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Cabodian Economy

The economy of Cambodia at present follows an open market system (Market economy) and has seen rapid economic progress in the last decade.Per capita income, although rapidly increasing, is low compared with most neighboring countries. 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.[6] 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 off-shore.

In 1995, the 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.

After four years of improving economic performance, Cambodia's economy slowed in 1997-98 due to the regional economic 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 integrate 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.

Following its independence from France in 1953, the Cambodian state underwent five periods of political, social, and economic transformation:

  1. Kingdom of Cambodia (1953-1970)
  2. Khmer Republic (1970–1975)
  3. Democratic Kampuchea (1975-1979)
  4. People's Republic of Kampuchea (1979-1989), later renamed The State of Cambodia (1989 to 1993)
  5. Kingdom of Cambodia (1993–present)

In 1989, the State of Cambodia implemented reform policies that transformed the Cambodian economic system from a Command economyto an open market one.[10] 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).[10] However, conditions improved and since 1999, the Cambodian economy has continued to grow at an average pace of approximately 6-8% per annum.[11]

Foreign aid

Cambodia's emerging democracy has received strong international support. Under the mandate of the United Nations Transitional Authority in Cambodia (UNTAC), $1.72 billion(1.72 G$) was spent in an effort to bring basic security, stability and democratic rule to the country.

With regards to economic assistance, official donors had pledged $880 million at theMinisterial Conference on the Rehabilitation of Cambodia (MCRRC) in Tokyo in June 1992. In addition to that figure, $119 million was pledged in September 1993 at the International Committee on the Reconstruction of Cambodia (ICORC) meeting in Paris, and $643 million at the March 1994 ICORC meeting in Tokyo.

Cambodia experienced a shortfall in foreign aid in the year 2005 due to the government's failure in passing anti-corruption laws, opening up a single import/export window, increasing its spending on education, and complying with policies of good governance.[12]In response, the government adopted the National Strategic Development Plan for 2006–10 (also known as the “Third Five-Year Plan”). The plan focused on three major areas:

  • the speeding up of economic growth at an annual rate of 6-7%
  • eradicating corruption
  • developing public structures in favor of quality (i.e. by education, training, and healthcare) over quantity (i.e. rapid population growth)[13]

Recent developments

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 decreaing, 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 last decade.

Cambodia was severely hit by the 2008 economic crisis (refer to table below), and its main economic sector, the garment industry, suffered a 23% drop in exports to the United States of America and Europe.[14] 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 is recovering. 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.

The table below represents the fluctuations in Cambodia's economy over the past 8 years (2012 data is not yet available).[15]

Category 2004 2005 2006 2007 2008 2009 2010 2011
GNI per capita, PPP(current international $) 1,250 1,440 1,630 1,830 1,960 1,970 2,080 2,230
Total Population (Millions) 13.19 13.36 13.52 13.67 13.82 13.98 14.14 14.31
GDP (Millions US$) 5,337.83 6,293.05 7,274.42 8,639.16 10,351.83 10,401.94 11,242.27 12,829.54
GDP Growth (annual %) 10.34 13.25 10.77 10.21 6.69 0.09 5.96 7.07
Life Expectancy at birth, total (years) 59.43 59.98 60.53 61.06 61.58 62.07 62.54 62.98

Industries

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.[16] The sector employs 335,400 workers, of which 91% are female.

Cambodia is a country with a GDP of just $13 billion.[17] 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.[18] 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
 
Cambodian garment factories are recognized for their sustainable labor practices.

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.

Tourism

In the 1960s, Cambodia was a prominent tourist destination in the Southeast Asian region. But 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 close to non-existent. However, 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.

Angkor Wat
 in Siem Reap, Cambodia

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 theMekong River.

The tourism industry in Cambodia has been perpetuated by the development of important transportation infrastructure; in particular Cambodia's two international airports in Phnom Penh and Siem Reap respectively. To the Cambodian economy, tourism has been a means for accumulation of foreign currency earnings and employment for the Cambodian workforce, with about 250,000 jobs generated in 2006.[22] Meanwhile, challenges to the industry include a leakage of revenue to foreign markets due to a dependence on foreign goods as well as the prevalence of the Child sex tourism industry.

Gambling industry

The gambling industry of Cambodia supports its tourism industry, which is mostly concentrated around the Siem Reap province. The introduction of casino on border cities and towns created an industry that has thrived and contributed to the generation of employment and a steady stream of revenue for the government. However, the issue of corruption in relation to the government bureaucratic process involved in the gambling sector has been raised. It has likewise spur growth in different parts of the country at border crossing towns like Poipet, Bavet and Kho Khong. The growth of the gambling industry in Cambodia is due to its proximity to Thailand where gambling is forbidden.

Construction

The increase in tourist arrivals has led to growing demand for hotels and other forms of accommodation surrounding tourist hotspots. Siem Reap in particular has seen a construction boom in recent years. The capital Phnom Penh has also witnessed a growth in the construction and real estate sector. Recently, planned projects that have been on the pipeline for several years have been shelved temporarily due to a reduction in foreign investment. From 2009, the Cambodian government has allowed foreigners to own condominiums. This has helped in attracting real estate investors from Thailand, Malaysia,Singapore and other countries.

The construction sector has attracted investment of $2.1 billion in 2012 which is a 72 per cent rise compared with 2011. Construction licenses issued stood at 1,694 projects in 2012, which was 20% lower than 2011 but they were of higher in value.

Statistics

Graphical depiction of Cambodia's product exports in 28 color-coded categories.

Investment (gross fixed): 3% of GDP (2011 est.)

Household income or consumption by percentage share:
lowest 10%: 2.6%
highest 10%: 23.7% (2011)

Agriculture - products: rice, rubber, corn, vegetables, cashews, tapioca, silk

Industries: tourism, garments, construction, rice milling, fishing, wood and wood products, rubber, cement, gem mining, textiles

Industrial production growth rate: 5.7% (2011 est.)

Electricity:

  • production: 1.273 billion kWh (2010)
  • consumption: 1.272 billion kWh (2010)
  • exports: 0 kWh (2010)
  • imports: 274 million kWh (2010)

Exchange rates: riels (KHR) per US dollar - 4,097 (2012), 4,395.62 (2011), 4,145 (2010), 4,139.33 (2009), 4,070.94 (2008), 4,006 (2007), 4,103 (2006)

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