Cambodia Investment Review
Founder and Executive Director of the Asian Trade Centre and the President of the Asia Business Trade Association Dr. Deborah Elms was recently featured in the EuroCham newsletter where she spoke about her experiences working in the region for over 20+ years as well as the challenges and opportunities facing Cambodia’s long-term trade outlook.
Reflecting on the major shifts in trade during her time working in the region Dr. Elms told EuroCham that she believes that what distinguishes Asia and Southeast Asia in particular, is the amount of change that people have seen in their lifetimes.
“Because so much economic transformation has taken place in your lifetime, you are more comfortable with the idea of interdependence and market openness than in other regions. Because you have personally experienced change, you can see how and why connecting to more than your village or town has made a difference. So, you’re much more supportive of efforts to continue integration than if you lived elsewhere,” she said.
“Compared to Europe for example, you don’t have that same personal sense of drastic change through generations, the trajectory is much slower in most of Europe,” she added.
Reflecting on her first visit to Phnom Penh, Dr. Deborah Elms commented that everyone took her to see the first skyscraper being built, and everyone spoke about it. While now they’re all over the city and it’s happened in a very short time. “You’ve gone from incredible pride to the first 20-story building to blasé about 20-story buildings. Think about Europe, when was the last time anyone got excited about a 20-story building?” she said.
Ongoing challenges for regional trade
Speaking about the potential obstacles to trade for the region, especially after the impacts of the COVID pandemic – Dr. Deborah Elms commented that the focus has been on supply chains. She said the pandemic has prompted a lot more discussions about supply chain reshuffling and sourcing with some of these changes will be long lasting, but probably fewer than people imagine. At the end of the day for many companies, the cost of shifting the supply chain is too high and they will do the math and realize it was better where they were, Dr. Elms stated.
“One of the things about globalization is that you’re able to source the best quality materials for the cheapest price, and this equation isn’t going away. If you localize your supply chain, you might end up with more expensive but fewer quality goods. Logistics costs may not go down just because you’re sourcing closer to home. If you’re not well-connected with transport links, it doesn’t matter if it’s close, it will still be difficult and expensive,” she said.
“In Cambodia, transport is costly and electricity is still very expensive. That is becoming a pain point that is a challenge, and if it’s difficult to use clean energy or solar panels, this is especially a problem. The fact that solar electricity is difficult or expensive to use handicaps the economy and hurts the environment. I believe there need to be some policies implemented to remedy this,” she added.
According to Dr. Deborah Elms Cambodia’s position in the context of economic drivers in the region will depend on the time horizons, adding, it will be a while before Cambodia has the sustained economic growth that you saw in Singapore and Korea for example.
“I can imagine things that will grow quickly or could be leveraged for economic development but there are also significant structural problems including transport, infrastructure, and the electric grid. You also need to have a mindset that economic development for the masses is a priority and create policies that match that,” she said.
She added that Cambodia has potential with much of the population currently residing in rural areas and a big jump would be helping subsistence farmers grow a little extra and put their food on the market.
“This unleashes a lot of economic growth. We also need to develop the market and find structures that allow people to pool and sell their goods. how do we get farmers, grow a little bit extra to put it on the market development of market structures to allow them to pull together and sell it in the market,” she said.
“However, the economic conditions need to be created for this to happen. For example, you could focus on things like infrastructure. For food, we need a road for a pineapple to easily get transported from where it’s grown to where it’s eaten. Keeping food fresh is hard, but can we dry it or make jam? There could be a focus on lightweight, high-value goods, such as dried fruits and nuts,” she added.
Cambodia’s unique dual currency
Reflecting if Cambodia has any competitive advantage due to its strong dollarization in the context of trade Dr. Deborah Elms does not believe this gives Cambodia a district advantage adding by default the country ends ups focused on bigger markets because of the pricing of the economy in dollars.
“This is because you can find places where you are cost-competitive and not cost-competitive and focus on bigger markets. Another point is that infrastructure for banking, finance, and insurance is built on USD and this allows you to take off-the-shelf products and services and offer them here,” she said.
“However, when you are dollarized, the problem is that you import the US dollar market conditions, such as importing interest rates and inflation rates tied to the US dollar. This will inevitably create situations that sometimes favor the US and sometimes favor Cambodia,” she added.
Dr. Deborah Elms commented that looking to the future Free Trade Agreements will be critical to expanding the Kingdom’s trading economy as the country’s trade benefits under its Least Developed Country status adding that FTAs insure against the economic shock of LDC graduation.
“That said, you don’t need to have FTAs with 180 countries. The problem for Cambodia is its main markets like the USA and Europe will not create a bilateral FTA with Cambodia. That’s a problem and you will have to find new customers, or you will have to find a way to be more competitive in the marketplace,” she said.
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“Other countries, like Bangladesh, will graduate as well, so you won’t have to compete with a Bangladesh receiving LDC benefits. However, tariffs on some goods going from 0 to 25-30 percent, that is going to be a huge price difference,” she added.
Dr. Deborah Elms stated that while it seems unfair to take preference programs and cut them or exclude key sectors like the garment sector graduation should be a phased approach and focus on the important sectors.
“Oftentimes the preferences allow for phased-out approaches in sectors that don’t necessarily benefit the country. In Cambodia, for example, it doesn’t make sense to continue to receive preferences on snow equipment that the country doesn’t produce but lose preferential conditions on garments, but this is sometimes the case,” she added.
