Trade Deficits Rise as Recovery Takes Hold

A rebound in trade levels be­tween Cambodia and its main re­gional trade partners is well under way, but ques­tions remain about the country’s ability to diversify its ex­port base and reduce its sky-high trade deficit.

Experts say that almost total re­liance on garment orders from the US and Europe is no longer adequate for sustained economic growth with future demand in those countries expected to remain tepid.

Instead, they say that Cambodia must look to tap into growing markets for agricultural goods within the region.

According to data received yesterday from the Commerce Mini­stry, bilateral trade between Cam­bodia and Vietnam increased by 22.75 percent in the first six months of the year to $509.3 million—though exports from Cambodia to Vietnam decreased 32.1 percent in that period to $35.54 million.

A similar story can be told for Thailand, where bilateral trade increased 7.14 percent to $232.3 million as Cambodian exports sank by almost 50 percent to $4.12 million.

The data reflects how poorly integrated into regional markets Cam­bodia is just four years before it must drop tariffs on hundreds of items under Asean’s free-trade rules.

“It has a lot to do with the whole challenge of diversification in the economy,” said Peter Brim­­ble, senior country economist for the Asian Development Bank in Cambodia. “That’s the key challenge.”

Kong Putheara, director of the trade department in the Com­merce Ministry, said rocky diplomatic relations with Thailand had been the main reason for the drop in exports. While in Vietnam, un­certainties over their own economic woes have resulted in a lack of buyers eyeing the Cambodian market, he said.

“The exports to these countries decreased as demand has fallen,” said Mr Putheara. “We will have more to export but first we need to change the techniques we use to grow crops like rice.”

Irrigation is still limited here and increasing investment in agriculture has only recently become a top priority for the government. The government last week an­nounced ambitious plans to in­crease annual rice exports to 1 million tons by 2015 from about 14,000 tons currently.

Cambodia’s main export items, excluding garments and shoes, mostly consist of rice, rubber, cassava, beer and wood. Its main import items are made up of fuel, vehicles, animal feed, construction materials and textiles.

Exports from Cambodia to China—mainly rubber, wood and garments—rose to $17.68 million from the $4.6 million recorded in the first six months of 2009. Bilateral trade between Cambodia and China had in­creased by 25.89 percent to $501.06 million during the same period.

Cambodia’s exports to South Korea also rose to $10.25 million from $4.3 million the previous year as two-way trade experienced marginal growth of 3.35 percent to $109.85 million.

Economists say that the sporadic nature of Cambodia’s growth in exports points to a lack of competitiveness in the region. However, trade figures on Cambodia’s ex­ports are often unreliable with so much being exchanged through informal channels.

“At a regional level, we are un­likely to compete,” said Neou Seiha, senior researcher at the Economic Institute of Cambodia. “What we are missing here is the ability to process” agricultural products.

Nonetheless, while official government data show that garments account for 90 percent of all ex­ports, when taking into account informal trade, garments only account for about 70 percent of Cambodia’s export base, Mr Seiha said.

Whatever the truth about Cam­bodia’s exports, economists say that establishing stronger trade links with the region must be a priority.

“Developing Asia’s exports to the major industrial countries are strengthening,” the ADB said in a report released in April. “Yet with recoveries of these economies expected to be weak, developing Asia’s engine of growth has to come from domestic sources or from trade with other regions.”

Veronique Salze-Lozac’h, regional director for economic programs at the Asia Foundation, said producing higher-value export items was key for Cambodia’s ability to increase the value of its export base.

“Right now, there is a need to improve and increase agricultural products and have more investment in agribusiness,” she said, adding that light manufacturing would be another market into which Cambodia could potentially diversify.

For John Brinsden, vice chairman of Acleda Bank, any major rise in Cambodian exports will be a rather slow process.

“It will take a while for exports to rise, as so many countries overseas aren’t buying as much as they used to,” he said. “Even if Cambodia im­proves the quality and quantity of its exports it is still competing in a dull market.”