Garment factories are the backbone of the Kingdom’s economy, but many workers lack pathways to career development. STPM
For years, Cambodia’s economic narrative was characterised by rapid growth fuelled primarily by low-cost labour and foreign direct investment (FDI), particularly in the garment manufacturing sector. Factories proliferated across the country, export volumes soared and employment opportunities flourished, creating the foundation for a decade of impressive GDP growth.
However, as the global economic landscape evolves, marked by technological disruption, rising labour costs, shifting trade dynamics and increasing competition, this growth model is showing signs of strain. Relying heavily on low-cost labour and a narrow industrial base is no longer a viable or sustainable pathway for long-term development.
By 2029, Cambodia is set to officially graduate from the Least Developed Country (LDC) status, losing key trade privileges. As wages rise, the economy must pivot toward higher-value industries. The Cambodian government has recognised this shift and responded by prioritising economic diversification as a central objective of its Pentagonal Strategy, particularly under Pillar 2. This strategic pillar emphasises a more ambitious and targeted approach to upgrading the agriculture and agro-industrial sectors, enhancing value chains, and promoting innovation and sustainability. It also includes a renewed push to develop the creative industries, positioning them as emerging drivers of economic growth, while significantly expanding the services sector to foster job creation, attract investment and strengthen the country's overall economic resilience.
However, a critical challenge persists: Cambodia’s workforce is not yet equipped for the structural transformation required to sustain inclusive and competitive growth. The labour force remains predominantly low-skilled and low in productivity, with a large share employed in informal sectors such as subsistence agriculture, family-run farming, and labor-intensive garment factories.
This mismatch between labour market demands and workforce capabilities poses a serious risk. Without significant investment in education, vocational training and upskilling, Cambodia could struggle to transition to higher-value industries and risk falling further behind regional competitors like Thailand and Vietnam, which are advancing more rapidly in industrial upgrading and digital transformation.
At first glance, Cambodia’s employment figures appear strong. In 2019, the country reported a 98.6% employment rate, comparable to Thailand’s 99% and Vietnam’s 97.2%. However, these numbers mask a more complex reality: Cambodia’s labour productivity remains significantly lower than its regional peers. The root of this disparity lies not in the number of jobs, but in the nature of those jobs. Approximately 88% of the Cambodian workforce is employed in the informal sector, including family farming, small-scale enterprises and unregulated services. These jobs typically offer low wages, limited job security and minimal opportunities for skill development.
This structural imbalance discourages high-value foreign investment, as firms are often deterred by the shortage of skilled labour, weak vocational training systems and underdeveloped financial and technological infrastructure.
As a result, Cambodia struggles to attract industries that could drive higher productivity, innovation and long-term economic prosperity, hindering its ambition to move up the value chain and compete more effectively on the regional and global stage.
Trapped in the Informal Sector
Millions of Cambodians remain trapped in an invisible workforce, operating largely outside formal economic structures, without the protections, benefits or opportunities for advancement that come with formal employment. This informal labour segment poses a significant barrier to both individual prosperity and broader national development.
In rural Cambodia, where 75.9% of workers depend on agriculture, traditional farming methods dominate. Despite the crucial role agriculture plays, most farmers still rely on low-yield, labour-intensive practices, lacking access to modern tools, quality fertilisers and mechanised equipment. This technological gap keeps productivity depressed and rural incomes stagnant.
The 2019 General Population Census revealed that 90.1% of rural workers are either self-employed or unpaid family labourers, engaged primarily in small-scale subsistence farming or local trading. Education remains a critical challenge: over half of rural workers (54%) have never completed primary school, and a mere 0.8% have finished high school (BACII). This educational deficit severely limits opportunities for skill acquisition and upward mobility, effectively locking rural populations into low-productivity livelihoods.
Urban areas face parallel challenges. According to the International Labour Organization (ILO), only 3.5% of Cambodian businesses are officially registered with the Ministry of Commerce. The vast majority operate informally, outside regulatory oversight, which restricts their access to formal financial services such as SME loans or government support programmes like those offered by Khmer Enterprise. Without formal recognition, these enterprises often lack the capacity to scale, innovate or contribute substantially to economic growth beyond basic subsistence.
Together, the pervasive informal economy perpetuates a cycle of low wages and limited economic dynamism, undermining Cambodia’s readiness for the structural transformation required to achieve sustainable development and compete in a rapidly changing global economy.
The Factory Dilemma
For decades, Cambodia’s garment industry has been the backbone of the economy, offering millions of steady jobs and driving foreign investment. The sector grew rapidly in the late 2000s and remains a dominant force today, with $11.68 billion in garment exports in 2024, up from $9.39 billion in 2023, accounting for 44.59% of the country’s total exports. This underscores the sector’s critical importance to Cambodia’s economic stability and export performance.
Cambodia’s heavy reliance on low-skill, labour-intensive manufacturing presents a strategic dilemma. While FDI continues to bolster these low-wage factory jobs, the country faces a pivotal choice: either to deepen this dependency and risk consigning its workforce to economic stagnation, or to embark on a complex but necessary transition. This transition entails integrating comprehensive skill-building and vocational training programmes within existing industries, preparing workers for higher-value, knowledge-based sectors such as tourism, services and the burgeoning creative economy.
Despite their extensive experience, many garment workers have over a decade in factory roles, they often lack the skills, motivation or accessible pathways to move into emerging industries with greater growth potential. Other low-value manufacturing sectors, such as bicycle assembly, similarly offer limited job security and career progression. Even industries once heralded as promising, like Cambodia’s solar panel manufacturing, experienced a decline in exports in 2025, raising questions about their long-term viability.
Without urgent and decisive policies to retrain and upskill its workforce, Cambodia risks remaining trapped in a narrow industrial base, making the goal of economic diversification and sustainable development increasingly elusive.
The Future Lies in People’s Hands
Cambodia stands at a pivotal crossroads. While the economy continues to grow, without developing a high-value, high-productivity workforce, true economic diversification risks remaining little more than an aspiration rather than a tangible reality. The government’s reforms and the efforts of NGOs to provide training are important first steps, but they alone cannot drive the transformative change that Cambodia urgently needs.
As the young and dynamic generation shaping Cambodia’s future, it is incumbent upon us to take the initiative, to learn new skills, embrace change and continuously upskill. The global economy is rapidly shifting toward innovation-driven, high-value industries, and Cambodia’s ability to compete and thrive depends on having a workforce that is prepared to meet these evolving demands.
The opportunity to build a prosperous, diversified economy is within reach. The question is: will we seize it?
Noppon Chhim is a fellow of the Adenauer Young Scholars for Excellence (AYSE), a public policy training programme co-organised by Konrad Adenauer Stiftung (KAS) Cambodia and the Institute for International Studies and Public Policy (IISPP) of the Royal University of Phnom Penh (RUPP). The views and opinions expressed are his own.
