While Cambodia seeks to diversify its manufacturing sector and encourage higher-value-added activities, experts say it must be supported by the right mix of government policies.

The Asia Development Bank (ADB) says that the sharp increase of foreign direct investment (FDI) from $900 million in 2011 to between $1.3 and $1.5 billion in 2012 has coincided with a rise in investment in to higher-valued-added manufacturing from swimsuits and dress shirts to automotive parts and electronics.

Peter Brimble, deputy country director for ADB, is encouraged by the progress of Cambodian manufacturing, but says the government has a role to play in guiding a transition from a narrow manufacturing base.

“These trends are very positive, and demonstrate a shift away from the limited markets of low value-added garments towards a more diversified, sophisticated and dynamic economy,” Brimble said.

The ADB estimates that approximately 90 per cent of FDI in 2012 came from Asia.

“In new manufacturing areas, recent investments by Japanese and Korean investors in automotive parts and electronics indicate a promising diversification of the manufacturing sector,” he added.

“The trends also reflect the application of increasingly sophisticated technologies that are suitable for Cambodia's present state of evolution and that set the stage for continued dynamism in the future.

“The challenge lies in the need to develop correspondingly sophisticated policy approaches to meet the increasing needs for suitably and progressively higher skilled labour, for more competitive transport and logistics services and for rapid resolution of the perennial problems of energy costs, government bureaucracy and transparency and corruption.”

Addressing an audience of government officials, representatives from the private sector, NGOs and aid workers at the seventh Cambodia Outlook Conference last week, ANZ Chief Executive Mike Smith said the conditions were right for Cambodia to attract foreign investment in high-tech manufacturing.

“I believe that if you look at Thailand and Vietnam there has been quite a lot of high tech manufacturing moved to those countries by investors in Korea, in Taiwan, and in Japan, and I think that Cambodia has all the ingredients to benefit from similar amounts of investment,” Smith said.

Smith warned that current levels of infrastructure might constrain investment potential.

“But of course to do that you need to have the infrastructure in [place] to export, you have the port facilities and the railway line and the roads,” he said. “It’s not just as easy as creating something overnight.”

Hang Chuon Naron, secretary of state at the Ministry of Economy and Finance, said the government was looking to attract high-tech investment through the up-skilling of the work force.

“The current challenge that we are facing is a shortage of skilled labour for investors. That is why the next government priority will be to increase spending and also more policy co-ordination to promote skills and vocational training as well as high education reform,” said Chuon Naron, adding that the government may invest in a specialised training facility in the future.

“With the increase in investment in manufacturing electronics, it requires the government to make a once-off investment maybe in a high tech, technical university or vocational training centre.”

The ADB estimates that approximately 90 per cent of FDI in 2012 came from Asia.

The Council for Development of Cambodia would not respond to a request for comments on policy.