July 17, 2018
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Providing Stability
Cambodia makes good economic progress and politically stable 

Author: PREETI KUMAR, Executive Editor, Strategic Affairs

Since Cambodia is all set to go for polls in July, there are many issues involving Cambodian politics which have become hot topics. Cambodia may be facing lot of criticism by international rights groups and media for not upholding democracy in the country but Cambodian Prime Minister Hun Sen is vocal about stability and economic progress Cambodia has made during his stint.

Cambodian Prime Minister also questions most of his critics that they need to be impartial about the history as how Cambodia has traveled its journey from a war torn country to a low-to-middle income country. Despite remaining in power for more than 3 decades in power Prime Minister Hun Sen has improved the position of Cambodian People’s Party positions in recent time. Hun Sen has been Cambodia's prime minister for 33 years now. He came into power in the 1980s, in the aftermath of the Khmer Rouge's reign of terror. According to Hun Sen, Cambodia is looking for political stability which can ensure fast economic development. But many Western backed NGOs with vested interests have brought out issues which can ruin the future prospect of Cambodia.    

The Cambodian politics has seen many ups and downs in the recent past. But Prime Minister Hun Sen has remained unaffected despite many challenges. However, the upcoming general elections in Cambodia in July need to be managed in a proper direction so that it gains popularity and long term legitimacy. Cambodia needs political stability and Hun Sen’s party seems to have still got the popularity.    

In the locals elections, the ruling Cambodian People’s Party (CPP) has won all 58 seats in the Senate election on February 25, according to official results released by the National Election Committee (NEC). Three other political parties, namely the Funcinpec Party (FCP), the Cambodian Youth Party (CYP), and the Khmer National United Party (KNUP) took part in the election. The Senate has 62 seats, but the vote was held for 58 seats only, as two senators will be appointed by King Norodom Sihamoni and two others by the National Assembly. 

In preparation to July elections, last month, Cambodia's National Election Committee (NEC) had officially recognized all of the 20 political parties that registered to contest the July national election which will start from July 7 and end by July 27. "In total, 20 political parties have been officially recognized by the NEC," said a NEC's statement. Among the recognized parties are the ruling Cambodian People's Party (CPP) of Prime Minister Samdech Techo Hun Sen, the royalist Funcinpec Party of Prince Norodom Ranariddh, and the Grassroots Democracy Party. The Southeast Asian nation is scheduled to hold a national election for the 125-seat parliament on July 29 and approximately 8.3 million Cambodians are eligible to cast their ballots.

In view of opposition allegations and counter allegations, the upcoming general elections may face yet another round of political uncertainty if the approach of nation building is not taken with sincerity by all political parties. The National Election Committee recently criticised those urging voters or monitors to stay away from the July 29 national election, a thinly veiled reference to former opposition leader Sam Rainsy and election monitor Koul Panha, with even Prime Minister Hun Sen reminding voters to head to the polling booths.

Last month, Rainsy issued a call to Cambodians to stay away from the polls if the Cambodia National Rescue Party were not allowed to participate, and Comfrel head Koul Panha questioned the legitimacy of the July ballot while speaking to Radio Free Asia. Comfrel, the Committee for Free and Fair Elections in Cambodia, is perhaps the country’s highest-profile election monitor.

Both Rainsy and Panha also said the absence of the largest opposition party, which was forcibly dissolved at the government’s behest in November, would call into question the election’s legitimacy.

Seemingly responding to the criticism, the NEC issued a letter referring to “some individuals” who were making appeals for an election boycott and urging observers to stay away. It said that election monitors were supposed to be neutral based on NEC law and cautioned that the law provides for fines for anyone preventing people from voting. “The NEC is calling [these individuals] to stop their activities, appeals to all voters to go to vote and appeals to all local and international monitors to register for monitoring the election,” the statement reads.

NEC spokesman Dim Sovannarom did not provide clarity about whom the statement was referring to, and despite the reference to punitive fines, he said the electoral body will not initiate legal action. “The NEC is not a political institution,” he said. “It is a legal and technical institution.”

Meanwhile, some 80,000 security personnel will be deployed for July’s upcoming national election, including a volunteer “citizen” force, raising concerns from election and rights observers about possible voter intimidation. State newswire AKP reported the numbers on Thursday, writing that the forces “will be deployed to ensure security and public order”.

The number marks a notable rise on the 50,000 personnel deployed for the commune elections, and the 70,000 deployed for the 2013 national election. Of the total, 20,000 will be made up of “citizen forces” selected by the ruling party, according to election expert Yoeurng Sotheara.

However, in April, Cambodia’s national election body has invited international observers to monitor the July general election, widely expected to be a landslide victory for the ruling Cambodian People’s Party (CPP) and Prime Minister Hun Sen. International delegates are required by law to be invited to observe Cambodian elections. Local nongovernmental groups also received invitations. Both local and international observers will be able to submit written reports of their findings after the vote concludes. Yet, the Cambodian government and the ruling party have been bemused by western criticism. The prime minister welcomed the cutting of US aid for the elections, pointing out that this would put an end to NGO meddling in Cambodian affairs. After all, western aid has always been conditional on the government maintaining proper democratic processes and institutions. Alluding to the robust performance of the Cambodian economy, a spokesman of the ruling party dismissed concerns, saying “everything is better now than it was before”. 

While the political drama unfolds, Cambodian people go about business as usual and politics does not seem to be the first thing on their minds. After it graduated from least developed country status in July 2016, Cambodia’s economy has remained healthy with a GDP growth rate of 6.9% in 2017. This was driven by the recovering tourism sector, the ongoing construction boom and the gradual emergence of non-textile exports.

