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Cambodia Economic DevelopmentTerm Paper

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Royaume Du Cambodge

Cambodia is one of the poorest countries in the world, and certainly in Asia. After emerging from the rule of the Khmer Rouge, Cambodia had nothing as was forced to start over. From that starting point, the country's economic development was never going to be easy, and even its low levels today represents healthy progress. Yet, by objective measures and without taking history into account, Cambodia has a lot of issues that it needs to remedy going forward.

This paper takes a look at several major issues. The first sections introduce the company -- its history and the current state of the economy, including trade measures, a discussion of key industries and the key issue of energy. From there, a number of issues are examined individually, beginning with poverty, something that remains a critical issue in Cambodia. The political environment, infrastructure, corruption, health performance, the tourism industry and child labor are all given attention, to highlight the different aspects of Cambodia's economic development situation. The paper concludes with an analysis of Cambodia's current situation, placed in context, and looks forward to a day when the current positive trends manifest themselves into a growing, more prosperous Cambodia.

Introduction

Cambodia is a constitutional monarchy located in Southeast Asia, south of Laos, west of Vietnam, east of Thailand and north of the Gulf of Thailand. Prominent physical features of the country are its situation on the Mekong River and the large Tonle Sap Lake, both of which have provided a living for the Khmer people for centuries. The peak of civilization in the region was during the Angkor civilization in the middle ages, a large Hindu empire whose capital city, Angkor Thom, is now a major tourist draw and key source of foreign exchange. In its day, it had a population over 1 million and was the largest city to have existed prior to the Industrial Revolution (Jarus, 2014).

Ethnically, Cambodia has a relatively homogenous population, especially for Southeast Asia, with 90% of people being Khmer. The Khmer language is an Australoasiatic language related to Vietnamese. The population of around 16 million are primarily Buddhist.

The economic development of Cambodia was stunted in the 1970s by political event of the era. While Vietnam and Laos suffered significantly from war, in Cambodia it was internal strife caused by the rise of the Khmer Rouge, a nominally Communist regime that modeled policy after China's Great Leap Forward and was backed by Beijing. The Khmer Rouge depopulated the cities, and they not only executed their political opponents, but anybody with an education. As a result, Cambodia began the 1980s, after liberation by Vietnamese forces, with a largely rural and uneducated population, and almost no leadership capability. The Khmer Rouge lingered on in parts of the country for a long time thereafter, and the economic impact of their brief reign of terror is still felt today, and reflected in Cambodia's path of economic development (CTM, 2014).

Economic Overview

Cambodia today has a GDP of $39.64 billion, and has sustained a growth rate of roughly 7% for the past few years. This GDP figure places the country 107th in the world, in between North Korea and Honduras. As a comparable to a modern nation, Luxembourg has a similar-sized economy and a population of just half a million people. Cambodia's GDP per capita of $2,600 makes it one of the world's poorest countries. Only Burma has a lower per capita GDP in Southeast Asia -- Cambodia is wedged between Sudan and Western Sahara. Thus, by any measure, Cambodia is a very poor country. Bordering countries are significantly wealthier -- Laos ($3,100) is comparable, Vietnam ($4,000) has seen strong GDP gains in recent years, and Thailand ($9,900) is dramatically wealthier (CIA World Factbook, 2014).

One-third of the Cambodian economy comes from agriculture, with cash crops such as rubber, coconuts, corn, rice, silk and cashews providing some foreign exchange. Tourism is the largest sector of the economy, mainly related to Angkor and surrounding ruins. Garments, construction, cement and agriculture are other significant industries in the country. Cambodia has seen a relatively strong growth rate in industrial production of late, growing 9.5% in 2013, one of the faster rates in the world. Despite this growth, inflation is relatively low, at 3.2%. (CIA World Factbook, 2014).

Cambodia is a net importer, with a current account deficit of $1.262 billion. Main exports are clothing, timber, rubber, rice and fish, with destination markets being the U.S., UK, Germany, Canada and Singapore. It is interesting to note that the major export partners are not its neighbors, but rather far-flung Western nations, but this probably reflects the importance of tourism to Cambodia's economy.

The country imports petroleum, cigarettes, gold, construction materials and machinery, with trade partners being Thailand, Vietnam, China, Singapore and Hong Kong (CIA World Factbook, 2014). These imports say a lot about Cambodia's development. We will discuss the energy issue in a moment, but cigarettes and gold are essentially worthless from a pragmatic point-of-view. Gold is a response to the softness of the local currency, the riel, and cigarettes contribute nothing of value to the economy. Construction materials and machinery are valuable, and helping to fuel some of the company's growth. Of concern is that should Cambodia attract investment, it will primarily be in tourism. The country has limited capacity in resource extraction and limited infrastructure besides, but otherwise it has relatively few competitive advantages, and even nearby countries can compete on labor cost. This reality makes it difficult to fully see a pathway to stronger economic development for Cambodia

Adding to the troubles for the country is that the lifeblood of industrial development, fuel, is in short supply. Cambodia produces less than half of its domestic electricity needs, and almost all of its capacity is coal-burning, not good for a country that no particular coal reserves. Cambodia has no known reserves of either crude oil or natural gas, and must import almost all of its energy. There is some minor hydroelectric capacity, but reliance on rivers for fishing hampers the ability of the country to develop this resource to any significant degree.

Key Issues -- Poverty

An estimated 20% of Cambodians live below the poverty line (CIA World Factbook, 2014). The prevalence of agriculture as a source of employment and the lack other industries besides tourism means that a large amount of the country's population is dependent on agriculture for survival. Tourism has been a boon to the Siem Reap area, and to a lesser extent the beach town of Sihanoukville, and the capital Phnom Penh has received some investment as well, but most of Cambodia is characterized by poverty, subsistence fishing and agriculture, and minimal economic opportunity.

At the end of the Khmer Rouge era, Cambodia had a poverty rate of 100%. The main export was rice, and production levels were poor. There was no economy to speak of, no money, and no industrial capacity. Cambodia literally started from the beginning at that point. The political environment was in a volatile, negative state for much of the following 20 years, with the Khmer Rouge lingering on in parts of the country, creating tremendous instability. Worse, their massacres left Cambodia with almost no leadership, as very few educated people had been able to survive that era. The ongoing instability discouraged talented expats from returning to help rebuild the country. Thus, while Cambodia has a high level of poverty and a generally poor level of economic development, its progress is actually not bad considering it had the worst starting point of any nation in the world just thirty-five years ago.

The country still faces the challenge of rebuilding its education system, which is the foundation of any economic development (Shridhare, 2011). The nation has had to rebuild educational facilities, and has a chronic shortage of trained educators. It may take another generation still to get the education system up to the standards of Cambodia's neighbors, which is a precursor to sustained economic development. Much of the redevelopment funding for Cambodia has focused on developing an educated class in the country, in order that these individuals can become the teachers and entrepreneurs that Cambodia needs for its future. The good news for the country is that today almost all Cambodian children are entering school, the gender gap in early education has been closed, both of which represent improvement over the previous decades. There are still barriers to building the education system, however, including the fact that there are still capacity issues, and high levels of corruption that divert funds away from educational programs (ODI, 2014). Education expenditures remain at low levels (CIA World Factbook, 2014), exacerbated by the fact that Cambodia is a very young country -- median age 24.1 -- which means that children growing up in Cambodia today, who will be needed to be leaders immediately upon entering the workforce, are receiving inadequate educations.

Key Issues -- Political Environment

The years after the Khmer Rouge were officially defeated by the Vietnamese… [END OF PREVIEW]

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