Cambodia (official name: the Kingdom of Cambodia) is a small developing country located in the southern portion of the Southeast Asian land mass, sharing borders with Thailand, Vietnam, and Laos.
Cambodia’s economy is projected to grow by 7 percent in 2014 and 7.3 percent in 2015, according to estimates by the Asian Development Bank (ADB). Manufacturing (especially in the garment sector) and tourism have played a major role in fueling Cambodia’s growth, but the country continues to be overwhelmingly agricultural, with approximately 80% of the population employed in agricultural pursuits. Strong exports, private investment, and fairly strong macroeconomic fundamentals will also help drive growth.
A major milestone in Cambodia’s economic evolution was its accession to the World Trade Organization (WTO) in 2004. Thanks to enhanced market access as a result of WTO membership, Cambodia’s exports have steadily grown and Cambodia is on the few Least Developed Countries (LDCs) to export more than $2 billion.
While the size of Cambodia’s domestic market is relatively modest (roughly 15 million citizens), years of high-octane growth has been propelling an increasing portion of the population into the middle class. The accompanying increase in levels of purchasing power and discretionary income have further fueled demand for the variety of goods being produced by the country’s growing manufacturing sector.
The tourism sector is also of growing importance to Cambodia’s economy, with the temples of Angkor Wat, the beautiful coastal beaches, and the historical richness of Phnom Penh being the main attractions. Tourism has increased by a remarkable eleven-fold since 1998, and is projected to continue to expand into 2015.
While tremendous strides have been made in reducing poverty thanks to Cambodia’s decade-plus of strong growth, the overwhelming majority of families that have escaped poverty have done so only by the smallest margins, and are therefore vulnerable to slipping back below the line.
Cambodia’s attractiveness as a manufacturing base has been boosted by growing regional integration. With the 10 members of ASEAN set to establish a so-called “ASEAN Economic Community” (AEC 2015) by the end of 2015, multinationals from within and beyond Asia are looking to establish a production footholds to service the entire market. Although the AEC is unlikely to create anything approaching an actual economic community, it will certainly facilitate greater integration and enhance access to the region’s population of 600 million and combined GDP of over $ 2.3 trillion -- which would make ASEAN the third largest economy in Asia. The growing economic clout of the ASEAN region heightens the strategic value of Cambodian production facilities.
While Cambodia has made impressive strides in economic development and there is ample reason for optimism, it would be a mistake to underestimate the magnitude of the challenges the country continues to face. Infrastructure deficiencies head the list. Electricity is significantly more expensive than in neighboring countries such as Vietnam, and the reliability of the grid leaves much to be desired. Roads, bridges, and ports are also lagging behind many ASEAN neighbors, especially Thailand.
Greater demand for factory workers has put upward pressure on wages, and the large-scale garment worker demonstrations for more pay will heighten that pressure. Productivity levels in Cambodia – although rising -- still trail behind China, and serve to offset at least somewhat its cost competitiveness edge. And of course, the simple fact of the matter is that Cambodia faces competition. Myanmar, Bangladesh, and Vietnam all compete to varying degrees with Cambodia for a share of the manufacturing sector, especially in the garment sector.