Cambodia's Economy

            

 

                           

GDP		28.01 billion
GDP Real Growth Rate		5%
GDP Per Capita		2,000
Population below Poverty Line		35%
Life Expectancy		62.1 Years
Adult Literacy		73.60%
Birth Rate		25.73 Births/ 1,000 Population
Death Rate		8.08 Deaths/ 1,000 Population
Population Growth Rate		1.77%
Age Structure:
0-14	32.60%
15-64	63.80%
65+	3.60%

 * Data derived from CIA World Fact book

 

 

Cambodia has a long history filled with political turmoil and instability. Only recently has the country become stable enough to maintain a progressive economy.  Most of the political uncertainty was due to the rise to power by the Communist Party of Kampuchea also known as the KCP. The KCP followers were known as the Khmer Rouge. The faction’s economic plan was to turn Cambodia into a classless society by forcing citizens to become dependent on agriculture through forced labor. The wanted to eradicate all foreign influence so they closed schools, hospitals, factories and the entire financing and currency system and they confiscated all private property and outlawed religion.  They depopulated all major cities and forced all urban population into labor communes. By doing this, the KCP rid the entire country of an upper class, future technological advancements and intellectuals. The Khmer Rouge held a strict rule over Cambodia from 1975 until 1979(“Khmer Rouge.”) This had a detrimental effect on the economical stance of modern day Cambodia. It made the country rely on only one sector (agriculture) and halted any advancement in technology intending to increase productivity. 

 

These actions have had a lasting effect on the country; to this day the country’s citizens still have very little education and productive skills. However, the country has recently tried their best to build a basic infrastructure for their economy to stabilize the status of their economy. Cambodia relies heavily on foreign countries financial investments to help progress their infrastructure reconstruction. The Cambodian Government has also installed programs that allocate funds towards assuring the economy for a better tomorrow, but I will discuss these policies later in my blog. They now rely heavily on exporting and importing and have found success in doing this. Their GDP is ranked 109^th in the world which may not sound too low, however, neighboring Malaysia is ranked 30^th whose GDP is nearly twelve times that of Cambodia ("Country Comparison- Cambodia").

 

The GDP real growth rate is nearly five times larger than the growth rate of the USA, which is quite impressive and proves a bright future for the Cambodian economy at this rate.  In terms of GDP per Capita, Cambodia is quite weak. They rank at 183^rd in the world, yet the countries Population growth rate is ranked 76^th which is quite high ("Country Comparison- Cambodia"). This helps to prove the Catch-Up Theory, which states that developing countries can grow faster because they can use methods of technology and production methods of more productive nations to boost their effectiveness.  This proves a correlation between lower GDP per capita and a high population growth rate.  The low GDP per capita also yields a high percentage of population below the poverty line, which in Cambodia is 35%("Country Comparison- Cambodia"). This rate is very high and is nearly triple the United States population beneath poverty line and a little more than Seven times larger than the percentage in Malaysia. The low literacy rate at 74% has had a dramatic effect on the unusually high percentage below the poverty level (“Central Intelligence Agency- Cambodia”).

 

 A big part of the instability of Cambodia’s economy is due to the fact that they rely so heavily upon agriculture. In an Economy when a country relies too heavily on one certain sector of an economy, all it takes is one market factor to have a negative effect on the crop being produced for the entire economy to plummet. Agricultural makes up nearly 51% of Cambodia’s GDP. What if a flood were to come to Cambodia, their economy would be ruined. This economy will never be fully stable until it is no longer solely relying upon agriculture (“The Economy”). There have been many successful measures taken to increase exportation and importation, yet more must be done. With this countries tumultuous past, (KCP and shift to forced labor) the country has learned to know nothing but farming. Future generations must take it upon themselves to become educated and specialize in different sectors so the economy can diversify. Then the country will be on course to a stable and profitable future.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited

 

"Cambodia." Encyclopedia Britannica. 2009. Encyclopedia Britannica Online. 22

Nov. 2009 <http://www.britannica.com/EBchecked/topic/90520/Cambodia>.

 

"CIA - The World Factbook." Central Intelligence Agency. 11/11/2009. Central Intelligence Agency, Web. 22 Nov 2009. .

 

Cosset, Tuyet L. "The Economy". Cambodia: A Country Study (Russell R. Ross, editor). Library of Congress Federal Research Division (December 1987).

 

"Index Mundi." Country Comparison- Cambodia. 01/01/2009. Web. 22 Nov 2009. .

 

"Khmer Rouge | Killing Fields | Pol Pot | Ieng Sary | Nuon Chea - Cambodian Information Center." Cambodian Information Center (CIC) Homepage. Web. 10 Dec. 2009. .

