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Chinese boost for Kingdom

World Bank predicts manufacturing will benefit from rising labour costs abroad

CAMBODIA could be more selective in its acceptance of foreign direct investment, but the Kingdom’s manufacturing sector is poised to benefit from higher labour costs in China, experts said Tuesday at an economic workshop attended by leading government figures.

Minister of Economy and Finance Keat Chhon joined National Bank of Cambodia officials and a host of economic experts at Phnom Penh’s Sunway Hotel for a macro-economic workshop, organ-ised by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

Investment proved a focus for discussion during the session, which covered a range of topics from labour costs, to extraction and agriculture. The role of China in the region also provoked discussion.

World Bank country manager Qimiao Fan told attendees in a policy discussion that China’s rising labour costs could potentially translate to economic gains for the Kingdom.

“My own sense is that labour costs will double in China’s manufacturing sector in the next few years,” he said, and added that this will help attract manufacturing that relies on low base costs to the Kingdom.

The domestic agriculture sector also stands to benefit from China’s economic growth, as the People’s Republic is a net importer of many agricultural products, he said, providing a market for the Kingdom’s farming surplus. He added that China will be increasing well-placed to invest in Cambodian industry as it develops.

“Cambodia is at a crossroads,” he said, and the Kingdom can develop along the lines of its ASEAN neighbours by utilising its natural resources, or follow in the footsteps other Asian success stories that tapped cheap supplies of labour to manufacture products for export. Others tipped strategic investment as a means to strengthen Cambodia.

“The government needs to look at what kind of portfolio is desirable for the country and build the investments around that,” Asia Competitiveness Institute’s (ACI)

Vietnam representative Do Hong Hanh said during a presentation.

She highlighted labour productivity as a key to facilitating trade, and said selective targeting of FDI can help Cambodia enhance its competitiveness.

“It doesn’t matter how much [foreign direct investment] but what kind and how it spills over and impacts [productivity],” she said.

She advised that the Kingdom’s decision makers should shift from a traditional focus on trade policy to increasing the productivity of domestic labour, citing ACI statistics which show that Cambodia enjoyed the highest level of workforce participation in 2008 in Asia but the lowest level for individual productivity.

Deputy Prime Minister and Minister of Economy and Finance Keat Chhon said during an opening speech that the domestic economy is rebounding from the global financial crisis, but that a new set of challenges is emerging through the Kingdom’s growing international ties.

“Cambodia’s economy is highly dependent on a sustained international trade expansion and foreign capital outflow,” he said.

Keat Chhon added that the Kingdom is keen to avoid creating too large of a domestic public debt through stimulus spending.

“We have to draw a lesson from what happens in some countries in Europe.”

Organisers of the event remained positive about the Kingdom’s progress.

UN Resident Coordinator Douglas Broderick said Asia has shown signs of a faster and more pronounced recovery than many regions.

“In this context, the potential for sharing experiences and learning within the region is truly enormous, and can provide invaluable insights and solutions,” he said in a speech that kicked off the conference.

“A strong economy, as well as good governance, are the necessary foundations on which we can build,” he said.

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