Garment factory workers produce items of apparel at a factory in Kandal province last year. Heng Chivoan |
Economy to face new challenges
Phnom Penh Post | 7 April 2017
Cambodia's
economic growth remained strong last year though the Kingdom must now address
major systemic challenges to build on its ascension into lower-middle income
status in order to maintain healthy levels of development, the Asian
Development Bank (ADB) said in its annual report yesterday.
The ADB
flagship report, titled Asian Development Outlook 2017: Transcending the
Middle-Income Challenge, forecasts that Cambodia’s GDP growth rate will remain
stable over the next two years at 7.1 percent, up slightly from 7 percent in
2016. Inflation is expected to increase this year to 3.4 percent, up from 3
percent in 2016, and will continue to increase incrementally in 2018 to 3.5
percent.
Samiuela
Tukuafu, country director for the ADB, said during the launch of the report
that Cambodia’s industrial sector growth, which is the biggest contributor to
the country’s GDP, suffered from the recent global economic slowdown, bringing
its growth to 10.5 percent in 2016, down from 11.7 percent in 2015. The
industrial sector remains mostly focused on garment and footwear production, he
added, and it should bounce back as global economic conditions improve.
“This
year, GDP is expected to grow slightly higher [than anticipated] supported by
higher growth in the major industrial countries,” he said.
“Cambodia
could take advantage of the potential relocation of light manufacturing
industries out of China by attracting further foreign direct investment into
other non-garment and footwear sectors.”
Services,
the Kingdom’s second largest economic sector, grew by 6.7 percent, down from
7.1 percent the previous year, while agriculture recovered from flat growth in
2015 to a modest 1.8 percent last year, partly on the back of improved rainfall
after a prolonged and devastating drought, Tukuafu explained.
He added
that the Kingdom remains exposed to several domestic and external risks that
could slow the country’s efforts for development. “Domestic risk would
originate from rapid expansion of the financial sector, mainly seen through the
proliferation of microfinance institutions,” he said.
“External
risk to the outlook includes firstly, disappointing growth in the Euro area,
secondly, a tightening of credit globally, and thirdly dollar surges due to
higher interest rates, which could affect the country’s export
competitiveness.”
Jan
Hansen, senior country economist for the ADB in Cambodia, said the Kingdom
needs to build on its ascension to a lower-middle income status by implementing
measures that would add value to exports and support local industries.
“In the
longer perspective, Cambodia’s successful growth model of attracting foreign
direct investment through inexpensive low-skilled and abundant labour, which
has delivered the impressive economic expansion over the recent past, may not
be viable much longer,” he said. “Productivity growth has been slow, while
labour costs and skill shortages are increasing.”
A key
area to ensure continued growth for Cambodia is improving education, Hansen
said. He added that facilitating entrepreneurship and innovation were also key
pillars for the Kingdom’s economic success.
“The
government must shape an environment conducive to innovative entrepreneurship
by promoting investments in education and in infrastructure,” Hansen said.
“This
analysis is very timely for Cambodia after its graduation to a lower-middle
income country, and the measures that are important to keep high growth
sustained over the medium term is the nexus of advanced infrastructure, highly
developed skills and innovation.”
He said
investments into these categories could help sustain growth and ensure a
successful transition into a middle-income to higher-income country without
getting stuck in the middle-income trap.
Mey
Kalyan, senior adviser to the Supreme National Economic Council, said the
government was actively working to improve key sectors of the economy and
expand its business environment. However, he admitted that it was not happening
fast enough.
“I think
looking at the past, we have been growing as much as we can, but it is not
enough,” he said. “If Cambodia wants to move forward, it has to do better in
terms of infrastructure, and also deal with its problem of energy and
electricity.”
Kalyan
explained that current energy production hindered industrial development and
prevented the country from adopting more advanced forms of manufacturing. He
added that the government needs to remain wary of potential risks to its
exports, particularly for garments, that could be affected by the growth of
rival garment exporters such as Vietnam.
“Today
[development measures] could be done better, but we are improving according the
demands of the market,” he said.
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