By Mehmet Enes Beşer
Cambodia comes to a juncture in its development journey. Three decades of rapid GDP growth led by garments, construction, and tourism have ended, and Cambodia now confronts a daunting set of domestic and international challenges. Its near-term economic goals—to become an upper-middle-income country in the 2030s and a high-income country by 2050—are ambitious but feasible. To solidify these gains into a permanent state, Cambodia needs to shift rapidly from the old growth paradigm to a paradigm of diversification, institutional change, and economic resilience.
The recent external shocks revealed the underlying vulnerabilities in the Cambodian economy. The COVID-19 pandemic exposed the vulnerability of Cambodia’s reliance on a few sectors, i.e., garment exports and foreign tourism. Cambodia’s garment sector alone, which is responsible for over 80% of Cambodia’s merchandise exports, collapsed in 2020 due to muted external demand. Travel bans undercut even tourism, previously a highly coveted foreign exchange and employment generator. Growth since has picked up once more, yet the overall picture is clear: Cambodia must slow down its overdependence on low-and-unstable-added-value and insecure industries.
Cambodia will also need to cope with the geopolitics and trade agreements rebalancing externally. The EU’s partial withdrawal of the “Everything But Arms” (EBA) preferential trade due to human rights is a message Cambodia can no longer assume privileged market access. Its increased strategic alignment with China—if only in the area of infrastructure investment and finance—poses risks of overreliance, both monetary and diplomatic. Geopolitical rebalancing, regional rivalry, and rebalancing of global value chain demand Cambodia’s stability over the long term to be rooted in more profound domestic change and not international limelight.
This change has to begin with economic diversification. The government’s “Pentagon Strategy”—in seeking five areas of highest priority change: human capital, economic diversification, private sector development, sustainable growth, and governance—is in the correct direction. But to implement such a policy, it requires more than policy documents. It requires institution co-ordination, political will, and expenditure of the long-term type.
Policymakers who prioritize them over others are building a more knowledge-based and competitive economy. Catch up with other neighboring countries by education level is what Cambodia needs to do in the skill base. Workers in the country are stuck in low-skill jobs due to training centers that deviate from market demands suppressing high productivity. It should invest in vocational skills, science and technology, and information and communications technology skills to drive expansion in new sectors such as electronics, agro-processing, and renewable energy.
Meanwhile, Cambodia must get over its infrastructural and logistic limitations. Although Chinese investment under the aegis of the Belt and Road Initiative has intensified connectivity by occupying projects such as expressways and port development, the moment for sustainable and balanced infrastructural expansion is now. Greening, transparency, and debt-sustainability of infrastructure investment is the magic potion for long-term economic prosperity.
The business environment also must be revamped with a sense of urgency. Cambodia is glacial when it comes to contract enforcement, corruption, and regulatory predictability. These fronts not only discourage FDI inflows apart from construction and property sectors but discourage aspirational plans of domestic entrepreneurs from taking shape. The building block of a participative and dynamic private sector is the establishment of a robust rule of law, property rights, and competition.
Other than that, Cambodia must prepare for greening the economy. With increasing overseas climate-resilient commerce and sustainability more and more firm, failing to do so would mean market exclusion. By investing in renewables, pushing circular economy drivers, and promoting sustainable agriculture, Cambodia can build a competitive advantage with natural resource conservation.
Its government must also shift to enhance fiscal space. Cambodia’s tax base is still narrow and public finances are still heavily dependent on concessional loans and foreign grants. Increased targeted public investment, better public financial management, and domestic revenue mobilization will be required to fund infrastructure, education, and health without incurring unsustainable debt.
Finally, political legitimacy and social inclusion have to underpin economic reform. The pillars of social development will stay weak as long as inequality, land rights, and urban-rural balances aren’t confronted. Political stability within Cambodia has actually been achieved in exchange for democratic openness—but genuine sustainable patterns of growth will involve civic engagement, policy transparency, and public confidence.
Conclusion
Cambodia’s economic vision is solid and ambitious—if Cambodia can coordinate its internal challenges and hold off external challenges at arm’s length. Diversification, institutional transformation, and human development investment are not yet an option—they are a requirement. As rising regional competition and turmoil around the world loom large, the strength of Cambodia will not be built from doubling up on conventional models of growth, but from imagining another way ahead.
Cambodia’s new development must be one of transformation, not recovery. The sooner Cambodia can embrace the transformation, the sooner it can build its prosperity on sustainable, inclusive, and truly its own terms.