The Cambodian economy grew 7.5 percent in 2018, according to the World Bank’s Cambodia Economic Update, released recently. This better-than-expected growth was driven largely by the rapid expansion of exports and ongoing construction boom.
Exports of garments, footwear and travel goods — which account for more than two-thirds of total merchandise exports—recorded a five-year high, rising by 17.6 percent in 2018, up from 8.3 percent in 2017.
The construction, real estate, and tourism sectors accounted for about 60 percent of total approved investment in 2018. To support the construction boom, manufacturing of building materials, furniture metals, and plastic products also increased rapidly.
Heightened uncertainty has, however, intensified risks. The EU (including UK) market currently accounts for more than one-third of Cambodia’s exports, particularly garments, footwear and bicycles.
The potential end of the country’s duty-free access to the European Market for exports — or the “Everything But Arms” arrangement — will likely result in slower exports.
In addition, the construction and real estate sectors are typically more prone to boom and bust cycles and rising domestic credit financing in the construction sector increases the vulnerability of the financial sector.
Inguna Dobraja, World Bank Country Manager for Cambodia, says: “Improving investment climate and reducing the cost of doing business along with building skills for future economy are key priorities to sustain strong growth in the medium term
“Growing evidence highlights that investment in people are essential to drive economic progress and sustainable development. Investing in people and improving the quality of Cambodia’s human capital should remain at the core of Cambodia’s aspirations to reach an upper middle-income economy by 2030.”
The report also calls for filling skills gaps and investing in human capital to underpin Cambodia’s long-term growth.
Increasing the magnitude and efficiency of these investments from individuals and both the public and private sectors can help ensure that Cambodian children get off to a healthy start, giving them the foundation they need to maximize their education and develop their skills over the course of their lifetime.
The Cambodia Economic Update is a biannual report that provides up-to-date information on short- and medium-term macroeconomic developments in Cambodia.