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Key Sectors Challenged by Downturn: UNDP

The world economic crisis is having a direct impact on four of Cambodia’s key economic drivers, which will need to become more competitive, according to a report released by UNDP this month.

Agriculture, construction, garments and tourism each face challenges from the economic downturn, and “Cambodia now needs to consolidate its progress, nurture its potential and sustain its growth,” the UNDP said in its report, “Cambodia Country Competitiveness: Driving Economic Growth and Poverty Reduction.”

“It is a unique opportunity right now,” Douglas Broaderick, the UNDP’s chief representative, told VOA Khmer. “Cambodia needs to get some of the things done that could set-up Cambodia to be stronger economically and to be able to help people in a much better way, in terms of competitiveness linked to economic growth.”

The agricultural sector, which generates a third of Cambodia’s GDP and employs more than half its workforce of 8 million people, suffers from low education in the rural work force, limited access to financing, poor roads and irrigation and limited market access, the report said.

The UNDP recommended the development of rural non-farm economies, such as roads, rural electrification, education and financial training, as well as better coordination between suppliers and manufacturers.

And while the cost of labor is a main motive for garment manufacturers to come into Cambodia, productivity remains lower than neighboring countries, the report said, citing as an example productivity that is three times lower than in Thailand.

The UNDP also recommended that the government re-examine its investment laws, to improve the manufacturing of textiles and garments, which comprised 12 percent of the GDP in 2007 and employed more than 360,000 people.

The sector lost 51,000 jobs between September 2008 and March 2009, as a global economic crisis, kindled by a US financial meltdown, spread. Around 70 factories have closed in that time.

The UNDP recommended training workers to begin producing goods higher in value, and to improve industrial relations.

Meanwhile, competitiveness in the tourism sector remains poor, ranking 112th of 130 countries at a recent World Economic Forum, due in part to high energy costs and expensive flights, as well as limited infrastructure and costs associated with corruption, the UNDP said.

Human resources in the sector remain low, and an uneven application of policies and rules plagues the sector.

“Rich cultural assets, such as Angkor Wat, give Cambodia a competitive advantage, but reliance on Angkor Wat as the primary tourist attraction cannot be sustained,” the report said.

The UNDP recommened relaxing tourist visa restrictions, exploring open sky policies and reducing the costs and improving the quality of tourism products.

In the construction sector, Cambodia has enjoyed an increase in both scale and value of projects, including high-rise apartment and office buildings currently under construction.

The country has the lowest wages for construction workers in Southeast Asia, but productivity is relatively low and there are shortages of labor to meet demands and of skilled workers, the report said.

Engineers and architects are overwhelmingly foreign, while electricians, welders, carpenters and other skilled workers are in short supply.

Added to these difficulties is the complicated constrution law, which means it takes an average 710 days for approval of construction permits—compared to 200 days in Vietnam and 150 days in Thailand.

Companies say they resort to paying bribes in order to shorten the time frame.

“The highly bureaucratic regulation of licensing in the construction sector may reduce its competitiveness,” the report said.

Cambodia is at the bottom 10 percent of countries in the World Bank’s corruption index, leading to a dearth of investment from the world’s largest industrialized countries, whose own national laws forbid participation in corrupt practices.

The UNDP recommended investments in vocational training, improvements to permit procedures and the strengthening and enforcement of building standards.

With the four key sectors flagging, costs remain high in information and communication technology, discouraging further investment.

Overall, the UNDP recommended putting more resources into education, as Cambodia lags behind its Southeast Asian neighbors, ranking lowest in the region.

Cheam Yiep, a Cambodian People’s Party lawmaker and head of the National Assembly’s finance commitee, said the UNDP’s analysis was “just partly true,” but he did not elaborate.

Still, the goverment will take the report’s findings under consideration, he said.