Calling the need to modernize the economy “urgent,” Prime Minister Hun Sen yesterday told an economic conference that the economy had to diversify to grow, something economists have long said but which has yet to occur.
Decades-old problems, poor education and vocational training, high energy costs and deficits in infrastructure, all surfaced at the forum as participants discussed the need for policies to expand the economy beyond the current mainstays of tourism, garments, construction and farming.
“There is no doubt there is an urgent need for Cambodia to modernize its economy. In practical terms, this means promoting the development of the industrial sector,” Mr Hun Sen said, adding that the economy’s narrow base had caused it to falter during the economic crisis.
In his address, Mr Hun Sen called for the study of new industries and how to nurture them, offering possibilities such as the production of furniture, handicrafts, paper, construction materials, household appliances, simple electronics, oil, gas and fertilizer.
Though Mr Hun Sen’s points and concerns are not new, they underscored the fact that even with 5.5 percent GDP growth last year, the economy remains nearly as vulnerable as it was in mid-2008, when the world economic crisis struck global demand for garments and reduced tourism.
Chan Sophal, president Cambodia Economic Institute, said diversification has been a perpetual flaw in the economy and that fixing it is easier said than done.
“Diversification has been raised or suggested for a long time, but most are not sure what to diversify or how to do it,” he said. A poorly trained workforce, high production costs and lack of capital are just some of the problems facing the economy, he said.
“When there are so many constraints, the public sectors need to take lead in establishing the conducive conditions,” he said.
Bretton Sciaroni, president of the International Business Chamber, said he agreed with policies presented at the forum by the Supreme National Economic Council, which favored broad-ranging incentives and policies to attract new industries.
Cambodia should not continue similar policies of previous decade that offered incentives to the garment sector but did not offer similar treatment to other industries, which consequently did not establish themselves, he said.
“We should have incentives to make us more competitive with regional competitors who have better infrastructure, better energy costs, better communications, everything,” he said, adding that an improved legal framework, that businesses trust, is another element to attracting industries.
Hang Chuon Naron, secretary of state at the Finance Ministry, said the garment industry received incentives because there was a global market for clothes. More industries must now be sought out and the overall business environment must be improved to attract them, he added.
Part of the government’s strategy will be to continue to lower electricity prices, build more roads and create skills among the young workforce, he said.
“We cannot just intervene in all the sectors. We have to reduce the costs. Whether it’s roads, infrastructure, we have to address that,” he said.
But he said targeting specific industries too closely could continue to foster a narrow economy, he said.
Both universities and technical schools must also be improved and stronger regulation imposed as some schools in Cambodia suffer from “poor quality,” he said.
“For now, the direction would be towards stronger regulation so you upgrade the quality of those institutes,” he said.
Over the next five years, the economy will need more Cambodians with expertise in hydro-engineering and electric engineering, creating more incentives for businesses.
“At this the stage the curriculum has not met the next decade of development,” he said.
Peter Brimble, country economist for the Asian Development Bank, said Cambodia would be on the right track if it followed through on improving infrastructure.
Lowering energy costs, reducing bureaucracy and decreasing corruption will all make a difference, while incentives are less important.
“I don’t think is an argument about incentives. I think its much more a basic argument about the basic environment,” he said.
He called the government rice policy, unveiled last year, a good way to begin moving the agriculture up the value chain from simple rice production to more milling and other agro-industries.
Rathin Roy, director of the UNDP International Policy Center for Inclusive Growth, said that the education, infrastructure and lack of economic diversity were similar to the problems facing other developing countries in the past.
“The risks of Cambodia are the risks of any emerging country,” he said. “Ten years ago it was possible to say there was something exotic about Cambodia compared to other economies. You can’t really say that anymore.”
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