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Cambodia's economy in 2010: After unusual year, is recovery on its way for workers and entrepreneurs?

Stéphane Guimbert's picture

When I was asked to look back at Cambodia's economy in 2009 and ahead to 2010, I began to wish I had some magic tools such as this ox (although in that case, the ox was not that magical, since the 2009 harvest turned out to be quite good).

Cambodia’s year of 2009 was an unusual one. The sustained period of rapid growth – almost 10 percent for 10 years – came to an end. The 2009 growth forecasts are still being debated, between the International Monetary Fund (-2.75 percent), the World Bank (-2.2 percent), the ADB (-1.5 percent), and the Government (+2.0 percent). But the core issue is somewhere else: it is the fact that most citizens and investors were planning on continued rapid growth, and this did not happen in 2009. Those planning to send remittances to their villages could not do so. Those planning to sell their land for capital gains could not do so. We have seen imports of cars and motorbikes decrease, and some signs of debt distress for a few.

Importantly, the slowdown was not limited to sectors exposed to the global economy, say garments and tourism: the slowdown had rippled effects on tuk-tuk drivers, small restaurants and other services, etc. Only agriculture – although not everywhere, in part because of the Ketsana typhoon – provided a protected source of income.

Hence, looking at the year ahead, the question is whether the recovery is on its way for Cambodian workers and entrepreneurs:

  • A recent World Bank survey of firms, done over the summer with funding from the Danish Development Agency (DANIDA), the European Commission and the United Nations Industrial Development Organization, confirms that businesses are much, much less optimistic about their 2010 plans than they were a year ago. However many of them still plan to invest, or decided to stay in business without large restructuring, showing that they probably consider the slump as temporary.
     
  • We do see signs of recovery in the construction sector. Signs in the tourism sector are more mixed, although the high season is just starting. This will be one of the key drivers of growth for Cambodia in 2010.
     
  • The recent increase in rice prices could be a blessing for Cambodian farmers: while the increase in 2008 came long after the harvest, this one happens just at the time of the wet season rice harvest, and hence could benefit farmers much more than in 2008. It will be important to see to what extent Cambodia can benefit in 2010 from these higher prices, as well as from the extension of the European Union’s Everything but Arms scheme to rice since last September.
     
  • The garment sector remains depressed, but some consolidation around the largest and more productive firms could be a positive development, in line with the global industry consolidation around large global buyers and strategic suppliers with a large capacity.

 

Comments

Submitted by V.K.Shrivastava on
Dear Mr. Guimbert, Just went through your blog on Cambodia. It seems that you have indepth knowledge about the economy of this country. Mr. Guimbert i am interested in learning about the Economic agenda of this nation. Which are the priority sectors for the government of this country and what is the government of cambodia doing to achieve the goals it has decided for its priority sectors. It will be a great favour if you can throw some light on the above. Looking forward to hearing from you. Regards.... V.K.Shrivastava

Submitted by Yi rosa on
Dear Mr. Guimbert, Many thanks for providing this in-dept analysis of the Cambodian economy. After the economic downturn which hit the world from almost every corner, Cambodia likewise has been seriously hit. I am convinced that the impacts of this onset reflected the economic dependence of Cambodia. The recently released of economic review gave a big boost to us ( I mean I am also a Cambodian, but I am oversea for my study). I wonder if you could help me answer my doubt. The FDI has increased a lot lately and it should be a good sign of prospective economy. However, I think Cambodian government may not be well prepared enough to make the best use of this investment. Can you give me some ideas about that. Again thank you for keeping track on the economy of my country. My best regards, Rosa Yi

