Cambodia needs to diversify its export basket to make it more resilient to shocks. As of now, garment and textile production and a few other low value-added manufacturing dominate Cambodia’s exports. These are largely destined for the US and the European Union, exposing the economy to sector- and market-specific shocks.
The economy is constrained due to its dependence on garment exports. The way forward is to invest in educational reforms and specifically in people – that is ensuring that the skills are there in the first place so Cambodia can more quickly move up the value chain. There is an opportunity for Cambodia to first step into electronics exports and food processing sectors.
It’s also necessary to address gaps in hard infrastructure, such as high costs of electricity, if Cambodia wants to be in a good position to capture export manufacturing operations that are moving out of China due to rising costs of labor there.
A bold vision can leapfrog typical paths of development and quicken its industrial development. Should political tensions lower the impetus for reform to address institutional weaknesses, that would be credit negative. Cambodian exports to the US from January through June rose by 4.5 per cent compared to the same period in 2016.