EU businesses back Cambodia’s growth but seek regulatory clarity

Candid and constructive discussions between Cambodia and the EU-ASEAN Business Council (EU-ABC) dominated last week. The fact that 40 senior executives representing more than 15 European companies sat down with the top brass of the Royal Government to address some of the vexatious issues, including regulatory barriers, uneven competition and inconsistent application of laws, mirrors that the EU-ABC is keen on diversifying its businesses here. Cambodia’s economy has grown rapidly over the past two decades, driven largely by exports of garments, footwear, travel goods and agricultural products. Despite global disruptions caused by the pandemic and geopolitical tensions, it has maintained strong growth rates in recent years. Also, European companies have a strong presence—around 1,400 European businesses are operating across sectors from banking and insurance to logistics, aviation, manufacturing and hospitality—in Cambodia. Yet speaking exclusively with Khmer Times, EU-ABC Vice-Chairman Noel Clehane made no bones about the existing bottlenecks. “European companies are very interested in the opportunities here. But investors need clarity and predictability. When regulatory conditions improve, investment tends to follow.” He has a point. The Royal Government has assured the EU-ABC that it will do the needful
Cambodia’s rapid economic growth and strategic location in Southeast Asia are drawing growing attention from European investors. Yet despite the rising interest, business leaders say regulatory barriers, uneven competition and inconsistent application of laws continue to hold back a larger wave of investment from Europe.

These issues were at the centre of discussions during a recent visit to Phnom Penh by a high-level delegation from the EU-ASEAN Business Council (EU-ABC), which met senior Cambodian officials and private-sector stakeholders on March 4-5 to discuss ways to deepen economic ties between Europe and the Kingdom.

Leading the delegation was EU-ABC Vice-Chairman Noel Clehane, who described the meetings with Cambodian policymakers as open and productive, while acknowledging that both sides still have work to do to unlock the full potential of European investment in the country.

“We had candid, fruitful and constructive discussions,” Clehane said in an exclusive interview with Khmer Times during the visit. “There is a genuine willingness on the Cambodian side to engage with European businesses and understand their concerns. That’s a positive signal for investors.”

\The two-day mission brought together about 40 senior executives representing more than 15 European companies across sectors including logistics, aviation, consumer goods and financial services. The delegation also included representatives of European business organisations operating across Southeast Asia.

During their stay in Phnom Penh, the group held meetings with key members of Cambodia’s economic leadership, including Deputy Prime Minister Sun Chanthol, Chairman of the Trade Policy Advisory Board Sok Siphana, Minister of Commerce Cham Nimul, Minister of Environment Eang Sophalleth, Minister of Post and Telecommunications Chea Vandeth, Minister of Industry, Science, Technology and Innovation Hem Vanndy, Minister of Tourism Huot Hak and Director General of the General Department of Customs and Excise Kun Nhem.

According to Clehane, the level of engagement from Cambodian authorities stood out. “The reception has been very strong,” he said. “Ministers came with their full teams — directors-general, senior advisors and officials. That demonstrates the importance Cambodia places on European investment and economic cooperation.”

Discussions focused on Cambodia’s evolving role in regional supply chains, opportunities for European companies to expand operations in the Kingdom and the broader relationship between the European Union and Southeast Asia.

The visit comes at a time when European firms are reassessing their global supply chains and seeking new manufacturing and investment locations in Asia.

Supply-chain diversification

For many European companies, Southeast Asia has become increasingly attractive as businesses attempt to diversify production away from single markets.

Clehane said the trend has accelerated in recent years as companies attempt to reduce their reliance on major global manufacturing hubs such as China while balancing geopolitical and economic risks.

“European companies are looking at diversification,” he explained. “They want supply chains that are more resilient and less dependent on any single country. Southeast Asia, and particularly ASEAN, is becoming central to that strategy.”

Cambodia is part of the broader Association of Southeast Asian Nations (ASEAN), a regional bloc that has emerged as one of the world’s fastest-growing economic regions. The country’s young population, expanding manufacturing base and improving infrastructure are factors increasingly catching the attention of European investors.

