Barack Obama’s 24-hour stay in Phnom Penh at the end of 2012 to meet leaders attending the 21st Association of Southeast Asian Nations (ASEAN) Summit was the first visit ever to Cambodia by an incumbent US President. With the newly re-elected American leader and his counterparts from the region in the capital, this nation of 15 million people – the recent chair of ASEAN and host of the summit – was in the global spotlight.
Widely known for the ‘killing fields’ and the atrocities of the Khmer Rouge regime in 1975-79, Cambodia has put that dark episode behind it and has emerged as one of Asia’s fastest-growing economies, keeping a growing rate of 10 per cent from 2005-09 and almost 7 per cent from 2010-11.
The death in Beijing last October of revered former King Norodom Sihanouk, to an outpouring of grief at home, was pause for reflection. Cambodia is turning the page on its fraught past and pressing ahead with its transformation into a thriving and competitive market in the global economy and a reliable partner for ASEAN.
‘The core of this massive economic transformation came from establishing peace and stable management of the government towards handling the country’s welfare by implementing a triangular strategy – focussing on strengthening peace and security, integrating Cambodia into the region and the world, and promoting reforms and development,’ says Pung Kheav Se, Chairman of Canadia Bank, which is among Cambodia’s largest banks.
Critics may raise questions about human rights, corruption, infrastructure gaps, tough policies such as evictions and land seizures, and the longevity of Prime Minister Hun Sen, who took office in 1998 and is expected to lead his Cambodian People’s Party to victory in the July elections. Yet investors note the country’s stable government and the significant economic progress and structural improvements that Cambodia has achieved in recent years.
Sustained rapid growth, for example, has led to a sharp drop in poverty (defined as living on less than US$1.23 a day), which fell from 39 per cent of the population in 1994 to the current 20 per cent, according to official statistics. Cambodia is set to exceed its Millennium Development Goal poverty reduction target.
Strong sectors include garment export, agriculture, tourism and construction. Industrial growth in 2011 was 14.3 per cent, while services increased by 5 per cent and agriculture by 3.3 per cent. Tourist arrivals in the nine months to 1 October 2012 were up nearly 24 per cent over the year before. The government has identified agriculture, particularly rice production for export, and tourism as priority sectors.
Foreign direct investment, meanwhile, rose by 14 per cent in 2011 over 2010. China accounts for more than half of total FDI, pumping in more than US$8 billion since 2006. According to the United Nations Conference on Trade and Development, Cambodia, The Philippines, and Thailand were the only economies in South East Asia where FDI flows increased in the first half of this year.
In the latest competitive rankings published by The World Economic Forum in Geneva, Cambodia ranked 85th out of 144 economies, up from 97th the year before. It performed well in the areas of labour market efficiency, government stability and crime. The Forum identified the country’s main challenges as the following: corruption, the need for more skills in the workforce, bureaucracy and access to finance. Infrastructure is an urgent priority.
‘We have to do more to build our competitiveness – roads, railroads, ports, logistics systems. We need to do more in the energy sector to bring down the cost of electricity,’ notes Suy Sem, Minister of Industry, Mines, and Energy.
Cambodia recently took a major step to ease access to capital, which is critical to economic development, particularly the construction of infrastructure and the promotion of SMEs. In April 2012 the Cambodia Securities Exchange began trading, with the first issue, the Phnom Penh Water Supply Authority, more than 17 times oversubscribed.
The reform agenda for Cambodia is substantial. Most pressing is education and the development of human resources. ‘We need all sectors to build capacity and we need the skills to compete with other countries,’ says Minister Suy Sem.
Cambodia’s robust growth has been powered by a boom in the production of garments, which make up some three quarters of exports. Cambodia acceded to the World Trade Organisation in 2004, becoming the ‘second less developed country’ to join the global trading body. ‘Thanks to our membership, we are protected by international rules, and investors feel more comfortable about coming to Cambodia,’ observes Dr Cham Prasidh, Minister of Commerce. In addition, its low wages have allowed Cambodia to offer an alternative to China, where labour costs are rising.
Cheap workers, however, cannot sustain growth over the long term. For this reason, Cambodia is focussing on its youth, which could prove to be a major competitive advantage. Nearly a third of the country’s population is under the age of 14. ‘The youth are a very powerful force for the nation,’ says Kep Chuk Tema, Governor of Phnom Penh.