Logo of Phnom Penh Post newspaper Phnom Penh Post - Report shows need for Cambodia to diversify exports

Report shows need for Cambodia to diversify exports

Workers sew Armani jeans at the Kin Tai garment factory in the capital’s Chak Angre commune in May of 2015.
Workers sew Armani jeans at the Kin Tai garment factory in the capital’s Chak Angre commune in May of 2015. Kimberley McCosker

Report shows need for Cambodia to diversify exports

Global credit rating agency Moody’s Investors Services said yesterday that while it has retained Cambodia’s B2/stable sovereign rating alongside Vietnam’s B1/positive rating, the Kingdom’s low diversification of exports has put it at higher risk from external shocks than its eastern neighbour.

In a report that compared economic development in Cambodia and Vietnam, Moody’s noted that while both countries share similar overall fiscal strengths, Vietnam’s larger and more diverse economy is underpinned by higher incomes and stronger institutions which provide better shock absorption.

Moody’s added that Vietnam’s continued robust growth and broad economic and financial stability should cap its government’s relatively elevated debt.

As for Cambodia, while it has smaller fiscal deficits and a lower government debt, which provide it large access to concessional loans, the economy is still constrained due to its dependence on garment exports.

“Garment and textiles production and a few other low value-added manufacturing dominate Cambodia’s exports, which are largely destined for the US and the European Union, exposing the economy to sector- and market-specific shocks,” the report said.

The report added that despite Cambodia undertaking government reforms and increasing its tax collection efforts, Cambodian institutions face greater challenges than Vietnamese institutions in weeding out corruption and enforcing the rule of law, which in turn affects the ability of the Kingdom to deliver a high credit rating.

Additionally, Moody’s placed Cambodia at a higher level of political risk than Vietnam based on the fact that foreign direct investment (FDI) could be hindered if tensions between Cambodia’s ruling party and opposition stand in the way of its reforms.

“Should political tensions lower the impetus for reform to address institutional weaknesses, that would be credit negative,” Moody’s said.

Nevertheless, Miguel Chanco, lead Asean analyst for the Economist Intelligence Unit, said Cambodia could diversify its export basket to make it more resilient to shocks if it properly invested in educational reforms and increased government spending.

“First of all, the government should invest in its people – that is, ensuring that the skills are there in the first place so Cambodia can more quickly move up the value chain,” said Chanco. “There are plenty of talented people in the country, but most are still being left behind owing to a weak public education system.”

Secondly, he added that the government needs to address gaps in hard infrastructure, such as high costs of electricity, if it wants to be in a good position to capture export manufacturing operations that are moving out of China due to rising costs of labour there.

“More specifically, there is an opportunity for Cambodia to first step into low-end electronics exports,” he said. “And yes, the government will need to increase its spending to do this.”

David Van, executive director of DEEWEE Management Consultants, emphasised that for Cambodia to diversify away from the garment industry, policymakers need to focus on electronics and food processing sectors. He added that if the country embraced a bold vision, it could leapfrog typical paths of development and quicken its industrial development policy (IDP).

“If a bold strategy was adopted, the government would simply play the role as regulator and let the private sector take the lead,” he said. “This would allow us to achieve what the IDP has planned for 10 years in a three to four year timeline.”

Stephen Higgins, managing partner of investment and advisory firm Mekong Strategic Partners, said that less reliance on the garment sector depended on the Kingdom successfully becoming a middle income country.

“If Cambodia successfully becomes a middle income country, it is unlikely to continue to have a large garment sector. It needs to diversify away from garments into more advanced manufacturing, similar to what Minebea is doing,” said Higgins, referring to the Japanese electronics manufacturing giant that has invested in the Kingdom.

“However, that is going to take quite a bit of time, and by that I mean more than just a few years,” he said.

MOST VIEWED

  • Omicron patients can stay home: PM

    The Ministry of Health has issued a directive on the treatment of people who have tested positive for the highly transmissible Omicron coronavirus variant, following a suggestion from Prime Minister Hun Sen on the night of January 21. The directive permits home quarantine for those who

  • Cambodia’s first ever anime festival kicks off Jan 22 at capital’s F3 centre

    Phnom Penh's first ever Anime Festival will bring together fans, artists, shops and other local businesses with ties to the Japanese animation style for cosplay competitions, online games, pop-up shops and more on January 22, with Friends Futures Factory (F3) hosting. F3 is a project that

  • Mr Pancake or M Crepe? Tasty by any title

    Crowds of people gather around a lone man with a mobile food cart every day at around 2pm in front of the Institut Francais du Cambodge to order what many say are the best crepes in Phnom Penh. To some – even to the man making

  • Hun Sen gets 4th Covid shot, urges compatriots to follow

    Prime Minister Hun Sen and his wife Bun Rany on January 14 received their fourth dose of Covid-19 vaccine and called on compatriots to follow suit as the Omicron coronavirus variant continues to spread in the community. This marks the launch of Cambodia's fourth-dose vaccination campaign,

  • Fourth dose Covid booster drive jabs 43K in two days

    In the first two days of the fourth-dose Covid-19 vaccination campaign, more than 43,000 people volunteered to get the jabs, while over 4.6 million people have received a third shot. Health ministry spokeswoman Or Vandine said that fourth-dose vaccinations, which began on January 14 exclusively with the Pfizer

  • Singapore backs Cambodia's efforts on Myanmar

    Singaporean Prime Minister Lee Hsien Loong supports Cambodia in its efforts to seek a solution to the ongoing Myanmar crisis as the chair of ASEAN. Lee expressed his support during a meeting with Prime Minister Hun Sen via videoconference on January 14, with the talks focused