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Speeches & Transcripts December 4, 2019

Opening Remarks at the Cambodia Economic Update November 2019 Launch

Excellencies, Ladies and Gentlemen:

Welcome, and thank you for attending today's launch of the November 2019 Cambodia Economic Update (CEU). It is encouraging to see many of you for whom the launch has become a regular event to attend.

The CEU is an integral part of the World Bank’s advisory services and analytical work in Cambodia — and this is already the 13th edition of the report.  The Update is a biannual report that analyzes Cambodia's recent macroeconomic developments, and discusses economic outlook, risks, and policy options for sustaining growth and poverty reduction. Each edition of the CEU has a special focus theme and this edition’s looks at upgrading Cambodia in global value chains.

As you will shortly see in the presentation of the main findings, Cambodia is among a few economies in the East Asia and Pacific region that continues to perform well. The economy is projected to remain robust although real growth is projected to decelerate to 7.0 percent in 2019, compared to 7.5 percent in 2018. And growth continues to be driven primarily by expansion of exports, investment, and internal demand.

However… downside risks, arising from domestic and external factors have intensified. A possible withdrawal of the Everything but Arms or EBA initiative, as well as a sharp slowdown in the Chinese economy could substantially dampen growth prospects, given Cambodia’s reliance on exports to the EU and on FDI and tourists flows from China. In addition, a prolonged construction and property boom and the increase of credit provided to the construction and real estate sectors also points to an increasingly challenging environment.

To enhance Cambodia’s external competitiveness, the Cambodian authorities recently introduced a number of measures to facilitate trade by lowering logistics costs, cutting red tape, and supporting businesses with a six-day reduction in the number of publicly observed holidays in 2020. In addition, a relatively large fiscal stimulus to be financed by government savings could be introduced in 2020 to mitigate the negative impacts of the potential withdrawal of Everything But Arms trade agreement.

Cambodia’s exposure to the global economy is not recent. In early 1990s, the country opened its borders to international trade and investment, and subsequent arrival of the export-oriented garment and footwear industry propelled Cambodia’s participation into the global economy through global value chains. Global Value Chains participation grew faster in Cambodia than in Malaysia, Thailand and Vietnam; it grew faster also than in other developing countries such as Bangladesh and Sri Lanka, although from a low base. FDI inflows, a large pool of low-skill and low-wage labor, and preferential access to key exports markets facilitated Cambodia’s rapid integration into limited manufacturing GVCs.

However, unlike other countries in the region, Cambodia has been unable to move aggressively to the next stage of participation into global value chains, into advanced manufacturing and services. International experience shows that this transition requires a much more sophisticated policy mix.

  • First, Cambodia should expand and deepen trade agreements to go beyond issues of market access and national treatment.
  • Second, lowering barriers to trade and connecting to markets can help expand Cambodia’s small domestic market size and gain access to the inputs needed for production.
  • Third, continue improving the education and skills of Cambodia’s labor force. Today’s workforce in Cambodia is getting by with only 6.3 years of education on average, while having few opportunities to upgrade their skills. This needs to change.
  • Fourth, harness the digital economy to support firms to integrate into GVCs through digital platforms as well as connect value chain participants.

Excellencies, Ladies and Gentlemen:

Let me conclude by taking the opportunity to thank our special guests who have very kindly agreed to serve as discussants during today’s launch: Mr. Chea Sopheak, Deputy Director of Economic and Fiscal Policy Department, Ministry of Economy and Finance, Mr. Kim Veara, economics lecturer, Royal University of Phnom Penh, and Ms. Nicole Chu, Sustainability Director Manager at Sabrina factory.

Finally, let me also thank the CEU World Bank team, led by Sodeth Ly and Claire Hollweg and supported by Marong Chea, Runsinarith Phim, Linna Ky, and Socheat Ath. Thanks to Deepak for the guidance to the team.  

Without further ado, I would like to invite Sodeth and Claire to present the main findings of the November 2019 Cambodia Economic Update.

Thank you