IMF: Cambodia Should Improve

KHMER TIMES
MAY KUNMAKARA

Workers in a garment factory in Phnom Penh. The International Monetary Fund has advised Cambodia to move to more high-end manufacturing. KT/ Fabien Mouret

The International Monetary Fund (IMF) said yesterday that Cambodia should improve its business climate and enhance competitiveness by upgrading infrastructure, improving the quality of labor, and strengthening governance as China changes its trade pattern by moving up the value chain.

China is a major donor and investor in Cambodia, pumping in $2 billion in grants, loans and direct assistance, with foreign direct investment (FDI) reaching $10 billion since 1990. Both governments are targeting bilateral trade of $5 billion next year, up from $3.75 billion in 2014.

According to the IMF’s “China’s Changing Trade and the Implications for the CLMV” report released September 1, the evolution of Chinese trade, investment, and consumption patterns offers opportunities and challenges to low-wage, low-income countries, including China’s neighbors in the Mekong region – Cambodia, Laos, Myanmar and Vietnam (CLMV) – which are all open economies highly integrated with China.

It said rebalancing in China may mean less of a role for commodity exports from the region, but at the same time, the CLMV’s low labor costs suggest that manufacturing assembly for export could take off as China becomes less competitive, and as China itself demands more consumption items.

The IMF’s report recommended that Cambodia take full advantage of opportunities arising from China’s potential exit from labor-intensive industries by upgrading infrastructure to reduce logistics costs, find cheaper, more reliable, and more accessible electricity and strengthen the legal framework for public-private partnership projects to possibly facilitate infrastructure investment.

David Van, managing director in Cambodia of consultancy firm Bower Group Asia, said that in the future, intra-Asian trade would increase by leaps and bounds as the epicenter of global trade shifts to Asia from beleaguered economies in the West.

Mr. Van said trillion-dollar debts owed by the US remain unresolved and no US government would tackle it head-on with the necessary bitter measures as it would be politically suicidal, while the Transatlantic Trade and Investment Partnership has failed with the European Union and the Trans-Pacific Partnership remains unratified by the US Congress.

“All those trade treaties by the US were engineered to contain Chinese trade and economic influence but it would be in vain to remain still in denial of Chinese leading the pack to stir global economic growth,” he added.

Meanwhile Hiroshi Suzuki, CEO and chief economist of the Business Research Institute for Cambodia, recognized that Cambodia was one of best candidates for investment for many factories in China, especially for labor-intensive industries.

He said some Japanese companies that had factories in China have now come to Cambodia.

However, Mr. Suzuki said, China has not been a good export destination for Cambodia because factories in China and Cambodia mostly exported to the US and the EU.

“As I pointed out, Cambodia has been one of the best candidates for the next investment. The Cambodian government has made great efforts to attract FDI for the last 10 years. I believe the government will continue its efforts based on good communications with the private sector through positive dialogue such as Cambodia-Japan government private-sector meetings,” Mr. Suzuki said.

The IMF’s report suggested that to improve human capital, Cambodia must increase productivity and capture higher value-added production. The report also pointed out that the quality of education in Cambodian schools and institutions of higher learning must be increased to produce a more skilled workforce.

“Addressing gaps in skills would require work on multiple fronts to offer vocational and industry-led training. It would require better dissemination of market information on skills shortages and better apprenticeship programs,” added the report.