Implication of Cambodia’s Transformation to high-middle-income country by 2030 and a high-income country by 2050.

Cambodia aspires to transform its nation to a high-middle-income country by 2030 and a high-income country by 2050 could mean an economic miracle or an economic disaster waiting to happen. Its about strategic risk and economic viability that will determine the case. The Value Proposition in undertaking a country wide transformation to high income country will indeed be very difficult to undertake though the Government and World bank have projected GDP of 6 % plus in 2025.

A higher – middle – income nation would mean a salary base of GNI per capita between USD $4,466 and USD $13,845; high-income economies are those with a GNI per capita of $13,846 or more, according to the World Bank Country and Lending Groups. https://www.worldbank.org/en/country/mic/overview

Taking an average of US $ 8,000 as a base for GNI for Cambodia. This means the average salary in Cambodia will be about US $ 700 + per month. As salary increase will also lead to inflation and an increase in the cost of living, cost of accomodation, cost of food, cost of fuel and cost of power and utilities. This will make it difficult for businesses to be competitive given the present situation with the present world economic trends.

Some facts to be Considered:

1.?????? Cambodia is an Agro Dependent Economy (63% of ?Households) ?https://www.fao.org/cambodia/news/add-news/detail-events/es/c/1674999/

Agriculture is at the sub sustainable levels and in many cases not commercially viable to meet international export and in most cases cannot compete internationally. At present we estimate the average household engaged in Agriculture has a mean income of approximately US $ 300 +/- per month.

If GNI were to be US $ 8,000 or US $ 700 per month – this will greatly affect viability of Agriculture as one of the input costs is labour.

The only way to offset this is by agricultural technology investment in mechanising agriculture which needs investment to the Tune of over a Billion USD Dollars which is a very difficult proposition. Even if it did happen it would lead to a loss of at least 70% of Jobs in the Agri Sector. ?Where will these displaced jobs go?. Most like to urban centre which will mean a surplus of Labour and unemployment in Urban Centres in Cambodia and create disparity in Wages due to Surplus of Labour in fluxing urban areas.

2.?????? The Garment Manufacturing Industry plays a substantial role in supporting employment in Cambodia. Garment Industry provides about 7 to 8 % of the employment in Cambodia https://opendevelopmentcambodia.net/topics/labor/ . Based on the stats the average monthly wage per worker in the garment sector is US $ 250 – US $ 300, an increase in income level of US $ 700 per month per worker will make this industry totally unviable in context of the requirements of low labour cost in a very competitive industry. Where in Vietnam and Bangladesh could potentially wipe out the garment industry in Cambodia. This could be an economic disaster waiting to happen.

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3.?????? Tourism plays a vital role in Jobs Creation in the Economy of Cambodia and Directly or Indirectly contributes to about 12 % of the workforce where in the average monthly salary is about US $ 350 to US $ 400. At US 700 a month this industry will be definitely under a lot of stress. Remember its still recovering from Corvid and post Corvid operations with average Hotel Occupancy about 40% or less ( Requires 55% Occupancy for hotels to breakeven). An indirect disaster waiting to happen if Cambodia transforms to high-middle-income country by 2030. In ASEAN countries like Indonesia, Thailand, Vietnam, Philippines and Malaysia offer a more viable and value price than what Cambodian can offer. Also, the main issue is Direct Connectivity by Air to Europe, North America, Australia, India and Middle East.

Tourism is based on value destination- meaning Visitors normally come to visit if there is intrinsic value in the Destination and an experience which is normally Price Bound. (Thailand and Turkey are prime examples of this).

4.?????? High Dependency on the Construction and Real Estate Industry which presently accounts for about 40 percent of the GDP in Cambodia. The problem is Real Estate Industry will take at least 10 years to recover based on the present NPA (Non-Preforming Assets) on the books of Banks and many of which will have to be written off. Also, the cost of affordable housing is not been considered in the equation of provide affordable accommodation solutions. This is going to be a major problem in Cambodia during this Decade and a constant check of the real situation has to be done by the regulators. A Bank Run could spell disaster for the economy here for sure and may most likely happen in the next 6 months or a year. The fallout of which may not be contained.

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5.?????? High Spend on Infrastructure Project which is in some cases is required but, in most cases, maybe a costly balancing act of revenue and financial viability. The money spend has to paid somehow and most of the proceeds will go to the lending agency or country. The Debt of the infrastructure needs clarity and the contractors or partners involved in the financing, management and operations of these projects has to be evaluated and a due diligence and financial audit has to be performed to appraise the situation and the consideration of affordability vs return has to be considered. ?If such projects hamper the requirement of being a commercially viable destination in term of tourism and business then Cambodia will lose any competitive edge it has in its positioning in the Global trade and Business. This in turn will create a white elephant and the very infrastructure being pointless. ?

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6.?????? ?Value Gap in Skills Set among the Youth in Cambodia who are not gear to meet the challenges of the Economy as compared to Thailand and Vietnam. Also, with a population base of 16 plus million people, Cambodia has a small pool of talent to rely on. This will prove challenging as technology such as AI will render many employment opportunities redundant and will lead to job losses. Cambodia needs to invest in schools, colleges and university that are cutting edge to mitigate this risk and also create a skill development plan that will restructure the economic base to a tech-based economy. This is not easy to achieve and will require the right vision and plan.

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7.?????? Cambodia Riel is Pegged to the US Dollar which means that cost will be higher than its neighbours. This along with the requirement of high-middle-income country will definitely put the economy under stress. ?Another issue is that decoupling of Cambodian Riel to the US Dollar which at some point will need to happen and will lead to high inflation and a rippling effect in Economic Terms and could mean economic hardship.

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8.?????? Illegal activities in Cambodia which have led to online financial fraud which needs to be curbed, curtailed and stopped.

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Based on the above I personally feel there is no point in transforming Cambodia to a high-middle-income country by 2030 unless the present situation is understood and the transformation will be to the benefit of Cambodia.

It is better to stay a lower – middle income country for Now. Create sustainable growth opportunities with real monitory value and not based on speculations and have a structural economic development plan. The Structured Economic Development plan should be based on real growth opportunities which will then build a nation based on economic viability, commercial viability and project sustainability. Its better to keep cost down and create a value proposition that will make economic sense in a lower middle-income nation then pursuing a vision that could create economic hardship and could be a financial nightmare or disaster.