cambodia’s economy

8/11/2019 Cambodias Economy

1/14

CambodiasEconomy

USDepartmentof State

AmbassadorialonCambodia

DACORBaconHouse,Washington,DC

September15,

2008

SophalEar,Ph.D.

Acknowledgements: This presentation is adapted from a Harvard KSGworkshop held earlier this year on the Political Economy of "BindingConstraints to Growth" Cambodia Pilot for which I served as an ExternalPanelist/Resource Person.

September

15,

2008 Cambodia's

Economy 2

thestructural

transformation

of

Cambodia

0.0

1.0

2.0

3.0

Populationgrowth

1993 1998 2006

0

10

20

30

40

Population014(%)

1993 1998 2006

0

5

10

15

20

Urbanpop.(%)

1993 1998 2006

0

100

200

300

400

500

GDPpercapita(US$)

1993 1998 2006

0

10

20

30

40

50

Povertyincidence(%)

1994 2004

0

1020

30

40

Inequality(Giniofrealpercapita

consumption)

1994 2004


2/14

September

15,

2008 Cambodia's

Economy 3

thestructuraltransformationofCambodia,

cont.

0

2

4

6

8

FDI(%GDP)

1993 1998 2005

0

5

10

15

20

Dom.Credittopriv.

sector(%GDP)

M2/GDP(%)

1993 1998 2006

0

2040

6080

100

Aidpercapita

(currentUS$)

Aid(%ofgross

capitalformation)

1993 1998 2005

0

50

100

150

Trade(%GDP)

1993 1998 2005

0

10

20

30

40

50

GDP agri GDP

industry

GDP

services

1993 1998 2005

0

20

40

60

80

Emp agri Emp

industry

Emp

services

1993 1998 2006

September

15,

2008 Cambodia's

Economy 4

reachingnew

heights?

310

550

1,513

725

0

250

500

750

1000

1250

1500

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Income per

capita (2007 $)


3/14

September

15,

2008 Cambodia's

Economy 5

reachingnewheights?

1 where

are

the

sources

of

growth?

2 wherearetheconstraints?

3

howtoalleviatethese

constraints?

September

15,

2008 Cambodia's

Economy 6

1.where

are

the

sources

of

growth?

FACTS

Narrowbaseofgrowth

Exportdriven

Garmentandtourismniches

GoodlocationinSouthEastAsia

andopeneconomy

Keyroleoftherural

economyandagriculture

Possiblenewsourcesof

growthinoil,gas,and

mining

QUESTIONS

Howtodiversify?What

shouldbetheapproach?

Canpriorityproductsbe

identified?

Whatwill/shouldbethe

roleofagriculture?

What

are

the

employment

implicationsofvarious

sectoralscenarios?

1


4/14

September

15,

2008 Cambodia's

Economy 7

growingwithfourfragileengines

13

28

20

13

26

0

25

50

75

100

1998-

2006

Other

Hotel /

Transports

Construction /

Real Estate

Garment

Crops

Contribution

to

growth

(%)

1

Crops:rain

fed;

mainly

rice

Garments:main(only?)export;mainlytoUS

market;slowgrowthin2007withcompetitionfrom

Vietnam;furthercompetition(inc.China)inthe

future?

Realestate/construction:veryrapidgrowth,

especiallyinPhnomPenh;talksofabubble

Tourism:rapidgrowth.InitiallymainlytoSiemReap

andAngkor gradually toPhnomPenhand

Sihanoukville,withfurtherpotential

September

15,

2008 Cambodia's

Economy 8

19priority

products

Silk,livestock,cashewnuts,corn,beer,

webbased

services,

transport

services

Low

Fishery,rice,fruitsandvegetables,wood

products,lightmanufacturing,labor

services,soybeans

Medium

Garments,tourism,footwear,rubber,

cassava

High

ProductsExport

potential

1


5/14

September

15,

2008 Cambodia's

Economy 9

extractiveindustriesmakingitablessing

insteadofacurse

Oil,gas: Someexploration(offshore),

butnoprovenreserveyet

Hypotheticalscenario(IMF)ofrevenuesonstreamin2011;netpresentvalueofoilwealthat$15b(115%of2011GDP);revenuestreammaxat4%ofGDPin2021

Mining:

Bauxite,iron,gold

Justinitial

exploration

Maximizerevenues:

Legalandfiscalregime

Goodinvestors

Manageassets,volatility

andmacro

Otherimpact:

Economic(downstream

industry?)

