Phnom Penh Post, Written by Brendan Brady and Kay Kimsong, Wednesday, 17 September 2008
The Asian Development Bank’s country director, Arjun Goswami, offers a measured look at Cambodia’s successes and challenges as the Kingdom emerges as a regional economic player.
Is the slowdown of Cambodia’s national economic growth a natural levelling ,or can we expect the number to rise above 10 percent again?
We are expecting growth to come down to around 6.5 percent and that’s a reflection in part of the slowdown worldwide and inflationary trends. The slowdown worldwide has affected some of the engines of growth in Cambodia, and those engines have tended to be fairly narrow. So garment exports have clearly been affected, to some extent construction has also slowed down, and as credit becomes more constrained to head off inflation, that obviously affects growth numbers.
We’re seeing the importance of going for diversification of those sources of growth to address the structural and competitiveness issues to ensure growth rates can rise again.
What sector should demand the most attention?
We have a particular concern for agriculture and rural development. That’s where the vast bulk of Cambodians live. There is clearly a disparity between rural and urban Cambodia. Making sure rural communities are part of the tide of growth is very important and something that the ADB regards as part of its core mandate. We need to consider what sort of skills would be needed for two or three hundred thousand Cambodians who are coming onto the rural labour market every year. We need to look critically at vocational training to help Cambodians match their skills with the demands of businesses. Agriculture is a sector that has had a very volatile path given weather conditions. It’s not performing to full potential and it needs to. The poverty numbers are deeper there and it is such a potential engine of economic development.
To what extent is your emphasis on agricultural development a response to the commodity price inflation boom that began last year?
Following the food price inflation crisis there has been a eureka moment in the development community. In 2007 we already knew more emphasis needed to be placed on agriculture and agribusiness in Cambodia, but the problem has been exacerbated. There’s a much stronger need now after the food price inflation crisis.
The underinvestment in the rural economy is not purely a Cambodian story. It’s been true in many parts of the Asia-Pacific, unfortunately. There are very particular challenges in trying to move that area forward because it involves many steps: It’s a question of farm productivity, off-farm employment in the countryside, infrastructure, rural credit – and these kinds of things all have to work together. We are beginning to see some interest from foreign direct investment in agriculture in Cambodia, for example from the Middle East. We’re beginning to see agribusiness showing interest. No doubt some of that is influenced by global food price hikes.
We need to look critically at vocational training to help Cambodians match their skills with the demands of businesses.
Cambodia has requested food emergency aid assistance from the ADB while also pursuing food-export deals.
We have been concerned with a balance of two issues: On the one hand, in order to exploit that potential for the export market, there needs to be a full assessment of how much irrigation would have to increase, how much additional productivity there would need to be. The second thing is that in doing any assessment, you want to make sure domestic consumption needs are met. Quite a lot of our attention has been on the social protection issue as a first step.
Are land-grant deals, such as those recently made between Cambodia and some countries in the Middle East, problematic in any way?
Contract farming is something that’s been done by a number of countries, and we are not against it per se, but we want Cambodia to get the full value added for what they are producing. If all that is happening, as is currently the case, is that raw product is being exported, then Cambodia is not getting the full value addition that it can. There’s huge potential to move further along the value-added chain.
Is there confidence in a Cambodian Stock Exchange?
Setting a timeframe of late 2009 is useful because it gives focus. But merely having the physical opening of the stock exchange is not sufficient. There have been some useful things that have taken place, such as the formation of a securities and exchange commission well in advance of the opening of the stock exchange. But there are things that can be done that would help build confidence in Cambodia’s capital markets development like government securities – which usually help set a benchmark yield curve – and continuing to work on corporate governance and auditing capacity. This would really prepare the path for the stock exchange opening and listings.
What are the domestic benefits of the stock exchange?
Finance in Cambodia is still quite heavily concentrated in the banking sector so having that non-banking side developed is useful…. An economy that has a good capital market can ensure its private sector is able to draw from equity capital. And people take ownership stakes, equity capital is a democratisation of ownership of companies. It also helps bring a strong drive not just for economic growth but for reforms. A good stock exchange will help drive transparency. And this is a cycle, because it can attract capital.
Has the ADB been pushing the government to pass the anti-corruption law?
A very heavily weighted part of our funding formula for our member countries is based on governance issues and anti-corruption issues. So the extent to which we are able to assist Cambodia is linked to Cambodia’s ability to make progress in this area. We are one in the development community in saying this does need to be enacted, and it’s important to set a timeframe for it to happen.
Are Cambodia’s urban communities being protected from displacement in the face of development?
That’s a challenge. If you look at some of the urban slums, they are being hit. So that sort of social protection does need further work. It’s a highly relevant issue for Cambodia as a whole. Having a robust system of safeguards is very important. We’ve been trying to encourage more national subdecrees in this area to find the balance between compensating people who are affected and allowing for development.