Commerce

Integration of the Cambodian Economy into the Regional and World Economies as one of the core strategies for socio-economic development and for poverty alleviation in the country is also to strengthen and diversify trade activities. The Free Market Economy is now scripted within the Cambodian constitution and Cambodia has become a developing country with a truly free market economy. Even if the country's GDP is among the lowest in the world (3.1 billion USD), informal estimations in terms of purchasing power parity put the standard of living in the range of $1500 per year.

The Ministry of Economy and Finance (MEF), through its Senior Minister H.E. Keat Chhon, forecasts a rate of 5.5% growth in the trade sector for the year 2003 "Since peace has come back to Cambodia, we have been in a greater position to start expanding our trade and also at some point develop our economy. Since we are one of the latecomers, we have been trying to catch up with the rest of the world, especially the rest of Asia".

The trade deficit widened to an estimated $262 million in 2002 from $240 million in the previous year. At 6.5%, imports rose slightly faster than exports, which increased by 6.0%. The current account deficit of 8.1% of GDP was financed through official transfers and capital inflows in the form of concessional loans and FDI, the latter of which amounted to an estimated $60 million in 2002. Foreign exchange reserves stood at about 3.5 months of imports. Commenting the country's trade deficit Minister of commerce, H.E. Cham Prasidh explains that though "There has always been a large deficit (…) this amount has been reduced little by little. Over the past 5 years we have been able to expand our export to a very steady level".

With no energy and little domestic industry, Cambodia's major imports include petroleum products, cement and construction materials, vehicles, tobacco and broad range of consumer products. Garments dominate Cambodia's exports representing about 90% of total exports. More than three quarters of Cambodian garment exports go to the United States. The garment industry has been Cambodia's greatest success. Other principal Cambodian exports included timber and wood products nevertheless due to important illegal loggings the royal government have stopped all activities in the this field in order to protect the environment and ensure a sustainable growth. Latex and rubber are still export in large amounts together with fishery products.

The Minister of Commerce, points out at Cambodia's recent efforts to "catch up with the world" since the year 2000 (…) in order to speed up our development and our integration with ASEAN, we adopted a very liberal economic policy, and also a very liberal trade policy". The Ministry of Commerce had presented during Cambodia Investment and Trade 2002 conference some of the key policy reforms comprising the abolition of the state monopoly for foreign trade; trade policies liberalization: removal of restrictions limiting the ability of firms and individuals to engage in international trade; elimination of binding quantitative restrictions and rationalizing the rates of taxes on imports and exports. "The process of market-oriented liberalization culminating in the establishment of a very conducive business environment (…) resulted in Cambodia's export performance exceeding the US$1 billion mark for already 2 consecutive years." declared H.E. Cham Prasidh.

Of total exports, 69% go to the USA, 28% to the EU and 3% elsewhere. Garment exports began in 1995 and have grown steadily ever since, reaching US$ 1.1 billion in 2001, of which US$ 800 million to the USA and US$ 300 million to the EU.

The question of quotas:

It seems obvious that Without WTO membership, Cambodia will not be competitive in a quota-free world. According to Hang Chuon Naron, from the Ministry of Economy and Finance "the phasing out for the quotas under the WTO Agreement on Clothing and Textiles (ACT) in 2005 will mean massive changes in the Cambodian garment industry. Fundamentally, the abolition of quotas would leave Cambodia without a guaranteed market for its garments exports. Cambodia still suffers from poor infrastructure and high utilities costs. While the "cheap, productive workforce" approach will be used to maintain and attract new foreign investments, Cambodia will face great difficulties in competing with large-scale producers such as India or China".

Industry

Cambodia adopted a market economic framework in 1989 and industry has begun to respond, with new private businesses emerging in light industry, trade and service areas. Manufacturing, for example, has gone from negative growth of 12.3% in 1990 to 11.8% in 1996 and remains a respectable 3.7% in 1999.
The growth is primarily driven by the expansion of the garment industry, food and beverages and building materials sub-sectors. The industrial sector has been the main engine of growth, increasing annually by average of 16 percent. This industrial growth has been due mainly to spurts in garments and tourism. The textile and garment sub-sectors have displayed remarkable dynamism, with exports growing rapidly during the last four years following the grant by the US to Cambodia of Most Favored Nation (MFN) status in 1996 and access under the Generalized System of Preferences (GSP) in 1997. In 1996-98 garment exports increase by 70 to 190 percent, but slowed down to 13 to 75 percent in 1999-2001 after the US imposed quotas on 12 categories of garment products. Prime Minister Samdech Hun Sen, states that "Employment in garment and textile has been a major stabilizing force for the population and the economy in recent years, as the sector has absorbed about two hundred thousand workers, a large number of skilled and semi-skilled labor, especially poor female workers".

