Diversification key to economic growth: World Bank
Cambodia was among the Greater East Asian countries hardest hit by the Covid-19 pandemic. However meaningful steps to spur domestic investment, greater productivity among businesses and workers, and a more diversified export portfolio will be key to regain sustained economic growth, according to the World Bank.
“The dramatic slowdown in output can be attributed in large part to the pandemic, but Cambodia’s dependence on a narrow range of products, markets and financing sources left it poorly positioned to absorb the shocks,” the bank said in its “Cambodia Economic Memorandum: Resilient Development, a Strategy to Diversify Cambodia’s Growth Model” report posted on January 31.
“Cambodia’s growth rate, which averaged a robust 7.7 per cent between 1995 and 2019, plunged an estimated 10.1 percentage points to contract by 3.1 per cent in 2020 before resuming modest growth of 2.2 per cent in the year just ended.
“Upgrading contributions to global value chains, creating added value in agriculture, and increasing competitiveness in the services sector could diversify of exports. Promoting higher savings, encouraging foreign investment in the most productive sectors, and improving financial access could support domestic investment,” it said.
World Bank country manager for Cambodia Maryam Salim suggested that a coherent set of short- and medium-term policy actions could underpin an economic recovery strategy that would allow the Kingdom to build back better after a point where Covid is no longer deemed a major threat.
“Getting back to a sustainable growth path will require an ambitious reform agenda that focuses on improving the capabilities of Cambodia’s firms, workers, and households; strengthening regulations to address market distortions and improve the enabling environment for business; and investing in infrastructure that supports higher quality growth,” she said.
Garment Manufacturers Association in Cambodia (GMAC) deputy secretary-general Kaing Monika told The Post on January 31 that garment production has been stable, and that export growth remains on an upswing.
“Provided the stable condition as it is now, we can be optimistic in 2022 that our export[s] would continue to grow, probably moderate growth for garment[s] and good growth for travel goods.
“Relocation of some garment orders out of China and Myanmar would continue to benefit Cambodia,” he said.
The World Bank pointed out that “five products – garments, footwear, rice, cassava and tourism – have accounted for 80 per cent of Cambodia’s total exports in recent years, while just two markets – the European Union and the United States – take 69 per cent of merchandise exports”.
“Labour productivity is low due to low levels of skills and training and low ‘total factor productivity’, a measure of how efficiently a country uses labour and capital in aggregate. In addition, the country’s low savings rate and low domestic investment have led to a heavy reliance on external financing sources.
“Cambodia has many options to address the lack of diversification and build back stronger. Investing in human capital, supporting more efficient resource allocation through improved market institutions, and improving public investment management can help boost productivity,” it said.
Cambodia exported nearly $8.83 billion worth of garments, footwear and travel goods in the first 10 months of 2021, up by more than a tenth year-on-year, according to data published by GMAC.
Broken down by category, exports of garments, footwear and travel goods were to the tune of $6.538 billion (up six per cent year-on-year), $1.113 billion (up 20 per cent) and $1.179 billion (up 49 per cent), respectively, the association reported.