Cambodia could see a slight drop in economic growth over the next year from a 5.3 percent high in 2001 to 4.5 percent, the Asian Development Bank said in its economic outlook report for 2002.
The ADB predicts “conservative” 4.5 percent growth in Cambodia’s gross domestic product in 2002, depending on the length of the Middle East crisis and the global economy in general, said Cambodia’s ADB country representative, Urooj Malik.
A slow reversal in the global economy’s downward trend, especially in the US, could have an impact on that figure, he said.
Set against the population growth rate, the 4.5 percent projected economic growth for Cambodia is not likely to help alleviate the country’s poverty, the ADB report says.
That would require between 6 percent and 7 percent growth. The ADB forecasts a 6.1 percent growth rate for 2003, which, if combined with proper government policies, could help reduce poverty, Malik said.
“Growth is not good enough,” he said. “It has to be a pro-poor growth.”
Growth will come from industry, agriculture and tourism, the ADB said.
More than 80 percent of the country’s exports are in textiles, garments or shoes, with the majority buyers coming from US markets. The events of Sept 11 brought about a contraction in the US economy, but the economic superpower pulled out of recession faster than analysts expected, the ADB said in its “Asian Development Outlook 2002.”
Cambodia’s garment industry weathered the Sept 11 storm—more so than expected—due to a shift to Cambodia in orders from buyers, the World Bank reported.
Buyers were “worried about unrest in Muslim countries, so they shifted their orders to Cambodia,” said Van Sou Ieng, president of the Garment Manufacturers Association of Cambodia.
But tourism—one of Cambodia’s major industries—has suffered since the Sept 11 attacks, the ADB reported. While tourist numbers continued to climb year-on-year, many tourists from the West stayed at home rather than travel abroad.
Cambodia’s tourism industry employs about 650,000 people and accounts for 9.2 percent of the GDP, the ADB reported. The industry saw an “immediate and significant” impact after the Sept 11 attacks, it said, but it did not project growth or decline in the region for 2002 or the medium term.
“Tourism will make an increasingly important contribution to the economy,” the ADB said.
The opening of Siem Reap, the country’s most significant tourist destination, for international flights bolstered the sector, it said. “Additional investment is needed, however, to ensure that Siem Reap has sufficient public infrastructure to meet growing demand.”
The ADB, while predicting growth in 2002 and 2003, also warned of “growing competition in external markets, particularly in garments.
“Although the domestic cost of labor is quite low, exporters are often at a disadvantage due to the high costs of doing business, the country’s poor infrastructure, and the strong dollar,” it said.
Cambodia will have an advantage over regional competitors until 2005, when quota agreements worldwide are set to expire. Currently, these agreements give Cambodia access to US and European markets that other countries don’t enjoy, Van Sou Ieng said.
After 2005, because Cambodia cannot compete with other countries in price or speed of delivery, manufacturers will rely on an “ethical production, ethical supply” strategy, he said.
“We want to ask the US government and US buyers to give Cambodia a chance,” Van Sou Ieng said, calling Cambodia a “unique case” because US quotas are tied to labor conditions and the reports of inspection teams of the International Labor Organization.
“[Also] of particular concern,” the ADB report said, is the slow rate of expansion in the agricultural sector.
The ADB and the government have started the second phase of an agricultural expansion program, Malik said. It will include efforts from the Agriculture, Rural Development and Water Resources ministries, among others, to ensure lower costs, easier transportation and fair market prices for farmers, he said.