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The most important service activity in Cambodia is associated with tourism, which is one of the major sources of overseas investment and the fastest-growing segment of the economy. Tourism has become an important source of revenue and foreign exchange and has helped mitigate the effects of large trade deficits. Much of this investment goes into constructing hotels, developing resorts, and enhancing facilities serving tourists visiting Angkor Wat and Phnom Penh. The number of tourists has been increasing and diversifying. While the first visitors were primarily from socialist countries, Japan, and other parts of Asia, many tourists now arrive from France, the United Kingdom, the United States, and other areas predominantly in Europe and North America. The most important service activity in Cambodia is associated with tourism, which is one of the major sources of overseas investment and the fastest-growing segment of the economy. Tourism has become an important source of revenue and foreign exchange and has helped mitigate the effects of large trade deficits. Much of this investment goes into constructing hotels, developing resorts, and enhancing facilities serving tourists visiting Angkor Wat and Phnom Penh. The number of tourists has been increasing and diversifying. While the first visitors were primarily from socialist countries, Japan, and other parts of Asia, many tourists now arrive from France, the United Kingdom, the United States, and other areas predominantly in Europe and North America.
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Most Cambodians in the workforce are still engaged in agriculture, forestry, and fishing. Foreign investment is essential to job creation in Cambodia. Concerns among foreign investors about political instability and corruption have resulted in limited foreign capital inflows and only slow improvements in job opportunities. An additional obstacle to foreign investment and job creation has been the country's lack of a trained and experienced labour force possessing the desired productive skills. Despite these problems, the new garment factories around Phnom Penh have become an important source of manufacturing employment, especially for women. The proportion of women in the labour force—more than half of the total—is one of the largest in the world, an imbalance created in part by the massive destruction of men during the period of Khmer Rouge rule. By law, women are guaranteed equal rights, but traditional views of the proper role of women have prevented women from entering senior management positions in business. A 1992 law permitted the formation of labour unions. The three main labour federations are the Cambodian Federation of Independent Trade Unions, the Cambodian Union Federation, and the Free Trade Union of Workers of the Kingdom of Cambodia. The unions have been ineffective largely because the government has determined public-sector wages, and private-sector employers have set wages based on market conditions, unrestrained by union activities. Wages are usually so low that most workers hold more than one job.
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The most-important sources of tax revenue in Cambodia have been consumption taxes and customs duties. In 1993 all tax collection and government spending was centralized and placed under the control of the Ministry of Finance, replacing the previous system that allowed individual ministries to assess taxes and spend the resulting revenues. Tax collection subsequently became more effective, and tax revenues increased. During that period new tax policies, instituted to encourage domestic and international investment, provided for lower corporate taxes, tax exemptions of up to eight years for companies in industrial sectors assigned priority status by the government, no taxes on reinvested profits, and tax exemptions on imported capital equipment intended for export-oriented production. Cambodia's inland waterways and road systems constitute the main transportation routes, although they are invariably affected during the rainy season, when floods cause heavy accumulations of silt and washouts. Railroads rank third in significance. Domestic shipping and civil air facilities are limited, and maritime commerce is carried out almost exclusively by foreign vessels. The road system eventually surpassed the country's inland waterways as the principal means for moving cargo and passengers. The network was originally designed and constructed by the French during the protectorate period to link the agricultural hinterland with the port of Saigon (now Ho Chi Minh City, Viet.). Consequently, the system did not serve Cambodia as a whole. Extensive land tracts in the northern, northeastern, and southwestern parts of the country were without roads. Of the total road network, only a small portion has been paved; other roads have been surfaced with crushed stone, gravel, or laterite or have been simply graded without being paved.
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Roads and bridges deteriorated sharply during the Democratic Kampuchea period and the civil war that followed. Funds and equipment for repairs were not available, and after 1979 most roads were mined or cut by guerrillas hostile to the government in Phnom Penh. Especially in the 1990s, repairing Cambodia's road network was a high priority for the United Nations and was a focus of foreign-aid efforts by other countries, especially Japan. The country's longest bridge, traversing the Sab River at Phnom Penh, was destroyed in 1975, rebuilt with Japanese assistance, and reopened in 1997. Cambodia's first bridge over the Mekong River was completed in 2001. Located about 45 miles (75 km) northeast of Phnom Penh, it has greatly facilitated travel between the eastern and western parts of the country. Cambodia has some 1,200 miles (1,900 km) of inland waterways, of which the great bulk are part of the Mekong and Tonle Sap systems. Phnom Penh, located on the Mekong River about 200 miles (320 km) from its mouth, can be reached by vessels with drafts of less than 13 feet (4 metres). North of Phnom Penh, the Mekong is navigable to Krâchéh for rivercraft, but rapids and winding channels in the section between Krâchéh and the border with Laos generally preclude commercial navigation.
