Cambodia Economic Situation

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Peter Martin
10:17am Saturday 29 November

Cambodia Economic Situation

Despite recent progress, the Cambodian economy continues to suffer from the legacy of decades of war and internal strife and Cambodia remains one of the least developed countries.

The country's economic infrastructure was devastated by the civil wars of the early 1970s and late 1980's, the rule of the Khmer Rouge between 1975 and 1979, and Cambodia's diplomatic isolation in the first half of the 1980s.

Growth accelerated in the late 1980s with the government's gradual move towards free market economic policies. Growth was propelled further during 1991-1993 by the UN presence in Cambodia.

The July 1997 internal conflict led to a decline in business confidence and development assistance flows. The Asian economic crisis also had a negative impact on the economy. However, 2001 and 2002 showed good economic progress with the economy stabilising and the introduction of a Value Added Tax (VAT).

The industrial sector is dominated by the garment and construction industries, and the garment industry, although contentious in regard to worker conditions, has played a considerable part in recent economic progress and increased export earnings. The services sector is growing steadily especially through tourism and hospitality - tourism is one of Cambodia's most promising sectors growing at around 30 per cent in recent years.

In spite of recent diversification, agriculture represents around 31% of GDP, making Cambodia a largely subsistence-based economy. Around 75% of rural households depend on agriculture and its related subsectors. Regular droughts and floods, however, affect rice production leading to a need for food aid. Cambodia has been rich in natural resources but persistent exploitation of forests, fisheries and gems has resulted in rapid resource depletion.

International trade and investment comprises only a small proportion of economic activity. FDI has tended to be concentrated in garment manufacturing, services, construction, tourism, and to a lesser extent, wood processing.

The major economic challenge for Cambodia over the next decade will be fashioning an economic environment in which the private sector can create enough jobs to handle Cambodia's demographic imbalance- more than 50% of the population is less than 21 years old. The population lacks education and productive skills, particularly in the poverty-ridden countryside, which suffers from an almost total lack of basic infrastructure.

Cambodia continues to remain heavily reliant on foreign assistance - about half of the central government budget depends on donor assistance. Japan is by far the largest donor to Cambodia.

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Last updated: 14 January 2009