Since the 2015 launch of the Cambodian Sustainable Development Goals (CSDGs) much emphasis has been placed on the role and contributions of the private sector to support the countries post 2015 development commitments. A majority of the discourse has revolved around identifying financing gaps, developing frameworks and harmonizing and updating the legislative and regulatory bases to enable greater financial flows.

Much of this work paid rapid dividends as Cambodia became a popular destination for direct investment prior to the global slowdown as a result of the COVID pandemic. Prior to the Pandemic, Cambodia recorded its highest level of FDI (2019) valued at US$ 3.7 billion (UNTACD, World Investment Report 2020). The main sources of the 2019 FDI being; China (43 percent) followed by South Korea (11 percent), Viet Nam (7 percent) with Japan and Singapore each contributing 6 percent of the total. Although the FDI has been focused on infrastructure (housing retail and roads) new trends are emerging that is witnessing FDI supporting agricultural development in specific sectors.

The government are in the process of rapidly updating the legislation and regulatory base with the promulgation of a new investment law and a new PPP law that will help create a more conducive business environment and streamline investment processes. However, the engagement of the private sector cannot be solely considered in terms of FDI but needs also be viewed through the lenes of domestic firms and joint ventures that can contribute to the CSDGs and perhaps in a more efficient and directed manner.

Central to the growth of the domestic private sector will be the maturing of the domestic financial sector, and in particular the expansion of the Cambodian Securities Exchange (CSX). The securities exchange was launched in 2012 with the underlying purpose to expand financing options for Cambodian enterprises, which the government felt were too reliant on banks. Over the last ten years only seven companies have listed, leading to CSX being one of the smallest exchanges globally.

It is at the CSX where both public and private sector bonds can be issued and also where domestic companies and state-owned enterprises can raise investment capital through listing. Indeed, to increase financial flows from the private sector and through capital markets the bourse provides a critical facility. Therefore, as a component of the joint SDG funded project “xx” UNDCF are analyzing the bottlenecks that are stiffing growth of the CSX and the Cambodian bond and stock markets. The diagnostics entail conducting deep-dive dialogues with CSX, the National Bank of Cambodia, the ratings agencies and the Securities exchange of Thailand (SET) and data analysis of the regional exchanges and the underlying investor environment.

Early indications have allowed for the identification of such bottlenecks and additionally some anomalies that illustrate conflicting legislation. One such issue is the conflicting SEZ and CSX regulations that both offer tax incentives that, in some ways, work against each other. With both institutions (the SEZs and CSX) offering similar tax breaks, the larger companies that often populate the SEZs see no advantage in listing on the CSX to benefit in terms of tax breaks as they receive such breaks from the SEZ regulations. Harmonization of the institutional regulations that potential offer a stepped approach to tax concessions can drive greater CSX growth for JV and companies that are entering into the Cambodian economy.

The initial report released by UNCDF provides an analysis and opinion of the current status of CSX and indicates the issues that are restricting its rapid growth. Given the promulgation of the new government securities law (December 2020) and the participation of ALCEDA Bank on the CSX, with slight adjustments and policy focus it is suggested that the CSX is on the brink of evolving into a dynamic securities exchange following the development pathway of Viet Nam (HSX / HNX) in the region.

For more information you can read the report : HERE

Thilaphong Oudomsine
Programme Specialist
thilaphong.oudomsine@uncdf.org

Paul Martin
Regional Technical Advisor
paul.martin@uncdf.org