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Cambodia: Pursues to Reduce Dependence on Garment Manufacturing

Key Information
CapitalPhnom Penh
Population16.2 million
CurrencyCambodian Riel
Official languageKhmer
Form of governmentConstitutional Monarchy

 

Major Merchandise Exports (% of total, 2016*)Major Merchandise Imports (% of total, 2016*)
Manufactured goods (91.4%)Manufactured goods (77.0%)
Agricultural products (6.5%)Fuels and mining products (10.0%)
Fuels and mining products (0.1%)Agricultural products (9.0%)
Top Three Export Markets (% of total, 2017)  
Top Three Import Markets (% of total, 2017)
US (21.3%)China (34.1%)
UK (8.9%)Singapore (12.8%)
Germany (8.6%)Thailand (12.7%)

*Most recent data available
Sources: Economist Intelligence Unit, World Trade Organisation

Political Highlights

Cambodia is a constitutional monarchy with an elected parliamentary. The Prime Minister is the Head of Government while the King is the Head of State. Prime Minister Hun Sen has been ruling Cambodia since 1985 and his Cambodian People’s Party (CPP) is the largest party following the 2013 general election. The Cambodia National Rescue Party (CNRP), the main opposition party, was dissolved by the Supreme Court in November 2017 for allegedly plotting to overthrow Hun Sen’s government. Without major challenger, Hun Sen was re-elected as prime minister with his CPP won all 125 of the seats in the general election in July 2018.

Agriculture employs roughly two-thirds of the labour force and contributes one-third of economic output, while garment-making is the dominant industry, accounting for about 70% of exports. The government will continue focusing on improving basic living conditions and pursue policies to reduce Cambodia's dependence on low value-added garment manufacturing, which is highly substitutable between countries, and can migrate quickly to those with better price competitiveness.

Economic Trend

Economic Indicators2015201620172018*  
2019*
Nominal GDP (US$ bn)18.120.022.124.126.4
Real GDP growth (%)7.07.06.96.96.8
GDP per capita (US$)1,1631,2701,3791,4851,599
Inflation (%)1.23.02.93.33.3
Gross government debt (% of GDP)30.929.130.431.733.8
Current account balance (% of GDP)-9.0-8.6-8.5-10.8-10.6

* Forecast
Source: The International Monetary Fund

Cambodia’s economic growth has been one of the fastest among Asia’s developing economies in recent years, driven by garment exports, tourism as well as real estate and construction activities. Tourist arrivals accelerated to 11.8% in 2017, compared to 5.0% in 2016, driven by the country’s efforts in establishing more regional flights, including China. The current account deficit is forecast to widen as the cost of oil and other imported products rises. Still, the country’s GDP is expected to grow 6.9% in 2018, support by large foreign direct investment flows and investment in infrastructure.

Faced with increasing costs in traditional manufacturing locations such as China, many multinational apparel companies have moved their production to cheaper locations like Cambodia. However, as the issue of low pay has sparked protests in recent years, the government in 2017 increased the minimum wage in the garment sector by 9.3% to US$153 per month and further increase by 11% to US$170 in January 2018 (compared to just US$66 per month in early 2013), roughly matching Vietnam’s and significantly higher than Bangladesh’s US$65. The growing competition from other low-cost garment producers and potential labor unrest represent challenges to Cambodia. The country is also vulnerable to negative shocks because of the high dollarisation of loans and deposits, which could stem from a potential sharp appreciation of the US dollar and spikes in US and domestic interest rates in 2018 and 2019.

Chart: Hong Kong total exports To Cambodia
Chart: Hong Kong total exports To Cambodia

Hong Kong-Cambodia Trade

Total exports from Hong Kong to Cambodia increased by 1.5% from HK$7,023 million in 2016 to HK$7,132 million in 2017. The top three export categories to Cambodia were: (1) textile yarn, fabrics, made-up articles and related products (+2.8%), (2) telecommunications and sound recording and reproducing apparatus and equipment (-40.3%), and (3) articles of apparel & clothing accessories (-13.8%), which represented 66.0% of total exports to Cambodia.

HKECIC Underwriting Experience

HKECIC offers coverage on Cambodian buyers with payment terms in Irrevocable Letter of Credit (ILC). There was no insured business on Cambodia from November 2017 to October 2018.

 

 

 

 

 

 

 

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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