UNFORTUNATE: Cambodian workers leave after their shift at a garment factory in Phnom Penh. (Photo courtesy: TANG CHHIN SOTHY/ AFP)2009-01-31
Just as the stage seemed set for further growth, the four drivers of Cambodia’s economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.
"Unlucky.” This was the assessment of the Cambodian economy by Vikram Nehru, the World Bank’s chief economist for East Asia and the Pacific, late last year. It certainly seems appropriate.
While citizens in just about every country in the region can blame the current global economic storm for at least some of their problems, Cambodians probably have more reason than most to feel aggrieved.
Still one of the world’s poorest countries, Cambodia was nevertheless doing well before the global crisis hit. Recovering from a long period of political and social disruption dating back to the 1970s, the economy grew by an average of 11.1% a year between 2004 and 2007.
And the elections of July last year, which saw a landslide victory for the ruling Cambodian People’s Party, suggested that the country would soon be able to add political stability to its list of attractions.
The garment sector, which began to expand rapidly in the mid-1990s, provided employment for about 350,000 people. The tourism industry was also booming, with the number of foreign visitors rising by more than 20% annually. Further evidence of the country’s success could be seen in the growing level of direct foreign investment, which reached a high of 10% of gross domestic product (GDP) in 2007.
There were problems, of course. They included rampant corruption, rising inflation, a dysfunctional public service, infrastructure bottlenecks and a developing property market bubble. But with the economy making great strides, and with leaders no longer preoccupied with political survival, there was hope that at least some of these issues would be addressed.
Indeed, soon after the elections, economic managers moved quickly to minimise financial sector risks arising from the enthusiasm with which local banks were rushing to profit from the economic boom. The central bank doubled reserve requirements in July, introduced a ceiling on loans to the real estate sector, then tripled capital requirements in September. Meanwhile, plans were well advanced for the establishment of a stock market.
But just as the stage seemed set for further growth, the four drivers of the Cambodian economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.
The tourism industry got into trouble as early as July, when the decision by Unesco to list Preah Vihear temple as a World Heritage Site resulted in a military stand-off between Cambodian and Thai forces. Cambodia also suffered from the effects of Thailand’s internal turmoil last month, when anti-government protesters forced the closure of Bangkok’s international airport. The result was a wave of cancellation of hotel reservations at Siem Reap during the height of the tourist season. The global financial crisis looks set to cut further into tourist arrivals.
The garment industry, meanwhile, has begun to suffer from lower demand in the United States, its main export market. Expectations that rice exports would boost economic growth have also been dashed by the fall in international prices since their mid-2008 peak.
The juxtaposition of these political and economic developments has already been reflected in a 25-per-cent drop in revenues from the kingdom’s trade-dependent railway network last year. Rail links with Thailand were cut completely during the tension with Thailand in October.
Finally, South Korean and other foreign companies that were the main drivers of the nation’s construction sector have been winding down their activities in response to developments in their home countries. Modern Cambodia’s first-ever property boom is no more.
Influenced, perhaps, by years of rapid growth, the government late last year rejected as too gloomy an International Monetary Fund report that suggested that GDP growth would fall to 4.8% this year. But officials have since responded to the global slowdown by announcing a budget that increased spending and offered incentives to the garment industry. They have also delayed the launch of the stock exchange.
Early last month, foreign donors demonstrated their continued faith in the country by pledging more than US$950 million in aid, an increase of almost $300 million over pledges made in 2007.
Just as the stage seemed set for further growth, the four drivers of Cambodia’s economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.
"Unlucky.” This was the assessment of the Cambodian economy by Vikram Nehru, the World Bank’s chief economist for East Asia and the Pacific, late last year. It certainly seems appropriate.
While citizens in just about every country in the region can blame the current global economic storm for at least some of their problems, Cambodians probably have more reason than most to feel aggrieved.
Still one of the world’s poorest countries, Cambodia was nevertheless doing well before the global crisis hit. Recovering from a long period of political and social disruption dating back to the 1970s, the economy grew by an average of 11.1% a year between 2004 and 2007.
And the elections of July last year, which saw a landslide victory for the ruling Cambodian People’s Party, suggested that the country would soon be able to add political stability to its list of attractions.
The garment sector, which began to expand rapidly in the mid-1990s, provided employment for about 350,000 people. The tourism industry was also booming, with the number of foreign visitors rising by more than 20% annually. Further evidence of the country’s success could be seen in the growing level of direct foreign investment, which reached a high of 10% of gross domestic product (GDP) in 2007.
There were problems, of course. They included rampant corruption, rising inflation, a dysfunctional public service, infrastructure bottlenecks and a developing property market bubble. But with the economy making great strides, and with leaders no longer preoccupied with political survival, there was hope that at least some of these issues would be addressed.
Indeed, soon after the elections, economic managers moved quickly to minimise financial sector risks arising from the enthusiasm with which local banks were rushing to profit from the economic boom. The central bank doubled reserve requirements in July, introduced a ceiling on loans to the real estate sector, then tripled capital requirements in September. Meanwhile, plans were well advanced for the establishment of a stock market.
But just as the stage seemed set for further growth, the four drivers of the Cambodian economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.
The tourism industry got into trouble as early as July, when the decision by Unesco to list Preah Vihear temple as a World Heritage Site resulted in a military stand-off between Cambodian and Thai forces. Cambodia also suffered from the effects of Thailand’s internal turmoil last month, when anti-government protesters forced the closure of Bangkok’s international airport. The result was a wave of cancellation of hotel reservations at Siem Reap during the height of the tourist season. The global financial crisis looks set to cut further into tourist arrivals.
The garment industry, meanwhile, has begun to suffer from lower demand in the United States, its main export market. Expectations that rice exports would boost economic growth have also been dashed by the fall in international prices since their mid-2008 peak.
The juxtaposition of these political and economic developments has already been reflected in a 25-per-cent drop in revenues from the kingdom’s trade-dependent railway network last year. Rail links with Thailand were cut completely during the tension with Thailand in October.
Finally, South Korean and other foreign companies that were the main drivers of the nation’s construction sector have been winding down their activities in response to developments in their home countries. Modern Cambodia’s first-ever property boom is no more.
Influenced, perhaps, by years of rapid growth, the government late last year rejected as too gloomy an International Monetary Fund report that suggested that GDP growth would fall to 4.8% this year. But officials have since responded to the global slowdown by announcing a budget that increased spending and offered incentives to the garment industry. They have also delayed the launch of the stock exchange.
Early last month, foreign donors demonstrated their continued faith in the country by pledging more than US$950 million in aid, an increase of almost $300 million over pledges made in 2007.
Even so, there is little doubt that the nation faces difficult times. Foreign direct investment fell last year and, according to the World Bank, will likely fall again this year.
With the garment and tourism sectors faltering, widespread unemployment is a distinct possibility. Fifty per cent of the population is under 20 years of age, suggesting that a large number of job seekers will begin to enter the workforce over the next few years.
Yet all is not lost. While international rice prices have fallen, they are still relatively high. Programmes designed to boost agriculture could help absorb some of the unemployed.
Meanwhile, continued strong supervision of the banking sector, an increase in government-funded infrastructure projects and further moves to upgrade the legal framework for investment could help prepare the country for the inevitable recovery. In times like these, Cambodia needs to make its own luck.
(By BRUCE GALE In Phnom Penh/ The Straits Times/ AsiaNews)
MySinchew 2009.01.31
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