World Bank touts economic upswing while highlighting concerns

Jonathan Greig | Publication date 22 December 2017 | 14:44 ICT

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People work at a garment factory on the outskirts of Phnom Penh. Hong Menea

According to the World Bank, the Cambodian economy is on the upswing, save for a few potential hiccups in the coming year.

In their economic update to end 2017, the World Bank said Cambodia has successfully increased exports of footwear, electrical machinery, equipment and auto parts, but growth is expected to fall to 6.8% for 2017 due to a variety of factors including the worsening political situation.

Cambodia has been able to offset downturns in the market for textiles and clothing with diversified exports and healthy inflows of foreign direct investment. While they forecast that growth will rise to 6.9% in 2018, they also say that the regional economy, led by China, may experience a downturn and political uncertainties may affect the country’s markets in the EU and US.

Inguna Dobraja, World Bank country manager for Cambodia, said the country needed to address certain logistical and human resource issues before it could fully take advantage of its place in the manufacturing market.

“Cambodia appears to be on the verge of climbing up the manufacturing value chains – from garments to electronics and auto parts – and that is a very encouraging development,” she said. “With deeper structural reforms that address high electricity and logistics costs as well as skills gaps, Cambodia can boost investment, export diversification, and move closer to its development goals.”

The report also calls on Cambodia to maximise its “tourism potential by diversifying tourist destinations and products, and by linking rural households to tourism supply chains”, as well as increase access to markets and better prices for rural farmers.

World Bank Country Senior Economist Sodeth Ly said raising agricultural prices was key to improving the economic wellbeing of the country’s farmers.

“Improving farmers’ access to markets, while cutting transportation and storage [and export] costs will address this. This likely will help reduce the large differences between low farm gate prices and high retail prices of agricultural products, and benefit local farmers more,” he said. “International agricultural commodity prices are expected to slowly recover.”

A woman feeds her chickens at a farm in Kandal province. Hong Menea

In the “policy options” section of the report, they highlight the need for lower electricity costs, high-quality graduates, less regulatory impediments and lower logistics costs.

“While poverty reduction continued, driven mainly by income diversification of rural households earnings from remittances, non-agricultural wages, and household businesses, the potential negative impacts of the slowdown of textile and construction sectors will need to be closely monitored,” they wrote.

While analysts agree that the economy is progressing in the right direction, some have reservations about how far exactly Cambodia has come. Last month, the Organisation for Economic Cooperation Development released a review of the country’s development, calling many of the country’s gains “fragile”.

They added that while the poverty rate had dropped from 60 percent in 2000 to 13.5 percent in 2015, a significant part of the country’s population was still on the edge of poverty and only one seismic economic event could send people’s finances into freefall.

“Moreover, Cambodia’s long-term prospects are uncertain: its demographics will become much less favourable and climate change threatens to have a major effect,” the review reads.

“The economy needs to diversify if current growth rates are to continue.”