Wednesday, 17 August 2011

Current Characteristics of Cambodia's Economic Development


With more than half of its population are under the age of 25, Cambodia has a great potential in economic growth for now and the future.


The construction of Naga Complex (behind the National Assembly) is ongoing. In 2010, The construction industry contribted 620 million USD to the economy, approximately 5.5% of the Kingdom's GDP. With a narrow industrial base, Cambodia is still heavily depending on its garment, constructin, tourism, and agriculture industries for economic growth. However, industrial sector has a steadfarst growth of around 8.5% this year.  

With a population of approximately 14 millions and GDP per capita of 830 USD (NIS, 2011), Cambodia is a low income country and is still strongly based on agricultural sector and garment sector as the main thrust of its economic development. However, in development economics, Cambodia has followed each of the four approaches of  economic development, namely stages of growth (Rostow model), structural patterns of development (Lewis model), international dependence, and neoclassical counterrevolution (free market approach).  Recent economic development in Cambodia is quite promising with an expanding industrial base and a rapid progress in the banking and financial sector.



1.      Stage of growth

Recently, Cambodia has pursued the model of stage of growth development (growth-oriented) by making considerable investment in the public and private sectors. Over the period of 1994-2007, Cambodia has achieved a double-digit growth rate per year, reducing poverty by 10% in this period. This exceptional GDP growth has resulted in accumulation of domestic saving and financial investment. In 2009, domestic investment accounted for 40% of the total investment in Cambodia, especially in construction sector, small and medium businesses, food-processing factories, and service industry. Thus, Cambodia is now trying to complete “the pre-condition stage for take-off” as mentioned in Rostow model. Beside the large amount of foreign direct investment in the garment sector, small and medium enterprises in Cambodia are thriving due to the growth in number of microfinance institutions which provide low-interest loans to SMEs and the poor.    

 2.   Structural Patterns of Development

I think that Cambodia has conformed to Lewis model’s structural change (the shift of labor force from agricultural sector to the urban sector, including industry and service). According to Cambodia socio-economic survey 2004, there is a large shift of labor from the agricultural sector to the modern sector, especially in the garment industry and urban services. The share of labor force in agriculture has decreased from 75 percent in 1999 to 55 percent in 2004. However, in recent year, agriculture still achieves an average growth rate of 5 percent per annually. The contribution of industry sector in the GDP has increased sharply from approximately 13% in 1993 to 26% in 2005. As a result of structural change, the per capita GDP has increased nearly three times in the period of 1993-2008, to 739 USD in 2008. There is also a steady growth in higher education and vocational training which contribute higher productivity of Cambodian labor force. It is difficult to estimate the increase of capital stock. However, the establishment of Cambodia Stock Exchange on 11 July 2011 is aimed to promote domestic and foreign investment through quick mobilization of financial resource from the the public who now has strong confidence in the banking and financial sector in Cambodia.      

3.   International Dependence

Cambodia had been under French colonialism for 90 years (1863-1953). After achieving full independence, Cambodia had been an impoverished country with poor human capital and economic infrastructure. Despite its major economic achievements, Cambodia still heavily depends on international development assistance to promote socio-economic development and reforms. Official Development Assistance (ODA) mostly account for nearly half of the annual national budget. Since 1993, Cambodia has been conducting comprehensive administrative and economic reform, which requires financial and technical supports from developed countries. In 2005, the total amount of ODA reached 550 million USD, most of which come from Japan and China. In economic development, FDI accounts for 60% of annual total investment, resulting in too much dependency on foreign capital. Economic growth is narrowly based on garment sector and tourism industry. Every year, Cambodia experiences trade deficit, which result from too much import and an increasing export.        

4.   Neoclassical counter-revolution (market fundamentalism)

The government has used market-friendly approach to drive economic growth through providing tax break and many incentives to foreign firms to invest in Cambodia, especially in several special economic zones in Phnom Penh, along the border, and in the coastal cities of Sihanoukville and Koh Kong province. Since 1989, the Government has privatized several state-owned enterprises in Phnom Penh and some provinces as part of economic transition from central plan economy to free market economy.  According the National Strategic Development Plan 2006-2010, the Government has intervened in the financial industry due to its infancy in Cambodia through onsite inspection and liquidation of some non-viable banks. Although Cambodia has sustainable macroeconomic situation with low inflation rate, market inefficiency is a major problem in which prompted government to use interventionist policy. For example, due to price dumping in telecommunication industry by foreign and local competing firms in Cambodia, the Government has recently introduced price floor for calling charge to prevent local companies from bankruptcy.




Angkor electric car, the first brand of car, ever made by Cambodia. Can cambodia succeed in heavy industrial development, particularly automobile, in the future?

Other articles on Cambodia: 

    (5 March 2014)


    (17 October 2011)

    (03 October 2011)

    (12 September 2011)

6. Review of Cambodia's Economy and Finance (up to 2011)
    (31 August 2011)

     (22 August 2011)

    (17 August 2011)

    (17 August 2011)

    (16 August 2011)

      (15 August 2011)



      (15 August 2011)

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