Expansion of Cambodia's Export Industry Hindered by Trade Constraints

PHNOM PEHN, CAMBODIA – Cambodia could reap even greater benefits from trade facilitation measures in the Greater Mekong Subregion (GMS) by removing high logistics costs, delays and other barriers that hamper the country’s connectivity and competitiveness, a new Asian Development Bank (ADB) book shows.

“Cambodia’s exporters are well-positioned within the GMS to grow and expand,” said Peter Brimble, Senior Country Economist and author of one of the book chapters. “Policy adjustments can help reduce cost and transport times, making Cambodian exporters more competitive and enhancing their credibility.”

Inefficiencies in export and import processes and constraints to exporting in Cambodia cause significant delays and additional costs, which make the country less competitive in regional and global markets, according to Trade and Trade Facilitation in the Greater Mekong Subregion (GMS), which used the Southern Economic Corridor as a case study.

Transport costs in Cambodia are $9 per ton per 100-kilometer from Bangkok to Phnom Penh and $13 per ton per 100-km from Phnom Penh to Ho Chi Minh City, compared with $6 in Thailand and $7 in Viet Nam. Logistics costs for the Cambodian section, at $19 to $20 per ton per 100-km, are almost double those for the Thai and Vietnamese sections.

Cambodia’s exports grew by 13.5% yearly and its imports by 12.3%. But the share of Cambodia and Lao People’s Democratic Republic (PDR) in the total trade of the GMS countries, excluding the People’s Republic of China, remain small. Thailand accounted for 68.8% of the total exports of GMS 5 countries in 2009, Viet Nam 25.6%, Cambodia 2.2%, and the Lao PDR 0.6%. The rest came from Myanmar.

The book, jointly produced by the Australian Agency for International Development (AusAID), prioritizes three policy measures to address logistics challenges, including increasing the availability of information about agreements, laws, rules, and regulations; minimizing checkpoints along the corridor; and expediting the issuance of certificates of origin, which presently take 5-7 days for the Cambodian sector but are issued almost immediately in Thailand.

At the sector level, the book looked at garments, rice and wood exporters, conducting interviews with 120 small and medium enterprises and 39 export companies. Cambodian firms reported a lack of reliable energy supply, shortages of labor with sector-specific skills, financing constraints, and government regulations that slow down their ability to import inputs and also hamper their ability to export more.

Cambodian garment exports increased rapidly at an average annual rate of 16.2% in 2000–2008, from $1.2 billion to $4.1 billion, and accounted for about 82% of all Cambodian exports. However, without a stable electricity and water supply, manufacturers say they aren’t able to produce high quality fabrics that would allow them to move up the value chain. Food exporters face shortages of investment capital, industry-specific infrastructure, and international familiarity with Cambodian products.

These constraints not only hold back exports, but also affect foreign direct investment, the book notes. Improvements in the two areas are critical for not only for diversifying Cambodia’s economic base, but also to develop Cambodia into a production base and become part of cross-border production networks.

To ease the constraints and improve the process of exporting and importing, the book recommends implementing e-clearance; reducing processing time for certificates of origin; improving access to capital; improving water supply by tapping onto additional supply sources; simplifying documentation processes; increasing access to information about export requirements, processes, times and costs; and building the pool of skilled labor.

The Greater Mekong Subregion (GMS) comprises Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and Yunnan Province and Guangxi Zhuang Autonomous Region in the PRC.

The GMS economic corridors consist of the East–West Economic Corridor (EWEC), linking Mawlamyine in Myanmar to Da Nang in Viet Nam; the North–South Economic Corridor (NSEC), connecting Kunming in the People’s Republic of China (PRC) to Bangkok, Thailand, via the Lao People’s Democratic Republic (Lao P DR); and the Southern Economic Corridor (SEC), linking Bangkok to Phnom Penh, and then to Ho Chi Minh City, Viet Nam.

As of June 2012, ADB, along with other development partners and GMS governments, had supported $15 billion in 57 investment projects in the GMS countries, of which most were in transport infrastructure, and provided $289 million in technical assistance.