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Gross Domestic Product (GDP) and Other Macro-Indicators

The Cambodian economy grew rapidly in the mid-1990s, with GDP growth rates exceeding seven percent. However, political instability in 1997 and 1998 slowed growth to a trickle. Now that domestic political order has been restored, the economy is once again moving ahead at rates of 4-5.5 percent annually (see Figure 1) and, according to the International Monetary Fund, is expected to grow at 6 percent or more over the next few years.

Figure 1: Annual GDP growth rates (in per cent)

Source: IMF

Cambodia's economy growth relies heavily on a good harvest (and correspondingly, on good weather) because over half of GDP derives from the agriculture sector. Figure 2 shows the composition of Cambodia's GDP for 1998. The manufacturing base is still small but growing, and services account for over 34 percent of GDP.
 

Figure 2: Composition of GDP, 1998
Source: World Bank

Cambodia - Macro-Economic Business

 

Gross Domestic Product (GDP) and Other Macro-Indicators

The Cambodian economy grew rapidly in the mid-1990s, with GDP growth rates exceeding seven percent. However, political instability in 1997 and 1998 slowed growth to a trickle. Now that domestic political order has been restored, the economy is once again moving ahead at rates of 4-5.5 percent annually (see Figure 1) and, according to the International Monetary Fund, is expected to grow at 6 percent or more over the next few years.

Figure 1: Annual GDP growth rates (in per cent)


Source: IMF

Cambodia's economy growth relies heavily on a good harvest (and correspondingly, on good weather) because over half of GDP derives from the agriculture sector. Figure 2 shows the composition of Cambodia's GDP for 1998. The manufacturing base is still small but growing, and services account for over 34 percent of GDP.

Figure 2: Composition of GDP, 1998


Source: World Bank

Table 1 presents IMF macro-economic data and forecasts for Cambodia.

Table 1: Cambodia macro-economic data, 1996-2000 

  Unit 1996 1997 1998 1999 2000t 2001t 2002t
GDP Current Price
Billion riel
8,251 9,100 10,750 11,900 13,000 14,331 15,799
GDP Constant 1989 Price
Billion riel
349.8 353.3 356.8 371.1 391.5 415.0 439.9
Growth Rate
%
7.0 1.0 1.0 4.0 5.5 6.0 6.0
Government Budget
 
             
Revenue
Billion riel
749.1 881.0 917.9 1,318.0 1,469. 1,705.4 2,038.1
Expenditure
Billion riel
1,342.8 1,267.8 1,342.1 1,791.0 2,041 2,436.3 2,843.8
Overall Balance
Billion riel
-593.7 -386.8 -424.2 -473.0 -572.0 -730.9 -805.7
M1
Billion riel
328.9 384.8 543.3 531.9 n.a. n.a. n.a.
M2
Billion riel
911.6 1,062.9 1,230.0 1,442.0 n.a. n.a. n.a.
Interest Rates (End of Period)
 
             
Deposit Rate
%
8.8 8.0 7.8 7.3 n.a. n.a. n.a.
Lending Rate
%
18.8 18.4 18.3 17.6 n.a. n.a. n.a.
Trade Balance
US$Million
-476.0 -265.0 -223.0 -350.0 -397.0 -438.0 -456.0
Current Account2/
US$Million
-493.0 -254.0 -261.0 -386.0 -448.0 -490.0 -509.0
Capital Account
US$Million
123.0 -46.0 -38.0 77.0 95.0 230.0 249.0
Balance of Payments
US$Million
-70.0 -90.0 -105.0 -102.0 -136.0 -36.0 -29.0
Gross Official Reserves *
US$Million
234.0 262.0 390.0 426.0 486.0 556.0 626.0
Import Cover
Months
2.1 2.4 3.6 3.5 3.5 3.7 3.9
External Debt **
US$Million
2,056.0 2,146 n.a. n.a. n.a. n.a.
Debt-Service Ratio
%
29.5 17.8 16.5 17.7 5.3 5.9 5.6
Foreign Investment Approvals
US$Million
803.0 759.0 414.7 247.0 n.a. n.a. n.a.
Official Exchange Rate
Riel/U$
2,713 3,460 3,780 3,800 3,820 3,800 n.a.


