While Cambodia is again expected to post a high annual growth rate of around 7 percent this year, it is starting to feel the pinch of a slowing global economy. Its growth is being driven by local consumption, real estate, low inflation and low fuel prices. But its growth is slowing in garments, agriculture and tourism.
That’s due to a slowdown in the global economy, says Dyna Heng, a Cambodian economist based in Washington.
“Right now, it’s very important for the country to set a standardized minimum wage to put worker protests for higher wage to rest,” he said. “Myanmar and Bangladesh appear to be very competitive in this sector, so making sure the workers stay productive is the priority.”
Cambodia ranks 95th, globally, in competitiveness, according to the World Economic Forum, but it’s economy has been bolstered by a construction boom, especially in Phnom Penh, which attracts middle income Cambodians who purchase real estate. That can be a boon to the economy, Dyna Heng said, but it can also create instability in the financial system.
Meanwhile, growth in credit, also due to real estate and construction, means an influx of foreign banks.
But agriculture has slowed down, due in part to shifts in the climate that have meant less rainfall. The sector grew only about 2 to 3 percent in 2015, a slowdown from the growth of 5 percent the year before.
“The lack of a labor force in the agricultural sector could be problematic in coming years,” Dyna Heng said. The sector also lacks credit, which can prevent modernization through the use of technology, he said, while slow growth in Europe and China affect the price of agricultural goods.
One of Cambodia’s main challenges will be improving its infrastructure to accelerate export activities, Dyna Heng said. Right now, higher prices of goods come from higher costs of transportation, he said. Another challenge is the lack of a skilled workforce, which hurts its competitiveness. In order to be competitive in the region, Cambodia will need to dedicate more resources to education and providing basic skills to workers, he said.
Improvements in the health and education sectors will also help sustainable growth, as the agricultural and manufacturing sectors improve.
“Needless to say, when you improve people’s health, by providing affordable health care, you empower people to stay productive in their work,” he said. “Combined with good education, the country’s growth is going to be strong with healthy and skilled human resources.”