Industrial Diversification Key For Growth, Experts Say
To maintain its current level of economic growth, Cambodia must climb up the regional value chain, expanding beyond garments and into more advanced, technology and skill intensive industries, economists said during a consultation meeting at the Ministry of Economy and Finance last week.
The government has an important role to play in ensuring a smooth transition, promoting the involvement of the private sector, and facilitating entrepreneurship for the younger generations, attendees at the event concluded. Senior economists from the World Bank (WB), the Asian Development Bank (ADB), and the International Monetary Fund (IMF) convened last Monday in Phnom Penh for a consultation meeting on the future of the nation’s economy with senior officials from the Ministry of Economy and Finance.
Secretary of State for the Ministry of Economy and Finance, Vongsey Vissoth, said that according to official forecasts, the country’s GDP growth will equal seven percent in 2018 and 2019. The agriculture sector will grow by 1.8 percent, while the industrial sector could expand by as much as 10 percent, driven by growth in the garment and construction industries. Mr. Vissoth also mentioned that the service sector is forecast to expand by seven percent, following strong performances in the wholesale, retail, and tourism sectors, while domestic consumption is already on the rise after Prime Minister Hun Sen announced salary raises for civil servants.
However, he pointed out that more products and destinations are needed in the local tourism market to keep attracting increasing numbers of visitors to the country. “There are significant challenges ahead, both internal and external,” Mr. Vissoth said. “These include the United States’ current monetary policy, attracting investment, the lack of finance for the private sector, the slowdown of the Chinese economy, and increased competition at the international level.
“Meanwhile, the cost of doing business in Cambodia is high, particularly after the recent hike in the minimum wage,” he explained. Due to the small size of its economy, the country is very sensitive to external shocks, Mr. Vissoth said. Economists from the WB, IMF, and ADB, along with Cambodian officials, agreed that the country must now focus on diversifying its economy to increase its competitiveness on the world stage.
Regarding the garment sector, a key engine of economic growth, the economists suggested that the government adopt a longer-term view of the industry’s development by drafting a strategy for the next 10 years, while also encouraging more local investment. However, they emphasized that more advanced forms of manufacturing should be targeted as they have the potential to attract larger sums of capital and could engage local enterprises. To that end, speakers called for the establishment of the SME Bank to be given priority.
In December last year, Prime Minister Hun Sen pledged to start a new bank with an initial capital of $100 million to provide financing for small and medium-sized enterprises (SMEs). Economists at the meeting also stressed that governmental guidance is key to establishing new engines of growth and encouraged the authorities to create an entrepreneurship fund that will make it easier for young, aspiring entrepreneurs to turn their ideas into reality.
“Cambodia should be able to maintain its current economic growth in the next five years,” Jayant Menon, ADB’s lead economist for regional trade and cooperation, told Khmer Times. “The challenge will be to do that in a sustainable and inclusive way,” he said. Mr. Menon added that the main hurdles to moving up the regional value chain are an insufficiently skilled labor force and the high cost of electricity.