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May 27, 2020updated 11 Feb 2022 5:09am

Growth to slow down in Cambodian construction industry due to tourism and foreign investment decline

By GlobalData

According to official data, Cambodia has no active coronavirus cases, with the last active patient having recovered on 16 May and no confirmed cases detected since 12 April. The country has also reported zero deaths from Covid-19. The first confirmed Covid-19 case in the country was a Chinese tourist detected on 27 January. In fact, most of the cases in the country have been of people arriving from other countries.

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The Internet of Things (IoT) is proving hugely beneficial to the construction industry, allowing different assets and people to be monitored and accounted for across a traditionally fragmented industry. As a result, companies that invest in IoT now promise to make long-term gains in the industry. According to GlobalData forecasts, spending on IoT in construction will reach $9.6bn by 2025. For an industry that has large sites to manage, strict project timelines, hazardous working conditions, and tight profit margins, IoT can create a manageable view of construction sites for project managers, streamline operations, and protect workers. In addition, it allows real-time data streams of assets, automates time-consuming tasks, and ensures employee safety and productivity. IoT integration with equipment manufacturing also has rich advantages for asset monitoring sensors. This, combined with artificial intelligence (AI) can help forecast materials and workers needed during the procurement stage and assist in forecast financing. Read GlobalData’s whitepaper to find out more, including information on:
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  • Market size and growth forecasts
  • Mergers and acquisitions
  • Leading IoT adopters in construction
  • Specialist IoT vendors in construction
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by GlobalData
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Although the country did not apply a ban on arrivals from China, in mid-March the government announced a ban on arrivals from Italy, France, Germany, Spain, the US and Iran. Subsequently, it also closed its borders with Vietnam and Thailand. Effective 30 March, Cambodia also suspended the visa exemption policy for a month and made it mandatory for foreign travellers to provide a Covid-19 free medical certificate obtained within the last 72 hours. Inter-provincial and inter-district travel was also banned from 8 April, although these were later withdrawn by 16 April as the number of cases dwindled.

In view of the Covid-19 effect on Cambodia’s economy, the IMF has revised economic growth for the country, with GDP expected to contract by 1.6% in 2020 as compared to the earlier forecast of a growth of 7.0%. The ADB and the World Bank too have projected the economy to slow down, albeit they expect the country to post positive growth of 2.3% and 2.5% respectively. The steep decline in economic growth would be due to the twin effects of declining tourist arrivals and slowing exports.

Prior to the COVID-19 outbreak, the Cambodian construction industry had been one of the main drivers of the economic growth in the country, registering average growth of 18.1% during 2014-2019. This was a result of rising foreign investment in the country, with the country’s ASEAN membership, location between Thailand and Vietnam and close proximity with China making it an attractive destination. The US-China trade war had further helped the country, particularly the garment manufacturing industry, with exports in 2019 growing by 98% – though some of this growth has been due to rerouting of exports from China due to the tariff war.

However, in view of the expected economic slowdown in the country, GlobalData now expects growth in the construction industry to slow down to 4.9% in 2020 as compared to a previous forecast of 9.7%, with a high likelihood of further downward revisions as the Covid-19 outbreak extends globally and affects global growth. Apart from the expected slowdown in demand for new housing due to rising unemployment and funding crisis, the problems in the construction industry have been compounded by the government’s announcement of halting the launch of new construction projects in the country in 2020. In March, Prime Minister Hun Sen announced that the government would delay all new construction projects (excluding those funded by foreign developers) that were expected to be started in 2020. This would likely affect the infrastructure and energy & utilities construction market in the country.

Cambodia’s construction boom has been driven by foreign investments, with Chinese companies in particular investing heavily in the country’s infrastructure and commercial and residential real estate markets. This includes investments under the ambitious Belt and Road Initiative (BRI), with Cambodia being a member of the programme since its launch in 2013. Some of the major BRI projects in the country include: Phnom Penh to Preah Sihanouk Expressway and the Sihanoukville Special Economic Zone (SSEZ).

With the Chinese economy expected to slow down in 2020, investments from there are expected to be more limited in the short term. Not only this, but the travel restrictions due to Covid-19 have also led to disruption in Chinese labour flow, who had returned home as part of the Chinese New year celebrations. This coupled with supply chain disruptions, which has led to shortage of construction materials, has affected BRI projects in the country. Apart from China, foreign investments from other countries are also expected to be muted in the short term.

The commercial construction segment is expected to be the most adversely affected, particularly the leisure & hospitality and outdoor leisure segments. This is due to the high contribution of tourism to the economy; domestic tourism and inbound tourism expenditure accounts for 22% of the country’s GDP. Total tourist arrivals in the country increased by 6.6% in 2019 to 6.6 million, of which 2.4 million were Chinese, accounting for 35.7% of the tourists in the country. With global tourism expected to decline by 60-80% in 2020, the industry is expected to face cash flow problems which would affect expansion plans, thereby putting on hold ongoing projects in the short term.

The industrial construction market is also facing headwinds in the short term, with the garment manufacturers in the country adversely affected due to large scale order cancellations from Europe and the US. The industry was already reeling under the partial withdrawal of tax benefits by the European Union (EU) under the organisation’s Everything But Arms’ (EBA) trade scheme due to concerns over violations of human rights and fundamental freedoms.

GlobalData expects the construction industry to regain growth momentum in 2021, assuming Covid-19 containment measures are successful globally. This would be driven by increased foreign investments and the government’s investments in the infrastructure and energy & utilities sector under the ‘National Strategic Development Plan’ 2019-2023.

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Free Report
img

Internet of Things set to transform the construction industry

The Internet of Things (IoT) is proving hugely beneficial to the construction industry, allowing different assets and people to be monitored and accounted for across a traditionally fragmented industry. As a result, companies that invest in IoT now promise to make long-term gains in the industry. According to GlobalData forecasts, spending on IoT in construction will reach $9.6bn by 2025. For an industry that has large sites to manage, strict project timelines, hazardous working conditions, and tight profit margins, IoT can create a manageable view of construction sites for project managers, streamline operations, and protect workers. In addition, it allows real-time data streams of assets, automates time-consuming tasks, and ensures employee safety and productivity. IoT integration with equipment manufacturing also has rich advantages for asset monitoring sensors. This, combined with artificial intelligence (AI) can help forecast materials and workers needed during the procurement stage and assist in forecast financing. Read GlobalData’s whitepaper to find out more, including information on:
  • IoT value chain
  • Market size and growth forecasts
  • Mergers and acquisitions
  • Leading IoT adopters in construction
  • Specialist IoT vendors in construction
Don’t get left behind – find out how IoT can fortify your operations and make investments now.
by GlobalData
Enter your details here to receive your free Report.

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