 

Productivity Summary and Analysis

 

To understand the low levels of depleted human capital and physical you must first understand that the country of Cambodia has been in conflict for many decades. The country's past has had a direct effect on the countries low productivity currently. The people of Cambodia have very little human capital; they have very little education and lack skills of production. The country’s economy lacks an overall infrastructure and the only real human capital the citizens have is the knowledge of farming ("The Cambodian Economy: Ready For Take-Off").

 

 If the country wants to become more productive in the future they most become proactive and diversify the knowledge of citizens into many different sectors of their economy. They could do this by creating policies, which help citizens acquire an education in sectors other than farming. Until then, the economy is still every man for himself and all still depend on the land for farming. Due to a weak infrastructure, physical capital is also astonishingly low. Their economy is fully dependent on crop production meaning their physical capital is made up of mostly farming tools and supplies for harvesting. Families typically hand down the same tools from generation to generation so the tools are outdated although they are plentiful and very effective. Cambodia does in fact have one strong suite, natural resources. They have an impressive amount of oil, gas, timber, gemstones, iron ore and hydropower potential. The country of Cambodia, since 1995, has become much more productive for the simple fact that they have learned how to effectively use these resources ("Cambodia Economy").

 

 A huge part of the recent economic growth lies within the fact that they are now exporting these resources; their main exports are clothing and rice. The technological knowledge in Cambodia is also very weak; the Internet is still a very rare commodity in the country of Cambodia. Since they have evolved as country only knowing how to farm by instruction form their government, everyone is convinced that agriculture is the best way to make a living and they have no real alternative options. The fact remains; little has been done to boost the country in its technological knowledge.

 

 In conclusion, it is clear why Cambodia has such lackluster productivity. The nation’s conflicting past has laid a terrible foundation for the progress of economy ("Cambodia Economy”). People are not well educated and have very few skills outside of farming. The tools they posses are typically those used in farming and harvesting. The country's well-being is at risk but is increasing quite well; this is directly related to the new emergence of effectively using their natural resources. If the country continues to successfully export these abundant resources, I believe they will be on track for planting a solid foundation for the future economy. 

 

Works Cited

 

"Cambodia Economy." Expedited Visas, Visa Applications, Rush Passport, Passports, Travel. Web. 30 Nov. 2009. .

"Cambodian Economy." AsianInfo.org. Web. 30 Nov. 2009. .

"The Cambodian Economy: Ready For Take-Off?" IDEAS: Economics and Finance Research. Web. 30 Nov. 2009. .

"Economy - Cambodia." Encyclopedia of the Nations - Information about countries of the world, United Nations, and World Leaders. Web. 30 Nov. 2009. .

Infoplease: Encyclopedia, Almanac, Atlas, Biographies, Dictionary, Thesaurus. Free online reference, research & homework help. Infoplease.com. Web. 30 Nov. 2009. .

 

(Cambodian Information Center (CIC) Homepage. Web. 10 Dec. 2009. .

Savings and Investment

Cambodia is a very poor country and they have very few resources to help save and invest for the future economy. Most of the government’s finances have been allocated towards helping forming a stable governmental system, which has been successful. They have a wise group of financial advisors that are active in creating ways to help themselves create a better well-being.

 

 However many other countries have come to the aid of Cambodia. They have a huge amount of international support; the United Nations Transitional Authority Committee has pledged $1.72 billion in funds to help stabilize the economy in turbulent times. The committees of rehabilitation and reconstruction met in Paris and Tokyo and collectively totaled an impressive $3.3 Billion towards Cambodia. This money has gone towards a better schooling system to help boost human capital and they have also invested heavily in the industries that export in huge quantity like clothing and rice ("Cambodia Economy”). Another way Cambodia has increased economic growth is through foreign investment, nearly 7% of their GDP is from foreign investment and it has helped to aid industries by making them more productive.

 

In the past two years there has been a 72% increase in the number of businesses started in the country ("Cambodia Economy”). This allows me to conclude that foreign investment and the different stability packages Cambodia received have really had an effect on the economy and people are generally feeling more confident in their nations economy. The country’s savings are very low, yet the investment and growth is at an all time high due to foreign aid ("The Cambodian Economy: Ready For Take-Off").

 

Works Cited

 

"Cambodia Economy." Expedited Visas, Visa Applications, Rush Passport, Passports, Travel. Web. 30 Nov. 2009. .

"Cambodian Economy." AsianInfo.org. Web. 30 Nov. 2009. .

