Khmer Times spoke to a cross-section of the business community in Cambodia, especially expatriate investors and business leaders, besides prominent economists and members of leading think tanks to get to know their views about the challenges before the new government and their recommendations or suggestions.
The new Government of Cambodia to be headed by Mr Hun Manet has generated a lot of excitement in the business community with many considering it as a generational change, though by taking forward the economy through the good track laid already by the previous regime on sound principles.
But the new government also faces serious challenges, especially due to the global economic situation caused mainly by the prolonged Russia-Ukraine war, subsequent inflationary pressures and the slowdown in growth across the world.
Coupled with these challenges is the non-renewal of the Generalized System of Preferences (GSP) by the US and the almost 20 percent reduction in the trade benefits enjoyed by Cambodia through the Everything But Arms (EBA) mechanism of the European Union (EU) on political/human rights grounds.
The country is also faced with the mammoth task of upskilling or reskilling its workforce and keeping them competitive in the emerging world where the nature of jobs is fast changing due to new digital technologies such as Artificial Intelligence (AI). This involves huge investment and the new government may have to take it up as a priority area.
Khmer Times spoke to a cross-section of the business community in Cambodia, especially expatriate investors and business leaders, besides prominent economists and members of leading think tanks to get to know their views about the challenges before the new government and their recommendations or suggestions.
Anthony Galliano, Group CEO of Cambodian Investment Management.
According to veteran business leader Anthony Galliano, Group Chief Executive Officer of Cambodian Investment Management Co Ltd, the Kingdom’s greatest economic challenge is diversification. In his view, the future prosperity of the country may very well depend on vigorously addressing this challenge.
“Presently, Cambodia has a concentration predicament. The four-pillar economy of garments, real estate & construction, tourism, and agriculture needs to be expanded. This (expansion) has been occurring in recent years, especially in the service sector, but has to be accelerated,” Anthony said.
Tan Khee Meng, President of the Malaysian Business Chamber of Cambodia. KT/Chor Sokunthea
He added that post-Covid-19, supply chains are being reconfigured, with less dependency on China, and there is a de-risking strategy in motion. “This is a substantial opportunity for Cambodia to grab a piece of the pie and also to upscale its manufacturing capabilities,” he said.
Anthony is, however, concerned about the slow development of the financial market in Cambodia. Capital markets are a major source of foreign direct investment (FDI), and Cambodia again is very concentrated with a handful of nations for its FDI, particularly China, he pointed out.
Cambodia’s exports are also heavily dependent and concentrated in the US market, at times 40 percent of the total exports going to the US, and with the GSP having expired in December 2020, the nonreciprocal, duty-free advantage no longer exists, he reminded.
Anthony also called for measures to increase Cambodia’s visibility. “Cambodia has proven to be an attractive investment destination but is not on the radar screen for a large part of the world. The successful governmental succession presents an opportunity to re-position the Cambodian brand to address the diversification issue and expand foreign investment partners beyond the usual base,” he said.
Tan Khee Meng, President of the Malaysian Business Chamber of Cambodia (MBCC), meanwhile, opined that Cambodia has witnessed significant economic growth over the past three decades, marked by substantial improvements in infrastructure and suggested that the next target of the government should be the expansion of Small and Medium Enterprises (SMEs) sector.
Tassilo Brinzer, President of the European Chamber of Commerce in Cambodia. KT
“A notable example of infrastructure growth is the Phnom Penh to Sihanoukville expressway, soon to be followed by a new expressway connecting Phnom Penh with Bavet and Siem Reap. These developments lay the groundwork for the next phase of growth – expanding Small and Medium Enterprises (SMEs) in production and industrialisation,” he said.
Meng also suggested that the new government use the Regional Comprehensive Economic Partnership (RCEP) and other regional treaties to accelerate the growth of SME industries in the country’s less-developed provinces and cities.
According to him, a key strategy could be the establishment of industrial zones in residential areas, that can create job opportunities and stimulate the growth of a middle-income group in second and third-tier cities and townships.
The new government, in his view, should create a complete production chain, covering upstream, midstream, and downstream in certain sectors, for example, a Special Economic Zone (SEZ) for home appliances production, within specific zones in individual cities. This approach can increase industrialisation across the entire country and help balanced development.
“This can also steer Cambodia into the era of Industry 4.0 in the SME sector, turning the nation into a production hub for high-value goods for export to countries within the RCEP and other regional trade treaties,” Meng said.
Tassilo Brinzer, President of the European Chamber of Commerce (EuroCham) in Cambodia, called upon the new government to work with the private sector and continue reforms, broaden their scope and speed them up.