A team of Cambodian officials headed by Minister of Environment Eang Sophalleth (sixth, left row) holds discussions with the EU-ABC delegation in Phnom Penh. EU-ABC

Cambodia’s economy has grown rapidly over the past two decades, driven largely by exports of garments, footwear, travel goods and agricultural products. According to regional economic data, the Kingdom has maintained strong growth rates in recent years despite global disruptions caused by the pandemic and geopolitical tensions.

The country’s labour force, with a median age under 30, is another attraction for foreign investors seeking competitive manufacturing bases.

Growing European presence

European companies already have a notable presence in Cambodia. Estimates suggest the country hosts around 1,400 European businesses operating across sectors ranging from banking and insurance to logistics, aviation, manufacturing and hospitality.

The level of intellectual property registrations also illustrates growing interest. European firms have filed nearly 17,000 intellectual property applications in Cambodia, of which approximately 9,000 have been granted.

“More than just numbers, these applications demonstrate the interest of European businesses in Cambodia and their willingness to develop brands and technologies in this market,” Clehane said.

Europe is also an important export destination for Cambodia. The European Union collectively represents the Kingdom’s fourth-largest export market, accounting for roughly 15 percent of Cambodian exports.

The trade relationship has historically been strengthened by preferential access granted under the Everything But Arms (EBA) scheme, which allows duty-free access to European markets for most goods from least-developed countries.

Sok Siphana (second right), Chairman of the Trade Policy Advisory Board of Cambodia interacts with the EU-ABC delegation in Phnom Penh. EU-ABC

Persistent business concerns

Despite the positive outlook, European businesses say significant challenges remain. Clehane noted that many foreign investors are concerned about regulatory inconsistency and the uneven enforcement of laws. Businesses operating formally — paying taxes, complying with labour regulations and following licensing rules — sometimes face competition from informal operators who avoid these costs.

“Foreign investors tend to operate fully within the formal system,” he said. “But many local competitors operate informally, which can create an uneven playing field.”

This issue is not unique to Cambodia but is common in many emerging economies where large informal sectors exist.

European firms also cited regulatory barriers and administrative uncertainty as factors affecting investment decisions. Investors typically seek predictable policies, transparent regulations and stable enforcement mechanisms before committing significant capital.

Clehane said that improving these areas could significantly increase European investment in Cambodia. “European companies are very interested in the opportunities here,” he said. “But investors need clarity and predictability. When regulatory conditions improve, investment tends to follow.”

Moving up the value chain

Beyond regulatory reforms, the EU-ABC delegation encouraged Cambodia to pursue greater value addition in its export industries.

At present, much of Cambodia’s export economy is built around labour-intensive manufacturing — particularly garments — and raw agricultural commodities.

The country produces significant quantities of agricultural products including cashews, rice, mangoes and cassava. However, many of these products are exported in raw or minimally processed form.

Clehane said this represents a missed opportunity for higher-value economic activity. “Instead of exporting a bag of cashew nuts, you process them into something that adds value,” he explained.

“That requires equipment, technology and know-how — areas where European companies can contribute.”

Europe itself remains a major food importer despite being one of the world’s largest agricultural producers and net exporter of food items. A significant portion of food imports to the EU currently comes from Southeast Asian countries such as Thailand, Vietnam and Indonesia.

Cambodia could potentially expand its share of that market if it develops stronger food-processing capabilities and meets international quality standards.

In addition to agriculture, European businesses see potential in sectors such as renewable energy, electronics manufacturing, logistics and sustainable infrastructure.

European firms are often leaders in these fields and could bring advanced technology and management expertise to Cambodia’s developing industries.

Life after LDC status

Another key topic discussed during the visit was Cambodia’s planned graduation from the United Nations’ least-developed-country (LDC) category in 2029.

The milestone reflects the country’s progress in economic development, poverty reduction and structural transformation over several decades. However, graduation will also bring important changes to Cambodia’s trade relationship with major markets.
Under its current LDC status, Cambodia benefits from preferential trade schemes such as the European Union’s Everything But Arms (EBA) programme, which allows duty-free access for most exports.

Once Cambodia leaves the LDC category, it will automatically shift to the EU’s Generalised System of Preferences (GSP). While still providing preferential treatment, the scheme includes tariffs on certain products.

To maintain broader duty-free access, Cambodia would need to qualify for the enhanced GSP+ arrangement.

