Recovery depends on backing key elements of the economy, which in Cambodia means SMEs
COUNTRIES around the region continue to amend GDP forecast downwards as trade volumes soften and destination countries show little sign of improvement.
The de-coupling theory has failed to hold true, exposing the heavy reliance most Asian economies have on export activity as opposed to domestic consumption. Cambodia is reliant on export markets to support its garment, tourism and agricultural sectors, three key pillars of the economy.
The major concern is that this economic crisis started in the financial sector in developed countries - the United States and Europe - and has wreaked havoc on the "real economy", as opposed to prior crises.
Though many governments have introduced fiscal stimulus through public investment to fill the gap, the global economy can only start to enjoy a broad recovery when demand for goods recovers. Demand has been impacted by the loss of wealth many households have incurred through key assets such as housing and investments. On top of this, corporations and businesses have either retrenched to cut costs to survive or collapsed.
Banks have not been immune to this. Not only has the financial sector been a larger employer historically, it also plays a critical role in financing business investment and household consumption.
Small and medium-sized enterprises (SMEs) are often credited as the engine room of the economy. Though they are smaller and less noticeable than large corporations, they employ the lion's share of the labour force and contribute substantially to overall economic activity. As both global and local banks' balance sheets have come under pressure due to the economic crisis, they have reduced the amount of finance they are willing, or able, to provide. Not only has access to finance been a problem for struggling SMEs, so too has the cost.
Earlier this year, the government of Vietnam announced an economic stimulus package to help Vietnamese SMEs maintain production and boost exports this year, one of many countries in the region that has initiated SME-targeted lending. The package includes interest-rate subsidies for a maximum of 12 months for local companies using loans for importing essential business or capital goods.
In Cambodia, SMEs also have access to several loan schemes and business-improvement programmes. Many international and local development agencies support expansion of the country's SME sector, including support for working capital and trade finance, and business or technical advice. Assistance can be found for most industries; however, there is particular focus on building the export capacity and improving productivity and processing in the agriculture sector.
Whilst Cambodia's banking and finance sector has avoided the direct shocks that have hit many other countries, it has been impacted indirectly, thus lending suppport for SMEs would be a welcome step.
James Lowry is head of corporate and institutional banking at ANZ Royal Bank Cambodia.