ECONOMICS IN CAMBODIA

ECONOMICS IN CAMBODIA

While still among one of the world's poorest countries, Cambodia has emerged from decades of conflict as one of the region's rising economies. GDP in Cambodia rose from $2.4 billion in 1993 to $10.3 billion in 2008. Per capita income rose from $229 in 1993 to $778 in 2009.

Thomas Fuller wrote in the New York Times: “This is a time of relative stability for Cambodia and of rising prosperity in Phnom Penh and a few other urban centers. Signposts of urban affluence, including a towering skyscraper under construction. But the economic growth has been uneven, leaving the countryside, where the majority of the population lives, dirt poor. Vietnam, another war-torn nation, has surged ahead of Cambodia over the past decade in gross domestic product per capita, a measure of average wealth, according to World Bank figures. [Source: Thomas Fuller, New York Times, February 1, 2013]

The currency of Cambodia is the riel. U.S. dollars are as commonly used as the Cambodian Riel and even Thai Baht is acceptable in many places. Most hotels and many restaurants and shops set their prices in dollars. Many people in the tourist industry won’t even accept riels. Some people go through their whole stay in Cambodia without changing any foreign currency. However, small transactions are usually done in Riel. Always carry some small Riel for motorcycle taxis, snacks, beggars and other small purchases.

Macroeconomic Issues in Cambodia

The vast majority of Cambodians have traditionally been subsistence farmers and agriculture has traditionally dominated the economy. In the old days, economic institutions were largely feudal and colonial in their organization and administration. Even so, landlessness and absentee landordism were not widespread. Most peasant owned small amount of land for their own cultivation.

The Khmers have traditionally looked down on commerce and manual labor, which is one reason why the Chinese or Chinese-Khmers were able to control much of Cambodia’s trade and commerce in the past

The predominance of agriculture and the lack--or neglect--of real industrial development have characterized Cambodia's modern economy since independence in 1953. Wet rice cultivation traditionally has played a key role in peasant subsistence, in national self-sufficiency in food production, in trade relations with other states, and in governmental revenues for national development. Conversely, the government has made few attempts to industrialize the nation.

Cambodia remains a largely cash-only economy and a high degree of mistrust means many people hoard their money at home instead of using banks. Cambodia has a long-term goal to reduce reliance on the greenback, which according to the Asian Development Bank makes up more than 90 per cent of all currency in circulation in the country. [Source: AFP, July 11, 2011]

Foreign aid makes up 40 percent of the national budget. See Development.

See Agriculture

Cambodian Economic Policy

According to the Cambodian government: The government’s pro-business policies, which include, among others, labor-intensive export processing, domestic market import substitution and greater market openness to free trade are not strangers to the current trend. The business-oriented policies of the royal government have put the country at more advantages for foreign investment attraction as proved in a recent research conducted by the U.N. Conference on Trade and Development (UNCTAD) that placed Cambodia as an emerging and promising investment location in the Association of Southeast Asian Nations (ASEAN) and become increasingly attractive for foreign investors. However, to maintain the country’s investment attractiveness, according to a joint survey by JICA, the International Monetary Fund (IMF) and World Bank, Cambodia needs over $1 billion annually for infrastructure spending by 2020, with about half going to new projects and the other half to maintenance. This exorbitant amount represents a tremendous challenge, but to some investors, it can be a great investment opportunity. [Source: Tourism of Cambodia =]

The Royal Government would continue to carry out projects, which are identified in the national program of rehabilitation and development of Cambodia, through five year plans. The following goals must be achieved: 1) To speed the economic growth in order to improve the popular living standard and to create more employment. 2) To ensure the stability of Riel currency by keeping the inflation rate low; 3) To increase the export of agricultural and manufacturing products with high expertise and quality. 4) do its best to alleviate the poverty. =

To attain the above goals, the Royal Government would seize down the following imbalances: 1) Between the need and supply, especially on foods, housing, transportation, education and health care. 2) Between the revenue and expenditure within the national budget. 3) Between the import and export. 4) Between the currency and goods. 5) Between salary and the standard of living of civil servant and servicemen. 6) Between the increase in the work force and the employment. 7) Between the need for national development and the training of human resources. =

The Royal Government strongly believes the improvement of quality of education, health services, and food security must be strongly promoted. It would prioritize the investment on the vocational trainingand on higher education. The Cambodian workers would be better equipped with skill and the know-how. The Royal Government would cooperate with the Chamber of Commerce and other professional institutions to set up the center of transfer of the know-how. The present shortcoming of the national infrastructure tremendously undermines the economic growth of Cambodia. The Royal Governmentwould continue to rehabilitate the national infrastructure. Eventually it would privatize the mass transportation and communication, the telecommunication, and the electrical power supply. =

The national budget must be disbursed distinctively for the support of public services, and for the handling of public projects with the economic sense of prudence, conscience, and proficiency. The Royal Government must give the priority to the promotion of productivity, the private investment, the social programs, and public health care. To achieve the effective control over the budget and fiscal policies, the Royal Government of Cambodia must immediately take the following steps: 1) Use every measure at all costs to combat tax evasion. 2) Strongly prohibit revenue collection and shelter, and disbursement infringing the budgetary system. 3) Abolish tax exemptions, which are not stipulated in the investment law, the law on fiscal policy, and the law on the annual financial management. 4) Carry out strict measure of austerity, especially against the unneeded expenses. =

The Royal Government undertakes its political will to impose punishment on fraud, illegal transfer of funds, and corruption. To ensure the stability of buying power of Riel currency, the Royal Government would set the spending rate of the national budget to be below the rate of the national economic growth, and the rate of reserve fund of the banks. It would also set interest rates conducive to the promotion of private saving, and use the intervention of the National Bank in the domestic monetary markets in order to stabilize the rate of Riel exchange. The attempts of the Royal Government of Cambodia tocut down the economic imbalance will encounter numerous difficulties, because the limited financial resources force it to prioritize the use of the economic measures. =

Economy of Phnom Penh

The main economy in Phnom Peng is based on commercial activities such as garments, trading, small and medium enterprises. The property business has been booming in the past few years. Real estate is now getting very expensive. Two new sub-cities are under construction, where investors from Korea and Indonesia join with Cambodian investors. About $200 million will be sunk into investment project of Camko-city, which is expected to be finished in 2018.

