Singaporean firms are taking an increasingly close look at the Cambodian market, both as a low-cost offshore production base and as a destination for their goods and services.

While Singapore’s developed economy has slowed to a crawl, Cambodia’s gross domestic product has been growing at more than 7 per cent a year for much of the last decade.

The combination of strong economic growth and an upwardly mobile consumer population presents a tantalising opportunity for Singaporean companies in search of dynamic new markets.

“The consistent growth generates demand for Singapore’s quality products and services,” says Tan Soon Kim, assistant chief executive of International Enterprise Singapore, the lead government agency spearheading the island state’s foreign trade.

But Cambodia is not just a trade partner; its gateway position in Southeast Asia, abundant cheap labour and liberal foreign investment regime make it an attractive play for Singaporean firms looking to establish a low-cost production base to serve the Lower Mekong region.

“Cambodia’s cost-competitive workforce and proximity to emerging economies in Southeast Asia makes the country a viable manufacturing location for Singapore companies,” Tan said.

Ho Meng Kit, CEO of the Singapore Business Federation (SBF), which represents 22,500 Singaporean companies, said as Cambodia becomes more developed it is proving a cost-effective alternative to Vietnam for offshore manufacturing.

“Businesses looking to establish low-cost production bases in Asia would be able to find cost-effective solutions in Cambodia,” he said, adding that while the Kingdom’s low inflation rate and strong domestic demand are attractive, more needs to be done to develop human resources.

“Cambodia has an open and liberal foreign investment regime with a relatively pro-investor legal and policy framework compared to some other ASEAN countries,” Ho explained.

“The liberal FDI policies in Cambodia, together with competitive labour costs, compensate to a large extent for the small size of the market and poor infrastructure,” he added.

He said from a foreign investor perspective, key incentives include duty-free import of capital goods, reasonable corporate tax rates with tax holidays, no restrictions on capital repatriation, and 100 per cent foreign ownership of companies.

In Tan’s view, the absence of foreign shareholding restrictions on most businesses – an uncommon feature in this part of the world – is one of the Kingdom’s biggest drivers of investment.

“This gives foreign investors greater flexibility in their mode of entry [and] is one aspect that we have highlighted when promoting Cambodia to Singaporean investors,” he said.

According to the Council for the Development of Cambodia, Singapore has consistently ranked among the top-10 foreign investors in Cambodia. In 2015, it was the third-largest foreign investor after China and the UK, contributing nearly 2.2 per cent of the $4.6 billion in committed FDI to the Kingdom.

Singaporean firms have invested in an array of industries including agriculture, energy, financial services, logistics, manufacturing and real estate. Top names include property and agriculture firm HLH, oil exploration company KrisEnergy, IT firms SingMeng and HyalRoute Communications, logistics and dry port operator Bok Seng, hotel brands Raffles and Himawari, and property firms Huttons Asia and Oxley Holdings.

Given Singapore’s position as one of the world’s busiest container ports, it is hardly surprising that the nation’s logistics companies were among the first to set up operations in Cambodia, and are some of the most active. Transpeed Cargo, which incorporated its local office in 1992, has grown from a staff of two to more than 45 today.

Wilfred Koh, Transpeed Cargo’s country manager, said being a first-mover in the market had its advantages, but local talent and in-country experience has proven invaluable.

“Being an early investor did give us an edge, but it was more through the hard work and effort we put in,” he said. “Staff plays an important role that helped propel the company to where we are today.”

For Singaporean entrepreneur Jackie Eng, CEO of diversified real estate company SC Capital, the Kingdom’s immature market offers a fresh canvas to apply old tricks, and experiment with new ones.

“We’re bringing in concepts from Singapore that are new here and transforming [the urban landscape],” he said. “We have an opportunity here in Cambodia to do what we can’t do in Singapore.”

The investment regime continues to improve, and SBF’s Ho says he expects trade and investment between Singapore and Cambodia to continue to flourish after the two countries signed into effect the first bilateral double taxation agreement (DTA) in May.

“By clarifying the taxing rights of both countries on income flows from cross-border business activities, the DTA minimises double taxation of such income,” he said.

Tan agrees, explaining that the DTA “provides certainty on when and how tax is to be imposed”. This offers a degree of assurance to Singaporean companies as well as multinational companies that use Singapore as a regional hub, and should result in further inflows of trade and investment .