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Kâmpóng Saôm (Sihanoukville), on the Gulf of Thailand, is Cambodia's only maritime port. Completed in 1960, it can provide unrestricted anchorage for oceangoing ships. The port is of strategic importance to Cambodia, and the area has undergone considerable industrial development. A paved four-lane highway links Kâmpóng Saôm with Phnom Penh. The railroad system is owned and operated by the Cambodian government. One line, completed prior to World War II, connects Phnom Penh with the Thai frontier and facilitates the movement of milled rice from the western provinces of Bătdâmbâng, Poŭthĭsăt, and Kâmpóng Chhnăng. Another line, completed in 1969, connects Phnom Penh with Kâmpóng Saôm. Cambodia has two international airports, the newest of which opened in Siĕmréab (Siem Reap) in 2002. In 2003 a new terminal was added to the older airport in Pochentong (near Phnom Penh). These facilities constitute the hubs of domestic, regional, and international service. Telecommunications have been developing slowly in Cambodia. In regional comparisons, the country lags far behind its neighbours in the number of telephone main lines as a proportion of population and is near the bottom in the proportion of cellular phone users per capita. There are telephone exchange centres in all major towns, and the number of telephone main lines is increasing (though cellular phones now vastly outnumber telephone main lines). Internet usage is also increasing, but the number of people with access is still small.
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4- Cambodia economic growth
After the economy contracted 3.1% in 2020, available data suggests continued challenges to the recovery in H1 this year. Garment exports—Cambodia's key industry—declined through January–May, as did tourist arrivals and foreign investment. Moreover, after having largely evaded waves of Covid-19 infections in 2020 and early 2021, the country saw a surge in cases from April. The resultingly stronger restrictions, such as curfews and the closure of indoor leisure facilities, have further depressed activity. That said, the restrictions have also contributed to a fall in cases, in tandem with a swift vaccination campaign. In addition, new vaccine deliveries from China suggest the rollout will continue apace, which should eventually allow for the easing of restrictions and support a recovery later in H2. GDP will return to growth in 2021, due to higher consumer spending, fixed investment and exports on the back of a successful vaccination campaign. However, a potential extension of restrictions poses a downside risk, while increasing criticism of the government by Western countries could threaten trade: The EU already partially withdrew duty-free market access last year. The panel sees the economy expanding 3.8% in 2021, which is down 0.4 percentage points from last month's estimate, and 7.0% in 2022.
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PHNOM PENH, CAMBODIA (28 April 2021) — Cambodia's economy is forecast to grow 4.0% this year and 5.5% in 2022, as the economic recovery in major trading partners boosts demand for Cambodia's exports, according to an Asian Development Bank (ADB) report released today. "The economy contracted by 3.1% in 2020 because of the global coronavirus disease (COVID-19) pandemic. The government has responded quickly to the recent spike in cases, and we expect the economy to return to growth in 2021. This will help increase household incomes, but not all sectors and regions will benefit equally, so it will be essential to closely monitor household welfare and the need for additional support," said ADB Country Director for Cambodia Sunniya Durrani-Jamal. According to the Asian Development Outlook (ADO) 2021, industrial production is expected to rise 7.1% in 2021 and 7.0% in 2022 on the back of a rebound in the garments, footwear, and travel goods sector, as well as growth in other light manufacturing such as electronics and bicycles. Agriculture is expected to grow by 1.3% in 2021 and 1.2% in 2022, underpinned by higher crop production after last year's flood damage, continued growth in aquaculture, and rising agriculture exports to the People's Republic of China. Services will recover more slowly, expanding by 3.3% in 2021 and 6.2% in 2022. Efforts to contain a local outbreak of COVID-19 that began in February 2021 are dampening service sector activities.
