Logo of Phnom Penh Post newspaper Phnom Penh Post - An economy on the move

An economy on the move

Phnom Penh’s rapidly changing and dynamic skyline. Post staff
Phnom Penh’s rapidly changing and dynamic skyline. Post staff

An economy on the move

The Cambodian economy has posted some of the most enviable growth statistics in the world, with GDP increasing eightfold over the past 25 years. But with a surging economy comes rising expectations, and Cambodia will have its work cut out for it if it hopes to continue to make gains in the 25 years ahead.

There are few countries in the world that can boast the level of economic growth that Cambodia has achieved during the past 25 years, which saw GDP soar from a mere $2.5 billion in 1992 to about $20 billion today. Of course, the economy was starting from a low base, built from scratch on the chaff of the Khmer Rouge’s agrarian dystopia and stunted by decades of war.

But 1993 is generally seen as a turning point, with UN-backed elections and the shift to a market economy laying the foundations for economic growth. However, it would take another two decades before the economy reached the critical mass necessary to attract heavyweight foreign investors.

Today, the Kingdom is increasingly visible on investors’ radars and its fast-expanding economy has proven remarkably resilient to global headwinds. While the changes of the past 25 years are impressive, so are the possibilities for the next 25.

Last year, the World Bank upgraded Cambodia’s economic status from low income to lower-middle income. If projections hold, the country can expect to graduate to upper-middle income status by 2032. Each rung on this economic ladder holds an entirely new set of opportunities for businesses.

While Cambodia may be a relatively small market of 16 million, its demographics are tantalising to investors. Over two-thirds of the country is under the age of 30, with rising incomes and a falling dependency ratio. Though poverty continues to grind in the countryside, consumer culture is swelling in the major cities, fuelled by the Kingdom’s first generation of modern malls, cinemas, brand retail outlets and food chains.

With this comes higher expectations, which are driving economic growth but also putting pressure on wages and the Kingdom’s reputation as a ready source of cheap labour. A primary challenge for industry looking ahead will be to increase the skill and productivity of workers to move output beyond low-margin stitched garments towards higher value-added products.

Finding workers with nimble hands to operate textile machinery is one thing, but recruiting for more complex industrial processes is far more challenging. Meanwhile, the porous borders envisioned by ASEAN will put higher-skilled Thai and Vietnamese workers within easy reach, especially in the special economic zones (SEZs) along the country’s borders.

Cambodia’s first SEZ opened in 2005. Today there are nearly two dozen of these industrial parks, whose tenants seek to benefit from cheaper electricity, smoother customs clearance and tax breaks. In the coming years, expect to see more clustering, with SEZs differentiating according to specialty and their tenants working as part of a single supply chain.

The coming decade could even see a technology cluster. Models in India and Egypt have demonstrated their potential.

Garments will continue to dominate the Kingdom’s manufacturing sector in the coming years. But an increasing share of production will be occupied by food processing, electronics and automotive parts. Perhaps even bigger growth will come in the services sector, which stands to gain from the knock-on effect of expansion in the tourism, financial and property sectors.

Logistics will take on a heightened priority as ASEAN regional integration erodes borders and allows companies to develop more complex cross-border supply chains. Massive investments in infrastructure are cutting down travel times, with costs to fall further once rail connections to Thailand, and eventually Vietnam, are in place and spurs to industrial zones are built. Rail transport will allow traders to maximise loads at low costs, especially on heavy, low-value construction materials and feedstock.

Cambodia’s financial sector, already expanding at a dizzying pace, is on course for further robust growth. With just 17 percent of the population banked, and so much of investment tied up in real estate, there is enormous potential for credit expansion and new financial products. Regulatory measures such as revised capital requirements and a ceiling on interest rates may cool supply, but they will do little to curb the underlying demand, making this one of the most dynamic sectors going forward.

It won’t always be smooth sailing. Deteriorating credit quality and a looming real estate bubble, as well as various external factors, will test the economy’s resilience in the coming years. But ultimately, the biggest factor shaping Cambodia’s economic fortune will be its political stability. Without it, everything built over the past 25 years comes unglued.

MOST VIEWED

  • Gov’t not using EU aid for poor

    Prime Minister Hun Sen on Tuesday refuted as “baseless”, claims that the government had used financial aid from the EU to implement the programme to identify and support poor and vulnerable people during the Covid-19 pandemic. The prime minister was responding to Roth Sothy, a

  • PM to vet NY holiday dates

    The Ministry of Economy and Finance submitted a letter to Prime Minister Hun Sen asking him to formally set a five-day national holiday from August 17-21 to make up for the Khmer New Year holiday in April that was postponed. Finance minister Aun Pornmoniroth sent

  • Cambodia rejects UN rights claim

    Cambodia's Permanent Mission to the UN Office in Geneva on Friday hit back at David Kaye, the UN special rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression after he raised concerns over the repression of free speech and

  • Snaring may spawn diseases

    The World Wildlife Fund (WWF) has warned that snaring of animals has become a crisis that poses a serious risk to wildlife in Southeast Asia and could spawn the transmission of zoonotic diseases to humans. Its July 9 report entitled Silence of the Snares: Southeast Asia’

  • Ex-party leader, gov’t critic named as secretary of state

    A former political party leader known for being critical of the government has been appointed secretary of state at the Ministry of Rural Development, a royal decree dated July 9 said. Sourn Serey Ratha, the former president of the Khmer Power Party (KPP), told The Post

  • Residence cards set for over 80,000 immigrants

    The Ministry of Interior plans to grant residence cards to more than 80,000 immigrants to better keep track of them. The ministry announced the plan on July 10, following the results of an immigration census. “An inter-ministerial committee and many operational working groups have been set up

  • Kingdom produces PPE gear

    Medical supplies from Cambodia have been donated to member countries of the Asian Development Bank (ADB) to assist in the fight against Covid-19, said an ADB report published on July 9. The report stated that the supplies were donated as a response to global efforts to

  • Kingdom, US vow stronger ties

    At an academic forum on Saturday to celebrate 70 years of Cambodia-US diplomatic ties, Cambodian researchers and officials expressed hope of encouraging US investments and for that country to deepen and improve its bilateral relations. Held at the Royal Academy of Cambodia, it reviewed the past 70

  • ‘Single Portal’ integrated registration system welcomes nearly 50 firms

    Forty-seven companies have successfully registered via a newly-launched information technology e-business registration platform as of the end of the second week of this month, Ministry of Economy and Finance secretary of state Phan Phalla said. Six ministries and state-run institutions have been integrated into a

  • Battambang artist brings giant animals to life

    The giant reptile’s gaping mouth appears ready to consume its latest victim. It stands taller than a person and is incredibly life-like with authentic colours, a long spiky tail and detailed scales adorning its entire body. If it wasn’t 13m long, you may