The Cardamom Conundrum: Reconciling Development and Conservation in the Kingdom of Cambodia

Chapter 5. The Inevitability of Change

110 The Cardamom Conundrum CHAPTER 5 The Inevitability of Change C ambodia is changing. And this change is the result of a complex set of factors — from individuals acting locally to commodity markets influenced by policies in distant capitals. In many ways this change is positive and welcome: Cambodia experienced an annual growth rate of between 8 and 10 percent in the nine years prior to the economic downturn of 2009 (Figure 5.1). Cambodia is the most recent example of an Asian country to experience the phenomenon of rapid economic expansion, following Thailand, Malaysia and Indonesia, who have all seen their economies expand markedly over the past three decades, and who are often referred to as the “Southeast Asian Tigers.* The economic crisis of 2009 turned out to be a relatively mild market correction in much of Asia and growth has rebounded across the region. Much of the recent expansion has been linked to China, but astute economic management is also responsible for the success within Southeast Asia. Vietnam has followed China’s example and liberalized its economy, which has led to high annual growth rates over the past decade. Cambodia is following the same model and it is often said in the Phnom Penh popular press that “Vietnam is the next China, and Cambodia is the next Vietnam,” which reflects the country’s optimism and the trend toward economic growth and the expansion of commerce across borders. 110 * This distinguishes them from Hong Kong, South Korea, Taiwan and Singapore, known as the “East Asian tigers.” The Inevitability of Change 111 Cambodia’s recent growth stems from several policies, including preferential trade agreements with the United States and the European Community, as well as the decision to join the World Trade Organization . Another feature that has fostered foreign investment is the fasttrack investment approval process facilitated by the Council for the Development of Cambodia (CDC), a cabinet-level entity that approves investment projects by foreign companies and the Cambodia Special Economic Zone Board, a group that provides multiple services to investors who locate their factories in designated zones. Cambodia’s openness led to a surge in direct foreign investment from South Korea ($2.36 billion), Malaysia ($1.98 billion), China ($1.58 billion) and other nations for a total of $12 billion between 1994 and 2006.1 This pace of investment can be expected to continue over the next decade and, if reports in the popular and financial press are to be believed, will expand from a narrow emphasis on the garment industry and tourism, to focus on essential infrastructure, particularly transportation, communications and energy, which in turn will stimulate growth across the wider economy. The roster of investors will also become more diversi fied and include companies from Thailand, the United States, Australia , France and Russia. Reflecting the surge in investor confidence, Figure 5.1. Cambodia’s economy has seen an annual growth rate of between 6 and 12 percent between 2000–08, which dropped to near zero during the global recession of 2009 with modest rates of growth predicted for 2010 and 2011. 112 The Cardamom Conundrum Standard and Poor’s financial analysts granted Cambodia an investmentgrade rating for government debt securities in 2007. Another sign of investor confidence is the interest of private capital funds and the decision by a Wall Street investment firm to create a fund dedicated to Cambodia, which has invested in telecommunications, hydropower and electricity transmission, banking and microfinance, the food and beverage industry, and real estate.2 The Cambodian economy can be roughly divided into three major sectors: agriculture, industry and services, with the last category including tourism. Each sector has contributed to past growth and will be a key component of future growth. Within the domestic economy, agriculture is by far the most important, because it provides employment to the vast majority of the population; in the future, agricultural production will expand due to increasing mechanization and technological improvement, in part due to a trend towards larger landholdings under corporate management. The exploitation of the country’s natural resources will diversify from a reliance on renewable resources, such as timber, rice and fish, to include mining for industrial commodities and gold, and drilling for hydrocarbons believed to exist under the Gulf of Thailand. Cambodia’s industrial sector will remain reliant on its strong textile sector, which has prospered due to special trade...