Bright Spots for Cambodia's Service Sector, But Hard Reforms Needed

PHNOM PENH, CAMBODIA – Cambodia is benefitting from a steadily growing service sector, but needs to clear a number of obstacles to harness the sector’s potential, says a new Asian Development Bank (ADB) report.

Developing the Service Sector as an Engine of Growth for Asia, released today, notes that the service sector is the key growth driver for low-income economies in Asia, including Cambodia.

The tourism industry, a key component of the country’s service sector, has witnessed remarkable growth with tourism arrivals increasing by 19% to reach 2.1 million during the first six months of 2013. Large tourism arrivals have supported the expansion of hotels and restaurant businesses, wholesale and retail trade industries, and enterprises in transport and communications. Financial services have also expanded rapidly, buoyed by strong private sector participation and growing public confidence.

Anchored on the robust growth of tourism and other industries, the service sector as a whole is projected to expand by 7% in 2013 to help achieve GDP growth of 7.2% for the year.

Services account for only around 40% of the country’s gross domestic product (GDP), lagging behind other countries in the region with similar income levels. Yet, the sector is anticipated to increasingly contribute to GDP growth.

According to the report, services remain hampered by inadequate transport infrastructure in particular in rural areas, high costs of electricity as well as logistics and transportation costs, inadequate implementation of legal and regulations, tax and governance issues, and shortages of skilled workforce and of institutional capacity. Addressing these constraints will continue driving down the cost of doing business and improving the competitiveness of the service sector.

For the tourism industry, more efforts are needed to diversify and strengthen value chains, including within the Greater Mekong Subregion and ASEAN networks, to enable the industry to fully tap into regional markets and raise its competitiveness.