Notes : t = IMF target 1/ = excludes re-exports n.a. = not available 2/ = excludes official transfers. **Starting in 1997, includes $ 1,346 million owed to countries of the former Council of Mutual Economic Assistance.
Source : International Monetary Fund (IMF)

Inflation has fluctuated widely since 1995, from as low as one percent in 1995 to nearly 15 percent in 1998 (see Figure 3). Inflation in 1998 rose to 14.7 percent as a result of the depreciation of Cambodia's currency, the riel, and also because poor weather caused higher prices for agriculture goods.

Figure 3: Annual inflation rate, 1995-1998

Source: World Bank

Main Economic Sectors

Agriculture sector

The Cambodian economy remains largely based on agriculture, with over 50 percent of GDP deriving from the agriculture sector. Moreover, 85-90 percent of the labour force is involved in agriculture. Unfortunately, the agriculture sector is beset by several problems, in particular alternating periods of floods and draught. As a result, the annual growth rate of agriculture has declined sharply the past few years. Figure 1 shows that growth fell from around 6.5 percent in 1995 to less than one percent in 1998.

Figure 1: Agriculture sector annual growth
Source: World Bank
With an average population growth rate in the 1990s of 2.7 percent, it is imperative for the agriculture sector to resume high annual growth rates.
The main staple food is rice, which is grown in over 90 percent of the farmed areas. Rice constitutes about 13 percent of total GDP, and the government is promoting foreign investment to boost rice production. The best rice growing regions are in Siem Reap, Banteay Meanchey, and Battambang Provinces. Due to insufficient irrigation and other inputs, Cambodia's yield is low by regional standards. Other food crops include maize, soybeans, root crops, vegetables, and fruit trees. Livestock is another major contributor, accounting for almost one-third of the total agricultural output.

Service sector

The service sector contributes nearly 35 percent to GDP. This sector experienced rapid growth in the mid-1990s, especially in the tourism industry, but like other sectors the growth rates slowed in 1997 and 1998 (see Figure 2).

Figure 2: Services sector annual growth
Source: World Bank
The tourism industry is expected to remain one of the driving forces in Cambodia's development for many years because of the large number of visitors and the related support industries that tourism requires. Foreign arrivals peaked in 1996 at 260,489, but declined gradually to 186,333 arrivals in 1998 because of the domestic political situation. Arrivals have since picked up 41.1 percent to 262,907 in 1999 and are expected to increase even
further.
Wholesale and retail trading is another key activity in the services sector and makes up nearly 40 percent of services' share of GDP. Hotels and restaurants and transportation and communication are the next leading segments of the services industry.

Manufacturing sector

Manufacturing makes up less than seven percent of the country's GDP, but with the underutilization
of Cambodia's natural resources, manufacturing has great potential for expansion. Currently, the leading industries include rice milling, cigarettes, beer and soft drinks, wood and wood products, rubber, garments, and textiles. The manufacturing sector has experienced some of the highest sectoral growth rates over the past few years. As seen in Figure 3, growth rates in manufacturing were between 6.5 and 13.5 percent between 1995 and 1998.

Figure 3: Manufacturing sector annual growth
Source: World Bank

The garment industry has grown tremendously especially with the Generalized System of Preferences (GSP) privileges in the EU market which helped boost exports by 60 percent to US$600 million in 1999. However, the United States has imposed new quota restrictions on Cambodia garment exports for 3 years from January 1, 1999 to December 31, 2001. Of the total workforce of 5.54 million, an estimated 100,000 work in the garment industry in about 200 factories.
Construction materials is becoming a fast growing sector as several companies are now operating in this field. Cambodia received its first consumer electronics factor in 1998.

