Cambodia’s economy must move beyond

Cambodia’s development in the past two decades has been remarkable. Economic growth has averaged 7.6 per cent a year since 1995. The national poverty rate has been cut in half. Led by supportive government policy, the country’s strengths – in arable land and natural resources, low-cost labour, and cultural heritage – have secured Cambodia a strong global presence in rice production, garments, and tourism. The impact on people’s lives is visible, with impressive gains across a range of indicators including primary school enrollment and reduced infant mortality. To maintain this momentum, Cambodia must deepen its reform efforts, diversify its economy, and upgrade its industrial base. These actions are critical to boosting growth potential – particularly in the more complex and sophisticated goods and services needed for the country to climb the global value chain towards middle-income status and beyond. Cambodia’s industrial base and exports have evolved considerably in recent years. In 1990, rubber, scrap metals, logs and wood, and soya beans led the country’s exports. Today, it is garments, bicycles, rice, and light manufacturing assembly. The shift from raw materials to manufactured goods is nascent but gaining momentum. Still, exports remain narrowly based and concentrated on a few markets. The dominance of garment exports leaves the economy particularly vulnerable to sector specific price and demand shocks. In the wake of the global financial crisis export demand plunged and growth dropped to near zero. The economy recovered quickly, but the experience is a strong reminder of the importance of economic diversification and developing a broader range of export destinations.