GSP+ provides additional trade benefits but requires participating countries to comply with a range of international conventions related to labour rights, environmental protection, human rights and good governance.

Clehane said the transition would represent both a challenge and an opportunity. “Cambodia’s graduation from LDC status is ultimately a success story,” he said. “It reflects decades of economic progress. But it also means the country needs to prepare carefully for the next stage.”

He stressed that qualifying for GSP+ will require significant preparation. “For this, Cambodia needs a clear programme meeting the EU’s sustainability and governance standards,” Clehane said.

Without the enhanced scheme, Cambodian exporters could face tougher competition in European markets from countries such as Bangladesh and Pakistan.

However, while commenting on the EU-ABC delegation’s visit, Edwin Vanderbruggen, Senior Partner at Andersen in Cambodia and Lecturer at the Foreign Trade University in Hanoi, said that Cambodia is ASEAN’s most open economy, for better and for worse. “GSP-type concessions are band aids, not structural answers. If the country reaches its full potential, improves its productivity and skills, it will be competitive even without such tariff exceptions,” he told Khmer Times.

FTA unlikely soon

Some Cambodian policymakers have expressed interest in negotiating a comprehensive free trade agreement (FTA) with the European Union to secure long-term market access.

However, Clehane suggested that such negotiations are unlikely to happen in the near future. The EU is currently prioritising trade negotiations with larger Southeast Asian economies including Indonesia, Thailand, Malaysia and Philippines.

Given the complexity of EU trade agreements, negotiations with Cambodia may take longer to materialise. In the meantime, Clehane said improving domestic business conditions would be the most effective way for Cambodia to attract more European investment.

LDC transition

As Cambodia approaches its LDC graduation and seeks to transition toward a more diversified economy, the coming years may prove crucial for shaping its investment climate.

European investors appear ready to play a larger role in the country’s development — provided reforms continue and regulatory conditions improve.

For the EU-ASEAN Business Council, the recent visit was intended not only to raise concerns but also to strengthen dialogue with Cambodian policymakers.

“The interest from European companies is clearly there,” Clehane said. “Cambodia has achieved remarkable growth, and there is a real opportunity to build on that success.”

Whether the Kingdom can translate that interest into a new wave of European investment may depend on how effectively it addresses the structural challenges highlighted during the visit.

The meeting with Deputy Prime Minister Sun Chanthol marked the highlight of the Council’s two-day visit to Cambodia. Central to the discussion with DPM was the significant role European businesses play in Cambodia’s economy, with both sides voicing their eagerness to elevate cooperation, especially as the Kingdom works to diversify its export market and move up the value chain.

In his opening remarks, the DPM stressed that the private sector was a key engine of Cambodia’s economic growth. “We cannot build Cambodia alone. We need our partner, the private sector,” said Chanthol.

Commenting on the visit, Clehane said: “We’re very positive about Cambodia’s economic outlook. It may be a smaller market within ASEAN, but it’s incredibly dynamic with a young workforce and significant room for growth.”

“There’s been much enthusiasm from government officials to deepen cooperation with the European private sector, and we’re equally keen to invest in Cambodia’s future,” he added.

Another highlight of the delegation’s visit was the meeting with Sok Siphana, Chairman of the Trade Policy Advisory Board, on the final day of its business mission to Cambodia, to exchange views on Cambodia’s immediate economic priorities and development strategy.

Discussions covered the Kingdom’s ambition to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and to expand its network of trade agreements as part of efforts to strengthen its global trade position. The meeting also highlighted how recent economic shocks — including the US tariff situation and Thai-Cambodian border tensions — have created disruptions to regional trade flows, underscoring the need for Cambodia to upgrade and diversify its value chains to enhance economic resilience.

Chairman Sok, and several other ministers, indicated that the government intends to pursue qualification for GSP+, which would help maintain near-zero tariff access for Cambodian exports to the European market following the country’s eventual graduation from LDC status. The EU-ABC delegation welcomed this ambition and encouraged continued reforms to support Cambodia’s eligibility under the scheme.

But for now, strengthening regulatory standards and improving investment conditions would be the most effective way for Cambodia to maintain strong trade ties with Europe and attract more international capital.

Source:  Khmer Times