Money Matters, Wed, July 30 2008
Neither very democratic nor well-run, the country has nevertheless seen economic growth of more than 10% a year since 2000
Cambodia’s ruling party won re-election in an imperfectly democratic ballot on 27 July. Corrupt, impoverished, with high population growth and poor infrastructure, the country might seem a basket case.
Yet, with Vietnamese backing and nearly 10% annual economic growth since 2000, it may be turning into another Asian Tiger.
Cambodia is neither very democratic nor very well-run. Its leader Hun Sen was backed by Vietnam when it overthrew the Khmer Rouge in 1979, and he has been prime minister since 1985.
Cambodia ranks at No. 162 on Transparency International’s 2007 Corruption Perceptions Index, well below the threshold at which normal business becomes difficult—a sale of land to foreign investors in 2007 seems to have benefited mostly the ruling elite.
Like its neighbour Vietnam, Cambodia is suffering an imported inflation problem because of rising food and fuel costs. The government’s solution has been to cease reporting the country’s consumer price index “to avert the possibility of disorder and turmoil”.
Nevertheless, there are signs of progress. Cambodia has enjoyed economic growth of more than 10% a year since 2000, led by its main export industry, garments.
Its annual population growth has declined from 2.3% in 2000 to 1.8%, facilitating rapid economic growth by reducing the strains that high population growth places on education and infrastructure.
Cambodia’s public sector absorbs only 12% of its gross domestic product (GDP), its budget and payments are close to balance, and it expects to open a stock exchange in 2009.
Foreign investment is the key, as it has been in Vietnam, where it totalled 65% of GDP in the first half of 2008. Cambodia permits 100% foreign ownership in most sectors, and foreign investment is expected to double in 2008 from $2.7 billion (Rs11,475 crore today) in 2007 (30% of GDP), with China and South Korea the leading investors.
Corruption and a lack of public sector transparency stand in the way.
But with rapid growth in Vietnam, greater prosperity in Thailand, its other neighbour, and the US market open to its exports, Cambodia could be set to become an Asian Tiger in its own right.