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Cambodia’s transitional economy: Issues to be solved

flickr/ Sébastien Bertrand

It has been more than 20 years since Cambodia started reforms and integration of its economy into the region and the world at large. There are some concrete development results such as the continuous high economic performance for the last three decades and the remarkable rate of poverty reduction

However, there are outstanding issues and challenges that need to be dealt with.  The main sources of economic growth remain narrow, relying on traditional sectors such as textiles, agriculture and tourism.

Merely  focusing  on the garment industry, the main source of Cambodia’s economy in that it employs about 800,000 workers, especially women from the rural areas, is not enough. Without the existence nor promotion of a textile industry to support the garment sector, Cambodia was nothing more than a cut and sew destination. In terms of export, the industry accounts for about 75 percent of total export.

The garment industry is chiefly driven by  relatively cheap labour and an enabling environment such as trade preferential treatments and better factory programmes introduced by the International Labour Organization.

The main challenges facing the industry are the threat to partial removal, a very likely scenario, of the  Everything but Arms (EBA) trade status by the European Union, over which a decision will be made this week, and the fast increase of the minimum wage. These is a double jeopardy situation on Cambodia’s competitiveness in exports.

The unfolding outbreak of the Novel Coronavirus has directly or indirectly affected the supply chains of raw materials and production inputs for the garment industry in Cambodia. Because of a lack of raw materials, some factories in Cambodia might need to suspend their production.

Cambodia cannot rely on labour-intensive industries anymore because it is transitioning towards a more skills-based and knowledge-driven economy. The Industrial Development Policy 2015-2025 clearly sets out the strategy to transform the economic structure to be a skills-driven industry.

The external pressures, including the potential partial revocation of the EBA deal, can be a new driving force for economic reforms and transformations within the Kingdom.

The best way to deal with the challenges is to provide training and skills development for people working in the textile industry in order to look for employment opportunities in a more skill-based manufacturing or service industries.

The government must take the lead and invest more in a skills development programme, involving either short-term or medium-term training. The industrial development policy needs to be reviewed and assessed in connection with the practices and implementation on the ground. So far, there is no clear coordination mechanism and strong leadership to concretise the policy.

The government needs to build its partnerships and collaboration with the private sector, civil society organisations and academic institutions to monitor the progress of the industrial development policy, especially to identify the challenges and gaps based on which innovative solutions can be developed.

International development partners such as the Asian Development Bank and World Bank can further inject support in the field of upskilling and re-skilling and improving the competitiveness of Cambodian labour force.

The people need to actively participate in the economic transition and transformation processes. A whole-of-society approach is necessary in the process.

The manufacturing sector has changed – bringing both opportunities and challenges – and neither business leaders nor policy makers can rely on old responses in the new manufacturing environment.

So long as there is a will, there is a way. Political will and leadership are two of the most important factors determining the success or failure of a policy. We need a reformist, transformative and inclusive type of leadership to deliver results.

The governance problem that Cambodia is facing is the lack of political leadership at different levels. A sense of responsibility and ownership is lacking. The purpose of being a public servant is not clearly defined. There is no clear division between being a civil servant and a member of a political party.

The bureaucrats and professionals, from director general down, should not be asked to do political work such as going to the fields or meeting constituents of their superior. The political appointment starts from the undersecretary of state.

This is critically needed because there must be a detachment from the state and the party. This is often talked about but hardly ever implemented, hence the existence of a grey line between having to be a party member in order to be a civil servant, even if one is qualified for the position. This hampers human development.

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