative, which focuses on environmental sustainability, cultural preservation, and technological innovation to improve residents’ quality of life and attract global investors.

6. ASEAN Integration and Regional Connectivity

Preah Sihanouk’s strategic role within the ASEAN framework further enhances its economic potential. As a key player in regional trade and investment, the province facilitates seamless connectivity between Cambodia and its ASEAN neighbors.

High-level international summits, such as the recent Preah Sihanouk Investment Summit, showcase the province’s commitment to fostering collaboration and partnerships. Government officials and business leaders from China, South Korea, the US, and Europe actively engage in discussions to unlock the province’s economic opportunities.

7. Government Commitment and Policy Support

The Royal Government’s unwavering commitment to transforming Preah Sihanouk into an economic powerhouse is evident through its proactive policies and initiatives. Programs like the Special Investment Incentives and Procedural Simplification have created a favorable business climate for investors.

Key achievements over the past 11 months include:

• 213% increase in approved projects, exceeding the target by 113 projects.
• Creation of nearly 40,000 jobs, surpassing initial projections of 5,000 jobs.
• Development of multi-purpose buildings, tourism projects, and industrial zones that support economic diversification.

8. A Diverse, Growing Population

Preah Sihanouk’s growing population and cultural diversity further contribute to its economic transformation. By 2038, the province is projected to house nearly 1 million residents, accounting for 5% of Cambodia’s total population. This demographic growth supports increased consumer demand, business expansion, and workforce availability, making the province an ideal location for investment.

Preah Sihanouk’s Bright Future

Preah Sihanouk province is undeniably the key engine for Cambodia’s economic growth. Its strategic location, advanced infrastructure, robust industrialization, and booming tourism sector are driving its transformation into a dynamic economic hub. With the government’s strong commitment to sustainable development and investment promotion, Preah Sihanouk is well on its way to becoming a high-income, smart ASEAN metropolis.

The impressive achievements, such as attracting $6 billion in investments and creating 40,000 jobs, demonstrate the province’s economic potential. As Preah Sihanouk continues to evolve, it will play a central role in shaping Cambodia’s future economic success and regional prominence.

What do you think about Preah Sihanouk’s transformation into Cambodia’s economic powerhouse? Share your thoughts and let us know how this development can benefit Cambodia’s economy and its people!

The Eastern Shores of the Mekong River in Phnom Penh Are Booming for Development

The eastern shores of the Mekong River in Phnom Penh are poised to become a hub of transformative growth and urbanization. This potential shift is driven by ambitious infrastructure projects, government vision, and increasing private sector involvement. As the city’s western shores approach saturation with high-rise buildings and dense developments, the eastern shores offer a new frontier for urban and economic expansion.

This vision was recently articulated by Prime Minister Samdech Moha Borvor Thipadei Hun Manet during the groundbreaking ceremony of the “Mekong Quay City” project, a joint venture between TP Moral Group and Khun Sea Group, in Akreiy Ksatr City, Kandal Province. The Prime Minister’s remarks underscored the critical role of strategic planning, public infrastructure, and private-sector collaboration in driving the development of this emerging region.

The Current Landscape: Full Western Shores and Untapped Potential in the East

Prime Minister Hun Manet noted that Phnom Penh’s western shores are nearing capacity in terms of urban development. “As I have observed, the western shores are already brimming with high-rise buildings, while the eastern part still consists largely of farmland,” he stated.

This contrast highlights the untapped potential of the eastern shores as an ideal site for planned urbanization and industrialization.

This shift eastward is not just a matter of necessity due to spatial constraints but also an opportunity to rethink and modernize urban planning in Cambodia. The development in this region could transition the area from predominantly agricultural use to a dynamic hub for services and industries.

Key Infrastructure Projects Driving Connectivity

A significant factor in the eastern shores’ growth is the Royal Government’s commitment to enhancing connectivity between Phnom Penh and Akreiy Ksatr City. Among the notable projects is the Cambodia-Korea Friendship Bridge, which will connect Arey Ksat to the Night Market area in Phnom Penh. This project alone is expected to catalyze significant economic activity and urban development on the eastern bank of the Mekong River.

Additionally, the government is exploring further connectivity initiatives, including the potential construction of a bridge—whether overwater or underwater—linking the new satellite city in Arey Ksat to the Koh Norea area. These projects aim to ease transportation, facilitate trade, and stimulate investment in the eastern region.

A Vision for Smart and Sustainable Development

Prime Minister Hun Manet emphasized the importance of preparing the eastern shores for the anticipated boom. “We must ensure that public infrastructure, green spaces, and other amenities are well planned in the eastern region,” he said, highlighting the opportunity to build a modern, sustainable urban environment from the ground up. Unlike Phnom Penh’s western shores, where expansion is constrained by existing structures and dense urban sprawl, the eastern region provides a blank slate for innovative urban planning.

