Phnom Penh, the capital and largest city of Cambodia, is a fast-growing and dynamic place that offers many opportunities for entrepreneurs and investors. Whether you are interested in setting up a digital business, a social enterprise, or a green business, Phnom Penh has something to suit your needs and preferences. However, before you dive into the market, you need to know the benefits and challenges of starting a business in Phnom Penh. Here are some tips and insights to help you make informed decisions.
Benefits of starting a business in Phnom Penh
The benefits of starting a business in Phnom Penh include:
• A liberal and open economy: Cambodia has one of the most liberal and open economies in Southeast Asia, with low barriers to entry, 100% foreign ownership allowed, no exchange controls, and no restrictions on capital repatriation. Cambodia also has preferential access to major markets such as the European Union, the United States, China, and Japan through various trade agreements.
• A fast-growing economy: Cambodia has been one of the fastest-growing economies in the world, with an average growth rate of 8% from 1998 to 2018. The economy is expected to recover from the impact of the COVID-19 pandemic and grow further in the coming years, driven by factors such as infrastructure development, foreign investment, tourism revival, and urbanization. Phnom Penh is the economic hub of the country, accounting for about 40% of the GDP.
• A young and emerging market: Cambodia has a population of about 16 million people, with more than 60% under the age of 30. The country has a growing middle class, an increasing urbanization rate, and a rising demand for consumer goods and services. Phnom Penh has a population of about 2 million people, with a high concentration of educated and skilled workers, as well as potential customers.
• A supportive and vibrant ecosystem: Phnom Penh has a supportive and vibrant ecosystem for startups and entrepreneurs, with various initiatives, programs, events, and organizations that provide mentorship, training, networking, funding, and exposure. Some examples are Startup Cambodia, Impact Hub Phnom Penh, BarCamp Phnom Penh, Startup Weekend Phnom Penh, Smart Axiata Digital Innovation Fund, Mekong Strategic Partners, and SHE Investments.
Challenges of starting a business in Phnom Penh
The challenges of starting a business in Phnom Penh include:
• A weak rule of law: Cambodia ranks low on various indicators of governance, such as corruption perception, regulatory quality, rule of law, and political stability. The legal system is often inefficient, inconsistent, and unpredictable. The enforcement of contracts and intellectual property rights is weak. The judiciary is not independent and is subject to political influence and bribery. Dispute resolution can be costly and time-consuming.
• A poor infrastructure: Cambodia has a poor infrastructure that hampers the development and operation of businesses. The country suffers from frequent power outages, high electricity costs, inadequate water supply and sanitation, low internet penetration and speed, congested roads and traffic jams, limited public transportation options, and underdeveloped ports and airports.
• A high tax burden: Cambodia has a high tax burden for businesses compared to other countries in the region. The standard corporate income tax rate is 20%, but there are also other taxes such as value-added tax (10%), withholding tax (14%), payroll tax (20%), property tax (0.1%), patent tax ($100-$1,000), specific tax (varies), minimum tax (1%), registration tax (0.1%), stamp duty (0.1%), capital gains tax (20%), dividend tax (14%), etc. The tax administration is complex and cumbersome. The tax compliance time is estimated at 173 hours per year.
• A low human capital: Cambodia has a low human capital that limits the availability and quality of labor for businesses. The country has a low literacy rate (78%), a low education level (4.7 years), a low skill level (28%), and a low productivity level ($3 per hour). The country also faces challenges such as high dropout rates, low enrollment rates, poor quality of education, mismatch between supply and demand of skills, lack of vocational training opportunities, brain drain, etc.
List of References:
• Cambodia Investment Guidebook 2020 by Council for the Development of Cambodia
• Cambodia Trade Integration Strategy 2019-2023 by Ministry of Commerce
• Cambodia Economic Update October 2020 by World Bank
• Cambodia Economic Outlook 2021 by Asian Development Bank
• Startup Cambodia: The Ultimate Guide to Starting a Business in Cambodia by Startup Cambodia
