PHNOM PENH, CAMBODIA - Cambodia needs to broaden its economic base to support strong, inclusive growth and to put the country in a good position to take advantage of the upcoming ASEAN Economic Community (AEC), Asian Development Bank (ADB) says in a new report on the country’s growth prospects.
“Growth has been strong and consistent for many years and now Cambodia needs to focus on producing more complex and higher-value goods and services which will allow it to capitalize on opportunities generated by the AEC,” said ADB Assistant Chief Economist Cyn-Young Park, who launched the report today. “The priority should be on making further improvements in the business environment and investment in human capital and public services.”
Cambodia: Diversifying Beyond Garments and Tourism highlights both the need for economic diversification and industrial capacity upgrades, as well as further efforts to build on the country’s areas of strength in the garment industry, tourism, and agriculture.
Cambodia posted annual average gross domestic product (GDP) growth of 7.6% from 1995 to 2013, achieving double-digit growth for four consecutive years in the mid-2000s, on the back of strong garment exports and farm yields. Despite this expansion, it remains one of Asia’s poorest countries, with per capita GDP of $1,008 in 2013, a level comparable to Afghanistan, Bangladesh, Myanmar, Nepal, and Tajikistan.
The report identifies four key constraints on the economy: Weaknesses in worker skills and education; gaps in infrastructure; corruption and weak public sector management; and limited fiscal space which hampers state investments. A lack of diversity in both manufactured products and services leaves the economy vulnerable to volatility in global demand conditions.
The report, prepared in consultation with the Government of Cambodia, the private sector, development partners, and research institutions, recognizes the positive steps being taken to address current challenges, and offers policy recommendations to help accelerate change.
To help diversify the economy, which is heavily concentrated in four areas—rice, garments, tourism, and construction—Cambodia could build up its manufacturing sector by focusing on both existing and emerging products with promise, including machinery, metallurgy, chemicals, furniture, bicycles, and footwear. In the agriculture sector, goods such as maize, vegetables, sugar, palm oil, and plywood also offer potential. Some of these higher value-added items are currently exported in small quantities but there is scope to scale up their production, the report said.
In the longer term, the government must do more to improve trade facilitation, logistics, infrastructure, and human capital to attract more foreign and domestic investment needed to build on the strong growth momentum and to climb up the global value chain. Domestic businesses also need support to scale up the use of new technology and to get information about potential new market opportunities, allowing them to become more competitive.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2013, ADB assistance totaled $21.0 billion, including cofinancing of $6.6 billion.