Cambodia's Industrial Development

Presented by Chan Sophal Cambodian Economic Association

Helsinki, Finland 24-25 June 2013 1

2

Evolution of Industry in Cambodia

• 1960s and early 1970s Strong growth driven by manufacturing New factories built mostly by foreign aid

and run by state, thus inefficient

• 1975-1979 Manufacturing was destroyed People were evacuated to work in rice field

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• 1980s Socialism backed by Vietnam and Soviet Union A little manufacturing was resumed with

assistance from Vietnam and Soviet Union All factories were owned by the state Industrial products were produced for local

consumption or traded with the communist bloc

Evolution of Industry in Cambodia

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Late 1980s Cambodia freed its economy, initially with

Thailand and other neighbouring countries Joined ASEAN in 1999 Joined WTO in 2003

Evolution of Industry in Cambodia

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Cambodia’s economic growth since 1993

4.1%

9.1%

6.4%5.9%

4.0%

4.7%

12.7%

10.7%

7.4%

6.6%

8.5%

10.3%

13.3%

10.8%10.2%

6.7%

0.1%

5.5%6.0%

0%

2%

4%

6%

8%

10%

12%

14%

1993 1995 1997 1999 2001 2003 2005 2007 2009e 2011p

Economic Growth Rate: 1993 - 2011

Source: Hang (2011)

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Per capita GDP since 1993

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Percentage Share of GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

49.3

46.4

47.6

49.6

46.5

46.3

46.3

43.5

37.9

36.7

32.9

33.6

31.2

32.4

31.7

31.9

32.5

13.6

13.0

14.4

14.8

15.7

17.1

17.4

19.1

23.0

23.6

25.6

26.3

27.2

26.4

27.6

26.8

22.4

37.1

40.6

38.0

35.5

37.7

36.6

36.3

37.5

39.1

39.7

41.5

40.1

41.7

41.2

40.8

41.3

45.1

Services Industry Agriculture

Source: ADB

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Share of employment by sector

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72% 77% 68% 72% 67% 65%

5% 4%

9% 9%

11% 11%

23% 18% 23% 19% 22% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 1998 2004 2008 2009 2010

Agriculture Industry Services

Share of main industries

Manufacturing : 72.8% Construction : 23.7% Electricity, gas, and water : 2% Mining : 1.5%

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Structure of manufacturing sector 1993-2009 by output

0%

20%

40%

60%

80%

100%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Manufacturing 1993-2009

Food, Beverages & Tobacco Textile,Wearing Apparel & Footwear Wood, Paper & Publishing

Rubber Manufacturing Other Manufacturing

Source: MEF (2010)

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Export by commodities, predominantly garments

0

500

1000

1500

2000

2500

3000

3500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Textile and Textile Articles Agricultural product Others

Source: Ministry of Commerce

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Garment Export and its share

Food price soaring lead to more agriculture export.

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Ownership of Garment Factories in Cambodia

Hong Kong 19%

Taiwan 24%

Malaysia 5%

China, PRC 16%

Korea 11%

Singapore 4%

Cambodia 9%

Other 12%

Country of Ownership

Source: MEF

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77,048 Industrial Establishments only 1.5% are medium or large, sharing 36% of industrial employment (Economic Census 2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Number of industrial establishments

Other

Textile, Wearing appareland Footware (TWF)Food, Beverages andTobacco (FBT)

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77,048 Industrial Establishments only 1.5% are medium or large, sharing 36% of industrial employment (Economic Census 2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Number of industrial establishments

Other

Textile, Wearing appareland Footware (TWF)Food, Beverages andTobacco (FBT)

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Distribution of employment by 77,048 industrial establishments

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68

Distribution (%)

Food, Beverages andTobaccoTextile, Wearing Appareland FootwareOther

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Distribution of 77,048 Industrial Establishments by their Age

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% firms

20+ years11-20 years6-10 years0-5 years

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Spatial distribution of 32,257 FBT establishments

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Banteay Meanchaey

2%

Battambang 10%

Kamong Cham 14%

Kampong Chnang

2%

Kampong Speu 3%

Kampot 2%

Kandal 9%

Koh Kong 1%

Phnom Penh 40%

Prey Veng 2%

Siem Reap 7%

Sihanuk Vill 6%

Svay Rieng 1%

Takeo 1%

Spatial distribution of 25,156 TWA establishments

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Banteay Meanchaey

2% Battambang

1% Kamong

Cham 2%

Kampong Chnang

2% Kampong Speu 2%

Kampong Thom 1%

Kampot 1%

Kandal 20%

Phnom Penh 61%

Prey Veng 1%

Pursat 0%

Siem Reap 2%

Sihanuk Vill 1%

Svay Rieng 1% Takeo

3%

Sunrise and Sunset Industries (Average growth of value added)

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1993-1997 1998-2004 2005-2007 2008-Present Sunrise (Average share growth rate >0.05%)

Textile, Wearing Apparel & Footwear Wood, Paper & Publishing Rubber Manufacturing Electricity, Gas & Water

Textile, Wearing Apparel & Footwear Mining Construction

Mining Textile, Wearing Apparel & Footwear Non-Metallic Manufacturing Construction

Mining Textile, Wearing Apparel & Footwear Food, Beverages & Tobacco Non-Metallic Manufacturing Electricity, Gas & Water

Sunset (Average share growth rate <-0.05%)

Mining Food, Beverages & Tobacco Non-Metallic Manufacturing Basic Metal and Metal Products Construction

Food, Beverages & Tobacco Wood, Paper & Publishing Rubber Manufacturing

Food, Beverages & Tobacco Rubber Manufacturing Wood, Paper & Publishing

Wood, Paper & Publishing Construction

Major Issues: • FDI projects received very generous tax exemptions.

It yields little revenue for government. • SMEs face high tax regimes, thus most stay informal

and as a result face constraints to growth capital. • Little backward and forward linkages within the

country. Most garment factories are just sites of Chinese or ethnic Chinese overseas.

• Need to diversify industrial base. • => Industrial development policy is being prepared

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Conclusion 1. Political stability, location of the country and openness to

FDI allowed cheap labor and global market access to be well exploited, contributing to high economic growth in the past 20 years (about 8% per annum).

2. The next stage of high growth will soon depend more on efficiency from both domestically free and fair competition and international competitiveness.

3. Regional integration and globalization provide Cambodia with opportunities for constructive engagement and learning to compete.

4. Given the turbulent history in the past century, it is difficult to expect more. Cautious optimism for the future!

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THANK FOR YOUR ATTENTION!

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