Cambodia's lagging agriculture and nascent manufacturing sectors need to diversify as the threat of regional competition heats up, a World Bank economist warned yesterday, while enumerating the challenges the Kingdom faces after having officially graduated into a lower-middle income country last year.

Speaking at a EuroCham event in Phnom Penh, Miguel Eduardo Sanchez, senior economist for the World Bank, said Cambodia’s agriculture sector could no longer rely on wild swings in commodity prices for growth after years of global stagnation.

“Cambodia can no longer rely on land expansion schemes or commodity price booms to further develop the sector,” he said, noting how commodity prices for rice have been in decline since 2007.

“Going forward, Cambodia will have to focus on branding and diversification of crops,” he said. “National branding and raising the quality of standards for all export crops will be key and the private sector can help promote this.”

He added that the World Bank was working closely with the government to determine where it should invest in existing irrigation projects to help promote diversification, while clearly stating that the international financial institution would not look into developing costly new projects.

On the manufacturing front, which is still heavily dependent on low-skilled garment manufacturing, he said that Cambodia could see a wave of competition and its privileged status with the European Union’s Everything But Arms scheme eroded by the planned EU-Vietnam free trade agreement.

“Thinking ahead with the EU-Vietnam agreement, the majority of products Cambodia ships to the EU would then be duty-free for Vietnam,” he said. “For Cambodia it can still retain a share of the market, but companies should not be complacent and rely on low-end and low-capital intensive production.”

He added that foreign firms need to start investing in machinery to scale-up and develop capacity for producing raw materials to move beyond “low sophistication exports”.

“Cambodia is only now beginning to show smalls signs of garment and manufacturing diversification, especially in the footwear sector and bicycles and small electronics market,” he said.