Stability boosts Cambodia’s outlook

March 21 2007
By Amy Kazmin
Financial Times

Cambodia, a country recovering from decades of war and a genocide that wiped out a quarter of the population, including most of its urban middle class, is enjoying an unexpected economic flourishing.

Its economy grew by more than 10 per cent last year propelled by strong garments imports, surging tourism receipts, a construction boom and improved agricultural production. Growth has already averaged more than 8 per cent so far this decade.

On the outskirts of Phnom Penh, the Cambodia Brewery is working at peak capacity 24 hours a day, seven days a week to slake Cambodians’ fast-growing thirst for beer.

So great is demand, the brewery – 80 per cent owned by Asia Pacific Breweries, a Singaporean company – is importing beer to fill a shortfall and eyeing a possible expansion. A US company has begun building the first aluminium can factory in Cambodia to end reliance on imported drink cans.

Lieven van der Borght, the brewery’s Belgian general manager, says the “strong double digits” growth in Cambodia’s beer market, worth $250m (€188m, £128m) to $300m annually, is showing no signs of letting up. “We believe in Cambodia,” he says.

Surging beer consumption is just one of the results of the surprise economic boom .

Cambodia seems to be “on the fast-track”, says Nisha Agrawal, the World Bank’s country director. “Money is being made in this country – you can now use the word Cambodia and prosperity in the same breath.”

Just three years ago, the International Monetary Fund was warning that Cambodia’s fragile economy – dependent on garment ex­ports and tourism – faced collapse because of competition from China’s textile manufacturers after the January 2005 liberalisation of the global garment trade.

But this year the IMF is forecasting Cambodia’s gross domestic product will grow by 9 per cent after growing 10.5 per cent in 2006, thanks to strong garment exports, surging tourist arrivals, a construction boom and better agricultural production in the countryside, home to 80 per cent of the population.

The feared exodus of garment factories from Cambodia to China has not occur­red. Instead garment makers have expanded to exploit low tariffs offered by developed markets to Cambodia, as one of the world’s poorest countries, and to avoid anti-dumping duties and other tariffs on Chinese garments.

Today about 320,000 Cambodians work in about 290 active garment factories, up from 250,000 in 220 factories before 2005. Garment exports hit $2.5bn in 2006, up 17 per cent from 2005.

Foreigners are flocking to at­tractions such as the Angkor Wat temples, a World Heritage site. Foreign visitor arrivals, less than 500,000 in 2000, hit 1.7m last year.

The capital, Phnom Penh, and Siem Reap, the base for temple tourism, are being transformed by construction, though human rights groups and preservationists say slum dwellers, heritage buildings and public facilities are being shoved aside to make way for hotels and other speculative developments.

The discovery of off-shore oil is expected to provide a boon to a cash-strapped government still reliant on western donors and China, its closest ally, to finance infrastructure and social welfare projects. Chevron in 2005 discovered oil reserves off the coast, and though the extent of the discovery has yet to be revealed, revenues are ex­pected to flow to state coffers as soon as 2010. Australia’s BHP and Mitsubishi recently struck a deal to explore for bauxite and build an aluminium-making plant in eastern Cambodia.

Yet Sok Chenda Sophea, secretary-general of the Council for the Development of Cambodia, says the government cannot afford complacency, as it scrambles to build infrastructure and develop the skills of its workforce. “We feel that our past efforts are acknowledged by these economic indicators, but we are in a world of competition – if you are not progressing, you are moving back,” he said. “It’s a country in the making. We have to race against poverty.”

Economists warn that a surge of petro-dollars and mineral royalties could be misused and siphoned into private pockets. Foreign investors complain corruption is a major problem and that the customs service turns a blind eye to pervasive smuggling while scrutinising legal im­ports.

There are also concerns that the benefits of the current boom are being distributed unevenly. For Cambodia, says Ms Agrawal, “the big issue is how to share [growing wealth] equitably”.

In the past decade, according to the World Bank, in­comes for the top 20 per cent of Cambodia’s 13m people rose 45 per cent, those of the the poorest 20 per cent just 8 per cent. About 20 per cent of the population still lives in acute poverty. Most rural Cambodians remain desperately poor with farmers receiving little official support and facing having their land grabbed as the government promotes export-oriented plantation projects.

“Rural life is improving,” says In Channy, general manager of Acleda Bank, a micro-financier. “But the countryside should enjoy the benefits of growth more than it has.”