Economy of Cambodia

The garment industry represents the largest portion of Cambodia's manufacturing sector, accounting for 80% of the country's exports. In 2012, the exports grew to $4.61 billion up 8% over 2011. In the first half of 2013, the garment industry reported exports worth $1.56 billion.[27] The sector employs 335,400 workers, of which 91% are female.

The sector operates largely on the final phase of garment production, that is turning yarns and fabrics into garments, as the country lacks a strong textile manufacturing base. In 2005, there were fears that the end of the Multi Fibre Arrangement would threaten Cambodia's garment industry; exposing it to stiff competition with China's strong manufacturing capabilities.[28] On the contrary, Cambodia's garment industry at present continues to grow rapidly. This is can be attributed to the country's open economic policy which has drawn in large amounts of foreign investment into this sector of the economy.

Garment Factories by Ownership Nationality in 2010:[29]

A garment factory worker in Cambodia undertaking health precautions

note: In 2010, 236 garment export-oriented factories were operating and registered with GMAC, with 93% being foreign direct investment (FDI).

As seen in the table above, Cambodia's garment industry is characterized by a small percentage of local ownership. This is a reflection of the deficiency of skilled workers in the country as well as the limited leverage and autonomy Cambodian factories have in strategic decisions.[30] Another characteristic of the industry is the country's competitive advantage as the only country where garment factories are monitored and reported according to national and international standards.[31]

This has allowed Cambodia to secure its share of quotas for exports to the US through the US-Cambodia Trade Agreement on Textiles and Apparel (1999–2004), which linked market access to labor standards. However, the Cambodian garment industry remains vulnerable to global competition due to a lack of adequate infrastructure, labor unrest, the absence of a domestic textile industry, and almost complete dependence on imported textile material.[32]

The Garment Manufacturers Association in Cambodia (GMAC) is establishing a specialized training institute to train garment workers. The institute is in Phnom Penh Special Economic Zone and will be completed by late 2016. It aims to train 1,600 garment workers in the first three years and 240 university students each year as part of a separate program.[33]

Cambodians planting rice, 2004.

Agriculture is the traditional mainstay of the Cambodian economy. Agriculture accounted for 90 percent of GDP in 1985 and employed approximately 80 percent of the work force. Rice is the principle commodity.

Major secondary crops include maize, cassava, sweet potatoes, groundnuts, soybeans, sesame seeds, dry beans, and rubber. The principal commercial crop is rubber. In the 1980s it was an important primary commodity, second only to rice, and one of the country's few sources of foreign exchange.

In the 1960s, Cambodia was a prominent tourist destination in the Southeast Asian region. Due to protracted periods of civil war, insurgencies, and especially the genocidal regime of the Khmer Rouge (see Khmer Rouge Genocide), Cambodia's tourism industry was reduced to being virtually non-existent. Since the late 1990s, tourism is fast becoming Cambodia's second largest industry, just behind the garment manufacturing.[34] In 2006, Cambodia's tourism sector generated a revenue of US$1.594 billion, which made up approximately 16% of the country's GDP.[34]

Angkor Wat in Siem Reap, Cambodia.

Cultural heritage tourism is especially popular in the country, with many foreign tourists visiting the ancient Hindu temple of Angkor Wat located in the Siem Reap province. Other popular tourist attractions include the Royal Palace, Phnom Penh, as well as ecotourism spots such as Tonlé Sap Lake and the Mekong River.

The tourism industry in Cambodia has been perpetuated by the development of important transportation infrastructure; in particular Cambodia's two international airports in Phnom Penh and Siem Reap respectively. To the Cambodian economy, tourism has been a means for accumulation of foreign currency earnings and employment for the Cambodian workforce, with about 250,000 jobs generated in 2006.[34] Meanwhile, challenges to the industry include a leakage of revenue to foreign markets due to a dependence on foreign goods as well as the prevalence of the Child sex tourism industry.[35]

The gambling industry of Cambodia supports its tourism industry, which is mostly concentrated around the Siem Reap province. The introduction of casino on border cities and towns created an industry that has thrived and contributed to the generation of employment and a steady stream of revenue for the government. However, the issue of corruption in relation to the government bureaucratic process involved in the gambling sector has been raised. It has likewise spur growth in different parts of the country at border crossing towns like Poipet, Bavet and Koh Kong. The growth of the gambling industry in Cambodia is due to its proximity to Thailand where gambling is forbidden.