"The Cambodian Economy: Ready For Take-Off?" IDEAS: Economics and Finance Research. Web. 30 Nov. 2009. .

"Economy - Cambodia." Encyclopedia of the Nations - Information about countries of the world, United Nations, and World Leaders. Web. 30 Nov. 2009. .

Infoplease: Encyclopedia, Almanac, Atlas, Biographies, Dictionary, Thesaurus. Free online reference, research & homework help. Infoplease.com. Web. 30 Nov. 2009. .

 

(Cambodian Information Center (CIC) Homepage. Web. 10 Dec. 2009. .

 

International Trade

 

Cambodia’s main exports are oil, gas, timber, gemstones, iron ore, pearls, gold, teak wood, rhinoceros horns and elephant tusks. Their main imports are wine, silk, cloves, cinnamon, nutmeg, wheat, iron and glassware ("Country Profile of Cambodia.”)

 

The country of Cambodia has many different trade agreements with many different countries. Cambodia has made trade agreements with the USA, Germany, United Kingdom, Canada and Vietnam. The biggest portion of that trade is the USA with 58.1%, which is where they send the majority of their exports ("Cambodia Economy”).

 

However, most of the importing of goods is done from nearby Thailand. These trade agreements are quite recent, created in 1995, since for a very long time countries refused to trade with Cambodia due to their corrupt government and strict policies of the Khmer Regime. So the country is relatively new to opening up trade to different countries. The biggest export from Cambodia is rice and they have very effective methods of harvesting this crop, after all for many years they were forced to solely rely on agriculture. The tools have been passed down over years; also the tips and tricks are passed on much like tools. After relinquishing the corrupt government the country has very few enemies because they are staying neutral to help produce more opportunities for trade ("Cambodia Economy”). Cambodia has a huge comparative advantage with its production of rice, for many years they relied on rice due to the corrupt government’s strict rules since they have specialized in producing rice at such a high rate of output. There is an abundance of human and physical capital in the production of rice within Cambodia. This leads to a high productivity rate for rice and other agriculture ("Cambodia Economy”).

 

Cambodia also exports fish although they do not have a comparative advantage. They are increasing productivity in the fishing industry but still lack the physical capital that other countries have to be more productive. This is not a very efficient method of trade for Cambodia’s economy. From 1975 until 1979, under the rule of the Khmer Rouge, Cambodia had many enemies their economic growth struggled greatly. However, after stabilizing the government the country now trades with many partners and has increased economic growth tremendously ("The Cambodian Economy: Ready For Take-Off"). Each year the country keeps increasing their trade and other countries are now investing in the advancement of Cambodia’s trade market.

 

In conclusion, Cambodia is on the path to being a successful country after stabilizing itself, as long as they keep advancing their methods of trade they will be on the path to success.

 

 

 

 

Works Cited

 

"Cambodia Economy." Expedited Visas, Visa Applications, Rush Passport, Passports, Travel. Web. 30 Nov. 2009. .

"Cambodian Economy." AsianInfo.org. Web. 30 Nov. 2009. .

"The Cambodian Economy: Ready For Take-Off?" IDEAS: Economics and Finance Research. Web. 30 Nov. 2009. .

"Economy - Cambodia." Encyclopedia of the Nations - Information about countries of the world, United Nations, and World Leaders. Web. 30 Nov. 2009. .

Infoplease: Encyclopedia, Almanac, Atlas, Biographies, Dictionary, Thesaurus. Free online reference, research & homework help. Infoplease.com. Web. 30 Nov. 2009. .

 

(Cambodian Information Center (CIC) Homepage. Web. 10 Dec. 2009. .

Employment Summary and Analysis

 

 

In Cambodia, the current unemployment rate for workers seeking employment is 3.5%.  This is up from 2.5% only one year ago("Economy - Cambodia - tax, problem, average, growth, area, annual, system, infrastructure.") The 1% increase in unemployment over the past year in Cambodia can be attributed mostly to garment-construction jobs moving into lower-priced countries such as China, India and Vietnam. According to a study conducted by the American Chamber of Commerce,  China , Indian, and Vietnam provide less expensive factory costs for companies, and the quality of work tends to be higher. ("Cambodia Money - Globe Aware").    Previously, the World Trade Organization offered tax incentives for businesses to create garment-construction jobs in Cambodia.  These incentives have expired.   These expired incentives have forced a structural increase in unemployment whereby the labor market is moving across borders, chasing cheap labor ("Economy - Cambodia - tax, problem, average, growth, area, annual, system, infrastructure.")

