Ever since the global financial crisis in 2009, the current economic climate has been on a slow path to recovery, with the UN predicting the world economy to grow by a projected 3.2% in 2017. The emerging markets of the world – countries that have the characteristics of but are not yet classified as developed market, have been at the forefront of global economic growth within the past few years. As the developed markets’ economies are anticipated to once again increase contribution to the global economic growth, economic development will also be stimulated in frontier markets with further investments from developed markets.
Frontier markets are developing countries with high potential for investment. These countries, usually at a slower development rate than emerging markets, tend to have rapidly developing economies and are politically and economically stable. Certainly there has been marked economic growth in Cambodia, with a Gross Domestic Product (GDP) increase from USD 7.27 billion in 2006, to USD 18.05 billion in 2015. The 7.7% average annual GDP growth is a steady display of Cambodia’s sustainability of economic growth and development.
One of the most swiftly growing economies among the ASEAN frontier countries, Euromonitor International’s data has positioned Cambodia as part of the 20 Markets of the Future, providing promising opportunities for international companies to invest in. This rapid economic development, along with more cost effective labour rates, and Cambodia’s strategic location in the heart of Southeast Asia have brought in various foreign investments to the country. With Cambodia’s economy on the rise, there are certainly more industries opening up, with more opportunities for employment, bringing the unemployment rate to 0.5% in 2015. The main industries that are driving the Cambodian economy are the garment industry, agriculture, and tourism.
What drives the economy
With favorable climate conditions and arable land abound, agriculture has traditionally been the main industry in Cambodia, attributing to an all-time high of about 90% of GDP in 1985. A staple diet in Cambodia, rice is naturally the principal commodity of the agriculture industry. Cambodian agriculture flourished well over the past decade, with the World Bank reporting an annual agricultural sector growth of 5.3% between 2004 and 2012 being one of the highest worldwide. During this period, crop yields increased by 4% and Cambodia’s agricultural exports were comparable with that of Thailand, Vietnam, and Myanmar. This has directly benefitted the Cambodian farmers, with an increment in salaries, and a fall in poverty.
Although rice is still the primary produce, Cambodian farmers have begun to migrate their harvests toward other crops such as vegetables, cassava, and maize to generate higher profits. This expansion to include other types of agricultural crops will hopefully be a long term diversification of agricultural produce, in order for better sustainability of agriculture as an industry. The importance of agriculture to the Cambodian economy is such that there are tax exemptions on agricultural production, with up to 46% of the GDP coming from agricultural produce. As such, there are also aims for shifts from traditional farming to include usage of modern farming technology for further improvements on the agricultural economy. The United Nations Food and Agricultural Organization (FAO) has added USD 23 million to its budget for the operational food security and agricultural plan, to aid in further development of Cambodia’s agricultural sector, making it more sustainable in the future.
As the second largest revenue generator, the garment industry accounts for about 80% of Cambodian exports and is the biggest industry in the manufacturing sector, with over 700,000 workers employed and raking in an approximate revenue of USD 5 billion. Over the years, changes have been implemented to improve working conditions in factories. Furthermore, there have been many programs put in place to train garment workers, giving them a more specialized skillset that is integral to their livelihood. The Garment Manufacturers Association in Cambodia (GMAC) is one such institute that provides training not only for factory workers, but also university students in the operations side of the garment industry. Some of these institutions also educate workers on workplace gender and sexual harassment, to create better working conditions, especially for women, who make up the majority of the garment industry workers.
The tourism business
Tourism, one of the largest sources of revenue, is vital to Cambodia’s economic growth. With the rate of international tourists on a steady incline over the past two decades – from 118,183 visitors in 1993 to 4,775,231 visitors in 2015, Cambodia has its geographic location to thank for its international allure. Bordering the Gulf of Thailand, and situated between Thailand, Vietnam, and Laos, Cambodia is geographically accessible from air, land, and sea, making it a convenient travel destination.
Cambodia’s tropical climate, lush forests, and the magnificent Mekong River bring beautiful scenes of exoticism to mind. It comes as no surprise that Cambodia promotes itself to tourists as the ‘Kingdom of Wonder’. The charm of a tropical Southeast Asian country brings in frequent tourists, with the more popular tourist sites being Angkor, Banteay Srei, Koh Ker, Kratié, Bokor Hill Station, Silver Pagoda, Tonlé Sap, Sihanoukville, Preah Vihear, and Siem Reap.
Cultural heritage tourism is one of the main draws for foreigners visiting Cambodia; with the natural association one has of Cambodia being the majestic Angkor Wat. Located north of Siem Reap, the early 12th century construction is a representation of the universe, with the towers representing the peaks of Mount Meru of Hindu mythology. In 1992, Angkor Wat was named as a UNESCO World Heritage site, helping cement its position as a must-see site for cultural heritage tourism. Although there were only 7,650 visitors to the temple in 1993, the number of visitors yearly has now grown to over 2 million. Mondulkiri, home to various communities of hill tribes, the French built city, Phnom Penh, and the Preah Vihear Temple are among other popular tourist sites that are rich in cultural heritage. Alongside cultural heritage tourism, ecotourism is also rapidly gaining a foothold in Cambodia, with the beautiful unspoiled waterfalls and forests of Rattanakiri enticing tourists to return to nature.
Impacts of economic and industry growth
The developments in the Cambodian economy and various industries have created more opportunities for the Cambodian public. Tourism, in particular, has introduced various other businesses and industries, providing more employment for Cambodians. Due to the burgeoning popularity in tourism, the hospitality industry has naturally also improved greatly over the years to accommodate the growth of tourists. As the number of tourists have increased through the past 2 decades, hotel occupancy has also increased, with 70.2% of tourists staying in hotels as of 2015. The growth in the hotel industry requires that hotel staff be kept up to date with hospitality training, and the Ministry of Tourism has teamed up with private groups to provide training programs for the improvement of hotel services. This training will provide hospitality staff with a skillset that can better their further employability prospects.
Other businesses that have benefited greatly from the tourism industry are the retail trade industry and the gambling industry. Several food and beverage franchise stores such as KFC, Pizza Hut, and Burger King have sprung up in Cambodia, geared towards both tourists who hanker for a taste of home and locals who have been influenced by Western culture. Fashion retail brands like Skechers, Giordano, and Mango have also opened their doors in Cambodia in response to a demand for brand-name clothing brought on by exposure to foreign trends. Within the retail sector, 32% of the working population are expected to be middle or high income workers by 2017. The gambling and tourism industry have a bilateral relationship, with one fueling the other and vice versa. As gambling is illegal for Cambodians, the main revenue for casinos comes from foreign gamblers. As Cambodia is located so close to Thailand, where gambling is also illegal, many Thai tourists enter Cambodia in order to gamble, greatly boosting the gambling industry. The thriving gambling industry brings in good revenue for the economy and provides more jobs for Cambodians.
As Cambodia develops further, the government has also laid plans for further development of the infrastructure. Apart from roadworks, there are also tracks being laid for improvements to the major railway lines. These infrastructural developments, along with investments in renewable energy and new power plants will aid in the enhancement of the business climate and the economy.
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