The “Mekong Quay City” development is a prime example of this forward-thinking approach. Positioned opposite the Koh Norea development project, it is envisioned as a satellite city with a rich mix of economic, commercial, and residential activities. Designed to embody modern aesthetics, environmental cleanliness, and efficient urban organization, the project aims to make Akreiy Ksatr City a “smart city” for both the present and future.

Encouraging Private Sector Involvement

The Prime Minister’s call for private sector collaboration underscores the importance of joint efforts in national development. “I encourage private companies to contribute to the development of our eastern region to achieve further progress,” he stated during the ceremony. By fostering partnerships between the government and private entities, the Royal Government seeks to accelerate the pace of development while ensuring that growth benefits both the country and its citizens.

The involvement of firms like TP Moral Group and Khun Sea Group in the Mekong Quay City project exemplifies how private investment can drive large-scale urban projects. Such collaborations are essential not only for funding and expertise but also for ensuring that projects align with international standards of quality and sustainability.

Improving Livelihoods Through Infrastructure

Prime Minister Hun Manet emphasized that these development initiatives are not solely about enhancing infrastructure but also about improving the lives of citizens. “These projects aim to uplift both the infrastructure and the livelihoods of our people,” he remarked. Improved connectivity, modern housing, and access to services in the eastern shores will provide residents with greater opportunities and a higher quality of life.

This shift is also expected to boost the economic potential of surrounding areas. The eastern region’s transformation will create new jobs, stimulate local businesses, and attract both domestic and foreign investors. In the long term, this will contribute to Cambodia’s overall economic growth and urban resilience.

Long-Term Vision: From Agriculture to Industry and Services

The Prime Minister’s optimism for the eastern shores’ future is grounded in a long-term vision of transforming the region into a hub for services and industries. This transition reflects Cambodia’s broader economic aspirations of moving beyond traditional agriculture towards a more diversified and modern economy.

“I hope the eastern shores of the Mekong River will evolve from an agricultural area into a vibrant hub for services and industries,” Prime Minister Hun Manet said. This shift will not only diversify the region’s economy but also position it as a key player in Cambodia’s urban and economic development.

Mekong Quay City: A Beacon of Modern Urbanization

The Mekong Quay City project is a pivotal step in realizing this vision. Situated on the eastern bank of the Mekong River, it represents a model for future developments in the region. Designed as a self-contained satellite city, Mekong Quay will offer a blend of residential, commercial, and recreational spaces.

Key features of the project include:

• Smart Urban Planning: Emphasizing efficient land use, sustainable building practices, and green spaces.
• Economic Opportunities: Creating a hub for businesses, retail, and services that will generate employment and stimulate economic activity.
• Environmental Stewardship: Prioritizing clean environments and modern waste management systems.

By setting a high standard for urban development, Mekong Quay City will serve as a blueprint for similar initiatives across the eastern shores.

Unlocking Regional Potential

The eastern shores’ development is not only significant for Phnom Penh but also for the broader region. Enhanced connectivity and infrastructure will integrate the eastern shores into Cambodia’s national economy, creating ripple effects of growth and prosperity. As the region transforms, it will attract talent, investment, and innovation, solidifying its role as a key driver of Cambodia’s progress.

A Collaborative Future

The Royal Government’s support for private-sector involvement highlights a collaborative approach to development. By aligning the interests of public and private stakeholders, Cambodia can ensure that growth is inclusive, sustainable, and impactful. The success of projects like Mekong Quay City will depend on continued cooperation, visionary planning, and a shared commitment to the region’s potential.

Prime Minister Hun Manet’s call to action—inviting all stakeholders to contribute—is a powerful reminder that development is a collective effort. By working together, Cambodia can unlock the full potential of the eastern shores and create a thriving, modern urban landscape for generations to come.

A New Chapter for Phnom Penh

The eastern shores of the Mekong River represent a new chapter in Phnom Penh’s urban and economic story. With strategic infrastructure projects, government support, and private-sector collaboration, this region is set to become a beacon of modern development. As Prime Minister Hun Manet aptly noted, this transformation will not only enhance the city’s infrastructure but also uplift the lives of its people.

The development of the eastern shores is more than just an urban expansion; it is a testament to Cambodia’s aspirations for a brighter, more inclusive future. As these plans unfold, the eastern shores will undoubtedly play a central role in shaping the next era of Cambodia’s growth and prosperity.

Source: AKP

The World Bank has outlined four reform priorities to help Cambodia transition to more productive growth that can achieve high-income status by 2050 — as South Korea did over 25 years in the late 20th century.

“Productivity growth has not been a major driver of growth  historically,” the bank says in its annual Cambodia Economic Update released last week.

“Cambodia’s levels of labour productivity are very low compared to its peers across all sectors of the economy.”