The total labor force participation rate for men and women over 15 years of age is 78%.  For women, over age 15, the labor force participation rate is 75%.  For men it is 85%.  Although the participation rate for men outnumbers the rate for women, Cambodia’s participation rate for women is the highest in the Southeast Asia region.  This labor force participation rate, for women, has been rising over the last few years due to Cambodia’s increasing garment-construction trade. (Some companies that moved to Cambodia in the late 1990’s for the tax incentives are moving operations to China, but many new garment-related jobs are still being created in Cambodia due to Cambodia’s liberal business policies, success with Union negotiations and extensive tourism infrastructure.)   Approximately 90% of jobs created in the garment-construction industry are filled by women. ("Cambodia: Money and Banks").  Another reason Cambodia has a larger than usual female employee count (when compared to other Southeast Asia countries) is attributed to years of civil conflict with the Cambodian Civil War (1967-1975) where over 800,000 people, mostly men, died.

Although garment-construction jobs are on the rise, agriculture still comprises over 75% of the available jobs.  These agricultural jobs consist of rice farming/milling and fishing.  These types of jobs require mostly unskilled labor.  Cambodian farmers earn more than half of their income by exporting their rice, and some corn, to Vietnam and Thailand.

The Information Minister of Cambodia, working with the Garment Manufacturers Association of Cambodia set the minimum wage at $50.00 (in U.S. dollars) per week ("Cambodia Money - Globe Aware").  This is a frozen minimum wage until 2010.   This wage is small, but the cost of living in Cambodia is cheap.  Cambodia ranked 273 out of 275 countries in the world for cost of living. (Japan ranked #1.) ("Cambodia Money - Globe Aware")    One dollar in Cambodia will buy a meal, and rent for a small apartment is about $40.00 a week.  Rural farmers make less money than urban factory workers.  They earn about $ 135.00 (U.S. dollars) per year.  Most farmers in Cambodia own their own land though and do not pay rent.  

Works Cited

 

 

 National Bank of Cambodia. Web. 01 Dec. 2009. .

"Cambodia Money - Globe Aware." Volunteer vacations, working vacations, Costa Rica, Peru, Machu Picchu, working holiday, vacation, volunteer abroad - Globe Aware. Web. 02 Dec. 2009. .

"Cambodia: Money and Banks." Cambodia travel guides: Siem Reap, Angkor, Phnom Penh, Sihanoukville - hotels, resturants, maps, airlines and more. Web. 01 Dec. 2009. .

"CCH - Cambodian Money." CCH - Cambodian Community of Hawaii - Aloha Khmer! | Honolulu. Web. 02 Dec. 2009. .

 

"Economy - Cambodia - tax, problem, average, growth, area, annual, system, infrastructure." Encyclopedia of the Nations - Information about countries of the world, United Nations, and World Leaders. Web. 02 Dec. 2009. .

 

Money Summary and Analysis

 

In Cambodia their form of currency is known as Riel. Each US dollar is worth 4100 Riel. The Riel has only been in circulation for 30 years so it’s relatively new ("CCH - Cambodian Money"). This is due to the fact that when the political instability occurred (Communist Khmer Rouge-with leader Pol Pot- taking power from 1975- 1979 then Vietnam taking control) , each different ruling party enforced their own currency with specific policies. Another reason for instability is the incredibly high rate of inflation. Inflation rate is 20%, which is more than five times greater than the rate of the United States ("Cambodia Money - Globe Aware"). It is a very poor medium of exchange, store of value and unit of account for these reasons. Their currency is disliked so much that many firms and businesses demand to be paid in US dollars because the inflation rate is so high, the frequency of changing prices and the fluctuating value of the riel. Currently, Cambodia is using fiat money as their currency, although before enforcing a stabilized government in 1980, the different political factions would change currency when they arose to power so this forced the citizens to use currency money ("Cambodia: Money and Banks"). Cambodia has a central bank called the National Bank of Cambodia ("Cambodia: Money and Banks"). It’s located in Phnom Penh and its duties are to manage the monetary exchange policies, regulate banks and financial institutions and also to control the national currency (National Bank of Cambodia). However, the central bank is also known for funding communist regimes with under the table funding, they have been nicknamed the “red bank” and the “Banque Rogue.”  This corrupt system of banking also has a negative effect of the stability of the monetary system and economy. To fix Cambodia’s money stability problem they must reduce their rapid rate of inflation. This can only be accomplished by forming some political stability and by having the government banish the members of the National Bank that make it corrupt. If these steps are taken the country of Cambodia will finally have a firm unit of account, store of value and medium of exchange.

