The Cambodian economy’s severe lack of diversification could have unfavourable ramifications, resulting in higher food prices and increasing the gap between rich and poor, according to the UN’s Economic and Social Commission for Asia and the Pacific (ESCAP).
In a report to be released in Phnom Penh today, ESCAP identifies key policies Cambodia will have to address in order to come out ahead as the global economic downturn enters its second stage.
“The survey identifies major risks, but also presents analysis to inform policy,” said Daniel Jeongdae Lee, an associate economic affairs officer for ESCAP.
Along with poor infrastructure and ineffective monetary policy, the report names the Kingdom’s lack of diversification as a key issue.
Currently, Cambodia’s economy is dominated by the garment sector, which accounts for two-thirds of manufacturing and 80 per cent of export revenue, rendering the nation vulnerable to price changes abroad.
“Cambodia is [an] exporter of most garments, for which prices fell due to a highly competitive market, especially at the lower end,” a survey briefing paper reads.
The survey considers Cambodia an “aspiring country” – a developing country that has not benefited from high commodity prices and has yet to expand its productive capacities through diversification.
“Faced with decreasing prices for their [manufactured goods] and incentives to specialise in industries that require low-skilled workers, the country may fail to create new economic activities, which would reduce its growth prospects in the long-term,” it states.
The report cites a knowledge-intensive agricultural “green revolution” as the best way to stabilise food prices and prevent a repeat of what happened in 2011, when inflation shot from 3.3 per cent to 7.1 per cent in just six months.
Under Secretary-General for ESCAP Noeleen Heyzer urged Asia/Pacific nations to avoid putting all eggs in one basket.
“The message [ . . .] is that less-developed economies should resist the impulse towards commodity specialisation, which in turn can delay industrialisation, economic diversification and the building of productive capacities,” she said.
To contact the reporter on this story: Bridget Di Certo at [email protected]