The economy of Cambodia is to suffer the effects of two hard blows in the coming months and years. The first is the European Commission’s announced intention to scale back its “Everything But Arms” (EBA) preferential trade arrangement with Cambodia and the second is the novel Coronavirus (COVID-19) pandemic.
These events are laying bare the structural weaknesses of Cambodia’s economy, which is over-reliant on the European Union for market access and on China for production capacity, investment and tourist inflow. Cambodia’s most vulnerable citizens, particularly women who work in the garment industry, low-skilled workers and those who have just been lifted from poverty, will feel the brunt of the fallout.
The Asian Development Bank and the World Bank have each warned policymakers of the precarious state of the “near poor” in Cambodia. According to official estimates, the current poverty rate is below 10 percent (compared to 47.8 percent in 2007). Although the nation has achieved great success in its fight against extreme poverty, more than 70% of Cambodians still live on less than US$3.20 a day.
The Royal Government introduced short-term measures in late February of 2020 to help employers sustain their operations, to help workers who have lost their jobs or whose work has been suspended and to support small and medium enterprises which are the backbone of the economy. The Royal Government is to be commended for this. The protection of livelihoods is tantamount to the protection of human rights.
The measures include tax holidays, direct support, training programs, customs facilitation and the reduction of government expenditures. For example, owners of factories that suspend production due to a shortage of raw materials will be expected to pay 40% of wages while the government will pay an additional 20%.
An enhanced set of reforms and mid to long term measures are to be announced by the government at the 19th Government-Private Sector Forum on April the 1st, 2020. In the interim, The Asian Vision Institute (AVI) wishes to appeal to the government to take the following points into consideration.
Measures to support the diversification of markets, of sources of foreign direct investment, of industrial bases and of domestic start-ups and SMEs should be made more visible. To that end, a clear set of key performance indicators (KPI) should be formulated to evaluate and to enhance the performance of line ministries and agencies.
Secondly, more robust internal government reforms are needed to address fundamental challenges that existed well before the arrival of the pandemic and the EBA adjustments. These reforms should focus on areas of weakness as outlined by the World Bank’s “Ease of Doing Business” score assessment for Cambodia: starting a business, dealing with construction permits, connecting to the power grid, registering property, obtaining credit, paying taxes, trading across borders, enforcing contracts, resolving insolvency and others. More consideration should be given to Cambodia’s scoring in the World Economic Forum’s “Global Competitiveness Report”.
Thirdly, additional incentive schemes that target specific industrial sectors should be formulated to support diversification.
Finally, regular progress reviews must be conducted to ensure the effective implementation of measures and reforms. Each ministry and line agency should favour a bottom-up approach and take ownership of their technical reforms and measures to enhance and support the economic resilience and competitiveness of Cambodia.
Cambodia has enjoyed a period of peace which is unprecedented in her modern history. To make the most of the dividends at hand, it is imperative that measures and reforms be bold, be decisive and be undertaken swiftly, for the good of all.
Phnom Penh, 19 March 2020
Dr. Chheng Kimlong, Director of Centre for Governance Innovation and Democracy of the Asian Vision Institute
Phone: +855 61211800
The Asian Vision Institute (AVI) https://www.asianvision.org/ is an independent think tank based in Cambodia.