In its annual outlook for the Cambodian economy released Wednesday, the Asia Development Bank (ADB) says the main policy challenge is sustaining the rapid increase in light manufacturing in areas other than garments.
“Widespread vaccination against COVID-19 has enabled Cambodia to reopen its borders, but increasing trade and tourism alone will not be enough to achieve sustained economic growth,” the bank’s Asian Development Outlook says. “For this, manufacturing needs to be more diverse.”
The outlook notes that light manufacturing — such as bicycles, electronic components and wiring products — has grown “dramatically” including during the pandemic.
“This growth shows that Cambodia can diversify from its traditional focus on producing and exporting garments, travel goods, and footwear,” it says.
“Being able to sustain this trend will go a long way toward helping the government achieve its vision of a more resilient and diversified economy.”
To this end, the new Law on Investment adopted in October last year, “will help attract more domestic and foreign direct investment into manufacturing.
“The law provides a more comprehensive, transparent, and predictable legal framework to make Cambodia a more attractive investment destination.
“Specific incentives are provided under the law for investing in industries that support regional and global supply chains, and for the production of electronics, spare parts, mechanical and machinery equipment, and agro-processing, among other areas.”
In addition to incentives, the report notes that the government has launched a strategic framework and programmes for recovery that build on existing reforms to enhance diversification and improve competitiveness in manufacturing.
“Cambodia has an opportunity to develop new manufactured products for export that can sustain productivity growth to help support continued improvements in living standards,” the outlook says.
“But to make the most of this opportunity, it is essential that a wider range of manufactured goods can be developed and produced.”
The ADB recommends a “priority set of reforms” by using the investment law as a catalyst for a broader effort to strengthen investment promotion and facilitation.
The bank says the government could also work with special economic zones to identify opportunities to streamline regulations and upgrade infrastructure.
Other recommendations are a more comprehensive and clearer vision to leverage environmental sustainability and working with industry stakeholders to transform manufacturing.
Such a transformation could include skills development as well as upgrading technology, production processes and product quality, the bank says.
Source: Agency Kampuchea Press