Cambodia's economy currently follows an open market system (market economy) and has seen rapid economic progress in the last decade.Development and Its Discontent April 12, 2013 New York Times Cambodia's two largest industries are textiles and tourism, while agricultural activities remain the main source of income for many Cambodians living in rural areas. The service sector is heavily concentrated on trading activities and catering-related services. Recently, Cambodia has reported that oil and natural gas reserves have been found offshore. In recent years, illicit economic activities like cyber scam center operations have become an increasingly prominent of Cambodia's economy, representing as much as 40% of Cambodia's official GDP in 2024.

In 1995, with a GDP of $2.92 billion the Cambodian government transformed the country's economic system from a planned economy to its present market-driven system. Following those changes, growth was estimated at a value of 7% while inflation dropped from 26% in 1994 to only 6% in 1995. Imports increased due to the influx of foreign aid, and exports, particularly from the country's garment industry, also increased. Cambodia's economic growth translated to about 0.71% for the ASEAN economy in 2016.Yonn, Royel. "The effects of Cambodia economy on ASEAN economic moving forward." Journal of Management, Economics, and Industrial Organization 1.2 (2017): 1-16.

After four years of improving economic performance, Cambodia's economy slowed in 1997–1998 due to the 1997 Asian financial crisis, civil unrest, and political infighting. Foreign investments declined during this period. Also, in 1998 the main harvest was hit by drought. But in 1999, the first full year of relative peace in 30 years, progress was made on economic reforms and growth resumed at 4%.

Currently, Cambodia's foreign policy focuses on establishing friendly borders with its neighbors (such as Thailand and Vietnam), as well as integrating itself into regional (ASEAN) and global (WTO) trading systems. Some of the obstacles faced by this emerging economy are the need for a better education system and the lack of a skilled workforce; particularly in the poverty-ridden countryside, which struggles with inadequate basic infrastructure. Nonetheless, Cambodia continues to attract investors because of its low wages, plentiful labor, proximity to Asian raw materials, and favorable tax treatment.

Recent economic history

Following its independence from France in 1953, the Cambodian state has undergone five periods of political, social, and economic transformation: First Kingdom of Cambodia (1953–1970) Khmer Republic (1970–1975) Democratic Kampuchea (1975–1982, ousted in 1979); became Coalition Government of Democratic Kampuchea in exile (1982–1993) People's Republic of Kampuchea (1979–1989), later renamed "State of Cambodia" (1989–1993) Second Kingdom of Cambodia (1993–present)

In 1989, the State of Cambodia implemented reform policies that transformed the Cambodian economic system from a command economy to an open market one. In line with the economic reformation, private property rights were introduced and state-owned enterprises were privatized. Cambodia also focused on integrating itself into regional and international economic blocs, such as the Association of South East Asian Nations and the World Trade Organization respectively. These policies triggered a growth in the economy, with its national GDP growing at an average of 6.1% before a period of domestic unrest and regional economic instability in 1997 (1997 Asian financial crisis). However, conditions improved and since 1999, the Cambodian economy has continued to grow at an average pace of approximately 6–8% per annum.

In 2007, Cambodia's gross domestic product grew by an estimated 18.6%. Garment exports rose by almost 8%, while tourist arrivals increased by nearly 35%. With exports decreasing, the 2007 GDP growth was driven largely by consumption and investment. Foreign direct investment (FDI) inflows reached US$600 million (7 percent of GDP), slightly more than what the country received in official aid. Domestic investment, driven largely by the private sector, accounted for 23.4 percent of GDP. Export growth, especially to the US, began to slow in late 2007 accompanied by stiffer competition from Vietnam and emerging risks (a slowdown in the US economy and lifting of safeguards on China's exports). US companies were the fifth largest investors in Cambodia, with more than $1.2 billion in investments over the period 1997–2007.

Cambodia was severely damaged economically by the 2008 financial crisis, and its main economic sector, the garment industry, suffered a 23% drop in exports to the United States and Europe. As a result, 60,000 workers were laid off. However, in the last quarter of 2009 and early 2010, conditions were beginning to improve and the Cambodian economy began to recover. Cambodian exports to the US for the first 11 months of 2012 reached $2.49 billion, a 1 per cent increase year-on-year. Its imports of US goods grew 26 per cent for that period, reaching $213 million. Another factor underscoring the potential of the Cambodian economy is the recent halving of its poverty rate. The poverty rate is 20.5 per cent, meaning that approximately 2.8 million people live below the poverty line.

