Even by the recent standards of a world economy posting sharp increases in trade against the 2009 slump, Cambodia’s a near 50-percent rise in exports to Vietnam represents significant progress, at least on the surface.
Beneath the impressive numbers, Cambodia is not only still struggling to add value to exports, it is also pursuing trade and investment policies that have further entrenched the economy’s main structural problems.
Much of the US$277 million in Cambodian exports to Vietnam last year – up from $186 million in 2009 – came in the form of unprocessed agricultural products such as rice and rubber, whereas Vietnam in turn exported mainly process goods, hence the huge $1.325 billion trade deficit.
For Cambodia, the stated target of $2 billion in bilateral trade is at best irrelevant and possibly counterproductive if all it represents is a widening deficit and rising exports of raw agricultural products that in many cases are processed and exported by Vietnam itself.
Cambodia’s burgeoning trade deficit with Vietnam is certainly a concern, but more worrying is the manner in which key industries such as rubber are being developed without consideration for the long-term impact, or lack thereof, that current policy could have on the future export economy.
Cambodia must be looking to add downstream processing if agricultural industries are to realise their full potential
Ignoring advice from, among others, the United Nations in a July 2009 report calling on Cambodia to reduce its export tax on rubber to raise competitiveness, last December the government instead increased the $50-per-tonne flat rate to $300 on the highest-grade rubber.
Even beforehand, the export tax on rubber was higher than in neighbouring Vietnam and Thailand, which charge just 5 percent and a maximum $33 per tonne respectively.
Given Cambodian rubber exports fell 15 percent last year due to cross-border smuggling, according to Ly Phalla, head of the General Directorate of Rubber, this policy will surely only serve to further motivate rubber producers to bypass customs.
With Cambodia adding little value to rubber exports, tax collection makes sense in theory but in practice the government would do better to tackle alleged corruption at customs to help reduce the informal fees that further promote smuggling.
Over the longer term, Cambodia must be looking to add downstream processing if rubber and other agricultural industries are to realise their full potential for the domestic economy.
Although data showed Cambodia has increased the number of private rubber processing plants from just one in 2004 to around 20 today, according to Ly Phalla, these facilities only convert natural rubber to latex (and usually at low grades).
There is still not a single factory in the country that produces tyres or other rubber products. “We have plans to ask foreigners to invest [in rubber-goods factories],” Ly Phalla told The Post yesterday.
But despite interest from an Indonesian Bridgestone representative at this week’s rubber conference in Siem Reap, there are still no concrete plans for a rubber facility, he added. The government therefore needs to better calibrate economic policy to turn this interest into concrete reality. Only then can Cambodia begin to address its burgeoning trade deficit.