Logo of Phnom Penh Post newspaper Phnom Penh Post - Cambodia economy gallops ahead as rest of Asia lags



Cambodia economy gallops ahead as rest of Asia lags

Content image - Phnom Penh Post
Cambodia’s meteoric export growth in recent years means the country is outperforming the rest of Asia. WTO, NBC / DANIEL NASS

Cambodia economy gallops ahead as rest of Asia lags

Cambodia has been riding a wave of strong growth recently on the back of robust exports and flourishing foreign investment, and, in the process, bucking the Asian downturn. However, economists say this is no time for complacency.

Former ANZ chief economist for South and Southeast Asia, Glenn Maguire, who has two decades of experience covering Asia Pacific economies, recently said that a weak global capex cycle and the collapse in commodity prices had contributed to a slowdown in Asian trade, with exports recording a second consecutive year of double-digit contractions.

“Asia is in what we refer to as a trade recession,” Maguire said.

“We’ve been seeing most of Asia experience deep contractions in export and import growth and this is quite an anomaly, and is in stark contrast to the ambitions and goals of the ASEAN Economic Community.”

However, Maguire noted that the current trade slowdown wasn’t affecting Asian economies evenly.

“The one economy that is clearly bucking the trend is Vietnam, which is experiencing a rapid expansion in exports and this is probably due to its foreign direct investment (FDI) policy as it’s running the most open FDI policy of all the Asian economies,” he said.

At the same time, China is re-engineering its economy to be a services economy, with Maguire noting that services were now accounting for 40 percent of China’s gross domestic product (GDP).

“We are very close to the point where the services sector of the Chinese economy is larger than the industrial sector.”

It is evident times are certainly changing, but for a frontier country like Cambodia, this presents opportunities.

Maguire said many organisations were interested in maintaining the volume of exports by lowering the cost of producing them.

“That means they are extending their production chains further into the Mekong,” Maguire said, adding that this would increasingly create opportunities for Cambodia to participate in the value-adding chain.

When it comes to Cambodia’s growth trajectory, ANZ predicted a bright outlook, forecasting a growth rate of 7.2 percent and 7.1 percent for 2016 and 2017 respectively.

“We see the Cambodian industrial sector growing between nine to ten percent this year and next year, so that will give an overall headline growth rate of seven percent,” Maguire said.

“[Cambodia] is clearly bucking the regional trend and will be one of the growth outperformers of the region.”

In the Asian Development Bank’s (ADB) 2016 outlook report, the bank highlighted Cambodia’s expanding industry and services sector as the basis for its solid economic growth in 2015. Merchandise exports increased by an estimated 14.1 percent to $8.5 billion in 2015, while shipments of garments and footwear, which comprise 70 percent of total exports, rose by an estimated 10.2 percent.

Content image - Phnom Penh Post
Jayant Menon, ADB lead economist for trade & regional cooperation. Photo supplied

Notably, the ADB predicted steady growth for Cambodia in 2016, partly due to the diversification taking place in garments and footwear toward products with higher value added.

Maguire echoed ADB’s comments, saying that Cambodia’s strong underlying performance was being assisted by “diversification towards higher value added apparel”.

Jayant Menon, lead economist at the ADB’s office for trade and regional cooperation, said Cambodia was making headway on diversifying its economic base as it attempts to reduce reliance on garments, especially as the Kingdom moved into the light manufacturing space.

While Menon said Cambodia’s main investment attraction was the country’s low cost labor, he cautioned that nearby Myanmar, which is opening up to foreign investment, could threaten that advantage.

“If Myanmar opens up, [Cambodia] will need to improve the quality of the labour to compete. That will be the challenge; to compete on quality as well as cost,” he said.

Menon said while Cambodia had made progress on reducing red tape, a concerted effort on improving the skills of the labour force and improving government policy to provide certainty was needed to boost investor confidence.

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners said Cambodia was likely to have higher growth than most Asian economies moving forward, and would continue to benefit from a demographic dividend, as a young population becomes increasingly productive.

However, Higgins cautioned that there were some challenges ahead.

“There are certainly some headwinds coming up, including a slowdown in construction which will take a couple of points off GDP growth. Agriculture seems to be having a tough time, wage costs are becoming a little uncompetitive, and we’re not seeing the level of manufacturing investment that we previously expected,” he said.

Higgins added that Cambodia needed to be cautious about allowing wages to increase faster than productivity, which would lead to jobs moving to Vietnam and Myanmar.

“I think the government understands that this is a major risk,” he said.

MOST VIEWED

  • WHO: Covid in Cambodia goes into new phase

    The World Health Organisation (WHO) in Cambodia said that Cambodia has reached a new phase of the pandemic with “decreasing case numbers, high vaccination coverage and a more transmissible circulating variant threatening a hidden surge”. In a press release on September 6, the WHO said that

  • Purging Sihanoukville’s past with a new masterplan

    Amid illicit activities, haphazard development and abandoned projects, the coastal city of Sihanouk province needs a reset to move forward. A new masterplan might be the answer to shake off its seemingly mucky image to become the Shenzhen of the south Gun toting, shootouts, police

  • 'Pursue your goals, reach out to me': Young diplomat tapped as envoy to South Korea

    Chring Botum Rangsay was a secretary of state at the Ministry of Foreign Affairs and International Cooperation before being designated as the new Cambodian ambassador to South Korea. According to her official CV published on the foreign ministry’s website, she started her first government

  • International air visitor arrivals dip 93%

    The number of foreign tourists entering Cambodia through the Kingdom’s three international airports witnessed a sharp 92.5 per cent year-on-year decline in the first seven months of this year, according to the Ministry of Tourism. The airports handled 51,729 international tourists in the January-July period versus

  • School reopening ‘offers model for other sectors’

    World Health Organisation (WHO) representative to Cambodia Li Ailan said school reopening process should be used as a role model for reopening other sectors currently mothballed by the Covid-19 pandemic. Li strongly supports the government’s decision to reopen schools, saying it is a decision

  • Covid jab drive for 6-11 age group to begin Sept 17

    Prime Minister Hun Sen has permitted Covid-19 vaccinations for over 1.8 million children aged 6-11 across the country from September 17 in order for them to return to school after a long hiatus. Hun Sen also hinted that vaccinations for the 3-6 age group will follow in