The Cambodian economy is expected to grow by 7.3 per cent in 2015 and 2016 but will need to concentrate on development in the rural areas in order to ensure inclusive growth, according to a UN report released yesterday.

The Economic and Social Survey of Asia and the Pacific 2015, published by the UN Economic and Social Commission for Asia and the Pacific (UNESCAP), said that construction and tourism will be the main drivers of the economy, whereas the garment sector, a traditional growth engine, will see competitiveness eroded over the next two years due to a rising wages.

“Growth in Cambodia has been an inclusive growth. It has been with structural transformation – people move from very low productive jobs usually in agriculture to more productive jobs in services, industry and manufacturing,” Clovis Freire, economic affairs officer at the Macroeconomic Policy and Development Division of UNESCAP, said at the release of the report in Phnom Penh yesterday.

Cambodia currently sits at about 0.6 on ESCAP’s social development index, which uses measures like education levels and life expectancy to determine a country’s social development, where 0 indicates no development and 1 indicates perfect development. However, if inequality is taken into account, then Cambodia has the potential to lose more than 25 per cent from that score, the ESCAP

report states.

“So the number that we refer to specifically in this report to Bangladesh and Cambodia, we would like to illustrate the fact, but not to say that Cambodia is performing worse or better than others,” Freire said.

“In rural areas, you have a population that is more dispersed; you cannot cover the same amount of people with the same amount of investment, so you need more investment. That is what is happening in Cambodia and other regions,” he added.

Srey Chanthy, independent economic analyst, predicts that Cambodia will see around 7.25 per cent in economic growth for 2015, and for it to increase slightly in 2016.

“Construction sector is growing fast. Tourism is also a growing sector. Though our export has been slightly down, but there is still growth in the sector. Cambodia will be able to achieve the forecasted growth rate,” he said.

Chanthy added that on a policy level, the government had strategies to ensure more inclusive growth, with the National Strategic Development Plan targeting agriculture development and poverty reduction.

“We have the goal, what is still lacking is the implementation due to the lack of capital to invest and the weak administration and public institution,” he said.

Meanwhile, a revised forecast from Dutch economic analysis firm Mantis, released last week, states that GDP growth in the Kingdom last year dropped to 6.6 per cent. Estimates from both the World Bank and Asian Development Bank last month put Cambodia’s growth rate at 7 per cent for 2014.

Mantis attributed the downturn – Cambodia has recorded 7 per cent plus growth consistently over the past few years – to “lackluster” exports from the garment sector and a decline in tourist arrivals.

But while there was a slowdown last year, it was not as low as Mantis has predicted, said Mey Kalyan, senior adviser to the Supreme National Economic Council.

“I feel there is some kind of a slowdown in growth, but not to this extent,” Kalyan said. “I think it is more close to the World Bank estimate of 6.9 to 7 per cent.”

Kalyan added that it was important to concentrate on agricultural development for growth equality across the entire economy.

“So Cambodia needs to review carefully its development strategy for agriculture if it wants to achieve harmonious development of its economy,” he said.

Mantis said that uncertainty in the garment industry brought annual export growth in the sector down to 5 per cent from the 21 per cent average recorded in the years following the financial crisis in 2008.

Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, said that the sector’s growth fell to 8 per cent last year and contributed to a slowdown in overall economic growth.

Despite a resolution of garment strikes last year, Loo added that he doesn’t expect a rebound this year and that there had been no increase in orders.

“Unfortunately, we have not seen improvement in productivity and efficiency and that is why our relative competitiveness has gone down since the wage increase,” he said.