Environmental(esp.artisanal

mining) Social,safety,etc.

1

September

15,

2008 Cambodia's

Economy 10

creating200

250,000

jobs

per

year

0

50

100

150

200

250

300

350

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Agri cul tur e Ind ustr y Servic es

1,180

6,075

4,107

1,391

5,570

3,897

0

2,000

4,000

6,000

Agri cul ture Indu stry Servic es

1998 2005

Annual

job

creation

(000

jobs)

Value

added

per

worker(constantriels)

1


6/14

September

15,

2008 Cambodia's

Economy 11

2.whataretheconstraints?

FACTS

Increasinginvestment

especiallyinveryrecent

years,butfocusedonreal

estate(howmanyhighrises

doesPhnomPenhneed?)

Weakproductivity,limited

diversification

Ifonelooks,constraints

appeareverywhere,

but

whichreallymatter?

QUESTIONS

Howtoidentify

constraints?Aresome

ofthemsectorspecific?

Whatarethestylized

factsofprivatesector

developmentthatare

symptomsof

constraints?Where

isntmoneygoing?

2

September

15,

2008 Cambodia's

Economy 12

productivitylagging

behind

500

1,000

1,500

2,000

2,500

3,000

3,500

1960 1970 1980 1990 2000

Cambodia SoutheastAsia

2

Yieldperhectare(kg/Ha)forcereals

2.1

-0.2-0.4

2.4

-1.2

-0.8

-1.5

-0.5

0.5

1.5

2.5

Agr iculture Industry Serv ices

1993-1998 1998-2005

Growthofvalueaddedperworker(%)


7/14

September

15,

2008 Cambodia's

Economy 13

goodenoughgovernanceingarments?

A

few

fundamentals:

political

stability

and

signaling

of

commitment

to

good

business

environment;

creating

rents

to

pay

for

entry

Initialrents:quotasinUS(linkedtolaborstandards)

plustaxincentives

Thenrentreplacedbygoodindustrycoordination

Butenoughcompetition?Nowcompetitionfrom

Vietnamand,soon,China;plusrecentreal

appreciation

Garment

Politicalstability

increased

after

1998

Inflationwentdownatthattime;thenfirstLDCto

joinWTO(2004):signalcredibleshiftinpoliciesand

crediblemacromanagement

Accelerationof

growthinearly

2000

2

September

15,

2008 Cambodia's

Economy 14

3.how

to

alleviate

constraints?

FACTS

Goodmacromanagementsofar

Limitedfiscalspace largeneeds

Growthis andwill bringanumberofissuestomanage(equity;

environment;cities;

etc.)

QUESTIONS

Howtoaddressupcomingmacrochallenges(inc.fromoil)?

Howtoincreasefiscalspaceandbestuseit?(inc.inthecontextofoilproduction)

Complementarypoliciesto

managegrowth?

3


8/14

September

15,

2008 Cambodia's

Economy 15

stableexchangerate

70

80

90

100

110

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

Nominal Real

Effectiveexchange

rate

with

key

trade

partners

(100=2000;increase=depreciation)

3

September

15,

2008 Cambodia's

Economy 16

inflationnow

picking

up

-10

-5

0

5

10

15

20

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Inflation rate (all items) Inflation rate (food, beverages, tobacco)

CPIgrowthrate(YoY,%)


9/14

September

15,

2008 Cambodia's

Economy 17

creatingfiscalspaceinadifficultpolitical

economyenvironment

Limitedfiscalspace:

Lowrevenues(excludinggrants)/GDP(9.8%onlyin2006),duetoapolitical

economymixofunofficialpaymentsandgeneroustaxincentives

Someroomforexpenditurereallocation

Despitegenerousaid(7.6%ofGrossNationalIncomein2006,althoughmainly

offbudget,arelativedeclinefrompreviousyearswhichfrom19932006

averagednearly11%)

3

Cambodias Aid, Tax, and Domest ic Revenues 2002-2006

33N/AN/AN/ACPIAefficiencyofrevenuemobilization rating(1=lowto6=high)

9.819.689.869.4110.31Revenue,excludinggrants(%ofGDP)

8.197.918.157.558.19Taxrevenue(%ofGDP)

37.2638.7435.2238.1336.52Aidpercapita(currentUS$)

7.598.999.4911.5011.79Aid(%ofGNI)

84.68113.18110.67118.66120.35Aid(%ofcentralgovernmentexpenditures)

528,990,000

540,680,000

483,190,000

514,310,000

484,250,000

Officialdevelopment assistanceandofficialaid(currentUS$)

20062005200420032002

Source: WDI Online. Accessed: 25 August 2008.