Mr Hun Manet with teachers and CPP members at an event in Phnom Penh earlier this year. CPP
“I think what is key for the new government is to communicate its vision for socio-economic development, to show a clear path and work with the private sector. Cambodia has a great position in the Mekong region and will hugely benefit from more economic integration with its neighbours,” Brinzer said.
He also reminded that FDI cannot just be called in and that one needs to prepare the ground for it here — cutting red tape in multiple government agencies, building a welcoming culture to investors throughout the administration; a clear strategy for sustainability and a greening of the economy; making sure all companies follow the same regulation; internationalization of administrative processes and a more transparent and supportive tax policy and better connectivity to neighbouring markets, to name a few.
“Much can be done here, independent from external influences and challenges as these will always be there in some form or another – it would not be constructive to blame external factors for a lack of FDI. Important is to create an open investment environment that makes the economy more resilient against any of these challenges, and making it attractive for investments from all regions – China, the US, Europe and the Asean countries. Interest in Cambodia has always been there and will only grow,” he said.
Devin Batra, President of the American Chamber of Commerce (AmCham). KT
Devin Batra, President of the American Chamber of Commerce (AmCham), seems to agree with this. He said the future holds great opportunities for Cambodia to grow and flourish as opposed to the challenges.
With regard to Cambodia’s demand for the renewal of GSP, Batra said the programme is not renewed just for the Kingdom but for all recipients. He also sees an opportunity for Cambodia to advocate for the programme’s renewal as there are regional benefits for the US in shifting its manufacturing base to Cambodia. Since the US remains Cambodia’s largest export market it would make economic sense to continue to strengthen that relationship, he said.
According to Batra, advocating for increased trade, through GSP or bilateral trade agreements with the US, would be especially important for bringing in more investment and jobs to support the growing middle class in Cambodia.
Investment, particularly for high-end manufacturing, will need more skilled workers and leaders. This has already been identified as an opportunity and several organisations have been making efforts to build various programmes, he pointed out.
Ky Sereyvath, Senior Economist and Director General of the Institute of China Studies at the Royal Academy of Cambodia. KT/Tep Sony
“These programmes need to work hand in hand with the government and the private sector to ensure that the skills being imparted match the needs of the market as new companies establish themselves in the Kingdom while existing companies looking to grow. The training to create more skilled workers should include leadership and management skills as a way to provide the maximum benefit to the economy,” Batra suggested.
Thong Mengdavid, research fellow at Phnom Penh-based Asian Vision Institute (AVI), expressed confidence that the new government and its leaders would work towards expanding Cambodia’s markets and repairing relations with the West.
In his view, Mr Hun Manet, with his wide range of knowledge, is well-qualified to lead the country. “The new leader has a very good academic background and governance skills, besides the full trust of the Cambodian People’s Party (CPP),” Mengdavid pointed out as he listed the advantages of the new Prime Minister.
According to him, developing a high-quality labour force is a critical factor for increasing the nation’s productive capability. “As Cambodia prepares to achieve the Upper Middle-Income Country status in the near future, the country must reorient and upskill/reskill its labour force to meet the demands of local and foreign businesses,” he noted.
“To achieve a strong, resilient, sustainable, and inclusive development, the Cambodian government must raise awareness of medium-term development challenges, contribute to structural economic and social progress and strengthen the capacity of decision-makers, besides promoting and enhancing Technical and Vocational Employment and Training (TVET) programmes to build a high quality and labour force,” Mengdavid said.
Thong Mengdavid, research fellow at Phnom Penh-based Asian Vision Institute (AVI). KT
Ky Sereyvath, Senior Economist and Director General of the Institute of China Studies at the Royal Academy of Cambodia, said that the Kingdom currently faces the challenge of a shortage in skilled labour as manufacturing techniques make rapid progress and change across the world.
For Cambodia, creating a skilled labour force is crucial to achieving its 2030 goal of becoming an Upper Middle-Income Country through the diversification of the economy. “Currently there are external obstacles of world economic downturn resulting from the prolonged Russia-Ukraine war and Cambodia should focus on agriculture to increase food production,” he suggested.
Increasing agri-industrial production and income from food processing is important to reduce the imports of these products and help increase the income of the bottom 20 percent of the population, Sereyvath said.
He also urged the new government to focus more on the development of tourism sites and thereby boost the growth rate of the economy. “Last but not least, Cambodia should try its best to keep the current level of industrial production stable to ensure the level of employment,” he said.