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Logo of Phnom Penh Post newspaper Phnom Penh Post - 2000 economy gets mixed year-end reviews

2000 economy gets mixed year-end reviews

Over dependence on the garment industry and uncertainty about the benefits of the

country's nascent tourism boom have led to pessimistic assessments of Cambodia's

year 2000 economic performance.

While the country can expect a 4% increase in real GDP fueled by a $400 million dollar

growth in garment exports and a 27% increase in foreign tourist arrivals, some analysts

say the foundations of the Kingdom's economy remain unsure.

"This relatively good macro-economic performance hides the country's deep social

disease," said Sok Hach, Economic Advisor for the Cambodian Development Research

Institute (CDRI).

Despite positive indicators such as low inflation and the Cambodian riel remaining

stable against the US dollar, Hach says the year's bad news - crop destruction caused

by floods, a fall in new investment and a continued increase in under-employment

- far outweighed the good.

Noting CDRI surveys that show 90% of Cambodians faced an income reduction in 2000

coupled with a 200,000 ton shortfall in the Kingdom's rice harvest due to floods,

Hach said the economy offered little for Cambodia's rural poor and the "small"

people in Phnom Penh to celebrate.

While predicting continuing low inflation and economic growth to increase to 6% in

2001, Hach cautions that such growth will be concentrated in garments and tourism,

sectors that benefit relatively few of the 80% of Cambodians living in the countryside.

And while garment exports are expected to increase in 2001, Hach warns that the rate

of increase will slow down due to the decline of new investment during 1999-2000.

Paul Freer, the Associate Director of International Management and Investment Consultants

Ltd. shares Hach's wariness about the long term viability of the garment industry,

Cambodia's number one source of foreign exchange.

Freer said investors in Cambodia are still dominated by regional companies and these

companies are currently finding Cambodia an expensive place to do business. He said

high power costs, poor infrastructure and a 'dollarized' economy are to blame.

"It's been a tough year with not much in new sizable investment. The only real

investment has come from Coats Viyella and a few other garment manufacturers."

Freer said. "The problem is if they find a cheaper place to do business then

they'll up and move."

The Secretary General of the Garment Manufacturers Association of Cambodia, Roger

Tan, echoes Freer's concerns, saying Cambodia faces increased competition from other

Asian countries that offer lower production costs.

"Countries like the Philippines have benefited from the devaluation of their

currency against the US dollar, and this will make Cambodia less attractive as a

destination for garment factory investors," he said.

Tan was also critical about the government's failure to address continuing labor

unrest in the industry, which peaked in July with a series of rotating strikes that

crippled garment production and led to violent confrontations between protesters

and police.

"The government needs this industry and they haven't really been helping out,"

he said.

However such gloomy predictions are not shared by all analysts.

"I think a lot of people underestimate the power tourism has. It'll be a big

help to the economy here," said David Doran of DFDL Legal Advisers.

While signaling the constant need for better infrastructure and law enforcement to

stop the problem of cross-border smuggling and tax-evasion, Doran said the government

had taken significant steps in the year 2000 to address the concerns of foreign investors.

Such optimism is also felt by International Business Club President Senaka Fernando.

"All in all it's been an OK year. The economy is progressing quite well and

things will probably improve in 2001." he said.

He predicts continued growth for the communication, tobacco and garment industries,

and is confident that the government reform processes, especially those in the banking

industry, are working well.

"The government and the donor community are trying to do something about corruption,

but it will take some time to change," he said.

- Tarek Bazley and Lucy Corry are in Cambodia with the help of Asia 2000 (NZ)

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