Russian Boulevard in Phnom Penh.

The increase in tourist arrivals has led to growing demand for hotels and other forms of accommodation surrounding tourist hotspots. Siem Reap in particular has seen a construction boom in recent years. The capital Phnom Penh has also witnessed a growth in the construction and real estate sector. Recently, planned projects that have been on the pipeline for several years have been shelved temporarily due to a reduction in foreign investment. From 2009, the Cambodian government has allowed foreigners to own condominiums. This has helped in attracting real estate investors from Thailand, Malaysia, Singapore and other countries.

The construction sector attracted investment of $2.1 billion in 2012 which is a 72 per cent rise compared with 2011. Construction licenses issued stood at 1,694 projects in 2012, which was 20% lower than 2011 but they were higher in value.

Oil seeps were discovered in Cambodia as early as the 1950s by Russian and Chinese geologists. Development of the industry was delayed, however, by the Vietnam and Cambodian Civil Wars and the political uncertainty that followed. Further discoveries of oil and natural gas deposits offshore in the early 2000s led to renewed domestic and international interest in Cambodia's production possibilities. As of 2013, the US company Chevron, Japanese JOGMEC and other international companies maintained production sites both on shore and off. Chevron alone had invested over US$160 million and drilled 18 wells.[36]

Sok Khavan, acting director general of the Cambodian National Petroleum Authority, estimated that once the contracts are finalized and legal issues resolved, the Cambodian government will receive approximately 70% of the revenues, contributing to an economy in which the GDP is projected to increase five-fold by 2030.[37] In addition, there are 10,000 square miles offshore in the Gulf of Thailand that holds potential reserves of 12-14 trillion cubic feet of natural gas and an unspecified amount of oil.[37] The rights to this territory are currently a subject of dispute between Cambodia and Thailand, further delaying any possible production developments. In early 2013 it was reported that the two countries were close to a deal that would allow joint production to begin.[38][39]

Rice milling is very important to the Cambodian economy.

Cambodia's emerging democracy has received strong international support. Under the mandate of the United Nations Transitional Authority in Cambodia (UNTAC), $1.72 billion (1.72 G$) was spent in an effort to bring basic security, stability and democratic rule to the country. Various news and media reports suggest that since 1993 the country has been the recipient of some US$10 billion in foreign aid.[40][41]

With regards to economic assistance, official donors had pledged $880 million at the Ministerial Conference on the Rehabilitation of Cambodia (MCRRC) in Tokyo in June 1992. In addition to that figure, $119 million was pledged in September 1993 at the International Committee on the Reconstruction of Cambodia (ICORC) meeting in Paris, and $643 million at the March 1994 ICORC meeting in Tokyo.

Cambodia experienced a shortfall in foreign aid in the year 2005 due to the government's failure to pass anti-corruption laws, opening up a single import/export window, increasing its spending on education, and complying with policies of good governance.[42] In response, the government adopted the National Strategic Development Plan for 2006–10 (also known as the “Third Five-Year Plan”). The plan focused on three major areas:

• the speeding up of economic growth at an annual rate of 6-7%
• eradicating corruption
• developing public structures in favor of quality (i.e. by education, training, and healthcare) over quantity (i.e. rapid population growth)[43]

There are no significant barriers to bank entry. At the end of 2013, there stood 35 commercial banks of which most have majority foreign ownership.[44] Since 2011 new banks with offshore funding have begun to enter the market.

The announcement from February 12, 2020 was to suspend EBA ("Everything But Arms") trade preferences between EU and Cambodia. The country has known to be the second largest beneficiary from EBA's program. The EU's preliminary conclusion sent to Cambodian government in November 12, 2019 because Cambodia failed to address serious human and labor rights concerns under Human Rights Watch. Moreover, the issue behind ending the opposition party (CNRP) and dropping charges against the leader of CNRP violated the right to freedom of expression.[45]