A recent independent review commissioned by NagaCorp, the operator of NagaWorld Integrated Resort in Phnom Penh, has identified economic risks as the most significant challenge facing Cambodia in 2024, overshadowing any political instability. The review, conducted by Political & Economic Risk Consultancy, Ltd (PERC), is part of NagaCorp’s Interim Report and provides a comprehensive analysis of the risks and opportunities for Cambodia’s economy. While Cambodia has managed to move past the worst effects of the COVID-19 pandemic, the country is still grappling with external factors that are delaying a full economic recovery.
Cambodia’s Delayed Economic Recovery: External Factors at Play
The report emphasizes that Cambodia’s economic recovery remains sluggish, largely due to factors beyond the country’s control. While the nation has overcome the immediate impact of the pandemic, it has yet to return to pre-pandemic growth levels. According to the review, external global factors—such as declining demand for Cambodian exports, ongoing geopolitical tensions, and inflationary pressures—are the primary reasons for this delayed recovery.
“Most of the reasons for this delayed economic recovery are external,” the review states. “Unfortunately, that means they are largely beyond the ability of the government to control and are likely to disappoint those hoping for a speedy rebound.”
Decreased Demand for Exports
The report notes a significant downturn in demand from key markets, particularly the US and Europe, for some of Cambodia’s largest exports, such as garments and textiles. These industries have historically been vital contributors to the country’s economic growth, and their underperformance is a major concern.
Reluctance of Chinese Tourists
Another challenge highlighted is the ongoing reluctance of Mainland Chinese tourists to travel outside their country, which is affecting Cambodia’s tourism sector. Before the pandemic, Chinese tourists made up a substantial portion of Cambodia’s international visitors, especially in cities like Phnom Penh and Siem Reap.
Global Geopolitical Tensions
The review also points to the inflationary impact and economic disruption caused by the ongoing wars in Ukraine and Gaza. These conflicts have driven up global energy and commodity prices, adding to inflationary pressures in Cambodia and complicating the government’s efforts to stabilize the economy.
US Federal Reserve Policies
The slow pace at which the US Federal Reserve is reducing interest rates is another factor creating uncertainty. High interest rates in the US have contributed to tighter global financial conditions, making it more difficult for emerging markets like Cambodia to attract foreign investment and secure loans at favorable rates.
Weakness in Major Global Economies
The report concludes that economic weakness in major economies like China, the US, and Europe is creating ripple effects that are being felt in Cambodia. Sluggish global growth is dampening demand for exports and reducing investment flows into the country.
Political Stability: A Source of Optimism for Investors
On a more positive note, the review finds that Cambodia’s political environment remains stable, with little sign of instability that could further disrupt the economy. The smooth leadership transition following the retirement of former Prime Minister Hun Sen has been well-received by both the general population and key political factions within the ruling Cambodian People’s Party (CPP).
Hun Sen’s son, Prime Minister Hun Manet, now leads the government, and the review highlights that his leadership has been marked by continuity rather than abrupt changes. His father’s presence in the background has helped ensure a stable transition, with all major factions within the CPP continuing to support the new government.
“The position of the ruling Cambodian People’s Party has never been stronger,” the review notes. “Although long-standing factions within the CPP remain a feature of the political scene, all factions have supported the new government. In part, that is because Hun Sen is still present to support his son’s transition and to ensure that other factions do not challenge him.”
Moreover, the review points out that Hun Manet is working closely with a small group of experienced advisors, many of whom also had the trust of his father. This tight-knit circle of advisors is seen as a stabilizing force within the new administration, helping to navigate the country through complex economic challenges while maintaining political cohesion.
The presence of an unusually large number of special advisors has been noted, but the review suggests that only a smaller core group is directly influencing the prime minister’s decisions. This dynamic has allowed Hun Manet to stay focused on the key concerns of the private sector, including foreign investors, which the report identifies as crucial to sustaining Cambodia’s business-friendly environment.
Focus on Business Environment and Economic Growth
The review paints a picture of a Cambodian government that remains committed to supporting economic growth despite the challenging global environment. The report underscores the importance of private-sector input in shaping government policy, with Hun Manet making an effort to listen to business leaders and foreign investors.
“The prime minister is also listening closely to private sector business leaders, including foreign investors, to ensure their biggest concerns are being addressed in ways that protect and enhance the business environment,” the review states.
This proactive engagement with the private sector is seen as a positive sign for companies operating in Cambodia, particularly those with significant investments like NagaCorp. In fact, the company’s operations have benefited from this stable political environment, allowing it to continue its post-pandemic recovery despite broader economic challenges.
NagaCorp’s Financial Health: Debt Repayment and Future Prospects
In a separate section of the Interim Report, NagaCorp confirmed that it had fully repaid its outstanding US$472.2 million in Senior Notes that were due in July 2024. This repayment was seen as a significant milestone for the company, as analysts had previously flagged the maturity of these notes as a potential risk, especially given the slow recovery of NagaCorp’s gaming operations post-COVID.
With the repayment of these notes, NagaCorp has no remaining debt obligations other than an outstanding shareholder loan provided by founder Chen Lip Keong, who passed away recently. This development places the company in a more secure financial position heading into 2024, providing a buffer against potential economic shocks.
The company also noted that it has commissioned another review, this time focusing on the internal controls of the group, with particular attention to anti-money laundering (AML) compliance. The findings of this review will be included in NagaCorp’s 2024 Annual Report, signaling the company’s commitment to maintaining strong governance and regulatory standards.
Implications for Foreign Investors
The findings of the PERC review present a mixed outlook for foreign investors looking to do business in Cambodia. On one hand, political stability under the leadership of Hun Manet is a reassuring factor, with the government actively seeking to create a favorable environment for both local and foreign businesses. The fact that key political factions within the ruling party remain united behind the new leadership adds an additional layer of security for investors who might otherwise be concerned about potential disruptions.
However, the economic challenges facing Cambodia cannot be ignored. With key global markets facing downturns, the recovery of Cambodia’s export-driven economy is likely to be slow. Investors will need to carefully assess the risks associated with declining demand for exports, weak tourism numbers, and broader global uncertainties before committing significant resources to the country.
Despite these challenges, companies like NagaCorp, which are deeply embedded in Cambodia’s economy, may find opportunities to navigate the economic downturn. The company’s ability to repay its debts and its ongoing efforts to strengthen internal controls show that it is taking proactive steps to manage risk. This could serve as a model for other businesses operating in similarly volatile environments.
Cambodia’s economic outlook for 2024 presents a complex picture of external pressures combined with internal political stability. While the country’s recovery from the pandemic is ongoing, it is clear that the most significant challenges will come from factors beyond its borders. Global demand for Cambodian exports remains weak, Chinese tourism has yet to recover, and geopolitical tensions continue to create uncertainty in global markets.
At the same time, Cambodia’s political landscape is remarkably stable, with the smooth transition to a new government under Prime Minister Hun Manet providing a sense of continuity and reassurance for businesses and investors. The government’s willingness to engage with the private sector and its commitment to addressing business concerns suggest that Cambodia remains a favorable destination for investment, despite the economic headwinds it faces.
As Cambodia navigates these risks, companies like NagaCorp stand as examples of resilience, leveraging political stability to weather economic challenges. However, for foreign investors looking to enter the Cambodian market, a cautious approach is advisable, with a focus on long-term opportunities rather than short-term gains.
While economic risks dominate the outlook for Cambodia in 2024, the country’s political environment offers a foundation of stability that could help mitigate some of the challenges ahead. Investors will need to carefully weigh these factors as they plan their strategies for engaging with the Cambodian market.