Kandal province around Phnom Penh serves as an economic belt of the capital. Cambodia become the sixth largest garment exporter in the world in 2007 and most of these factories are in Kandal Province. The industry created job opportunities for about a half million Cambodians and generated some $300 million in monthly wages for the employees. Also agricultural exports flourished in 2007, as palm oil, peanuts, rice, pepper and other rural products became ever more popular in the international markets.

Consumer and Business Customs in Cambodia

Cambodia remains a largely cash-only economy and a high degree of mistrust means many people hoard their money at home instead of using banks. Cambodia has a long-term goal to reduce reliance on the greenback, which according to the Asian Development Bank makes up more than 90 per cent of all currency in circulation in the country. [Source: AFP, July 11, 2011]

The underground economy is reportedly much bigger than the official economy, by some estimates two or three times bigger. It also provides many opportunities for corrupt and illegal activities. One Cambodian banker told the New York Times that Cambodia is "a paradise for money laundering. It is a cash economy and the legal framework is weak."

The Cambodian economy has a sort Wild West, anything-goes quality to it. Much of the mining and logging is done illegally. Marijuana and moonshine are sold openly in the main markets; and prostitution and gambling are among the biggest foreign currency earners. Tourists can buy or shoot AK-47s and purchase the the handcuffs or badge from any policeman they meet. The anything-goes mentality extend to the financial markets. A Cambodia finance minster once said, “Cambodia lives in the casino economy where investors come quickly and leave quickly.”

Ethnic Chinese and Chinese-Khmers have traditionally controlled much of the commerce in Cambodia as they have and continue to do in Thailand, Malaysia, the Philippines, and Indonesia. In the Khmer Rouge era, many Chinese business people were killed. Today, Thais and Southeast Asian Chinese are said to make the largest profits in Cambodia.

Rural commerce has traditionally been done in markets and by peddlers. In the countryside, many people barter goods rather than pay for things with cash. In the fishing season, for example, two portions of fish can be exchanged for two portions of rice. Nationwide people are reluctant to use banks, either because they are too poor or they don’t trust them. Many people hide their money away. People that have lots of money prefer dollars and Thai baht to local currency and often send their money abroad.

Private Property and Land Titles in Cambodia

Ownership of property among the rural Khmer was vested in the nuclear family. Descent and inheritance is bilateral. Legal children might inherit equally from their parents. The division of property was theoretically equal among siblings, but in practice the oldest child might inherit more. Each of the spouses might bring inherited land into the family, and the family might acquire joint land during the married life of the couple. Each spouse was free to dispose of his or her land as he or she chose. A will was usually oral, although a written one was preferred. [Source: Library of Congress, December 1987 *]

Private ownership of land was abolished by the Khmer Rouge in the 1970s. Such ownership was also not recognized by the Vietnam-backed PRK government, which for example, refused to support former owners when they returned and found others living on and working their land. Some peasants were able to remain on their own land during the Khmer Rouge era, however, and generally they were allowed to continue to work the land as if it were their own property. *

In the late 1980s, according to Cambodia scholar Michael Vickery, the PRK government planned to collectivize in three stages. The first stage involved allotting land to families at the beginning of the season and allowing the cultivators to keep the harvest. The second stage involved allotting land to each family according to the number of members. The families in the interfamily units known as solidarity groups (krom samaki) were to work to prepare the fields, but subsequently each family was responsible for the upkeep of its own parcel of land. At this stage, each family could dispose of its own produce. In the final stage, all labor was to be performed in common, and at the end of the season any remuneration was distributed according to a work point system. Livestock at this stage would still belong to the family. By 1984 the first stage groups accounted for 35 percent of the rural population, but the third level accounted for only 10 percent of the farms.

Until recently, Cambodia had no real a history of providing titles to land. As of 2000, three fourths of the land was not secured by titles and only 14 percent of the land was properly registered, with many of the claims being fraudulent. In many cases the untitled land is occupied by farmers whose families have occupied for generations and should have title to it but don’t. In other cases it occupied by squatters, wandering farmers, people who cleared the mines from it and large land owners.

Some landowners have obtained their land by hiring several hundred armed thugs with bulldozers and using them to drive off local farmers, tear down their huts and rip up their fields. Many times the landowners are powerful politicians or generals. One general who drove off some farmers from some land so he could build a casino said, “Go ahead and file your complaints. I don’t care. The guys at the top are my friends.”

Landowners have also hired thugs to throw grenades into crowds, fire B-40 rockets at buildings and cut off the heads of stubborn villagers, and even burning down homes occupied by war widows and disabled veterans.

See Land Grabbing and Land Seizures

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Tourism of Cambodia, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

Page Top

© 2008 Jeffrey Hays

Last updated May 2014

This site contains copyrighted material the use of which has not always been authorized by the copyright owner. Such material is made available in an effort to advance understanding of country or topic discussed in the article. This constitutes 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. If you are the copyright owner and would like this content removed from factsanddetails.com, please contact me.