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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$)
1993 1998 2006
0
10
20
30
40
50
Povertyincidence(%)
1994 2004
0
1020
30
40
Inequality(Giniofrealpercapita
consumption)
1994 2004
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15,
2008 Cambodia's
Economy 3
thestructuraltransformationofCambodia,
cont.
0
2
4
6
8
FDI(%GDP)
1993 1998 2005
0
5
10
15
20
Dom.Credittopriv.
sector(%GDP)
M2/GDP(%)
1993 1998 2006
0
2040
6080
100
Aidpercapita
(currentUS$)
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 $)
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September
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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
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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
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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
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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(%)
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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
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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,%)
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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$)
20062005200420032002
Source: WDI Online. Accessed: 25 August 2008.
September
15,
2008 Cambodia's
Economy 18
insum
Cambodiahasenjoyedveryrapidgrowthoverthelastdecade,butonanarrowproductionbaseoffourenginesanddespiteinnumerableconstraints
Somefundamentalsareinplacetosustainrapidgrowth macromanagement,opennessinadynamicregion,etcalthoughthesemaynotbeenough
Sustainingrapidgrowthwillalsobringanumberofchallenges:increasedinequality,environmentaldegradation(atleastintheshortrun),etc.
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15,
2008 Cambodia's
Economy 21
infrastructurecosts
0.040.05
0.060.07 0.07
0.09
0.18
0.00
0.05
0.10
0.15
0.20
SouthAfrica
Vietnam
PDRLao
China
Taiwan
Pakistan
Cambodia
US$
/
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
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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
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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
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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