Garment makers in Cambodia say they're afraid of being caught with their competitive pants down. Their main worry is the likely effect of a trade pact between the United States and Vietnam scheduled to take effect in 2002. "Vietnam is going to be a tremendous competitor," warned Van Sou Ieng, chairman of the Cambodian Garment Manufacturers Association.
Garments account for about 85% of Cambodia's US$1.5 billion export revenue, and three-quarters of all Cambodian garments are sold to the US. At least 180 factories employ around 160,000 workers, making the garment industry the largest job source in the country.
Garments are also a key element of Cambodia's dwindling foreign investment. "Foreign investment projects have slumped dramatically from US$41 million in 1999 to US$4 million in 2000," noted a report by Cambodia Development Research Institute, a private think-tank based in Phnom Penh. That slump, say analysts, is attributable to tough rules that hinder foreign investment and the continuing problem of corruption.
In June, Cambodia's new central bank regulations called for commercial banks to increase their minimum capital to US$13 million from US$5 million by year-end. Krung Thai Bank, Bangkok Bank and Thai Farmers Bank have said they will close their offices by the end of 2001 if the law isn't repealed. Thai Prime Minister Thaksin Shinawatra urged the banks to wait, saying he was optimistic he could persuade the Cambodian government to relax the conditions.
State-sponsored graft, however, may prove harder to remove. A recent report by the garment industry association estimated that bribery and corruption cost about US$70 million annually. "If there were no corruption and the money the government collected through various tax programs and customs directed to its intended purpose, [Cambodia] would not need the high level of assistance that it gets from the international community," Kent Wiedemann, the US ambassador, told a recent seminar on corruption.
Meanwhile, multilateral donors have grown increasingly testy at Cambodia's lack of commitment to reform, while the country's dependence on aid has grown. Indeed, foreign aid as a proportion of GDP rose to 16.4% in 2000 from 14.4% in 1999 and 11.7% in 1993, when the country first received massive foreign assistance.
Overall, the Cambodian economy is expected to post 2001 growth of about 4%, lower than both the initial government projection of 6.1% and the 4.5% growth recorded in 2000. Finance minister Keat Chhon promised Cambodia would exercise cautious monetary policy. Domestic inflation is likely to remain at 2000's level of 4%. Cambodia has made some progress in curbing its defence budget, which is now capped at 3% of GDP, down from 3.5% in 2000 and 6.4% in 1994.
But the country is hobbled, like other economies in the region, by falling commodity prices. A combination of floods, which began late in 2000, and drought in 2001 ravaged the rice-growing industry. Floods killed almost 400 people and caused damage of more than US$100 million. The disaster also prompted increasing migration from rural areas to Phnom Penh, Sihanoukville, and other surrounding cities.
Analysts point out that the Cambodian economy still lacks diversification - underscored by the Vietnamese threat to its crucial garments industry. "Cambodia is now at a critical juncture in making a transition towards broad-based economic growth," a World Bank report released on October 29 stated.
A major component of any such growth will undoubtedly be the tourism sector. The service sector represents about 45% of GDP and grew by 8% in 2000, mostly on the back of increased tourism.
The government is expecting to see a total tally of just over 400,000 arrivals for 2001, up from 381,000 the previous year, although the 2001 number might well have been crimped by the effects of the terrorist attacks in the United States and the subsequent conflict in Afghanistan.
An increasing number of tourists are travelling from Bangkok to Siem Reap near the temple complex of Angkor Wat instead of via Phnom Penh. Indeed, the number of tourists coming through Siem Reap increased by 210% compared with a 13% increase in arrivals at Phnom Penh's Pochentong airport.
Phnom Penh Governor Chea Sophara complained recently that Bangkok was benefiting more from the increase in tourism than Phnom Penh. "I'm afraid that foreign tourists just say 'Go to Bangkok and visit Angkor Wat'," he said. In response, Chea has instituted a US$12 million clean-up of the capital involving road and drainage improvements, continued improvements to the capital's riverfront Sisowath Quay promenade, and stiffer penalties for vagrants, squatters and petty criminals.
It's that kind of entrepreneurial reaction - rather than just putting a hand out for more foreign aid - that will get Cambodia's economy on the move towards self-sufficiency.