Cambodia Economy Update - What Are Coming in 2013?
Cambodia is expected to register another good economic growth year in 2013 and many improvements in the past years; however there are still serious challenges.  I visited Cambodia several times early in 2013 and I would say that on the surface things are looking better.  More streets are paved, the downtown area has more trees and park like environments and generally there seems to be more and better cars there than one would expect in such a poor country.
Classified by the World Bank, countries with GDP per capita between 1,006 US dollars and 3,975 US dollars are classified as lower-middle-income countries.  President of the National Assembly Heng Samrin said that poverty rate would decline to 19 percent in 2013, down from 20 percent in 2012.
Government to invest $4.4B in Public Sector

Early in 2013, the government has approved more than $4 billion of investment in the public sector over the next three years in a bid to stimulate economic growth, the council of ministers said in a statement to the public, reported the Post.  The rolling plan will focus on four main sectors:

  • 40 percent would go toward infrastructure
  • 37 percent would go directly into stimulating the economy
  • 16 percent would go toward social spending
  • 7 percent across all other sectors

Investment law to be revised

Secretary General of the Council for the Development of Cambodia (CDC) Sok Chenda Sophe, on 10 March 2013, said the government is planning on the revision of investment law this year and the revision in the law is aimed at encouraging more investors to develop the construction sector, among others. 

The Cambodian investment law was initially drafted in 1994. It was then revised in 2003, but has remained unchanged until now. The revision is aimed at encouraging more investors to develop priority sectors to make the Kingdom more competitive.  Chuon Naron, Secretary of State at the Ministry of Economy and Finance, said at the seventh Cambodia Outlook Conference earlier in 2013 that government priorities include increasing spending and co-ordinating national policy to better promote high-tech skills and vocational training due to the increase in investment in manufacturing electronics.

Yoshiko Yamanaka, economic and infrastructure development adviser at the Japanese development agency (JICA Cambodia), told the Post that many potential investors in Japan are shifting their operations from traditional sites such as China to other overseas locations, with an emphasis on ASEAN countries. If Cambodia can provide better infrastructure, a skilled labour force, and more flexible institutions, it will be more attractive to investors, she added.

Tourism is  booming

In 2012, larger numbers of overseas visitors head to Cambodia’s star attraction Angkor Wat. According to Cambodia's Ministry of Tourism's Statistics and Tourism Information Department in their Annual Report 2012 showed that the International tourist arrivals increased to 3,584,307 in 2012, compared with 2,881.862 in 2011.  The international tourist numbers to Cambodia in 2012 doubled those in 2005 and 2006. The average length of stay is about 6 days. International tourist arrivals by all mean of transportation is usually high in Quarter 4, October to December of every year. Interestingly, tourist arrival by  air, via Phnom Penh International Airport and Siem Reap Airport is about as high in numbers, slightly lower, compared to mode of arrival by land and water ways.  The top tourist arrival countries are from Vietnam, Korea, China, Laos, Thailand, Japan, USA, France, Australia and Malaysia, respectively.  Cambodia also currently looked to further tap into more visitors to Thailand each year as the two neighbors started a joint visa scheme.

CHALLENGES

However, with such a surge of investment comes problems ranging from wage inflation to land grabs as industrialization proceeds apace.

The judiciary is seen as among the weakest institutions

In Transparency International’s 2012 corruption perception survey, Cambodia ranked 157th place out of 174 countries . This was slightly better than the 164 ranking Cambodia received the previous year when Transparency International studied more countries.
(table comparing Asia)

Graduates lacking skills

A recent case study by the University Malaysia Kelanta explored “the gap between the business management curriculum and employability” in the Cambodian banking sector, reported the Post. 
Many employers in other sectors also had confirmed that lots of training needed to be done post graduation, and some preferred to train their own staff.  Blaming universities was not a solution, Cambodian Economic Association president Chan Sophal said.  “I think [the problem] is not just the curriculum, but the general standard of teaching and learning,” he said.  “Students come to university with a poor education background from school and work, or study several subjects at the same time.”  Sophal said another problem was the mismatch between the subjects graduates studied and their employment in a different sector.

