The World Bank said in its latest report on January 31 that five sectors – garments, footwear, rice, cassava and tourism – have accounted for 80 per cent of Cambodia’s total exports in recent years, with just two markets – the EU and US – buying 69 per cent.
Labour productivity is still limited due to unexceptional levels of skills and training and low “total factor productivity”, a measure of how efficiently a country uses labour and capital in aggregate. In addition, the Kingdom’s low savings rate and domestic investment have led to a heavy reliance on external financing sources.
The bank has also recommended many options for Cambodia to address the lack of diversification and build back stronger.
Investing in human capital, supporting more efficient resource allocation through improved market institutions, and improving public investment management could help boost productivity. By the same vein, upgrading contributions to global value chains, creating added value in agriculture, and increasing competitiveness in the services sector could diversify exports.
Ministry of Commerce spokesman Pen Sovicheat sat down with The Post’s May Kunmakara to talk about the World Bank’s report and what the ministry has been doing to shore up exports.
What’s your take on the World Bank’s report?
In every developing or least developed country, there is always some level of competition which, as we’ve observed, can be fuelled by external factors such as negative impacts resulting from the spread of Covid-19.
Secondly, it can be driven by interrelated processes between market and production – export markets in particular when it comes to Cambodia.
Third, in developing or least developed countries like ours, technical capacities and skills among workers remain limited in terms of both production capacity and product quality, but this does not mean that this report captures the full story.
It merely illustrates the negative effects, but does not reflect the efforts of the Royal Government, or those of the Ministry of Commerce, which has been promoting competitiveness in domestic and international trade, among other initiatives that target market diversification, the enrichment of goods, and improvements in the quality, quantity and sustainability of production.
We don’t just have two major buyers – the US and Europe – as mentioned in the World Bank’s report – we have others such as China. Annual trade volume between China and Cambodia reached more than $11 billion in 2021, exceeding our expectations of $10 billion by 2023.
Aside from China, we ship significant volumes of merchandise to Japan, South Korea and especially to other regional markets, but also to further destinations like Canada. All of this substantiates that we have the ability to diversify goods and boost exports.
What steps has the ministry taken towards market diversification?
The ministry has signed a bilateral free trade agreement (FTA) with China and the multilateral Regional Comprehensive Economic Partnership (RCEP), both of which have come into effect, opening up opportunities for us to expand markets. A similar trade deal penned with South Korea will soon enter force as well.
The ministry will do its utmost to improve market access into other countries through FTAs – deals are also in the pipeline with India and Japan, among others – and open up more and more potential for us to achieve market diversification objectives.
In furtherance of goods diversification, we want to promote the processing of agricultural commodities into food, industrial and other types of products with significant export potential. This is something we can do given our extensive product portfolio and vast areas of fertile land.
And in accordance with instructions by the prime minister, we will try to place Cambodia as a major regional and global source of food supply, through exports.
To what extent has Cambodia integrated into the global value chain?
Our involvement in the global value chain is still limited, although we now have a new investment law to instil more confidence among investors, and provide incentives for technology, innovation and capacity building for workers, which will be crucial to increasing productivity.
We’ve recently seen new tyre factories set up in Cambodia – both inside and outside special economic zones (SEZ).
These high-potential assets will continue, because we have a free trade market where investors are expected to come and invest, and export under the terms of all the FTAs we’ve entered into.
This, among other things, will unlock Cambodia’s potential for participation in the global value chain.
What has the ministry done on the legal front to boost confidence among the business community?
In addition to developing both soft and hard infrastructure, the ministry has prepared many laws and regulations to ensure the confidence for investors as well as businesspeople.
We’ve launched laws on consumer protection, competition laws, e-commerce and other areas – especially intellectual property – that guarantee the trust of businesspeople, and create an adequate legal infrastructure in Cambodia for domestic and international trade.
At the same time, the preparation of more infrastructure such as high-speed roads, the deep-sea ports of Preah Sihanouk province, and new terminals of Phnom Penh Autonomous Port will also create favourable conditions for import and export.
This is a chance to move forward. It is important that we recognise that Cambodia has the potential, and that there are many positive factors working together to make the Kingdom a major component of the global supply and value chains.
What is your response to those who complain of high costs of doing business in Cambodia?
I often show our businesspeople the ropes of business registration and application for certificates of origin and other services, which – along with similar processes for other business certifications or registrations – can done online. You can do them yourself now.
I’ve noticed that there are a couple of issues at play here. People often ask others to register companies on their behalf because they don’t want to do it themselves – meaning that they’d rely on lawyers, private companies or other brokers, which entail additional fees.
Those who register on their own account pay just the low fees set by the government, and that’s because we have the electronic registration platform CAMDX, where businesspeople can register for themselves without incurring other costs.
This interview has been edited for length and clarity.