Why Cambodia Is Becoming a Prime Destination for Textile & Apparel Investment?

A Thriving Textile & Apparel Industry Since the 1990s

Cambodia’s textile and apparel industry has transformed dramatically over the past three decades, evolving from a modest manufacturing base into one of the country’s most influential economic pillars. Since the 1990s, exports of garments, textiles, and footwear have expanded rapidly, driven by Cambodia’s competitive labor costs, an increasingly sophisticated industrial ecosystem, and the advantages of multiple international trade agreements. These favorable conditions continue to attract global manufacturers seeking sustainable, scalable, and cost-efficient production.

The Engine of Growth Behind Cambodia’s Manufacturing Power

The garment, footwear, and travel products sector remains the heart of Cambodia’s industrial growth. In 2022, the industry reached a historic milestone with USD 12.8 billion in total exports, reflecting the sector’s resilience and expanding global demand. By December 2023, these products made up 62.26% of Cambodia’s total exports, supported by 918,718 workers and 1,680 factories producing bags and travel goods. The combination of a vast labor pool and strategic industrial clustering has secured the industry’s central role in the nation’s GDP and economic stability.

Read more: Why Invest in Electronics in Cambodia?

The Advantage of Preferential Trade Agreements

As a least developed country and active ASEAN member, Cambodia benefits from preferential tariff treatment with numerous global partners, including Australia, Canada, Japan, Iceland, Norway, China, the UK, India, Chile, South Korea, and more. These agreements help position Cambodia as a competitive exporter within Asia, Europe, and North America.

However, challenges remain. The United States applies an Ad Valorem Equivalent (AVE) tax of 14.31% on Cambodian textile and apparel exports, while the EU reduced certain trade preferences since 2020. Additionally, the Vietnam–EU Free Trade Agreement may create short-term competitive pressure. Nevertheless, Cambodia’s diverse trade partnerships ensure ongoing access to high-value international markets.

Read more: What Does the 20% Capital Gains Tax Mean for Cambodian Investors?

1. Consistent, Sustainable Economic Growth

Remarkable Economic Expansion

With a decade-long 10% CAGR in GDP, Cambodia continues to strengthen its macroeconomic foundation. Major improvements in electricity infrastructure, cost reductions of nearly 20% over the past ten years and a tenfold increase in capacity over fifteen years, further support industrial productivity.

Large-scale infrastructure investments enhance competitiveness, including the USD 1.9 billion Phnom Penh–Sihanoukville Expressway and the USD 150 million 38-road upgrade in Siem Reap, significantly improving logistics efficiency.

A Predictable Business Environment

The country’s stable inflation rate, foreign exchange consistency, and low unemployment contribute to a reliable investment climate, enabling long-term business planning for manufacturers and investors.

Commitment to Sustainability

Cambodia’s energy mix is increasingly green, with around 70% of installed energy capacity in 2019 sourced from renewables. Combined with one of ASEAN’s lowest CO₂ emissions rates, the nation is positioning itself as a responsible manufacturing hub.

Read more: Why invest in Cambodia?

2. Strong Trade Connectivity and Infrastructure

Favorable Regional and Global Trade Integration

Cambodia’s membership in ASEAN and participation in multiple FTAs—including those with China, Japan, Korea, India, Australia, and New Zealand, offer substantial tariff reductions and market access. Additionally, joining the Regional Comprehensive Economic Partnership (RCEP) connects Cambodia to the world’s largest trading bloc, representing 30% of global GDP.

Expanding Transport and Logistics Networks

As a key player in the Southern Economic Corridor, Cambodia forms a strategic bridge between Thailand, Vietnam, and Myanmar. With 17 airports, including three international hubs, and multimodal logistics in the Sihanoukville Special Economic Zone (SSEZ), Cambodia provides efficient access to global supply chains. The Phnom Penh–Sihanoukville Expressway further strengthens this connectivity.

Proximity to Fast-Growing ASEAN Markets

Bordering Thailand, Vietnam, and Laos, Cambodia offers manufacturers close geographic access to thriving consumer markets and integrated production chains. Four SEZs sit along the Thai border and 13 more along the Vietnamese border, strategically positioning producers for regional expansion.

3. A Competitive, Young, and Skilled Workforce

A Young, Energetic Population

With more than 60% of Cambodians under the age of 35 and a labor participation rate of 80%, the country provides a dynamic and abundant workforce ready to support large-scale manufacturing operations.

Rapidly Increasing Skills and Literacy

The literacy rate climbed to nearly 90% in 2019, while employment in secondary and tertiary sectors has grown 1.6 times since 2008. This shift reflects improving skills, educational access, and a maturing labor market.

Cost-Effective Labor

A minimum monthly wage of USD 208 keeps Cambodia among Asia’s most competitive manufacturing destinations—especially for labor-intensive sectors such as textiles and apparel.

4. A Conducive and Investor-Friendly Business Climate

Open and Fair Economic Policies

Cambodia guarantees equal treatment for foreign and local investors. There is no requirement for local equity participation, no government price controls for investment project outputs, and full freedom for currency convertibility and profit repatriation.

