Cambodia is one of Asean’s least economically competitive nations and must make “urgent policy responses” to mitigate the effects of the current global economic crisis, according to a report released Monday by the UN Development Program.
In order to achieve increased competitiveness inside Cambodia’s five major sectors—agriculture, garment factories, tourism, information and communications technology, and construction—the UNDP said that the government “needs to promote new thinking to combat negative effects from the global economic downturn.”
According to the report, which was initially requested by Prime Minister Hun Sen in 2004, the “new thinking” should aim at more aggressive policies in educating the work force, increasing industrial output, improving national infrastructure and adopting a tighter regulatory framework.
“During a crisis, important decisions should be made,” Jo Scheuer, country director for UNDP, said at the report’s launch Monday. “The economic base is still too narrow despite the growth in the garment and tourism industries,” he said.
Brooks Evans, an economist at UNDP, said that “changes are now imperative.”
However, Mr Evans and Mr Scheuer both said that implementing these changes to help increase competitiveness and instigate policy change are easier said than done and must be accomplished over the long term.
“There are clear policies on paper,” said Mr Evans. “But when it comes down to it there are a lot of uncertainties.”
To rid investors of their uncertainties Mr Evans said that Cambodia needed to “streamline existing laws and regulations,” which would include the passage of long-awaited anticorruption legislation.
If not, “governments can stifle investment, competition and private sector development, retaining cumbersome rules and regulations that often result in lower economic growth,” the report states.
The Global Competitiveness Index, a document compiled by the World Economic Forum in October 2008 and whose figures the UNDP cites in its report, also called Cambodia the least economically competitive nation amongst all 10 Asean nations.
The WEF ranks Cambodia in last place for 9 of the 13 competitiveness indicators, which include areas such as innovation, business sophistication and higher education and training.
To help improve the situation, Mr Evans cited a need to produce more highly skilled workers who would be able to transfer their skills to other sectors of the job market.
The inferior level of skilled workers is one of the reasons behind the fact that Thailand’s labor productivity is three times that of Cambodia’s, making Cambodia’s productivity level the same as Vietnam 15 years ago, he said.
According to the UNDP, 40 percent of Cambodian school children do not complete primary school.
Mr Evans said that it is only by fixing the problem at this fundamental level that efforts to encourage vocational training, education accreditation schemes as well as internships could be made possible.
According to findings in the report, Cambodia has one of the highest levels of foreign direct investment as a percentage of its GDP in the Asean region, and yet one of the lowest labor productivity rates.
One of the areas in great need of heightened competitiveness is agriculture, with over 4.75 million workers of Cambodia’s labor force of 8 million working in this sector.
Mr Scheuer said that to encourage competition, Cambodia “should have invested in agriculture, in things like irrigation projects and farming techniques.” But he also acknowledged the importance of developing both the tourism and garment industries.
The report advocates for a better regulatory framework in all of the sectors studied.
Workers in the construction industry for example, have the lowest wages across Asean, in part due to a lack of experienced engineers and architects as well as other specialized jobs, the report says.
Concerning the tourism industry, the UNDP says that Cambodia is one of the “least competitive countries” with the WEF ranking it at 112/130. Lowering the costs of airline flights and the environment for business enterprises are among the main areas in need of development, according to the report.
The garment sector, which contributes about 12 percent of GDP according to figures from 2007, is also in need of a major facelift.
The report states that some of Cambodia’s top performing garment products that increased in market share between 2005 and 2007 are now “competitively challenged,” particularly from exports from other Asean nations. To defy this trend, Cambodia must “supply greater quantities of [products with] stable or increasing prices,” the report states.
The report also criticized the information and communications technology sector. Despite the ICT sectors growing at a rate of 32 percent annually over the last five years, the UNDP report stated that Cambodia’s ICT services were the second most expensive in Asean after Laos.
“The lack of a clear legal and regulatory framework in Cambodia, as well as the lack of an effective competition law could result in a range of problems,” the report states.
Mao Thora, secretary of state for the Ministry of Commerce, says by telephone Monday that the government is doing all it can to act upon some of the initiatives outlined in the UNDP report.
“We have received financial help from the UNDP to help organize and attract investors in the private sector as well as improve training schemes,” he said.
He added that the most crucial efforts the ministry is pushing ahead are in the domain of international commerce.
As far as the agricultural sector goes, Mr Mao Thora said that “the main efforts are being made to increase Cambodia’s exports.”
For products like corn, he noted, Cambodia produces 600,000 tons annually, but farmers aren’t exporting their produce, leading to a gross surplus and consequent waste of resources.
Chan Sophal, president of the Cambodian Economic Association, said that the UNDP report was “very reasonable, especially now that we need even greater competitiveness because of the impact of the global crisis.”
Cambodia has some good competitive elements to its economy such as cheap labor and good potential in the agricultural sector, he said by telephone. But reforms and legislative initiatives need to be pushed ahead in order for competitive industries to really prosper, he added.
The UNDP report highlights a vast array of initiatives and improvements that must be made in the future. The underlying objective, according to Wisal Hin, team leader of the poverty reduction unit for UNDP, is an overall reduction in poverty.
For this to happen he says the country really needs a combined effort from all the government’s ministries.
This is how Cambodia will show that it is not a country where “we only grow rice and make T-shirts,” he said.