Cambodia

“The challenge in Cambodia is formidable and long-term. Cambodia is a poor, rural country of 13.1 million, with over a third of its people living in poverty (defined as income less than $20 per month); over 80 percent in rural areas. More than two decades of conflict, followed by embargo, have marked its history since independence in 1953. It is well understood that among the many tragic consequences of Cambodia’s political history was a depletion of many of Cambodia’s most skilled people – intellectuals, craftsmen, artists, engineers, and others -- who may have helped form a nucleus of a growing entrepreneurial class in the right enabling environment. Along with the depletion of human resources was the loss of the social institutions – organizations, norms, rules and basic trust –that supported the productive interaction of citizens in the form of economic exchange. As Nobel Laureate Douglass C. North put it in his prize lecture, 'it is the admixture of formal rules, informal norms and the enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually.' Cambodia’s lack of a strong industrial tradition and the extent to which its governance has either been externally influenced or unresponsive to the needs of domestic entrepreneurs has meant that Cambodia has not benefited from a long history of experience crystallizing themselves in the laws, institutions, services, marketplaces, information channels, and norms that form the basis enabling environment for the private sector. Another feature of Cambodia’s post-conflict transition is the fact that the human and financial resources in the public sector are overstretched. The economic landscape reflects a lack of key institutions, most notably the rule of law and beyond a lack of human and social capital, physical infrastructure is lacking.” -Summarized from the March 2005 issue of the Cambodian Business Review.

The largest industry to develop in Cambodia since the re-establishment of a government in 1993, has been the garment industry. The garment industry had grown to become the largest employer in Cambodia by December 31, 2004, employing over 260,000, mostly women – Gap and Levi being among the larger contributors to the Cambodian garment industry. This was aided by the international quota regime governing trade in garments (established by the UN). That quota system ended January 1, 2005 resulting in a loss of over 60,000 garment industry jobs by January 1, 2006 as competition from China intensified. This has had a devastating effect on the economy of this emerging third world country. The trade off was allowing third world countries an opportunity to join the World Trade Organization and access a more balanced free trade in all economic area’s. The goal is that this will allow development across the economic sector both in the products and services they import and their ability to export more diverse commodities which in turn will grow and expand the economic base. As you can surmise from the article in the Cambodian Business Review, the infrastructure and resources are at such minimal levels that it could well take many years for the country to be able to take advantage of world trade.

However, on the positive side, prospects for the future are improving with more world wide awareness and interest in Cambodia. Tourism has become the biggest provider of foreign exchange benefits with over a million recorded arrivals last year at the Phnom Penh airport. Tourism is creating many new jobs and interest from outside in helping. On the external front, Cambodia is re-emerging on the global scene after a prolonged absence. Cambodia’s development partners have also provided significant amounts of development assistance, amounting to roughly half of the total public spending.