Cambodia's bilateral and multilateral free trade agreements (FTA) are expected to bring in new investment in the coming years that can help to spur domestic productivity and advance economic diversification, the central bank reiterated in a new report.
Key of these will be the Regional Comprehensive Economic Partnership (RCEP) agreement, the National Bank of Cambodia said in its Financial Stability Review (FSR) 2022, which was released on July 6. Comprising 15 Asia-Pacific countries, the RCEP is the world’s largest trade pact and was launched at the start of 2022.
An FTA is an international treaty between two or more economies that aims to lessen or do away with specific import and export barriers while generally preserving safety, security, health and other legitimate regulatory objectives. Such a pact can also enable or encourage stronger economic ties among members in areas such as investment and intellectual property protection.
The report projected that the economies of Cambodia, the ASEAN region, and the world will expand in 2023 by 5.6 per cent, 4.9 per cent and 2.8 per cent, respectively.
According to the report, this growth will primarily be supported by manufacturing exports (garments or otherwise), swift recovery in the tourism and allied industries, and rapid expansion in the transport and communication sectors. It also forecast that agriculture, despite having a slower growth rate, will remain a key driver of economic development.
Similarly, it estimated that the global average annual inflation rate would slow down to seven per cent, from 8.7 per cent in 2022, and predicted that the corresponding rates for the Kingdom and the region would be far lower, at around two per cent and 5.7 per cent, respectively.
Speaking to The Post on July 9, Ministry of Commerce spokesman Penn Sovicheat suggested that the RCEP and other FTAs would be instrumental for Cambodia’s aspirations to graduate from the Least Developed Country (LDC) category, as well as to become an “upper-middle income” economy by 2030 and join the “high-income” nations by 2050, as defined by the World Bank (WB).
He claimed that these FTAs would better position Cambodia as a location for both investment and production. The trade pacts, “in addition to fostering sustainable trade growth for Cambodia, will also serve as a magnet for foreign direct investment [FDI]”, Sovicheat added.
Royal Academy of Cambodia economist Ky Sereyvath described the RCEP as a fresh burst of momentum for the Kingdom’s regional export diversification drive, and a fertile source of opportunities to attract more investment inflows.
“With the RCEP, Cambodia has gained magnificent opportunities to not only step up exports of goods at competitive prices thanks to the tariff-free treatment, but at the same time, we have a chance to import products at more affordable rates to supply the domestic market and counteract the rising inflation, for the people,” he told The Post in an interview late last year.
“Moreover, the agreement will also open door for Cambodia to welcome investment flows, but that’ll require us to properly prepare skilled labour and a sound tax system, as well as to build a level playing field for fair market competition,” Sereyvath added.
According to Prime Minister Hun Sen, with the RCEP, Cambodia’s GDP (gross domestic product) “could rise by around two-to-3.8 per cent, exports would grow between 9.4 and 18 per cent, job opportunities would increase by 3.2-6.2 per cent annually, and tax revenue could increase by two-to-3.9 per cent, [while] overall investment could increase by around 23.4 per cent”.
The premier was citing figures from an “early-2022 study” by the Jakarta-based Economic Research Institute for ASEAN and East Asia (ERIA), at a High-Level Forum at the 10th-Anniversary of the RCEP Agreement in early November organised by ERIA.
According to the NBC’s FSR 2022, FDI inflows totalled $3.6 billion last year, increasing by 2.7 per cent from 2021, with those into the financial sector declining by 15.7 per cent, “mainly due to a slowdown in banks’ capital investment and reinvested earnings”.
On the flip side, FDI inflows to non-financial sectors increased by 14.2 per cent on 2021 supported by hydropower and energy, construction and real estate, manufacturing, and accommodation, which respectively made up 51 per cent, 27.7 per cent, 15.5 per cent, and 1.8 per cent of that total.
The report did not provide separate figures for FDI inflows to the financial and non-financial sectors in 2022, but the aforementioned data indicates that the former falls in the range of $1.109-1.164 billion and the latter $2.418-2.509 billion, which is corroborated by pixel counts of a supplied graph.
The Greater China region (comprising the Chinese mainland, Hong Kong, Macau and Taiwan) accounted for the lion’s share of total FDI inflows in 2022 at 52.0 per cent, followed by South Korea (11.4%), Japan (8.4%), Singapore (7.3%), Malaysia (3.1%), the UK (2.7%), Thailand (2.3%), the US (0.9%) and Vietnam (0.7%), it noted.
“China notably invested in manufacturing, finance, construction, real estate and accommodation,” it said.