International Trade

In the 1970s and '80s Cambodia's trade was oriented toward the Soviet Union and other communist states, with much of it conducted on a barter basis. In the early 1990s, Cambodia began hard-currency trading and concentrated on its Asian neighbours. Cambodia is now a fully integrated member of the international community, and its burgeoning international trade reflects this commitment to participating on the regional and global economies.
Cambodia holds observer status in the WTO and will apply for full membership in the near future. Cambodia is still considered one of the poorest countries in Asia and as a result receives GSP and Most Favored Nation (MNF) status from 28 countries, including the United States, the European Union, Japan, Canada, and Australia.
Through its membership in the Association of South-East Asian Nations (ASEAN), Cambodia and its ASEAN neighbours are establishing the ASEAN Free Trade Area (AFTA). AFTA will eventually lower most tariff rates within ASEAN to 0-5 percent. With its strategic location between Thailand and Vietnam, Cambodia is expected to greatly benefit from free trade in the region.

Exports

Cambodia's exports grew rapidly in 1994 and 1995 before dropping off in 1996 (see Figure 1). Exports have remained relatively steady since 1997 at US$700-800 million, including the preliminary figure for 1999 of US$770 million. The Asian economic crisis certainly had an impact on Cambodia even though the country was not as directly affected as others.

Figure 1: Merchandise exports
Source: World Bank

Before 1996, primary products made up most of Cambodia 's exports, especially timber. The ban on logging the previous year and the subsequent development of other industries led to manufactured goods and processed food surpassing primary products in 1997.
Garments, re-exported products, wood products, and footwear continue to be the major exports from Cambodia (see Figure 2). The garment industry is far and away the largest sector, accounting for US$597 million in exports in 1999, which was 69 percent of Cambodia's total exports that year. Roughly 75 percent of Cambodian garment exports go to the United States, with the remainder going to Europe.

Figure 2: Major export items, 1998 (US$ million)
Source: IMF Staff Country Report, “Cambodia: Statistical Annex”, April 1999 (from EXIM Bank web site)

Note: Including estimates for unrecorded illegal exports

The main export markets are usually Vietnam, Thailand, the United States, Singapore, China, United Kingdom, and Germany.

Imports

Cambodia remains highly dependent on imports because of its limited manufacturing base. Throughout the 1990s, Cambodia imported more goods each year than it exported. The annual changes in imports closely resemble Cambodia's export patterns in that import levels peaked in 1995 and have subsequently leveled off for the past four years. Figure 3 shows merchandise imports from 1992-1998. The preliminary figure for 1999 is US$1,104 million worth of imports, which is less than one percent increase from the previous year.

Figure 3: Merchandise imports
Source: World Bank

The major imports are cigarettes, petroleum products, capital goods, and vehicles (including motorcycles), but consumer goods are increasing their share of imports. Figure 4 shows the main imported items for 1998.

Figure 4: Major import items, 1998 (US$ million)
Source: IMF Staff Country Report, “Cambodia: Statistical Annex”, April 1999 (from EXIM Bank web site)

The main sources of imports are Thailand, Vietnam, Japan, China, France, Germany, and the United States.

Foreign Investment

Since the promulgation of Cambodia’s new investment law in August 1994, more than US$4.27 billion worth of foreign direct investment (FDI) has been approved by the Council for the Development of Cambodia (CDC). As of 1999, there were over 700 foreign projects approved. Foreign investment began its surge in 1995 with 146 projects approved worth nearly US$2 billion. The number of projects approved increased the next two years, peaking in 1997 at 192 projects. However, the annual dollar values between 1996 and 1998 did not match the huge amount of 1995, ranging from US$592-622 million.
Most foreign direct investment (FDI) into Cambodia over the past few years has been from South-East Asia. In 1999, China and Taiwan Province of China were the main foreign investors but, as Figure 1 shows, Malaysia has also played a significant role during the period between 1994 and 1999.

Figure 1: Foreign direct investment in Cambodia
note: Classified by countries* (August 1, 1994 to December 31, 1999, in US$ million)
Source: The Cambodia Investment Board (from EXIM Bank web site)

*Including joint ventures

Hotels and tourism is the most popular choice for foreign investors, making up nearly 45 percent of all foreign investment projects. Figure 2 shows the leading industries for foreign investment.

Figure 2: Foreign direct investment in Cambodia
classified by industry* (August 1, 1994 to December 31, 1999) *Including joint ventures.
Source: The Cambodia Investment Board (from EXIM Bank web site)

 

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