Cambodia in 2017: economically robust, politically troubled

The Khmer Times, 25 December 2017

Cambodia’s economy remained robust in 2017 with an estimated growth rate of 6.8 percent. It is forecast that in 2018, the growth rate will be 6.9 percent.

There is an uptick in the construction, manufacturing sector, tourism and agriculture. The growth in the garment industry has slowed down slightly.

The flow of foreign direct investments remains strong. The main sources of investments come from China, Asean and Japan.

Investment projects concentrate on labour-intensive industries such as the garment industry, hospitality and financial services, light manufacturing, energy and agriculture.

The World Bank’s report on Cambodia posits that “increased exports of footwear, electrical machinery, equipment and auto parts has helped Cambodia’s economy to remain robust”.

The report by the AMRO, an Asean+3 Macroeconomic Research Office, similarly assesses that the Cambodian economy has been driven by “solid activity in the construction sector and a recovery in agriculture”.

Continued economic reforms, particularly in tax collection, a stable exchange rate and financial sector, have contributed to the country’s macroeconomic performance.

Education and skills development are progressing to enhance labour productivity as well as to further attract foreign direct investments.

Politically, 2017 has been the worst year after the armed conflict in 1997 between the two political camps the Cambodian People’s Party (CPP) and the royalist Funcinpec Party.

The president of the Cambodia National Rescue Party (CNRP), Kem Sokha, was arrested in September on treason charges and the CNRP was dissolved in November.

Moreover, 118 senior members of the CNRP faced five-year political bans.

These political events have gained significant international media attention and international reactions.

The Cambodian issues have been over politicised and internationalised.

It can be a risky political gamble if the politicians are to use a zero-sum game. Cambodia is vulnerable to political instability due to deep political distrust and inter-personal conflicts between the two opposing political forces.

The opposition party has opted for a strategy of the last resort, which is creating a kind of political organisation in exile and calling upon international community to delegitimise and destabilise the CPP-led government.

Notably, most of the leaders of the opposition movement have fled the country to carry out their international political campaign.

The US and the European Union have threatened to impose sanctions on Cambodia, including visa restrictions and freezing the assets of some senior Cambodian government officials and the removal of preferential trade treatments under the frameworks of Everything But Arms (EBA) and the Generalized System of Preferences (GSP).

It is not sure whether the Cambodian economy is resilient enough to resist international sanctions.

The textile industry, the key export product of Cambodia, relies mainly on the US and the EU markets.

Without the preferential treatments, Cambodian textile products will lose a certain level of competitiveness. Some garment factories will face more challenges and a number of workers will be surely affected.

The garment industry might have a knock-on effect on other economic sectors.

Chan Sophal, a Cambodian economist, estimated that “if nothing is done and exports to the EU go down by some $2 billion, I think the loss of value added is at least $700m/year, or three percent of GDP.

“With this, about 200,000 jobs will likely be lost. And the negative knock-on effect will be quite large on MFIs and other supporting services.”

A lawmaker from the CPP, Suos Yara, wrote: “The threat of EU sanctions would run counter to development and would surely affect the lives of countless Cambodians, including the working class and their families.

“We do not need to arrive at this stage and enter a downward spiral of sanctions and counter measures. A better and mutually beneficial approach is needed at this point.”

Cambodia’s democratic journey is at a critical juncture.

Some remain optimistic that the democratisation will remain on track, some are pessimistic that Cambodia is entering into a one-party state political system.

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