Cambodia’s economic growth has been a success story. In fact, economic growth in Cambodia remains robust and is projected to accelerate slightly to 6.9 percent in 2018, compared with 6.8 percent in 2017, buoyed by a rebound in textile and apparel exports as well as tourism and agriculture, according to a new World Bank report published in May. Rising government spending and favorable global conditions, including robust demand in advanced economies, are expected to underpin Cambodia’s high growth trajectory.

The WB report has said risks remain, however, and they include erosion of export competitiveness due to rapidly rising real wages, a buildup of vulnerabilities from a prolonged real estate and construction boom, potential election-related uncertainty, and periodic jolts of protectionism and escalating trade disputes between the world’s largest trading nations.

“To maintain strong growth, it is essential that Cambodia invests more in education and skills training while addressing the constraints facing small and medium businesses. Investing in people is the best for a more prosperous future,” said Inguna Dobraja, World Bank Country Manager for Cambodia.

Cambodia, the report noted, can diversify growth and create more jobs by reducing the costs of firm formalization, operation, and financing. The report also recommends Cambodia to closely monitor the construction and real estate boom by developing macro-prudential policies that help reduce the scope for speculative activities.  

Tourist arrivals accelerated to 11.8 percent in 2017, compared with 5 percent in 2016, thanks to the authorities’ efforts to establish more regional flights, including to China, an important market for tourism. The agriculture sector also rebounded, with expansion of rice and rubber plantations and the gradual recovery of agricultural commodity prices.

During the first 10 months of 2017, Cambodia received 4.3 million international tourists, up 10.4% compared with the same period in 2016. This was partly due to newly established direct regional flights as well as government initiatives to boost arrivals.

The construction sector continues to grow robustly. Investment into the sector during the first ten months of the year reached $6.26 billion, a 27% increase over the same period in 2016. 

Exports of machinery and auto parts picked up. The number of factories dedicated to electrical machinery and auto parts increased from 46 in 2012 (5.1% of manufacturing) to 121 in 2017 (7.1% of manufacturing).

Growth in clothing and other textile exports decelerated to 5.4% in the first half of 2017, compared with the 8.4% growth rate in 2016. Textile exports have also eased in volume terms to a growth rate of 3.6% in 2017, which is down from 2016’s figure of 12.3%.

The slowdown in textile exports reflects a decrease in productivity, an increasingly competitive global market, the high cost of transportation and energy as well as rising labor costs.

The minimum wage for the garment and footwear sector is $153 a month and will increase to $170 a month in 2018. This will make the minimum wage in Cambodia higher than that of other countries with large garment industries (such as Bangladesh and Myanmar).

The potential industries of Cambodia that are expected to prosper in next five years are associated with the following areas: car assembly industries, electronics, electricity, mobile phone, garment, civil engineering, food processing such as rice milling, and tourism.

Labor productivity in manufacturing sector increased just 2.4% during last 10 years. This reveals that the increase in the labor productivity has been less than the increase in the employment share in manufacturing. This also indicates that vocational training to improve productivity in the manufacturing sector is a key policy agenda to promote the Cambodian economic and industrial development.

The current situation of the vocational training in Cambodia shows that the vocational training concentrates on short- term courses and 74 percent of the courses is designed for the agriculture- related training. This reveals that the current vocational training is mostly not geared to the future potential industries in Cambodia.

However, the recent evolution in the Cambodian vocational training implies the positive message to the development of Cambodian vocational training in potential industries. First, the number of graduates of vocational training has increased three times from 27,000 persons in 2005 to 91,000 persons in 2011. Second, the number of vocational trainees in mechanical- related courses in long- term training has also increased.

While the report was broadly positive, highlighting that concerns of an overheating credit market had been curbed as credit growth slowed to 18.2 percent by the middle of the year, compared to 25.8 percent at the same point in 2016. It noted that deposit growth remained strong, with total deposits in the banking sector increasing by 20 percent year-on-year.

The report, however, noted several downside risks including “a sharp slowdown in the Chinese economy and potential election-related uncertainty”. “There is overdependence on the garment industry with Cambodia’s export market being primarily built on garments, and clearly as wage rates rise and the US dollar appreciates against other currencies, it tends to weaken Cambodia’s competitiveness,” he said. “But the challenge for Cambodia is that within the textile industry, it needs to move up the value chain into more sophisticated products.”

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said that Cambodia needs to take a longer-term approach that would insulate the economy from any downturn in the garment sector.

“In the longer term, Cambodia needs to shift away from the garment sector, but it can’t happen overnight because it will take many years to build up more productive sectors to compensate for a shrinking garment sector,” he said. “So if you get a meaningful slowdown in the garment sector, you’re going to see a meaningful negative impact on the broader economy.”

Earlier, Miguel Eduardo Sanchez Martin, senior country economist for the World Bank in Cambodia, had added that there were positive signs that Cambodia was successfully diversifying its export economy and that the deceleration of garment export growth was being partially offset by an increase in higher value-added exports.

“The good news is that there are signs of export diversification with new products being exported out of Cambodia that include some automobile, television and bicycle parts and small electrical components,” he said. “What Cambodia needs to keep on working on is remaining competitive and lowering the cost of starting a business.”

Cambodia is making good economic progress at the moment. If July elections create more political instability then the country may fall into a chaos. Then the opposition from US and European Union can force Cambodia to join hands with China totally. This situation can be more dangerous than the present situation