Could agriculture save Cambodia from negative growth?

Emerging from such a difficult history and sustaining double-digit growth continues to drive Cambodia quickly past many crossroads.

Three weeks ago I presented our analysis on growth to a business roundtable with the government of Cambodia, organized by The Economist. Its title, " On the verge of a breakthrough?", reminded me of a 2004 report prepared by the World Bank called " Cambodia at the Crossroads".

It should be of little surprise that a country emerging from such a difficult history and sustaining double-digit growth would drive quickly past many crossroads. The country's key crossroad might have been in the late 1990s when peace was solidified. Or in 2005, when the multi-fiber quotas were dismantled, ending Cambodia's higher quotas to the United States. Or at the time of the adhesion to ASEAN or to the World Trade Organization. Each general election has also marked a crossroad. Most recently, the Khmer Rouge Tribunal is also a major crossroad.

So, what kind of crossroad for can be expected 2009? Last week, the IMF suggested Cambodia will see a negative growth of 0.5 percent in 2009, resuming the discussion covered in my last blog post. Forecasting this year's growth is generating a lot of debate in Cambodia.

A key question – raised by the Prime Minister himself – is the role that agriculture can play. I won't risk a prediction since the only certainty is that agriculture is weather-dependent (and I am not good at weather forecasts). Agriculture could play an important safety net role as workers loosing their jobs might go back to rural areas. This still has a negative impact on growth since this gets workers moving from higher to lower productivity sectors (e.g. from garments to agriculture).

But that view might surprise others. In many countries, the opposite would happen, with increasing stress on the economy leading to a migration from rural to urban centers. Cambodia is probably indeed different from other countries, as evidenced in findings by Indochina Research (pdf). Compared to neighboring Lao and Vietnam, Cambodians are much less in love with their cities. But the magnitude of the migration and the capacity of the rural and urban sectors to absorb them are unknown.

So, indeed this year, there might be important crossroads to watch: Not only how the economy will react to the global crisis, but also potential significant migration and distribution effects.

Post Scriptum: I apologize for those readers who came here looking for a review of driving practices and crossroad management, on the roads of Cambodia. This certainly would be worth another blog entry.

Image credit: niamhcotter at Flickr under a Creative Commons license.