Thank you Mr. Shrivastava and Ms. Yi for your interest in our EAP blog and your specific questions on Cambodia. Your question on priority sectors is very interesting and critical. Officials and entrepreneurs are all too aware of the need for the economy to diversify. The government has prioritized 19 products in its trade strategy (see at http://www.moc.gov.kh/tradeswap/). We looked at this as well last year in our report on growth (www.worldbank.org/kh/growth). As a result, the government indeed is taking a number of sectoral measures to help the garment sector, the tourism sector, the construction sector, or the rice sector to develop. However the reality is that we can only make quite general points about promising sectors. For instance it is likely that promising sectors will build on Cambodia's comparative advantages (which are its strategic location in Southeast Asia, its land, biodiversity, young population, historical heritage, etc.); but entrepreneurs won't know which sectors until it's been tried. Ms. Yi's question on FDI is also important. It is indeed important for Cambodia to continue mobilizing FDI (as it has successfully done over the past few years) to supplement its own domestic savings. Using FDI well, as you put it, depends largely on the same conditions for "using well" domestic investments. Removing constraints on the broad investment climate is important so that both domestic and foreign investors move into new sectors and help diversify the economy.

Submitted by A. Tharp on
Stephane, I am doing some research on the subject of Agriculture in Cambodia. There are indications that Agriculture can serve as the initial pathway to many other industries; as well as, infrastructure items such as roadways, extended electrical grids, etc. I have been involved in several agricultural business in the western US that had as a business strategy a concept referred to as from the “Field to the Package” or an integrated value added supply chain. One of the crops we grew was organic wheat that was processed into organic flour and then mixed with other ingredients that were packaged and sold within a chain of retail stores as pancake mixes. We also worked to add some simple crop diversification and rotatoin to help reduce our risk somewhat. Although the farming methods in a developing nation and market such as is found in Cambodia is very different than that in the US today, yet there are also some very basic similarities. What Cambodia has in significant quantities are: water resources; heat units (annual sunlight); land used primarily for farming; and farmers - those that grow their own food. What is missing are many of skills that the US has in significant quantities: knowledge of soils and fertilizing methods; understanding of seeds and applied genetics as they related to various latitudes versus yields; means of the mechanization of the harvesting and post-harvest transportation; as well as, grain storage systems. In short, the next level of the maturation of farming in rural developing nations like Cambodia would likely be very similar to how American farmers farmed in the early 1930’s. During that time farmers used simple and affordable mechanization tools to greatly increase efficiencies while using what is today called “organic” farming methods in regards to fertilizers and soil amendments. Additionally, many farming communities banded together to form “co-ops” to address the needs of capital formation to assemble larger infrastructure items such as crop storage and distribution systems. I understand this process and such fundamental approaches to an agricultural based business. I would like to begin some dialogue with you about how to do some simple economic modeling that would arithmetically describe the potential impacts of some simple mechanization of portions of the farming process in rural Cambodia, combined with some basic added value functions that include sustainable aquaculture and animal husbandry operations that add viable and affordable sources of protein to the diet; as well as, sources of organic fertilizer as a means to improve soil conditions and crop yields. Certainly the concept that a farming family with full bellies and some extra coins to buy items they can not make or grow, tend to produce a much more satisfied population than a family stressed by hunger and no options, is not difficult to envision as a potential benefit of this process. Let me know your thoughts. Best Regards, A. Tharp

Submitted by Richard Currey on
Dear Mr. Guimbert, I enjoyed reading your blog, and I am impressed with the depth of your knowledge on the Cambodian economy. I am an entrepreneur currently working on a feasibility study and business plan for an AAC (Autoclaved Aerated Concrete) plant in or around Phnom Penh. My research is more of the shoe-sole variety, as I walk the streets of Phnom Penh and look at construction activity as I pass, in slow motion. I have noticed a good deal of medium and fairly large projects re-starting and new starts. These are all still using traditional brick for wall material in low-rises and as filler material in medium to high-rises. This is an old, expensive and not very environmentally friendly way to do things. AAC Blocks have taken over this market in similar situations in China, Indonesia, Thailand and Malaysisa, and starting now in Viet Nam. No reason why this cannot work in Cambodia - - well not many reasons, as I am finding out doing my feasibility analysis. Actually I need some information on the construction sector in Cambodia, and I was wondering if you can point me in the right direction -- Any information you can provide is most appreciated Regards Richard Currey

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