September

15,

2008 Cambodia's

Economy 18

insum

Cambodiahasenjoyedveryrapidgrowthoverthelastdecade,butonanarrowproductionbaseoffourenginesanddespiteinnumerableconstraints

Somefundamentalsareinplacetosustainrapidgrowth macromanagement,opennessinadynamicregion,etcalthoughthesemaynotbeenough

Sustainingrapidgrowthwillalsobringanumberofchallenges:increasedinequality,environmentaldegradation(atleastintheshortrun),etc.


10/14


11/14

September

15,

2008 Cambodia's

Economy 21

infrastructurecosts

0.040.05

0.060.07 0.07

0.09

0.18

0.00

0.05

0.10

0.15

0.20

SouthAfrica

Vietnam

PDRLao

China

Taiwan

Pakistan

Cambodia

US$

/

KWh

250

1,500

18030

250

500

750

1,000

1,250

1,500

Installing

Electricityline

3Mwtt

generator

Waterline

Well

establishment

US$000Electricity cos ts

(from grid)

Addi tional cap ital

costs (plusoperation; parts;

training;

maintenance; etc.)

September

15,

2008 Cambodia's

Economy 22

334%

117%

10%

140%

132%

39%

236%

19%

0% 100% 200% 300%

Price basket for Internet (US$ per month)

Price basket for mobile (US$ per month)

Roads, paved (% of total roads)

Pump price for diesel fuel (US$ per liter)

Pump price for super gasoline (US$ per liter)

Road density (km of road per 100 sq. km of land area)

Real interest rates (%)

School enrollment, tertiary (% gross)

Cambodia as % of

10 comparators


12/14

September

15,

2008 Cambodia's

Economy 23

connectingtocompete

4.2

3.5 3.33.1 2.9

2.6 2.5 2.52.3

1.2

0

1

2

3

4

Sin

gapore

M

alaysia

China

India

V

ietnam

P

akistan

Cambodia

Bangladesh

Lao

Afghanistan

2007LogisticsPerformanceIndex

September

15,

2008 Cambodia's

Economy 24

sustainingdiscoveries

64% 62%58% 57% 56% 55%

51%

43%39% 37% 35%

0%

20%

40%

60%

China

Japan

Korea

Thailand

Vietnam

Indonesia

Philippines

Bangladesh

Ghana

Cambodia

Cameroon

After1year After5years

Survival

Rate

of

New

Exports

After

1

or

5

Years


13/14

September

15,

2008 Cambodia's

Economy 25

sizeandproductivityinagriculture

19

27

2220

13

0

5

10

15

20

25

30

Landless 0.0 to 0.5

ha

0.5 to 1.0

ha

1.0 to 2.0

ha

2 ha and

more

Distribution

of

households

by

land

holding

(%)

September

15,

2008 Cambodia's

Economy 26

investment

Cambodia

0

10

20

30

40

50

-5 0 5 10 15 20

Grow th (%, 04-06)

Investment /

GDP (%, 04-

05)0%

5%

10%

15%

20%

1993

1995

1997

1999

2001

2003

2005

Livestock Durable Equipment Construction

2

Investment

/

GDP


14/14

September

15,

2008 Cambodia's

Economy 27

corruption&governance

LicensesCost finance

TransportTax rates

Tax admin Legal systemCustomsAccess finance

Labor reg.

LandTelecom

Skills

Electricity

Macro instability

Crime, Theft

Regulatory

uncertainty

Anti-competitive /

informal pract.

Corruption

0

10

20

30

40

50

60

0 10 20 30 40 50 60

2003/04

2007/08

Sources: Investment climate surveys in Cambodia

2

Major obstacles to business, as reported by firms established in Cambodia

cambodia’s economy

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