30 April 2019 marks the twentieth anniversary of Cambodia’s membership in the Association of Southeast Asian Nations (ASEAN). At its outset, the Kingdom regarded this membership as a means to promote its economic prosperity. Has the Kingdom achieved what it intended for? The article argues that Cambodia has overall reaped remarkable economic benefits from being the Asean membership, albeit early challenges in economic reforms.
In terms of economic interest, Cambodia’s membership in Asean has bought about a considerable increase in Foreign Direct Investment (FDI) from both Asean member countries and the dialogue partners of Asean such as Japan, China, South Korea, Australia and the United States.
The FDI from other Asean member countries into Cambodia was modest in 2000, but the figure continuously increased to $129.2 million in 2005, $523 million in 2012 and $603 million in 2017.
In the meantime, FDI from ASEAN’s dialogue partners into the Kingdom has significantly been on the rise as well. For example, Japan’s FDI rose from $224,998 in 2000 to $24.5 million in 2013, $38.8 million in 2015, and $1.6 billion in 2017. China’s FDI increased from $28.4 million in 2000 to $682 million in 2014, and $6.2 billion in 2017.
The investment from South Korea increased from $19.3 million in 2000 to $65 million in 2014 and US$1.6 billion in 2017. Australia’s investment increased from $2 million in 2000 to $18 million in 2014, and $304 million in 2017.
Another telling achievement of Cambodia’s membership in this regional organisation is the expansion of the Kingdom’s market. As an Asean member, Cambodia has now been able to access the market of the Plus Three countries namely Japan, China and South Korea.
The Kingdom also has a strong potential to access the markets of Australia, India and New Zealand once the Regional Comprehensive Economic Partnership (RCEP), composed of ten Asean member countries plus Japan, China, South Korea, India, Australia and New Zealand, comes into being in the near future.
It is worth noting that RCEP countries account for roughly 30 per cent of the world’s GDP and about one fourth of the global export. The Kingdom will benefit from the market access as well as the investment from the RCEP countries.
Furthermore, Asean membership helps Cambodia enhance physical connectivity within the region. For example, the Thai government recently donated a multiple-unit train to enable Cambodia’s connectivity with Thailand through a rail link. It was forty years that the rail way between the two countries were disconnected. Cambodia has now been able to physically connect with Thailand, thus contributing to the improvement of economic efficiency.
Prime Minister Hun Sen said, “the connection plays an important part in the development of the economies of Cambodia and Thailand and helps improve connectivity with other Asean and Greater Mekong Subregion countries.”
Asean membership, in the meantime, has contributed to the development of positive reforms in Cambodia. For instance, in order to realise Asean Economic Community by 2015, Cambodia introduced the National Single Window (NSW) with the aim to reduce unnecessary bureaucratic red tape, which impeded intra-ASEAN trade and investors for years. With the NSW, investors or businesses have been able to lodge standardised information and documents with a single-entry point, significantly contributing to lowering economic costs and saving time for investors and/or businesses.
More recently, the Cambodian government also introduced a number of positive measures with an aim to raise Cambodia’s economic competitiveness in the region. For instance, the government, in October 2018, issued Sub-decree on Tax Incentives for Small and Medium Enterprises (SMEs), which includes income-tax exemption for the SMEs from three to five years with in aim to encourage the expansion of Cambodian SMEs, which makes up the majority of Cambodian manufacturers.
In addition, the government, through its Prakas No. 1608 dated 21 December 2018 demanded its custom agencies to issue receipts for all services they provide to clients, with an attempt to reduce corruption.
Despite the above benefits, Cambodia’s trade has continuously encountered significant trade deficit with Asean. For example, the trade deficit was approximately $593 million in 2004 and went up to $4.4 billion in 2017. Such a deficit is much attributed to the fact that Cambodia mainly exported primary commodities, while it has been largely reliant on the import of high-value added products, such as fertilizers, pharmaceutical products, chemicals, plastics, paper and paperboards and vehicles from Asean countries.
To sum up, Cambodia has enjoyed tremendous benefits ranging from the surge in foreign direct investment, expansion of market access, the increase in physical connectivity with the region, to positive internal reforms, despite facing the trade deficits with other ASEAN countries.
Concerning a trade deficit with other Asean member countries, it can be overcome so long as Cambodia could attract more foreign investors interested in exporting their products to Asean market. In order to achieve this goal, continuous, bold reforms are needed, especially in reducing red tape and irregular costs.
Leng Thearith is Director of the Mekong Centre for Strategic Studies, Asian Vision Institute (AVI).