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

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ImageWhen 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.


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