LOW PRODUCTIVITY COMPARED TO VIETNAM AND THE PHILIPPINES

In 2023, for example, 39 percent of Cambodian firms surveyed cited an “inadequately educated workforce” as an obstacle to business.

This may be an improvement from 49 percent in 2016 but Cambodia ranked lower than the Philippines (44 percent) and Vietnam (43 percent).

“Cambodia will need to significantly improve its productivity performance in the coming decades to sustain high rates of economic growth and realise its vision of rapidly becoming a high-income country,” the bank says.

To achieve this, Cambodia — currently ranked as a lower middle-income country — will have to boost income per capita to around US$13,800, a six-fold increase from around US$2,200 today.

That means avoiding the “middle-income trap” — when GDP per capita gets stuck at the middle-income level and does not develop further.

In a separate report in August, the World Bank warned that more than 100 countries—including China, India, Brazil, and South Africa—face serious obstacles that could hinder their efforts to become high-income countries over the next few decades.

SOUTH KOREA’S MIRACLE ON THE HAN RIVER

To avoid the middle-income trap, the bank says Cambodia will “likely” have to match the rapid post-war growth of South Korea, often referred to as the Miracle on the Han River.

In 1968, it recalls, South Korea was at the same level of development as Cambodia is now. Over the next 25 years, the bank says, growth in the country’s total factor productivity — its ability to generate more income from fewer inputs— was 2.2 percent a year.

The rate in South Korea — which the World Bank calls a “growth superstar” — was almost twice as high as Cambodia’s average of 1.3 percent between 2000 and 2019.

For Cambodia, the bank says, better performance requires moving towards higher value-added products, value-chains and activities while addressing specific structural barriers and disincentives faced by some firms.

At the same time, Cambodian firms also need incentives to modernise, digitalise and internationalise their operations more rapidly as well as measures to address obstacles to doing business.

HIGHER VALUE-ADDED

The bank says Cambodia should move toward higher value-added activities — both within sectors and to more productive industries — as well as from rural to urban areas.

“This is aligned with a broader need to pursue greater economic diversification in Cambodia to reduce the risks associated with the high concentration of products and markets,” it says.

Possible measures include making it easier for new firms to open and for weak ones to close, encouraging new industries and making existing ones more value-added.

STRUCTURAL BARRIERS AND DISINCENTIVES

The bank finds lower productivity among Cambodian firms that are medium-sized and located in mountainous regions — and, to a lesser extent, those around the Tonle Sap. These firms also seem to face a more challenging business environment.

Moreover, frontier firms — the top 10 percent in terms of labour productivity — “are lagging far behind their regional peers and operating significantly below the regional productivity frontier.”

The bank recommends greater government support to help medium-sized firms navigate obstacles and build capabilities, along with targeted infrastructure investment and government programmes for service extension in rural areas.

It also suggests reforms to increase competition — especially in the services and digital sectors — and incentives for frontier firms to invest in advanced technologies, skills development and global networks.

DIGITALISATION, MODERNISATION AND INTERNATIONALISATION

The bank notes higher labour productivity among Cambodian firms with more modern personnel practices. These include firms that have independent managers who aren’t owners and formal employee-training programmes.

In these two areas, productivity — as measured by the average improvement in value-added per employee — is 20 percent higher for firms with independent managers and 29 percent higher for those with training programmes. 

At the same time, firms that leverage technology — by having a website or using electronic payments, for example — are also found to be more productive, along with export-oriented firms.

Productivity increases 5 percent for Cambodian firms with websites and 29 percent for those oriented towards export markets.

To help firms access new markets, the bank highlights the importance of addressing infrastructure barriers to trade, reducing customs-clearance times and improving services.

OBSTACLES TO DOING BUSINESS

According to the bank, the most pressing needs to address obstacles to doing business include ensuring that the benefits of registering firms outweigh the costs — especially for small firms — by reducing registration costs and enhancing the associated advantages.

Cambodia also needs to enhance transport and logistics infrastructure, improve investment in skills and the uptake of modern financial instruments among more sophisticated firms, and streamline its “cumbersome and costly” tax regime.

To reduce corruption and informal payments — especially in tax administration — the bank recommends investing in detection, increasing penalties and digitising processes.

Other improvements are recommended for the judicial system, such as setting up specialised commercial courts, and increasing transparency and digitalisation.

Finally, the bank highlights the need for better government services related to business authorisations — including by fully digitising the business registration portal and introducing and implementing risk-based approaches to licensing.

POLAND AND CHILE EMULATE KOREA

In its August report, the World Bank said that South Korea’s success included a government industrial policy that encouraged domestic firms to adopt foreign technology and more sophisticated production methods. 

It recalled how smartphone giant Samsung Electronics Co Ltd — once a noodle-maker — started making televisions by licensing technologies from Japan’s Sanyo Electric Co., Ltd. and NEC Corp, fueling demand for engineers, managers, and other skilled professionals.

