Cambodia: Economy

From 2001-2010, the Cambodian economy expanded by, on average, 8% per year, with the garment sector and the tourism industry driving the growth, and inflation remaining relatively low. The onset of the global recession led to a 0.1% contraction in 2009, but growth resumed in 2010 at 5.95%. The economy is heavily dollarized; the dollar and riel can be used interchangeably. Cambodia remains heavily reliant on foreign assistance--about half of the central government budget depends on donor assistance. Foreign direct investment (FDI) has increased 12-fold since 2004 as sound macroeconomic policies, political stability, regional economic growth, and government openness toward investment attract growing numbers of investors.

Manufacturing output is concentrated in the garment sector, and garments dominate Cambodia's exports, especially to the U.S. and the EU. The industry expanded rapidly from the mid-1990s until 2008, employing 350,000 workers and generating $3 billion in annual revenue at its peak. The global economic slowdown caused a drop in demand, resulting in a more than 20% decline in garment exports and an estimated 60,000 unemployed workers from late 2008 through 2009. In 2010, the garment sector grew 15%. Employment in the sector and garment exports are expected to reach pre-crisis levels in 2011. Tourism levels, which increased to approximately two million arrivals in 2008 but were also hurt by the global downturn, rebounded to 2.15 million arrivals in 2010. The service sector is heavily concentrated in trading activities and catering-related services. The real estate sector contracted by 15.8% and land prices declined 10%-15% in 2010. Both commercial bank credits and deposits grew between 20%-25% in 2010. Exploratory drilling for oil and natural gas began in 2005, and commercial production is expected to commence in late 2012, but it is not yet clear if commercial extraction is viable long-term or how large Cambodia's reserves are.

In spite of recent progress, the Cambodian economy continues to suffer from the legacy of decades of war and internal strife. Per capita income and education levels are lower than in most neighboring countries. Infrastructure remains inadequate, although road networks are improving rapidly. Most rural households depend on agriculture and its related subsectors. Corruption and lack of legal protections for investors continue to hamper economic opportunity and competitiveness. The economy also has a poor track record in creating jobs in the formal sector, and the challenge will only become more daunting in the future since 50% of the population is under 20 years of age and large numbers of job seekers will begin to enter the work force over the next 10 years.

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