Cambodia’s FDI Crossroads: Credibility, Competition, and the Next Phase of Reform

A view of Phnom Penh by night in 2024. AWAY via FB

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Cambodia’s approved foreign direct investment (FDI) declined by 37 per cent year-on-year, according to official figures from the Council for the Development of Cambodia (CDC). Such a decline should not be reduced to a headline, nor dismissed as a routine fluctuation. It is a signal — and signals require careful interpretation.

FDI does not fall for a single reason. Global interest rate tightening, slower Chinese outbound investment, supply chain restructuring and intensifying regional competition all influence capital allocation. Vietnam, Thailand, Indonesia, and Malaysia are upgrading infrastructure, strengthening regulatory systems and positioning themselves to capture higher-value manufacturing and digital investment.

Yet in an increasingly compliance-driven global environment, capital does not simply follow cost advantages. It follows credibility.

When global capital tightens, investors become more selective. They prioritize jurisdictions perceived as predictable, transparent and institutionally reliable. In that context, governance and reputational risk become decisive variables.

Cambodia is therefore no longer competing solely on tax incentives or labour costs. It is competing on institutional confidence.

The Compliance Era of Investment

Modern multinational investors operate under strict anti-money laundering (AML), anti-trafficking, ESG and supply chain transparency frameworks. Investment committees increasingly defer to compliance and risk departments. Jurisdictions are assessed not only on economic opportunity, but on regulatory enforcement, judicial consistency and financial supervision.

International scrutiny related to cyber scam networks and illicit financial activity — regardless of scale — affects how global risk models classify countries. For many firms, reputational association alone can trigger enhanced due diligence, insurance adjustments, or internal hesitation.

This does not mean scams are the sole cause of declining FDI. That would be simplistic. But reputational risk can amplify investor caution in an already constrained global capital market.

Raids create headlines. Convictions create confidence.

Cambodia has demonstrated operational enforcement activity. Raids occur. Arrests are made. Public statements follow. These actions reflect capacity and attention.

However, global compliance systems assess seriousness differently. They examine conviction rates, asset confiscation outcomes, financial account freezing statistics and prosecutorial consistency. Without transparent judicial outcomes, enforcement may appear episodic rather than institutionalised.

In today’s investment environment, visibility is not enough. Verifiability reshapes risk perception.

Policy Direction Is Clear. Implementation Is the Test.

Cambodia does not lack policy ambition. The Pentagonal Strategy emphasises governance modernisation, economic diversification, digital transformation and institutional strengthening. The investment regime remains open. Incentives are competitive. Core institutions — the CDC, Ministry of Economy and Finance, National Bank of Cambodia (NBC), Cambodia Financial Intelligence Unit (CAFIU), Anti-Corruption Unit (ACU) and enforcement bodies—are in place.

The issue is not policy design. The issue is implementation consistency. Investors evaluate how rules function in practice. They assess:

Whether beneficial ownership disclosure is rigorously verified;

Whether source-of-funds screening is systematic;

Whether post-approval compliance monitoring exists in high-risk sectors;

Whether asset confiscation mechanisms operate efficiently;

Whether inter-agency coordination is institutionalized rather than reactive.

When policies are strong on paper but uneven in execution, credibility stalls.

This is especially relevant in sectors such as digital platforms, gambling-linked activities and large-scale real estate development — areas that carry heightened compliance sensitivity internationally.

Incentives Must Be Paired with Safeguards

Cambodia’s traditional FDI strategy has relied heavily on fiscal incentives. These remain important. But in today’s environment, incentives alone cannot offset regulatory uncertainty. Long-term capital prioritises predictability over generosity.

A proactive FDI regime should therefore incorporate:

1. Risk-based investment screening that accelerates low-risk projects while enhancing scrutiny for higher-risk sectors;

2. Mandatory beneficial ownership transparency in sensitive industries;

3. Integrated source-of-funds verification between CDC, NBC, and CAFIU;

4. Structured post-approval compliance audits;

5. Public reporting of conviction and asset confiscation outcomes to demonstrate enforcement credibility.

These measures do not restrict legitimate investment. They protect it — and signal institutional maturity.

The Thailand Dimension: Stability as an Economic Asset

Cambodia’s investment strategy must also consider regional stability. Border tensions and geopolitical uncertainty, including those involving Thailand, influence investor risk assessments.

Manufacturing and supply chain investors depend on stable cross-border trade routes and predictable

diplomatic relations. When reputational risk combines with geopolitical uncertainty, investor caution increases.

Economic diplomacy and domestic reform are therefore interconnected. Stability and predictability are economic assets.

Digital Growth Requires Digital Enforcement

Cambodia’s ambition to expand its digital economy aligns with national development priorities. However, digital transformation must be matched by digital enforcement capacity.

Cybercrime networks exploit regulatory gaps and financial loopholes. A credible digital economy requires:

Specialized cybercrime prosecution capacity;

Efficient digital evidence management;

Coordinated financial disruption tools;

Effective asset seizure mechanisms.

Without institutional digital resilience, Cambodia risks being categorised in global assessments as vulnerable to transnational cybercrime ecosystems.

A Strategic Signal — And a Test of Maturity

The 37 per cent decline in approved FDI should be interpreted as a strategic signal rather than a setback to be explained away. In today’s global investment climate, jurisdictions that combine strong policy direction with consistent implementation are best positioned to attract long-term capital. Cambodia has already articulated an ambitious reform framework under the Pentagonal Strategy. The next phase is demonstrating measurable execution.

Investors increasingly look for transparency in enforcement outcomes, clarity in regulatory coordination, and predictability in institutional processes. Strengthening these areas will not only address external perceptions but also reinforce domestic market integrity. Incentives remain important, but they cannot fully offset uncertainty where governance and compliance risks are perceived to be rising.

This moment therefore presents a test of institutional maturity and competitiveness. If Cambodia can demonstrate consistent prosecution outcomes, credible financial supervision and structured post-approval compliance oversight, confidence will strengthen. If implementation remains uneven or largely declaratory, investor hesitation will persist and capital will continue to shift toward jurisdictions perceived as lower risk.

The choice is not between reform and growth. Reform is the condition for sustained growth.

Cambodia’s competitiveness will no longer be determined solely by cost advantages. It will be determined by confidence. And confidence is earned through institutions that perform consistently, transparently and measurably.

Panhavuth Long is a founder and attorney-at-law at Pan & Associates Lawfirm. The views and opinions expressed are his own.

-Phnom Penh Post-
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