Cambodia Investment Review
Amidst optimistic economic forecasts from international development organizations, Stephen Higgins, a partner at Mekong Strategic Capital, voiced concerns over Cambodia’s economic situation in 2023 and early 2024. Contrary to forecasts from the IMF, World Bank, ADB, and AMRO, which predict a 5%+ GDP growth this year, Higgins warns of a significant economic slowdown in Cambodia at the moment.
Read more: Cambodia’s 2023 Economic Growth Forecast at 5.3% Amid Industry Slowdown, ADB Reports
Mismatch Between Forecasts and Reality
Speaking to Cambodia Investment Review, Higgins said, “The first step in fixing a problem is recognizing you have one. Cambodia is clearly experiencing a sharp economic slowdown, with GDP growth likely to be much closer to our prediction from early this year of 2.5%, and potentially even lower.”
However, Higgins does see a silver lining. “I want to be clear that I still see Cambodia as an attractive investment destination. Longer-term growth prospects remain some of the best in the region. The Hun Manet government has impressed so far, and with strong economic technocrats in key roles, it is arguably better placed to take the country forward.”
Unsettling Economic Indicators
- Credit Growth and Loan Arrears: Higgins points to a series of worrying economic indicators to back his claims. “Credit growth is anemic at just 3% for the eight months to August, or around 4.5% annualized. This is well below the double-digit forecasts of the multilateral agencies. Loan arrears have increased from 3% at the beginning of the year to 5.8% in September.”
- Declining Exports and Garment Sector Woes: “Exports have slightly declined in the nine months to September, and the Garment sector has been hit particularly hard with exports down by 18%, mainly due to excess apparel inventories absorbed by the U.S,” he added.
- Underperforming Tourism and Hospitality: Tourism has also been underperforming, with international air arrivals down by 61% compared to pre-Covid levels. “A recent survey by EuroCham showed that 77% of restaurants reported declining turnover over the last year,” Higgins noted.
- Dwindling Tax Collections: Another red flag is the tax collections. “They are actually below last year’s levels and were 21% below budget for the first eight months,” said Higgins, adding that this was not due to the fault of the General Department of Taxation (GDT) but rather a reflection of declining corporate profits.
Broader Regional Context & The Road Ahead
Higgins noted that similar trends are evident in Vietnam. “Many of the negative data points Cambodia is experiencing are also being replicated across the border in Vietnam, so we’re not alone,” he said.
Despite the bleak immediate outlook, Higgins believes there is reason for longer-term optimism. “The start of 2024 will continue to be soft before we start to see a return to the high levels of growth that Cambodia has delivered over the past 20 years. With asset prices normalizing, and the longer-term outlook remaining attractive, the coming year should actually be a great time to invest in Cambodia.”
While Higgins does not deny Cambodia’s long-term potential and praises the current government’s efforts, he urges caution and a reevaluation of the overly optimistic economic forecasts. His analysis suggests that empirical data and ground-level economic indicators tell a story of a slowing economy that contrasts sharply with the rosy picture painted by international development organizations.
For investors and policymakers, the message is clear: there is an urgent need to recognize the signs of a slowdown and adapt strategies accordingly.