Poland and Chile followed similar paths, with Poland focusing on technologies from Western Europe.

Chile also encouraged technology transfers from abroad. “One of its biggest successes involved adapting Norwegian salmon farming technologies to local conditions, making Chile a top exporter of salmon,” the bank said.

This article is firstl published on AKP

Trade preferences that Cambodia enjoys under the Everything But Arms (EBA) arrangement of the European Union, have been the backbone of the country’s trade for years. These preferences include duty-free and quota-free access for all Cambodian exports into the EU market, including all products, except arms and ammunition, which has been a major boost to strategic sectors such as garments, footwear and agriculture among other. However, democracy, human rights and good governance concerns have raised the EU’s concern, and thus the probability of losing this trade privilege has been a subject of interest.

The most significant and straightforward impact of the removal of EBA would be on the economy. The garment and footwear sectors which are major exports to the EU will suffer from high tariffs that will make them less competitive in the global market. The EU is one of the biggest markets of Cambodia and loss of special access might result in the reduction of export as the European consumers seek for more affordable products made in Vietnam, Bangladesh or any other country with low production costs.

The garment sector alone provides employment to 800,000 workers who are mainly women from the rural areas. Most of these jobs may be at risk if the factories receive lower orders or if some of them even close down due to poor profitability. This could lead to high levels of unemployment, increased levels of poverty and therefore, increased levels of social inequality.

Trade preferences such as EBA are one of the factors that make Cambodia an attractive investment location. As such, loss of this preference may discourage the foreign investors especially those who are eyeing Cambodia as a cheap source of labor to produce goods for the European market. Countries such as Vietnam will be even more attractive since they also have FTA with EU. The reduction of FDI could hamper innovation technology transfer and infrastructure development that is important for the sustainable development of Cambodia’s economy.

The Cambodian government should understand that Chinese investors are investing in Cambodia at the present time because they know that Cambodia receives the EBA from the EU. It is clear that if Cambodia loses the whole EBA benefits, those Chinese investors will leave Cambodia to find the good places where they can make more benefits.

The social effects of the loss of EBA would not be limited to the numbers and the reports. This would especially have an impact on women since the garment sector is dominated by women. For many Cambodian women, these jobs are not only a way to earn money but also a way to gain freedom and assertiveness that is not usually allowed to women. What happens if they are taken away?
Politically, it will be quite problematic for the Cambodian government if the country is to lose the whole EBA. Internally, it will encounter rising pressures from the affected workers as well as businesses. The Cambodian government should readjust its foreign policy, especially with the EU if the EU has frozen EBA from Cambodia.

The loss of the EBA could lead to further isolation of Cambodia from the western countries and may align the country more with China which has been the primary sponsor of Cambodia in recent years. Although the Chinese assistance and investment play an important role, they cannot substitute the positive impact of the diversified trade relations with the EU in the economy. China is always like the strong friend or the qualified friend.

The Cambodian government should take the lesson from its history in 1965 after Cambodia cut off diplomatic relations with the US.

Opportunities for Resilience and Reform

While the loss of EBA would undoubtedly be a setback, it could also serve as a wake-up call for Cambodia to diversify its economy and reduce its dependence on preferential trade schemes.

The government could seize this moment to invest in higher-value industries, enhance labor productivity, and strengthen domestic markets. Improving governance, upholding labor rights, and fostering a more inclusive political environment could also pave the way for restoring trust with the EU and other international partners.

Additionally, Cambodia could explore new trade agreements and partnerships.

The Regional Comprehensive Economic Partnership (RCEP) and Cambodia’s free trade agreement with China are steps in the right direction, but they require robust implementation strategies to deliver tangible benefits.

A Shared Responsibility

It is important to note that the EU also has a role to play in ensuring that its policies do not inadvertently harm the very people it aims to support. While concerns about human rights and governance are valid, the EU should consider the socio-economic consequences of withdrawing EBA entirely. A more balanced approach, perhaps involving targeted sanctions or conditional extensions of trade preferences, could incentivize reform without causing undue harm to Cambodia’s most vulnerable populations.

All in all, the threat of losing EBA is a crossroads for Cambodia: further down the road of further economic and political polarization or a new strategy of the ‘more markets – less rules’ approach.

It is a delicate situation and the time to act is now. Both Cambodia and the EU have to come up with a solution that will respect human rights and democracy and at the same time ensure the welfare of millions of people. In today’s interconnected world, such decisions have implications and effects on other countries and such decisions made have effects on other countries as well. At this critical crossroads for Cambodia, the path it selects will determine its future not only in its economy but also in the international community.

Dr. Seun Sam is a policy analyst at the Royal Academy of Cambodia. All views in this article are his own.

This article firstly published on Khmer Times