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Logo of Phnom Penh Post newspaper Phnom Penh Post - Not all paths to growth the same

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Workers stack cases of Cambodia brand beer at the Khmer Brewery factory on the outskirts of Phnom Penh. Meng Kimlong

Not all paths to growth the same

Cambodia's economy stands at a critical crossroads to reach the next phase of development with a recent report urging the Kingdom to ditch its antiquated growth model and adopt more innovative economic strategies that better respond to rapid changes in the global economy.

The report, published earlier this week by Germany’s Deutsche Bank, examines the growth outlook for Asean over the next decade, calling for greater regional integration in order for the bloc to achieve its goals of improved trade and development.

Denis Hew, director of the policy support unit at the Asia-Pacific Economic Cooperation Secretariat and a contributor to the report, said that it is important for each country in the region to develop their economies according to specialised strengths.

Cambodia and Laos, in particular, should seek to chart a different course in Asean rather than following growth models of more developed economies, such as Malaysia or Thailand, he said.

“I think that economic diversification is pretty important because they can’t exactly follow what Singapore, Malaysia, Thailand have done as their past industrial strategies are not going to be driving growth anymore,” he said.

“What that means is that late starters like Cambodia or Laos can’t replicate that kind of industrial development because it is not going to work anymore.”

Hew added that during the rapid growth period of Singapore and Malaysia in the 1980s, their economies were propelled by large manufacturing investments from Japan, particularly for consumer electronics. However, in the current context – a relative slowdown in China’s growth as it shifts to a more service-based economy – Cambodia needs to actively consider the implications of how this will change its development course.

“The growth dynamics is changing in the region and it is not a static model anymore,” he said. “There is no quick fix to this and in Cambodia’s case it is really a question of what they see are the drivers of future growth and follow it. It could [for example] be the tourism sector or in the agro-industry.”

Regardless, Hew said that the region must avoid becoming a tiered system that enforces inequalities between the wealth and development of different Asean members. Instead, the 10-member regional grouping must “level the playing field”, partly through adopting stronger regional institutions, he added.

The report stated that Asean needs to continue reducing barriers amongst its members to increase trade within the bloc, which accounts for only 25 percent of total trade. It also noted that the Regional Comprehensive Economic Partnership, a Chinese-led free trade agreement that includes all Asean members, could catalyse integration by providing a common trade framework for the bloc.

Boon-Hiong Chan, head of market advocacy for Asia-Pacific at Deutsche Bank and lead author of the report, told The Post that Cambodia also needs to actively address its future levels of competitiveness. Part of that should be to focus on the country’s young demographics.

“[Cambodia] has a population of 15 to 16 million, which provides a sizeable domestic market, but may not be ideal for low wage and high staff count industries,” he said.

“Cambodia also has relatively youthful demographics, which should add a lot of energy to new industries, especially those that are technology and software driven.”

Miguel Chanco, lead Asean analyst for the Economist Intelligence Unit, agreed on the necessity for Cambodia to transition to higher-skilled jobs in order to move up the value chain, especially given the effects of increased automation and low-wage competition from much larger economies like Myanmar and Vietnam.

However, he noted that for the Kingdom to make that transition, a large part of its workforce would need to adapt, something that requires time and investment.

“In the short term, though, Cambodia has to accommodate significant shifts in labour from the agricultural sector and from rural areas,” he said. “As such, the government will continue to have to promote labour-intensive industries on the back of relatively low wages for the time being.”

“There are no shortcuts in the road to a 21st-century economy and the government needs to better ensure that the country’s workforce has the right skills to compete based on quality of work, not price,” he added.

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