CAMBODIA, A NEW BEGINNING.
In the heart of Southeast Asia, with a population of 15 million people and after decades of conflict and poverty that captured the world’s attention, Cambodia has attained the lower-middle-income status as of 2015 and today the country is going through an unprecedented level of development.

The magnitude of Cambodia’s suffering made the country a symbol for disaster. Over time, that perception in the west is rapidly shifting. Our TV program on Cambodia to be broadcasted on Fox Business will highlight the political and economic reforms undertaken so far and unveil the road map for further changes, aiming at contributing to a new more accurate perception of the country in the U.S.

We will be covering the most vibrant economic and socio political issues, including analysis on trade, investment and business opportunities existing in the country. We will also portray the several wonders the country unfolds to American tourists. The program will be structured as a cross section featuring exclusive interviews with some of the most relevant personalities of the country in order to offer the protagonists’ viewpoints on the hot topics of Cambodia today.

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ON THE THRESHOLD OF A LOWER – MIDDLE INCOME COUNTRY
Cambodia is on the threshold of the World Bank’s definition of a lower-middle-income country. Two-thirds of Cambodians are under 30 and thus were born long after the Khmer Rouge regime. Further reduction of poverty is expected for both urban and rural households throughout 2015-2016. For urban households, this is due to the expansion of the construction and services sectors. For rural households, an increase in other sources of income beyond agricultural income has helped.

The economy is dominated by the garment sector, but tourism is expanding, and Cambodia hopes to tap into offshore oil and gas reserves and draw in overseas investment to replace aid; construction has also been one of the main drivers of the economy throughout these years.

Growth is expected to remain strong in 2016, as recovering internal demand and dynamic garment exports. Fiscal performance has improved, with substantial revenue growth and contained expenditures continuing to curb the overall fiscal deficit.

 

FDI LEADING TO EXPONENTIAL GROWTH
The current account deficit narrowed to 10.8%t of GDP in 2015. The deficit was financed by continued strong FDI inflows, estimated to have reached US $1.8 billion in 2015. The construction industry attracts the largest share of foreign investors. Foreign Direct Investment inflows have grown exponentially in the last few years, due to sound macroeconomic policies, political stability, regional economic growth.

Although Cambodia encourages foreign investment and offers incentives to investors, the legal system’s still lacks transparency and energy supply and transportation problems remain significant obstacles to international investment. Cambodia has focused on its special economic zones to attract FDI quite successfully.

Improving the overall business environment would enhance competitiveness across sectors, underpinning product and market diversification, while also helping firms to be well prepared to take advantage of the single market and production base goal set by the ASEAN Economic Community. Improving the public investment management framework to scale up publically financed infrastructure would be advisable in the face of declining donor-financed capital.

 

 

BEYOND FACTORY ASIA
To support diversification, the government has launched an industrial development policy aimed at upgrading industry from low-cost, labour intensive manufacturing to production with higher value added. This policy encourages the expansion and modernization of small and medium-sized enterprises, stronger regulations and enforcement, and a better environment for doing business.

Economic developments in Cambodia so far in 2016 have unfolded broadly as expected. Exports from the important garment and footwear industry rose by 9.4% in the first half, almost double the pace in the same period of 2015. An advantage Cambodia does have within its textiles industry is that it is the only country where garment factories are monitored and reported based on national and international standards. This has allowed Cambodia to secure its share of quotas for exports to the U.S. through theUS-Cambodia Trade Agreement on Textiles and Apparel which links market access to labor standards – an issue to consider for MNC businesses running ethical labor models.

But it is not factories alone that are driving the booming economy of Cambodia. Services, the second biggest contributor to growth, grew by an estimated 7.1%. The finance, transport and communications sectors all grew by about 8%, and tourist arrivals rose by 6.1% in 2015. Agriculture has shown minimal growth, largely due to droughts caused by the El Niño weather phenomenon, but it is projected to grow by 1.6% next year.

 

TOURISM´S UNTAPPED POTENTIAL
Tourism is one of the areas in which Cambodia is consistently encouraging foreign investment. The country is anticipated to exceed the 1-million-tourists mark in the next two years and the potential here may be huge. Although much of the development to date has concentrated on servicing visitors at the Angkor complex of temples, the laid back colonial charm of Phnom Penh and the beautiful beaches of the South also offer abundant opportunities.

Eco-tourism and cultural based tourism still offer almost unlimited potential as do investment in hotels, golf courses and other amenities.  The government of Cambodia is quite progressive in dealing with these opportunities and several build-operate-transfer (BOT) schemes are already in operation.

International tourist arrivals are expected to fall this year due to the global economic slowdown and this will have a knock-on effect in slowing down growth in the services sector, tourism has also lagged because of neighboring Myanmar’s emergence as a holiday destination and because of the slowdown in China.

FINANCIAL SECTOR´S  BLUEPRINT
Continuing rapid expansion of the financial sector has accommodated economic growth. Domestic credit growth accelerated further to 27% in 2015, spurred on by rising domestic demand for consumption and construction, while growth of private sector bank deposits eased to 16.6% in 2015. Recent increases in capital requirements are expected to help strengthen financial stability. However despite banking privatizations, the financial sector remains somehow subject to state influence.

The blueprint for the banking sector consists of three phases. The first phase aims at laying the foundation for the banking system by establishing a basic policy and institutional framework. The second phase targets enhancing intermediation through competition. Building on the achievements in the first phase, the banking system should be developed into a more consolidated system.

The third phase aims to promote intermediation efficiency by facilitating the integration of the formal and informal financial sectors as well as the reorganization of the banking industry.

CAMBODIA AND THE US.
In January 2016, John Kerry –U.S. Secretary of State- met with Cambodian Prime Minister Hun Sen and other leaders, and praised Cambodia’s “remarkable” growth and modernization and the trade relationship between the two countries.

“I think it is quite remarkable that the United States is, in fact, Cambodia’s largest export market even though we have half the world between our countries,” Kerry said.

Indeed, despite de distance between the two countries, the U.S. is by far the premier destination for Cambodian exports, mostly garments, and American tourists are the first non-Asian visitors in Cambodia’s international arrivals ranking.

Hun Sen, the Cambodian Primer Minister, stressed in the same meeting the significance of boosting trade ties between the two countries, and hailed the US-Cambodia joint efforts in anti-terrorism.The PM requested the US to consider quota-free and duty-free policies for Cambodian products, so as to increase bilateral trade volume, he added. American investors see Cambodia as a promising destination for investment.

SUBSTANTIAL CHALLENGES REMAIN
In spite of several achievements, Cambodia still faces a number of development challenges, including weak public service delivery, which impedes inclusive development, ineffective management of land, natural resources and environmental sustainability. There are several reforms yet to be implemented since Cambodia’s economy remains heavily dependent on tourism and apparel assembly.

Substantial challenges remain, particularly in implementing deeper institutional and systemic reforms that are critical to advancing economic freedom. Weak property rights, pervasive corruption, and burdensome bureaucracy, exacerbated by lingering government interference and regulatory controls, continue to reduce the dynamism of investment flows and overall economic efficiency.

It will be necessary to improve the overall quality of infrastructure – mainly roads, railroads and ports – as well as to raise power-generation capacities and increase the average level of education, thus producing a skilled workforce. The government has to develop new income sources to compensate for the loss of customs revenues derived from imports from other Southeast Asian states.

While Cambodia’s main investment attraction is the country’s low cost labor, Myanmar could threaten that advantage.Poverty continues to fall in Cambodia, albeit more slowly than in the past. Health and education remain important challenges and development priorities for the country.