Garment Industry

The Garment industry has been showing a steady growth ever since the MFN status (Most Favored Nation) and GSP (Generalized System of Preferences) have been awarded to the country by US and EU. The most developed sub-sector within the industry sector is the garment industry. Most of the products from the garment factories are exported. In 2002, 70% was exported to the U.S. market, 25% went to the European Union, and another 5% to Canada, Latin America, Eastern Europe, Japan and some other Asian countries. The total amount exported in 2002 was worth nearly 1.5 billion USD. The number of factories has increased to 230, employing 228.000 laborers, most of them being women. Most of the garment factories are located in or around Phnom Penh, which implies a big migration from the countryside to the city.

For Ith Praing, Secretary Of State, Ministry Of Industry, Mines & Energy "There is still room for the development of that sub-sector for the next few years. We have the opportunity, after 2005, to let this sub-sector grow by improving the labor conditions and keep our competitiveness, by offering other incentives to investors".

The textile industry is mainly benefiting from this international integration especially with the signing of two Trade agreements with the USA (with a permanent MFN status for Cambodia) and the European Union in 1996. This highly favored the Garment industry boom, the sector representing now about 90% of Cambodia's exports. By adopting the sine qua non linkage of trade issues with labor issues, implied by the bilateral agreement with the USA, Cambodia set a precedent in the region as it accepted tighter control on labor conditions in the very sensitive textile sector. As Mr. Van Sou Ieng, President of the Garment Manufacturers Association of Cambodia (GMAC) said, "Cambodia has a responsible and human respected rights policy toward workers" he also commented on the challenges the industry must overcome in order to survive the 2005 barrier, "(…) reduce further our accessory costs, like transportation, utilities, procedures. (…) We also must facilitate procedures of import/export".

For Cham Prasidh, Minister of Commerce "Cambodia should and will take advantage of the perception that Cambodia has responsible and human respected rights policy toward workers (…). We have gained credibility by such a linkage and we will continue to maintain this credibility." Encouraged by this first step Cambodia now offers to start linking trade with intellectual property rights creating thus a safe industrial (high tech oriented) environment prone to attract more investors. In order to inform potential investor many conferences are organized in Phnom Penh such as the Report on Trade and Investment held end 2002, and invite all of them for more participation in the opening and boosting of the Cambodian Economy.

Agro-industry, a sub-sector with potentials

One of the government six top priorities is agriculture and agro-industry "as Cambodia has a rich soil ready for the development of a strong agro-industrial sector" declares Suon Sitthy, Deputy Secretary General of The Cambodian Investment Board (CIB).

Rubber is currently the second most important export for Cambodia following the sharp reduction in forestry exports. Rubber trees are grown in three types of rubber plantations: State owned Enterprises (SOEs) have been slated for privatization The government started divesting from rubber plantation management in the mid nineties and the seven state owned rubber plantations now operate on an autonomous mode. These plantations cover about 45,000 ha yielding about 45,000 tons of rubber annually, with the two biggest plantations covering 30,000 ha. The bulk of rubber trees however was planted in the 1950s. Rubber trees need to be replaced every 20 years but replanting was only initiated in 1995, which was expected to have a positive impact on rubber output after 5-6 years. Besides small holdings rubber plantations are being developed with World Bank and French Government support.

Graphic (Click here)

Agro-industry and tourism are definitely the two main sectors. The first one is quite undeveloped yet. The seafood sector seems to present possibilities of development; as for land production crops showing potential are sugar cane or palm oil.

Pharmaceutical industry

Cambodia is still in the process of developing a regulatory framework that will assure the health, safety, and well being of individuals and companies operating in the free market economy. In the health sector, Cambodia has legislation regulating pharmacies and pharmaceuticals. The Cambodian government has eliminated most non-tariff barriers to trade on firearms and pharmaceuticals. The National Assembly passed a law and associated decree regulating pharmaceuticals in June 1996, giving administrative authority to the Ministry of Health.