Though Cambodia could shake off the pandemic blues much earlier than many of its neighbours, the country is facing global headwinds like any other country in the world, especially since the breakout of the Russia-Ukraine war and subsequently by the Israel-Hamas conflict. But the Kingdom is still expected to have an economic growth of 6.6 percent in 2024 as per the government’s estimates, a good one percent more than this year, thanks to the Pentagonal Strategy initiated by Prime Minister Hun Manet.
While giving this optimistic note on the economy last November, Mr Hun Manet maintained that Cambodia is well on its way to become an upper middle-income country by 2030 and an advanced economy by 2050. The Kingdom is projected to graduate from the least developed country status by 2027.
The Southeast Asian nation’s economy is mainly driven by garments, footwear and travel goods (GFT) exports, tourism, agriculture, real estate and construction as has been before. But the decline in the exports in the Kingdom’s main export earner of GFT goods which started in the middle of 2022 continued into 2023 as well and it remains a concern, but the country still managed to cover the deficit by exporting more electric and electronic goods, rubber articles and agricultural products.
In the January to October period of 2023, the GFT exports recorded a decline of 16.90 percent, compared to the same period last year. According to the trade data of the General Department of Customs and Excise (GDCE), Cambodia exported $8.96 billion worth of GFT goods during the first ten months of the year, a sharp decline from the $10.78 billion the country exported during the same period in 2022.
Despite the GFT woes, Cambodia’s total exports ended up with a marginal rise of 0.2 percent in the January to October period in 2023, compared to the same period last year. Experts attributed this strong showing in other sectors to the vibrant trade mechanisms such as the Regional Comprehensive Economic Partnership (RCEP) Agreement involving 15 countries, Cambodia China Free Trade Agreement (CCFTA) and the Cambodia Korea Free Trade Agreement (CKFTA). In 2023, Cambodia finalised the Comprehensive Economic Partnership Agreement with UAE and also achieved great progress in negotiations on a free trade agreement with India as well.
Meanwhile, in its latest report in November, World Bank projected Cambodia to grow 5.4 percent in 2023, marginally down from the 5.5 percent forecast in May. Compared to the Cambodian government’s projections, the World Bank’s assessment is based on a more cautious, conservative approach.
According to World Bank, the country’s economic growth is expected to pick up to 5.8 percent in 2024 and 6.1 percent in 2025, on anticipated increases in infrastructure investment and benefits from regional trade agreements.
“To sustain economic growth, Cambodia needs to support the private sector as the engine of growth,” World Bank country manager for Cambodia Maryam Salim said at the launch of the November report in Phnom Penh. “Maintaining financial stability is also a priority and more efforts are needed to restore fiscal space,” she added.
The World Bank report said tourism is crucial to Cambodia’s economy, and while international tourists are returning, receipts at major destinations are well below pre-pandemic levels.
Investment in merchandise manufacturing, including of garments, and exports of finished goods have both weakened, reflecting lower global demand and as a result, manufacturing jobs have dropped by five percent.
“Looking ahead, economic growth could further be affected by weakening global demand or renewed oil and food price shocks,” the report said. “Domestically, rising household debt and domestic credit in the real estate sector remain risks,” it added.
Stephen Higgins, Managing Partner of investment and advisory firm Mekong Strategic Partners, is also cautious about the country’s economic prospects in 2024. He told Khmer Times that Cambodia’s economy was not doing well in 2023, and will be lucky to avoid a recession. “It is certainly not growing at five percent or more as some have forecast,” he said.
“Loan arrears are up to 6.4 percent, while VAT collections for the 10 months to October, 2023, were down 13 percent compared to the same period in 2022, and that gives a pretty good indication of how the economy is travelling,” Stephen said.
He, however, rates the new government highly and agrees that political stability has long been a selling point for investing in Cambodia, and that remains the case.
“The issues that Cambodia is facing this year (2023) are very similar to what Vietnam is seeing. Laos is a bit of an economic basket case, Thailand is seeing some major challenges, and Myanmar is toxic from an investment perspective. So, while things are tough in Cambodia right now, it’s not alone,” Stephen noted.
He, however, added that the opportunities in Cambodia far outweigh the challenges, which are mainly short-term ones. “Demographics (young population) will provide a lot of support to Cambodia’s growth trajectory, as will ongoing investments infrastructure,” Stephen remarked.
“I don’t see a lot of upside in the property sector for quite a while, but I’m not too concerned about that. Too much investment was going into unproductive assets that weren’t improving the productive capacity of the economy,” he said as a word of caution.