Blackouts leading to reduced production

Frequent power outages in Phnom Penh, a result of a shortage of supply and overuse by consumers, is harming the competitiveness of Cambodian products, industry insiders said early 2013 to the Post.  Many people in many areas are being inconvenienced by blackouts, which occur twice a day on average.  This is just to add up to the challenges of expensive electricity prices, an ongoing issue for production costs, unreliable supply during the hot season - all these factors are harming the potential for growth.  Ty Thany, executive director of the Electricity Authority of Cambodia (EAC) said recently  “The demand is high, much higher than our expectation,” Thany of EAC told the Post yesterday, “The increasing number of houses, apartments, and commercial buildings are the major reason for a boost of electricity demand.”  Ty Thany said that electricity supply will be getting better from April due to the power generated from Kirirom III and Kamchay hydropower dams.

Due to unreliable power supply, Keo Mom, director of LyLy Food Industry, a Cambodian snack producing company, told the Post that the only way to minimise losses is by equipping bio-gas machines to generate power.  Keo Mom added that in order to operate the bio-gas machines, her company spends $21 to buy three metres of wood cubes per day, which is 50 per cent lower compared to electricity.

Security

Security, crime and road safety are still major challenges in Cambodia.   Further, investors cannot depend on governnent services or their Embassies or home governments in emergencies or for their security.  They must be prepared to take these responsibilities themselves or to contract with a professional security company on the ground in Cambodia and invest in locks, alarms and other measures.  I asked a well respected security professional in Cambodia about his comparison of Bangkok and Phnom Penh in terms of crime.  This was his response and I quote: 

"In answer to your question about the comparison of crime to Bangkok, Phnom Penh is far far worse.  Gang wars in Bangkok don't harm businesses or normal people but are mainly confined to schools fighting with each other or gangs fighting gangs.  You simply don't have the extreme poverty in Bangkok that we see here in this capital.  The biggest difference is the larger use of drugs, and a complete indifference to law by both the government and local people, especially the youth.  After 9 pm, traffic lights are totally ignored by all parties.  Illegal driver's licenses are easily purchased, and police will accept bribes for just about any crime committed unless there are a lot of witnesses. 

During daylight hours, Phnom Penh is relatively safe and similar to Bangkok but the bad folk go into action after dark - big time.  Anyone doing business here must live in a guarded/gated community, invest in a home alarm system, hire a qualified driver, and avoid activities that would take them into some of the high crime suburbs or keep them out past say 10 pm.  It's that bad my friend.  I wish I was exaggerating but I'm not.  I go home before 9 pm each evening - full stop.  I am getting more and more bad reports of violence out there and I don't see things improving.  There is no rule of law here."

Traffic safety is also a major problem in Cambodia.  On average, according to the Phnom Penh Post, five people die on the roadways in Phnom Penh each day.  Motorbike riders account for 66% and more than 2/3rds of those involved serious head injuries.  Traffic accidents are the second leading cause of death in the country.  Hospitals have no or very little capability to deal with head injuries and generally if you are in a motorcycle accident involving head injuries, if you are not medically evacuated you will die because of the lower standards of trauma care in the country.

These are considerations that all business and travellers need to consider.


High hope forecast

Cambodia's economy expected to grow by 6.7% this year, said the  World Bank in early 2013.  Cambodia's economic growth come from anticipating increases in agriculture, foreign direct investment (FDI) and tourism, the World Bank said in its latest outlook report.  The bank's Global Economic Prospects forecast that the country's growth will be up to 7% in 2014. The International Monetary Fund (IMF) predicted that Cambodia is expected to register an economic growth rate of 6.7% in 2013, and warned that a fragile global economic outlook, rapid credit growth and potentially extreme weather conditions would continue to pose significant risks to the economy, reported Phnom Penh Post.  However, it foresaw that Cambodia’s exports would grow at a slower pace in 2013 due to weak external demand, especially in Europe and the United States, especially in the garment exports business.

The Washington Post commented that Cambodia’s low wages lure manufacturers away from China and other countries. In addition to mainland Chinese and Hong Kong investors moving jobs from China, several Japanese companies have invested in the country in the past year, especially in the area close to the Thai border, said the paper.

Cambodia to become lower-middle-income nation by end of 2013

Cambodian Prime Minister Hun Sen said during a graduation ceremony of students at the National Institute of Education that the country would move from the status of a low-income to a lower-middle-income nation by the end of 2013, reported the Cambodia Daily.
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About the Author: 

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations.
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