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Travel restrictions are expected to remain in place for most of 2021, which means tourism is not expected to boost services this year. Real estate is expected to recover from last year's contraction, in line with a similar trend for the construction industry. The uneven pace of the recovery across sectors will continue to put pressure on some households and firms this year, which will slow down the overall recovery. Key risks to the outlook include widening community outbreaks of COVID-19, slower than expected growth for Cambodia's major trading partners such as the US and EU, continued weakness in domestic demand, and stress on financial services and banking," said Ms. Durrani-Jamal, adding that the government needs to maintain its accommodative fiscal policy stance this year and next to support growth. Currently, ADB is implementing $2.1 billion of investment projects in Cambodia. In 2020, ADB committed $477 million in sovereign loans and grants, and catalyzed an additional $281.3 million through cofinancing for Cambodia. ADB's lending pipeline for 2021—2023 includes $1.35 billion of concessional lending and $32.4 million in grants to support the country's economic development and recovery from the COVID-19 pandemic. ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
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5-Cambodia economic problems
Cambodia's economy has been based traditionally on agriculture. About 85% of the cultivated area is devoted to the production of rice, while rubber trees account for a major part of the remainder. Prior to the war years, Cambodia's rice crop was usually ample enough to permit exports. The Tonle Sap is one of the major fishing reservoirs in Asia, and its products have played a key role in the Cambodian economy and diet. Cattle breeding is another important source of income. During the 1970–75 period, Cambodia's economy came to rely critically on US assistance, as the expansion of the war caused widespread damage and limited economic activity. The Pol Pot regime, which came to power in April 1975, was determined to emphasize the growth of agriculture and restore national self-sufficiency. The entire population was mobilized in a mass labor campaign to improve agricultural production through massive irrigation projects in the countryside. The cities were virtually emptied, and industrial production drastically declined. Private ownership of land was disallowed, and landholdings were transferred to the state or to state-organized cooperatives. All industrial enterprises were similarly transferred to state ownership. Sparse food supplies were distributed through a system of government food rationing and other forms of allotment.
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When the PRK government took over in 1979, it was faced with a major challenge in restoring the national economy. The first problem was to end the threat of famine. A massive international campaign to feed the population took place during 1979–82. In the meantime, similar efforts were undertaken to stimulate the industrial sector and expand exports in order to obtain needed foreign exchange. Reliable sources note that the infrastructure was so severely degraded that it had only 40–50% of prewar capacity. By the mid-1980s, the economy had essentially returned to the level of the pre-1975 period, although the regime was still vitally dependent on foreign aid, chiefly from Vietnam and the former USSR. In July 1986, the PRK issued an emergency appeal to international organizations for rice. Rule by the Khmer Rouge, 20 years of civil war, economic isolation, and a centrally planned economy imposed heavy burdens on Cambodia. Serious damage to basic infrastructure, industrial and agricultural production, and human resources required massive rehabilitation and reconstruction. Market-oriented reforms have been introduced which dismantle the centrally planned economy. Since 1989 Cambodia passed legislation to restore the right to own and inherit property, freed prices, passed a liberal foreign investment code, began to privatize state assets, and property, decontrolled the official exchange rate, and liberalized foreign trade. Reforms generated increased agricultural production and foreign investment. Phnom Penh and other urban areas received the greatest benefit from this economic activity.
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In the 1990s Cambodia remained predominantly agricultural with more than 80% of workers employed in agriculture. Inflation rose steadily, the price of domestic commodities increased at least 140% in 1990, but by only 15% in 1998. In 1991 Cambodia halted the free trade of gold as part of an effort to stabilize the value of the currency, the riel. Triple-digit inflation made currency worthless in 1992 and it was pulled from circulation. In 1994 the riel was stabilized at 2,400–2,600 riel to one US dollar. In 1991–1993, the transition period from a command to a market-driven system, the presence of 22,000 UN personnel aided the Cambodian economy, although the growth was mainly urban, barely affecting rural areas. Western consumer goods such as motor vehicles, tinned food, alcohol, and cigarettes, were readily available in Phnom Penh and other cities. In 1990 GDP was negative, increasing to 13.5% in 1991 and estimated of 6–8% in 1992. On 4 January 1992 President Bush announced the lifting of the US trade embargo against Cambodia shortly after the signing of the Paris Peace Agreement on Cambodia in 1991.
One outcome of the May 1993 elections was a division of government portfolios between the winning party, FUNCINPEC, and the surprised runner-up, the Cambodian People's Party (CPP). FUNCINPEC took over the financial and economic portfolios.
