Economy of Cambodia
Cambodia in 1989, the State of Cambodia implemented reform policies that transformed the Cambodian economic system from a Command economy to an open market one. In line with the economic reformation, private property rights were introduced and state-owned enterprises were privatized. Cambodia also focused on integrating itself into regional and international economic blocs, such as the Association of South East Asian Nations and the World Trade Organization respectively. These policies triggered a growth in the economy, with its national GDP growing at an average of 6.1% before a period of domestic unrest and regional economic instability in 1997 (1997 Asian Financial Crisis). However, conditions improved and since 1999, the Cambodian economy has continued to grow at an average pace of approximately 6-8% per annum.
Rice milling: is very important to the Cambodian economy.
Cambodia's emerging democracy has received strong international support. Under the mandate of the United Nations Transitional Authority in Cambodia (UNTAC), $1.72 billion (1.72 G$) was spent in an effort to bring basic security, stability and democratic rule to the country.
With regards to economic assistance, official donors had pledged $880 million at the Ministerial Conference on the Rehabilitation of Cambodia (MCRRC) in Tokyo in June 1992. In addition to that figure, $119 million was pledged in September 1993 at the International Committee on the Reconstruction of Cambodia (ICORC) meeting in Paris, and $643 million at the March 1994 ICORC meeting in Tokyo.
Cambodia experienced a shortfall in foreign aid in the year 2005 due to the government's failure in passing anti-corruption laws, opening up a single import/export window, increasing its spending on education, and complying with policies of good governance. In response, the government adopted the National Strategic Development Plan for 2006–10 (also known as the “Third Five-Year Plan”). The plan focused on three major areas:
- the speeding up of economic growth at an annual rate of 6-7%
- eradicating corruption
- developing public structures in favor of quality (i.e. by education, training, and healthcare) over quantity (i.e. rapid population growth)
In 2007, Cambodia's Gross domestic product grew by an estimated 18.6%. Garment exports rose by almost 8%, while tourist arrivals increased by nearly 35%. With exports decreasing, the 2007 GDP growth was driven largely by consumption and investment. Foreign direct investment (FDI) inflows reached US$600 million (7 percent of GDP), slightly more than what the country received in official aid. Domestic investment, driven largely by the private sector, accounted for 23.4 percent of GDP. Export growth, especially to the US, began to slow in late 2007 accompanied by stiffer competition from Vietnam and emerging risks (a slowdown in the US economy and lifting of safeguards on China’s exports). US companies were the fifth largest investors in Cambodia, with more than $1.2 billion in investments over the last decade.
Cambodia was severely hit by the 2008 economic crisis (refer to table below), and its main economic sector, the garment industry, suffered a 23% drop in exports to the United States of America and Europe. As a result, 60,000 workers were laid off. However, in the last quarter of 2009 and early 2010, conditions were beginning to improve and the Cambodian economy is recovering. Cambodian exports to the US for the first 11 months of 2012 reached $2.49 billion, a 1 per cent increase year-on-year. Its imports of US goods grew 26 per cent for that period, reaching $213 million. Another factor underscoring the potential of Cambodia economic engine is the fall of poverty that decreased half the size. However, at another hand, people’s proceeds let them to do so by a small margin. Thus, the poverty rate is 20,5 per cent making approximately 2,8 million people live below the poverty line, besides 90 per cent of them live in the countryside.
- Garment Industry
The garment industry represents the largest portion of Cambodia's manufacturing sector, accounting for 80% of the country's exports. In 2012, the exports grew to $4.61 billion up 8% over 2011. In the first half of 2013, the garment industry reported exports worth $1.56 billion. The sector employs 335,400 workers, of which 91% are female.
Cambodia is a country with a GDP of just $13 billion. The sector operates largely on the final phase of garment production, that is turning yarns and fabrics into garments, as the country lacks a strong textile manufacturing base. In 2005, there were fears that the end of the Multi Fibre Arrangement would threaten Cambodia's garment industry; exposing it to stiff competition with China's strong manufacturing capabilities. On the contrary, Cambodia's garment industry at present continues to grow rapidly. This is can be attributed to the country's open economic policy which has drawn in large amounts of foreign investment into this sector of the economy.
In the 1960s, Cambodia was a prominent tourist destination in the Southeast Asian region. But due to protracted periods of civil war, insurgencies, and especially the genocidal regime of the Khmer Rouge (see Khmer Rouge Genocide), Cambodia's tourism industry was close to non-existent. However, since the late 1990s, tourism is fast becoming Cambodia's second largest industry, just behind the garment manufacturing. In 2006, Cambodia's tourism sector generated revenue of US$1.594 billion, which made up approximately 16% of the country's GDP.
- Gambling industry
The gambling industry of Cambodia supports its tourism industry, which is mostly concentrated around the Siem Reap province. The introduction of casino on border cities and towns created an industry that has thrived and contributed to the generation of employment and a steady stream of revenue for the government. However, the issue of corruption in relation to the government bureaucratic process involved in the gambling sector has been raised. It has likewise spur growth in different parts of the country at border crossing towns like Poipet, Bavet and Koh Kong. The growth of the gambling industry in Cambodia is due to its proximity to Thailand where gambling is forbidden.
The increase in tourist arrivals has led to growing demand for hotels and other forms of accommodation surrounding tourist hotspots. Siem Reap in particular has seen a construction boom in recent years. The capital Phnom Penh has also witnessed a growth in the construction and real estate sector. Recently, planned projects that have been on the pipeline for several years have been shelved temporarily due to a reduction in foreign investment. From 2009, the Cambodian government has allowed foreigners to own condominiums. This has helped in attracting real estate investors from Thailand, Malaysia, Singapore and other countries.
The construction sector has attracted investment of $2.1 billion in 2012 which is a 72 per cent rise compared with 2011. Construction licenses issued stood at 1,694 projects in 2012, which was 20% lower than 2011 but they were of higher in value.
- Oil and natural gas
Oil seeps were discovered in Cambodia as early as the 1950s by Russian and Chinese geologists. Development of the industry was delayed, however, by the Vietnam and Cambodian Civil Wars and the political uncertainty that followed. Further discoveries of oil and natural gas deposits offshore in the early 2000s led to renewed domestic and international interest in Cambodia's production possibilities. As of 2013, the US company Chevron, Japanese JOGMEC and other international companies maintain production sites both on shore and off. Chevron alone has invested over 160 million USD and drilled 18 wells. Sok Khavan, acting director general of the Cambodian National Petroleum Authority, estimates that once the contracts are finalized and legal issues resolved, the Cambodian government will receive approximately 70% of the revenues, contributing to an economy in which the GDP is projected to increase five-fold by 2030. In addition, there are 10,000 square miles offshore in the Gulf of Thailand that holds potential reserves of 12-14 trillion cubic feet of natural gas and an unspecified amount of oil. The rights to this territory are currently a subject of dispute between Cambodia and Thailand, further delaying any possible production developments. In early 2013 it was reported that the two countries were close to a deal that would allow joint production to begin.