Businesses, however, have solid faith in Cambodian economy’s resilience despite the global challenges.
Anthony Galliano, Group CEO of Cambodian Investment Management Holding, rightly pointed out that as the Cambodian economy is developing fast, it has greater exposure to global economic trends and geopolitical risks.
“For example, the performance of the Chinese economy has a great impact on Cambodia ever than before. China, which is the largest Foreign Direct Investor in Cambodia, is grappling with its own economic challenges, particularly in real estate, construction and banking all which are aligned historically with FDI in Cambodia,” Anthony said.
“These factors are impacting the Kingdom’s economy more substantially than in the past. The recovery in tourism, while gradual, remains tepid int terms of numbers and diversity, with a concentration of tourism from bordering countries. The real estate, and by default construction sector, are nearing a low point in a cycle, dealing with high inventories and sluggish demand,” he said.
Post-Covid there was a surge in demand in exports as US consumers went on a buying spree. This has peaked and is returning to normal growth. The geopolitical risks of the Russia and Ukraine conflict, and the Israeli-Hamas war are impacting all economies, including Cambodia, Anthony said.
According to him, despite all these factors, the Kingdom is expected to grow about five percent in 2023 which is a testament to the economy’s resilience and the competency of the government.
“This positions the Kingdom as one of the best growing economies in 2023 and Cambodia remains one of the most attractive investment destinations in the world. I expect growth to exceed six percent in 2024 with a mild recovery in real estate, increased export activity, and an improvement in tourism. The government policies on the table should also kick in and stir economic growth and promote a more attractive proposition for foreign investors,” he said.
Anthony was also emphatic about the significance of the peaceful transition of power in 2023 which has been met with a welcoming reception and enthusiasm, excitement, and hope. “There are expectations that the Kingdom is entering the next phase of its development as Cambodia accelerates toward an upper middle-income status. It is evident and visible that the new government is producing a clear economic pathway for growth and prosperity of the country, underpinned by transparent and coherent plans and policies. I am sensing great excitement from the people about the future of the nation and overwhelming confidence in the leadership,” he added.
Senior economist KY Sereyvath, the Director General of the Institute of China Studies at the Royal Academy of Cambodia, too believes that the economy would grow only around five percent even though World Bank and ADB forecast 5.4 percent, due to obstacles in trade.
Sereyvath, however, sees a rebound in Cambodian exports in 2024 “as we can see good signs already.” Cambodian economy, he said, will grow as there will be a recovery across the world. New government policies will also help.
“The country is expected to get more investment and the manufacturing sector will grow steadily, especially SMEs. We can also see signs of a surge in tourism,” he said, adding that a major challenge will be the real estate market as investments in the sector will take another six to eight years to give returns.
Thourn Sinan, Chairman of the Cambodia Chapter of Pacific Asia Travel Association (PATA), said that the tourism sector has shown resilience in 2023 with efforts to recover from the impact of the Covid-19 pandemic.
Tourism Ministry reports showed that in the first 10 months of 2023, some 4.4 million foreign tourists visited Cambodia. By the end of the year, the figure could cross five million, but this will still be short from the 6.6 million visits in the pre-pandemic 2019.
According to Sinan, the country has made progress in reopening its borders to international visitors, implementing health and safety measures, and promoting tourism destinations. “The prospects for next year are positive, with the potential for further recovery as travel restrictions ease and consumer confidence improves. Continued investment in infrastructure, promotion of sustainable tourism, and diversification of tourist offerings could contribute to sustained growth in the sector,” he told Khmer Times.
Sinan also termed Cambodia’s tourism performance as competitive within the region. While countries like Thailand and Vietnam have traditionally attracted larger numbers of international tourists, Cambodia’s unique cultural and historical attractions, such as the Angkor Wat complex, offer a distinct appeal to travellers. In recent years, Cambodia has also made efforts to develop coastal and ecotourism, contributing to its overall appeal as a tourist destination, he pointed out.
In his view, despite the positive outlook, Cambodia’s tourism sector faces several challenges in the coming years. These include shortage of infrastructure such as roads and accommodation for a growing number of visitors and inadequacy of service providers in provincial destinations.
“Additionally, ensuring sustainable tourism practices, preserving cultural heritage sites, and managing environmental impacts will be crucial. The country will also need to focus on diversifying its tourism offerings and enhancing the overall visitor experience to remain competitive in the region,” Sinan said.
The new airport in Siem Reap, which started the operations in October 2023 and the Visit Siem Reap 2024 campaign, are expected to greatly boost the arrival of foreign tourists in the New Year.
*Manoj Mathew / Khmer Times
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