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Economy grows despite corruption

Economy grows despite corruption

Cambodia's garment manufacturers could have doubled their profits were it not for unofficial 'bureaucracy fees', said the Cambodian Development Resource Institute's (CDRI) latest Annual Economic Review.

The report claimed that the industry earned around $70 million profit, as did corrupt bureaucrats - and their fees are rising.

The sobering statistics on Cambodia's largest export earner are contained in CDRI's largely upbeat review of the economy in 2000.

The institute said that political stability and improved security were the main factors in the economic upturn last year. The garment industry, tourism and rice production all grew strongly and helped provide an annual growth rate of more than 5 percent.

Sok Hach, one of the report's authors, said that while he expected the upturn to continue, the global slowdown would affect growth in 2001.

"For 2001 we had expected around 5 percent growth, but now we're a little more optimistic on garment and rice production. However we still don't know the impact of the floods or the global economic slowdown. Growth may be 1 or 2 percent lower but it's still too soon to tell," he said.

However, the strong showing of some sectors hid a darker side, including increasing numbers of sex tourists, illegal export of rice surpluses, and an higher fees for corrupt officials.

Despite a sharp decline in new investment in the garment sector since 1999, production last year increased 70 percent. Exports to the US jumped by half, while exports to Europe tripled. Although garment manufacturers were provided with generous investment incentives, much of that was eaten up in unofficial 'bureaucracy costs'.

Factory owners told the researchers that bribes demanded were the highest in the region, totaling around 7 percent. That could double the wages of garment factory workers, or add 70 new garment factories each year. Hach said it was not possible to calculate the cost of corruption over the entire economy.

"The garment industry is a special case because of its very cooperative relationship with the US embassy. Other [industries] are more secretive," he said.

On the tourism front, the authors said that while the numbers had increased 32 percent, income from tourism went up by only 24 percent. They attributed the disappointing result to Cambodia's 'open skies policy'.

They explained that although direct access to Siem Reap meant more tourists visiting the country, those who came spent fewer nights and consequently less money. As a result the industry generates low government revenue and few jobs. The other negative aspect of the open skies policy was an increase in sex tourism, particularly in Siem Reap where 22 percent of tourists arrived for that purpose.

Agricultural production figures were encouraging: in 1999/2000 Cambodia recorded its highest rice production with over four million tons of paddy produced. The report said that Cambodia desperately needs an export marketing strategy to take advantage of this increase in productivity.

While surpluses depressed the price of rice locally, exports were hindered by bureaucracy and high transport costs. This meant exporters were selling their product illicitly to either Vietnamese or Thai rice millers.

The report noted that the dollarization of the economy had provided a considerable advantage in maintaining a low inflation rate of "just a few percent". That helped with import costs - the overwhelming majority come from neighboring countries, all of which suffered currency devaluations as a result of the Asian financial crisis.

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