Data The following table shows the main economic indicators in 1986–2020 (with IMF staff estimates in 2021–2026). Inflation below 5% is in green. The annual unemployment rate is extracted from the World Bank, although the International Monetary Fund find them unreliable. YearGDP (in Bil. US$PPP)GDP per capita (in US$ PPP)GDP (in Bil. US$nominal)GDP per capita (in US$ nominal)GDP growth (real)Inflation rate (in Percent)Unemployment (in Percent)Government debt (in % of GDP)1986n/an/a0.225.71n/an/an/an/a19874.3516.020.117.1n/a-31.2%n/an/a19884.8569.10.332.69.6%23.0%n/an/a19895.2593.10.339.73.3%63.8%n/an/a19905.4602.50.999.81.1%141.8%n/an/a19916.0647.52.0215.77.6%191.0%0.7%n/a19926.6684.42.4252.57.1%75.0%0.8%n/a19937.0703.62.4242.54.0%114.3%0.8%n/a19947.8745.92.8265.18.2%10.4%1.3%n/a19958.4781.73.4319.56.0%10.1%0.8%n/a19969.1818.53.5316.25.9%7.1%0.8%30.2%19979.6842.83.4302.24.0%10.5%0.9%31.6%199810.2870.13.1267.94.7%12.9%0.9%37.2%199911.6971.93.5293.712.7%2.0%0.9%34.7%200013.01,065.43.7300.09.6%-0.8%1.0%35.2%200114.41,158.34.0320.08.6%-0.1%1.0%34.9%200215.61,230.74.3337.56.6%0.0%1.1%39.7%200317.31,336.54.7360.78.5%1.0%1.1%43.1%200419.61,489.65.3405.610.3%3.9%1.1%42.7%200522.91,712.66.3470.713.3%6.3%1.1%35.6%200626.11,925.87.3536.210.8%6.1%1.2%30.7%200729.52,149.08.6627.810.2%7.7%1.3%29.4%200832.12,305.010.3741.96.7%25.0%0.8%27.0%200932.42,299.110.4737.20.1%-0.7%0.6%28.5%201034.72,437.811.2788.26.0%4.0%0.8%28.7%201138.02,635.912.8889.87.1%5.5%0.6%29.7%201242.42,912.114.1965.47.3%2.9%0.5%31.5%201345.83,109.915.21,034.87.4%3.0%0.4%31.7%201448.73,271.916.71,123.27.1%3.9%0.7%31.9%201552.63,500.618.11,203.57.0%1.2%0.4%31.2%201657.93,816.820.01,320.36.9%3.0%0.7%29.1%201762.84,097.522.21,446.97.0%2.9%0.1%30.0%201869.24,466.824.41,578.07.5%2.4%0.1%28.6%201975.44,832.726.71,713.37.0%2.0%0.1%29.0%202073.64,695.126.01,655.4-3.5%2.9%0.3%31.6%202178.14,930.027.21,720.24.2%3.1%n/a33.4%202284.65,289.929.11,820.96.0%2.8%n/a35.4%202392.05,693.431.31,938.26.3%3.0%n/a38.0%2024100.16,136.533.82,072.16.6%3.0%n/a41.0%2025108.96,610.236.52,217.56.7%3.0%n/a43.9%2026118.57,119.039.52,375.36.8%3.0%n/a46.7%

Economic sectors

Garment industry The garment industry represents the largest portion of Cambodia's manufacturing sector, accounting for 80% of the country's exports. In 2012, the exports grew to $4.61 billion up 8% over 2011. In the first half of 2013, the garment industry reported exports worth $1.56 billion. The sector employs 335,400 workers, of which 91% are female.

The sector operates largely on the final phase of garment production, that is turning yarns and fabrics into garments, as the country lacks a strong textile manufacturing base. In 2005, there were fears that the end of the Multi Fibre Arrangement would threaten Cambodia's garment industry; exposing it to stiff competition with China's strong manufacturing capabilities.Wary of China, Companies Head to Cambodia April 8, 2013 New York Times On the contrary, Cambodia's garment industry at present continues to grow rapidly. This is can be attributed to the country's open economic policy which has drawn in large amounts of foreign investment into this sector of the economy.

Garment Factories by Ownership Nationality in 2010: Nationality of Ownership Ownership by percentage Number of factories owned Taiwan 28% 66 China 19% 44 Hong Kong 17% 39 South Korea 13% 31 Malaysia 6% 14 Cambodia 5% 13 Singapore 4% 10 USA 4% 9 Others 4% 10

In 2010, 236 garment export-oriented factories were operating and registered with GMAC, the Garment Manufacturers Association in Cambodia, with 93% being foreign direct investment (FDI).

As seen in the table above, Cambodia's garment industry is characterized by a small percentage of local ownership. This is a reflection of the deficiency of skilled workers in the country as well as the limited leverage and autonomy Cambodian factories have in strategic decisions. Another characteristic of the industry is the country's competitive advantage as the only country where garment factories are monitored and reported according to national and international standards.

This has allowed Cambodia to secure its share of quotas for exports to the US through the US-Cambodia Trade Agreement on Textiles and Apparel (1999–2004), which linked market access to labor standards. However, the Cambodian garment industry remains vulnerable to global competition due to a lack of adequate infrastructure, labor unrest, the absence of a domestic textile industry, and almost complete dependence on imported textile material.

GMAC is establishing a specialized training institute to train garment workers. The institute is in Phnom Penh Special Economic Zone and will be completed by late 2016. It aims to train 1,600 garment workers in the first three years and 240 university students each year as part of a separate program.

Agriculture

Agriculture is the traditional mainstay of the Cambodian economy. Agriculture accounted for 90 percent of GDP in 1985 and employed approximately 80 percent of the work force. Rice is the principal commodity. The Ministry of Agriculture, Forestry and Fisheries is the government ministry of Cambodia that is responsible for governing activities of agriculture, forestry and the fishery industry in Cambodia.

Major secondary crops include maize, cassava, sweet potatoes, groundnuts, soybeans, sesame seeds, dry beans, and rubber. The principal commercial crop is rubber. In the 1980s it was an important primary commodity, second only to rice, and one of the country's few sources of foreign exchange.

Tourism

In the 1960s, Cambodia was a prominent tourist destination in the Southeast Asian region. Due to protracted periods of civil war, insurgencies, and especially the genocidal regime of the Khmer Rouge (see Khmer Rouge Genocide), Cambodia's tourism industry was reduced to being virtually non-existent. Since the late 1990s, tourism is fast becoming Cambodia's second largest industry, just behind the garment manufacturing. In 2006, Cambodia's tourism sector generated a revenue of US$1.594 billion, which made up approximately 16% of the country's GDP.

Cultural heritage tourism is especially popular in the country, with many foreign tourists visiting the ancient Hindu temple of Angkor Wat located in the Siem Reap province. Other popular tourist attractions include the Royal Palace, Phnom Penh, as well as ecotourism spots such as Tonlé Sap Lake and the Mekong River.