Attractive Investment Incentives

Qualified Investment Projects (QIPs) benefit from incentives such as:

• Up to 9 years of income tax exemption or special depreciation options
• Export tax exemptions
• Full import duty exemptions for construction materials, equipment, and production inputs
• VAT exemptions for locally produced inputs
• 150% tax deduction for R&D, innovation, worker welfare, training, and machinery upgrades

Streamlined Registration Processes

Through the Council for the Development of Cambodia (CDC), investors enjoy a simplified single-window approval system. If a project is not on the “negative list,” the CDC issues a registration certificate within 20 working days, fostering speedy business setup and operational start.

Source: CDC

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How Phnom Penh’s Informal Economy Onboarding Campaign Paves the Path for National Expansion: A Catalyst for Business Growth.

The informal economy is often described as the hidden backbone of many developing nations, a segment brimming with untapped potential. In Phnom Penh, the Coordinating Committee on Informal Economy Development (CCIED), in collaboration with the Phnom Penh Municipal Administration, has launched a campaign aimed at revolutionizing this sector. This initiative, marked by a recent event attended by 1,500 informal economy members, is more than just an outreach campaign—it is a blueprint for economic transformation, setting the stage for national expansion and offering a compelling narrative for businessmen and investors in the capital.

The Transformative Vision Behind the Campaign

At the heart of this initiative is a transformative vision articulated by H.E. Hem Vanndy, Minister of Industry, Science, Technology & Innovation, and H.E. Khuong Sreng, Governor of Phnom Penh. Their leadership underscores the Royal Government’s commitment to uplifting the informal economy, focusing on enhancing the livelihoods and market competitiveness of its participants. As Minister Vanndy noted, this effort aims to foster resilience and reduce social inequality, ultimately promoting participation in broader economic activities.

The onboarding process is pivotal, as it allows for the creation of a comprehensive database, enabling targeted interventions and support, particularly during crises. This is not merely an administrative exercise; it is a lifeline for countless microenterprises and self-employed individuals who form the backbone of Phnom Penh’s vibrant informal economy.

Digital Empowerment: The Gateway to Formalization

The campaign’s cornerstone is the Digital Platform for Onboarding the Informal Economy, inaugurated in December 2024. This platform offers a voluntary, non-compulsory mechanism for informal economy participants to connect with the government, facilitating access to critical support systems. Through multiple onboarding options, including the CAM-IE mobile app and partnerships with leading financial institutions like Wing Bank and ACLEDA Bank, the platform democratizes access to resources previously out of reach.

This digital empowerment is more than just a technological upgrade; it represents a strategic shift towards formalization. By integrating informal economy actors into the formal financial ecosystem, the platform lays the groundwork for sustainable economic development, bridging the gap between the informal and formal sectors.

Strategic Implications for Business and Investment

For businessmen and investors eyeing opportunities in Phnom Penh, this onboarding campaign signals a seismic shift in the economic landscape. The formalization of the informal economy opens new avenues for investment, as it translates into a more stable, transparent, and predictable market environment. Investors can now engage with a segment of the economy that was previously elusive, unlocking potential in sectors teeming with entrepreneurial energy.

The campaign also highlights the government’s proactive approach to economic inclusivity and resilience. By investing in the informal sector’s development, the government demonstrates its commitment to creating a balanced economic environment, where small businesses can thrive alongside larger enterprises. This commitment is a reassuring signal for investors, indicating a stable and supportive policy framework.

Expanding Horizons: A National Blueprint

While the immediate focus is on Phnom Penh, the campaign’s implications extend far beyond the capital. The National Strategy for Developing the Informal Economy 2023-2028 envisions a nationwide scale-up, with outreach campaigns planned at the village, commune, and Sangkat levels. This national blueprint aims to transition the informal sector into a formidable engine of sustainable and inclusive growth.

The broader vision encompasses not just economic development but also social stability and poverty reduction. By fostering a more equitable economic environment, the strategy aims to build a resilient economy capable of withstanding global shocks and ensuring long-term prosperity for all Cambodians.

The Road Ahead: Opportunities and Challenges

As Phnom Penh’s informal economy embarks on this journey of transformation, several opportunities and challenges lie ahead. The onboarding campaign’s success will hinge on effective communication and the ability to demonstrate tangible benefits to participants. Ensuring that microenterprises and self-employed individuals perceive value in formalization is crucial for widespread adoption.

Moreover, the campaign’s impact will be amplified through strategic partnerships with the private sector, including financial institutions and technology providers. These collaborations can drive innovation in financial services tailored to the needs of informal economy participants, further enhancing their market competitiveness.

A Call to Action for Entrepreneurs and Investors

Phnom Penh’s Informal Economy Onboarding Campaign is more than an administrative initiative—it is a call to action for entrepreneurs and investors to participate in the city’s economic renaissance. By formalizing the informal sector, the campaign unlocks a reservoir of potential, creating a fertile ground for business innovation and investment.

For businessmen and investors, this campaign offers a unique opportunity to engage with a dynamic and evolving market. As Phnom Penh paves the path for national expansion, those who recognize and seize this opportunity stand to benefit from the city’s transformation into a more inclusive, resilient, and prosperous economic hub.

If you’re an entrepreneur or investor interested in exploring the opportunities arising from Phnom Penh’s evolving economic landscape, now is the time to act. Join the movement towards economic formalization and be part of Cambodia’s growth story. Share your thoughts or reach out for more information on how you can contribute to and benefit from this transformative journey. AKP

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