 

 

 

 

 

Works Cited

 

 

 National Bank of Cambodia. Web. 01 Dec. 2009. .

"Cambodia Money - Globe Aware." Volunteer vacations, working vacations, Costa Rica, Peru, Machu Picchu, working holiday, vacation, volunteer abroad - Globe Aware. Web. 02 Dec. 2009. .

"Cambodia: Money and Banks." Cambodia travel guides: Siem Reap, Angkor, Phnom Penh, Sihanoukville - hotels, resturants, maps, airlines and more. Web. 01 Dec. 2009. .

"CCH - Cambodian Money." CCH - Cambodian Community of Hawaii - Aloha Khmer! | Honolulu. Web. 02 Dec. 2009. .

 

"Economy - Cambodia - tax, problem, average, growth, area, annual, system, infrastructure." Encyclopedia of the Nations - Information about countries of the world, United Nations, and World Leaders. Web. 02 Dec. 2009. .

 

 

 

Policy Recommendations

 

 

                                   

As noted in previous sections, Cambodia has only enjoyed political rest since 1993.  From 1975 to 1979, the Khmer Rouge and the Communist Party ruled the country.  Even though the ruling of the Communist Party only lasted four years, major economic damage was done to the country.  Citizens, who were employed in the city as managers, teachers, bankers, etc., were forced to engage in agriculture labor.  Private property was taken away from the citizens.  ("Cambodia Money - Globe Aware") Schools and factories were closed.  Even after the Khmer Rouge left; Cambodia continued to be ruled by other nations- such as a Vietnamese-sponsored government and a United Nations- sponsored government.  Finally, in 1993, Cambodia returned to monarchy rule and the Kingdom of Cambodia was reestablished.

Policy recommendations for Cambodia should focus on getting citizens back to the cities and into skilled labor jobs.  In 2005, The World Bank pledged 504 million dollars to Cambodia for education, infrastructure and advancement. (“Cambodia Economy Today”)  In 2006, the Asian Development Bank followed suit and pledged 804 million for technology assistance, business loans, and economic advancement.  I would recommend policy that earmarks some of that capital for building world-class schools to educate unskilled labor, specifically younger women.   As noted in previous sections, the labor force participation rate for women is exceedingly high in Cambodia (“Cambodia”).  Women are currently working in the garment-construction industry in Cambodia.   They should be offered monetary incentives to give up their unskilled jobs and seek education and employment in the city.  With over 50% of the population under the age of 22, and investment in education would pay off (“Cambodia”). 

For unskilled labor, policy recommendations for Cambodia should focus on raising the minimum wage.  As previously noted, the minimum wage of $50.00 per week for workers is due for review in 2010. (Cambodia Economy Today”)  The Minister of Cambodia and the Garment Manufacturers Association should set policy on a higher minimum wage.  With more money in their hands, workers can purchase goods and stimulate the economy.

Since 1987, foreign investment has focused on increasing rice production in Cambodia. (“Cambodia Economy After Khmer Rouge”)  During the Khmer Rouge rule the land was taken away, and Cambodia could not produce even enough rice for its people. (“Cambodia”)  Today, almost all of Cambodia’s agriculture is devoted solely to rice.  Policy needs to be put in place to encourage other types of agriculture.  Taking into account the monsoon weather patterns of Cambodia, other crops need to be planted.  The benefits of planting different types of crops, like corn in addition to the rice, are that farmers can use their land for different growing seasons, and they minimize their risk when they grow more types of crops.  Policy should be set for monetary incentives for every acre of land that they devote to new types of agriculture. 

 

 

As noted in previous sections, for various political and economic reasons, Cambodian currency is very unstable.  Also noted was the current corruption behind the National Bank of Cambodia. (“Cambodia”) This bank used to be an independent bank, but is currently run by the Ministry of Institutes, with heavy influences from the former Khmer Rouge. (“Cambodia”).   In 2008, a consulting group (CG) was established to oversee the Ministry and begin making anti-corruption policy.  The world market still doubts the fairness of practices at the bank, since members of this CG have yet to enact anti-corruption policy. (Cambodia Economy Today”)   I believe that policy should be established whereby Cambodia relies on their membership in the World Bank and the International Monetary Fund to manage their banking system.  Cambodia cannot continue economic growth until their currency is stabilized.  

 

                                                           

 

                                                Works Cited

 

“Cambodia economy today.” Www.WTOcambodia, Web.

 

“Cambodia.” Wikipedia.com. Web.

 

Jergens, Nicholas. “Cambodia economy after the Khmer Rouge,” Time Magazine 6 Feb.  

 

2005. Print