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An aggressive campaign was mounted to restructure tax, investment, banking and currency laws. As part of the battle against official corruption some contracts signed by the previous government were revised or abrogated. The government moved to strengthen the currency and provide new banking legislation. Effective 1 January 1994 were Cambodia's national budget and financial structure laws aimed at establishing central control of the economy. In August 1994, the government adopted a new liberalized foreign investment law with protections against nationalization and guarantees of national treatment except in matter of land ownership. The economy propelled into a period of strong growth, with real GDP increasing at an average annual rate of 7.2% 1993–97. The peak was reached in 1995, when real growth reached 8.4%. Inflation was only 3% in 1995, falling from 17.9% in 1994. During the next year two years, real growth declined, to 3.5% and 3.7%, respectively, while inflation rose, to 9% for both years. A more serious slowdown occurred in 1998 the Asian financial crisis; drought, civil violence, and political squabbles all conspired to slow growth to a barely discernable 1%, while inflation surged to 13.5%.
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Cambodia's admission into ASEAN (Association of Southeast Asian Nations), scheduled for 1998, ended up being delayed until April 1999 due to a breakdown into factional violence in July 1997. The after-effects of the Asian financial crisis were also felt, reducing GDP growth to 1% in 1998, and spiking inflation to 12.6%. Recovery in 2000 was propelled by a 29% growth in industrial production, but moderated by a contraction in agricultural output of -2.7% due to the worst flooding in 70 years. Services grew 3.1% in 2000, producing an overall GDP growth rate of 5.4%. Inflation was completely eliminated as prices showed a slight decline of -0.8%. Flooding continued to be a problem in 2001, keeping agricultural growth to 4.4%, while growth in services slumped to 2.4% primarily due to a decline in tourism. Industrial growth was again the main propellant, growing 12.5%, producing an overall GDP growth of 5.3% in 2001. Estimates for 2002 were a 3% growth in GDP with 3% inflation, up from a -0.6% rate in 2001. In November 2001, Cambodia was removed for the US list of Major Drug-Transit Countries by executive action of President George W. Bush because of lack of evidence in recent years of any heroin transiting Cambodia coming to the United States.
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Cambodia's government has received global accolades for its handling of the COVID-19 pandemic. The country has recorded a total of 364 COVID-19 cases and no fatalities as of 30 December 2020. But the economic fallout from the severe public health crisis is looming large for Cambodia. The global economic downturn triggered by the pandemic has hit Cambodia's economy hard. The Kingdom's main engines of growth — tourism, construction and the garment industry — contributed more than 70 per cent of GDP growth and 39 per cent of total employment in 2019. Due to travel restrictions and lockdowns, Cambodia's tourism and hospitality sector has collapsed. International tourist arrivals declined by 74 per cent to 1.2 million between January and September 2020, from 4.8 million in the same period in 2019. An estimated 3000 tourism-related businesses have closed down and 45,400 jobs have been lost.
The construction and real estate boom that was fueled by foreign investment has come to a grinding halt. Cambodia's manufacturing exports have significantly declined due to disruptions to global supply chains and the cancellation of orders from the European Union and the United States, Cambodia's main export markets.
In the garment sector, at least 110 factories suspended production in the first nine months of 2020 and left more than 55,000 workers without jobs. Union leaders point out that the actual numbers could be much higher.
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Large parts of Cambodia have also been hit by rain-induced floods that affected over 100,000 households across 19 provinces. The floods have devastated nearly 170,000 hectares of rice and 73,000 hectares of other cash crops. Roads have been damaged and flooding has forced more than 100 garment factories to close, affecting tens of thousands of workers. Growth forecasts for 2020 are gloomy. After two decades of uninterrupted economic expansion at an average rate of 8 per cent and towering aspirations to attain upper middle-income status by 2030, the World Bank projected a growth rate of –2 per cent in 2020, the sharpest decline in Cambodia's recent history. The Asian Development Bank (ADB) has anticipated that Cambodia's economy may contract by as much as 5.5 per cent. As the crisis unfolded, major global finance authorities, including the ADB, World Bank and the International Monetary Fund, have adjusted their forecasts to reflect a smaller contraction in 2020 followed by a sharp rebound in 2021. This was echoed by the Cambodian government maintaining that its economy would contract by around 1.9 per cent in 2020 and rebound to 3.5 per cent growth in 2021. Some commentators find the new growth scenario out of touch with reality, yet there are indications that Cambodia's success in containing COVID-19 and its economic diversification strategy may pay off. The government has handled the crisis with swift and bold actions to contain the spread of the virus and also supported the economy through wide-ranging stimulus measures introduced to drive economic recovery in the post-COVID-19 era.