UN points to weakness in garments, tourism

Photo by: Heng Chivoan

Workers process shrimp at Nautisco Seafood Manufacturing’s Sihanoukville factory. The United Nations said in a new report that Cambodia must diversify its economy.

(Posted by CAAI News Media)

Tuesday, 24 November 2009 15:01 Jacob Gold

Report says that Cambodia must diversify its economic base and become competitive or face a more prolonged downturn

Cambodia needs to diversify its economy and make traditional high-growth sectors more competitive if it wants to avoid years of sluggish growth, the United Nations warned in a report issued Monday.

The UN also called on the government to stimulate the economy through greater spending, particularly on social protections and programmes with broad public benefits.

Douglas Broderick, UN resident coordinator for Cambodia, said at a press briefing on the report that its findings touched on “the vulnerability of the economy, the narrowness of the economy. There’s a lot of things we can do to improve competitiveness”.

Among the many sectors classifed by the report as under-competitive, the garment industry received the lowest marks. Cambodia’s slump in garment orders has not been caused by American and European belt-tightening alone, the report said.

“The US imported 12.04 percent less garments during the first five months of 2009 compared to the same period in 2008,” it said. “Interestingly, Bangladesh, Vietnam and China exported more garments to the US in the first five months of 2009, while Cambodia’s exports to the US declined by 22 percent.”

Until Cambodia makes significant strides in improving mainstays such as the garment and tourism industries, as well as cultivating newer areas such as information and communications technology and valued-added manufacturing, the report said, agriculture is the Kingdom’s strongest potential source of growth.

Chan Sophal, president of the Cambodian Economic Association and leader of the report’s research team, said growth in the agriculture sector was characterised by expansion in the area of production, mainly through the conversion of degraded forest into farmland.

Chan Sophal said that this made the sector particularly responsive to opportunities in the market, such as when “cassava production doubled over one year in response to 2008 prices”, adding that it also multiplied the gains in productivity from new crop strains and farming methods delivered by development partners.

However, even though farm output rose by 5 percent this year, falling commodity prices meant that the agricultural sector contracted in 2009, Chan Sophal said.

The UN also called for increased domestic spending to help pull Cambodia out of the economic slump. It suggested stimulating the economy via targeted social programmes.

Broderick estimated that each dollar spent on progressive social programmes would be “multiplied from three to six times” in terms of economic benefits and avoided costs. The low relative cost of these programmes also makes them especially attractive, he said. “We’re not talking about a whole lot of money, and there’s a whole lot of incredible options.”

Thanks in part to “savings of $600 million dollars” put aside during recent years of robust economic growth, the government can still wield fiscal policy effectively despite revenue loss from the downturn, the report said.

“Instead of spending, [the government] saved, as you would normally do in case of a crisis,” Chan Sophal. “This is a time of crisis, so the government should use some of the savings.”