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Capital’s income levels set to soar

Phnom Penh could see its median household incomes swell.
Phnom Penh could see its median household incomes swell. Hong Menea

Capital’s income levels set to soar

Phnom Penh’s median household income could swell to surpass the projected level of Bangkok within 15 years if the city’s rapid urbanisation is properly managed through effective policymaking and adequate city planning, according to a new study.

The ASEAN Cities – Stirring the Melting Pot report published last week by the Economist Intelligence Unit (EIU), a member of the Economist Group, forecasts that growth in the Kingdom’s capital could propel the city’s median household income to $32,200 by 2030. That would put it higher than most cities in the 10-member ASEAN regional economic bloc, including Bangkok and Ho Chi Minh City.

“Cities where favourable demographics boost the labour force will have an advantage in terms of sustaining higher levels of economic income and consumer spending growth,” the report said.

“Urban centres concentrate large numbers of consumers, harnessing their relatively stronger purchasing power vis-à-vis their rural counterparts.”

According to the report, large cities are the main driver of growth in ASEAN, but their rapid expansion poses serious challenges that require effective urban planning and adequate provision of public services.

Roxana Slavcheva, one of the report’s authors, told the Post that Phnom Penh’s low starting base could allow the city to experience greater growth levels over the coming decade than more mature economic centres, a factor that shaped the report’s high income projection.

Nevertheless, the report makes clear that potential for growth in cities like Phnom Penh cannot be fully harnessed without effective growth management and a robust infrastructure that can support large population increases. In that regard, Cambodia faces many challenges, such as ineffective governance that could limit positive growth in its urban centres.

“The competitiveness and development of most cities is limited by the inability of city officials to manage their growth in a way that increases efficiency and provides other benefits while at the same time decreasing costs,” the report explained. “Without skilful management, cities are in danger of becoming centres of decay, congestion and crime.”

The findings show Cambodia has the lowest urbanisation percentage among ASEAN countries, with only 21 percent of the population living in cities, creating a high potential for rural to urban migration.

The EIU report estimates Phnom Penh’s median household income was $10,900 per year in 2015, compared to $12,400 in Bangkok and $5,200 in Ho Chi Minh City.

However, the figures and forecast seem at odds with the current financial reality of the region’s workforce, according to David Totten, director of Emerging Markets Consulting (EMC).

For example, Totten noted, comparisons of income between Phnom Penh and Bangkok from the report are relatively similar when in reality the minimum wage in Thailand is twice as big as it is for garment workers in Cambodia and income in Bangkok is three or four times what it is in the Kingdom’s capital.

“It is not clear what is driving this data anomaly, but perhaps it is because their model uses ‘equivalised income’ and assumes larger households have economies of scale,” he said.

“Or it may be that they have a small geographic definition of Phnom Penh that only includes central areas where relatively well-off people live, but a larger geographic definition for other cities that captures poorer people.”

Totten explained that for such an extensive report that covers many different sized economies, using similar sets of assumptions may have led to discrepancies in the data.

“I guess the ‘bottom line’ why these comparisons are difficult, and in respect of Phnom Penh might be wrong, is that the forecasting model has to make a set of universal assumptions – in this case possibly relating to household income and size,” he said.

“These may hold approximately true for the majority of cities in the sample, but not for Phnom Penh, which as with Cambodia, is obviously at a different stage of development.”

Hiroshi Suzuki, CEO and chief economist at the Business Research Institute of Cambodia (BRIC), said Cambodia’s positive growth forecast provides a good basis to foresee greater development in Phnom Penh, but that projections for 2030 were difficult to make.

“I cannot be so optimistic about the balance among the ASEAN major cities, because this kind of long-term estimation’s accuracy is usually very limited,” he said.

“But, the IMF estimates that the GDP growth rate of Cambodia would be at around 7 per cent for the coming five years, and based on this good continuous growth, the consumption capacity of Cambodia, especially of Phnom Penh would increase.”

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