FDI inflows drop 1% to $3.5B

THE value of foreign direct investment (FDI) into the Kingdom registered a slight fall in 2020 amid a much sharper contraction among non-banking sectors and uncertainty over the evolution of the Covid-19 pandemic, but inflows into the financial sector remained strong.

Total FDI inflows – mainly to the financial, construction and real estate, and manufacturing sectors – recorded $3.5 billion in 2020, declining by one per cent, the National Bank of Cambodia (NBC) said in its Financial Stability Review 2020.

“The financial sector, which accounted for about one-third of the total FDI, continued a positive growth rate of 12.8 per cent in 2020 compared to 15.8 per cent in 2019 due to an increase in reinvested earnings, additional capital injection of banks, newly opened banks, and status transformations from microfinance institutions to commercial banks,” the central bank said.

Meanwhile, the FDI to non-banking sectors decreased by 9.4 per cent. Construction and real estate, and manufacturing made up for 17 per cent and 16.2 per cent, respectively,

and saw FDI inflows drop by 10.6 per cent and 7.4 per cent.

Cambodia Investment Management group CEO Anthony Galliano told The Post on June 2 that the drop in FDI should not be a cause for deep concern, or raise alarm bells. Global FDI fell by 42 per cent in 2020, however, that was only a four per cent drop among Asia’s developing nations.

He said: “The investment opportunity for Asia’s Tigers remains highly attractive and intact. While there were expectations earlier in the year that the adverse economic impact of Covid-19 would linger throughout 2021, there are now clear positive trends, such as the strong recovery in the world’s largest economy, the US, as well as the success of its vaccination programme, and China’s incredible record 18.3 per cent in the first quarter of 2021.

“Cambodia’s successful vaccination programme and containment of infections positions the Kingdom as a first starter among its peers, and I expect a strong return of FDI starting end fourth quarter. For the finance sector, the NBC has been very pragmatic in allowing the banks to manage the temporary consequences of Covid on their loan portfolio, which I believe will be fine in the end, albeit bruised.

“With the return of FDI, particularly from China, I expect the banking sector will greatly benefit, alleviating present lingering concerns,” Galliano said.

Meanwhile, the financial sector, which accounted for about one-third of the total FDI, continued a positive growth rate of 12.8 per cent in 2020 compared to 15.8 per cent in 2019, he said, adding that the financial institution sector remains extremely promising not only for the banking sector but also for the non-banking sector, with the development of the Kingdom’s capital markets and alternative savings sector in the form of investment products.

According to the NBC’s report, China ranked as the leading FDI source, accounting for 51 per cent, followed by Singapore (8.2 per cent), South Korea (7.9 per cent), Japan (5.8 per cent), the UK (4.4 per cent), Malaysia (4.2 per cent) and Thailand (3.3 per cent).

Chinese investors pumped most of the capital in garments and footwear, hydropower, real estate, finance and accommodations.