Political stability and predictability, continuous institutional reforms, the inflow of foreign direct investment, trade liberalisation and facilitation, and regional integration have been the driving forces of Cambodia’s growth, writes Chheang Vannarith.
Complex domestic politics and geopolitics aside, Cambodia’s economic outlook remains robust and vibrant. Over the past two decades, Cambodia’s growth rate has been slightly over 7 per cent. Remarkably, in 2016, Cambodia graduated from its status as a least developed country and became a lower-middle-income country.
The trend continues to rise. According to the Asian Development Bank (ADB), Cambodia’s growth rate is estimated to be at 7 per cent for 2018 and 2019. Inflation rates will be kept at 3.2 per cent in 2018 and 3.5 per cent in 2019. Per capita GDP growth rate is forecasted at 6.6 per cent in 2018 but slightly down to 2.6 per cent in 2019.
The World Bank has similarly forecasted the growth rate to be 6.9 per cent in 2018. The downside risks to the outlook though, the report reads, are the erosion of export competitiveness, a buildup of vulnerabilities from a prolonged real estate and construction boom, potential election-related uncertainty, and trade protectionism.
It is puzzling that Cambodia has experienced high economic performance with a high corruption rate. The Transparency Corruption Index in 2017 ranked Cambodia number 161 out of 175 countries. One of the possible explanations to this phenomenon is that stability and predictability does matter more than corruption when it comes to business investment in emerging economies.
Nevertheless, it is widely acknowledged that corruption causes high inequality and disrupts socio-economic progress. The widening income gap between the rich and the poor is one of the root causes of political and social ills in Cambodia. In the medium and long term, Cambodia cannot sustain its growth without addressing corruption and strengthening its bureaucratic capacity and the functioning of state institutions.
Acknowledging such shortcomings, Prime Minister Hun Sen has continuously reminded his administration to implement “deep reforms” in order to deliver better public services to the people. He keeps reminding his cabinet to implement the motto, “Looking into the mirror, taking shower, scrubbing the dirt, treating the wounds, and admitting to surgery”.
Cambodia also developed immediate responses to people’s needs and expectations such as prompt response to natural disasters, border conflicts, intervention in the rice sector, expansion of the scope of social protection for both government officials and workers, in both the formal and informal economies, and investment in physical infrastructure.
Cambodia can no longer rely much on labour-intensive and extractive industries, and has to diversify its sources of growth by investing more in the manufacturing sector, high-tech industry, and services. But the Kingdom is on the right path in its endeavor to transform the country into a digital economy by 2023 with an emphasis on investment in digital infrastructure and human capital in ICT.
As part of its digital economic vision, Cambodia aims to reach total broadband coverage in urban areas by 2020, with at least 70 percent coverage in rural areas. Within the next two years, at least 80 percent of Cambodians will have Internet access. In 2017, there were more than 10.7 million mobile phones having Internet connection, 8.5 million Internet users, and fixed Internet reached 1.38 million.
With an annual growth rate of 7 per cent and robust reforms, Cambodia will become a high-middle-income country by 2030 and high-income country by 2050. Investment in human capital and critical infrastructure such as digital infrastructure and seamless logistics networks within the country and across the region will help Cambodia to overcome the middle-income trap and develop a knowledge based economy.
Although there are some uncertainties with regards to the impacts of an unfolding trade war on Cambodia’s export market and the potential removal of preferential tariff treatment from the US and the EU for Cambodian products, Cambodia’s macroeconomic fundamentals are quite resilient and stable.
Political stability and predictability, continuous institutional reforms, the inflow of foreign direct investment, trade liberalisation and facilitation, and regional integration have been the driving forces of Cambodia’s growth.
Inter-regional cooperation mechanisms such as the China-proposed Belt and Road Initiative (BRI) and Japan-initiated Free and Open Indo-Pacific, intra-regional integration mechanisms such as Asean, Greater Mekong Sub-region, Lancang-Mekong Cooperation, and Cambodia-Laos-Vietnam Development Triangle expand economic opportunities and connectivity, and maintain Cambodia’s economic dynamism.
Looking forward, political will and transformational leadership to carry out deep and robust reforms will define the future of the country. Stability and predictability remain the foundations for Cambodia to advance, while human capital and digital infrastructure are the backbones of transforming Cambodia into a digital economy in coming years.
Chheang Vannarith is a visiting fellow at ISEAS-Yusof Ishak Institute.