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263 Chapter 12 Industrial Policies 12.1. Future Challenges and Opportunities The export oriented garments and textiles sector has been mainly responsible for the high industrial growth of Cambodia in the last decade. Cambodia has been seriously affected by the decline in garment exports due to the global economic slowdown in late 2008. Cambodia has also been losing ground in the US its major destination for garment exports. Cambodia faces several constraints in dealing with the abolition of garments quotas including: (1) declining competitiveness; (2) high concentration on a few markets; and (3) heavy reliance on imported inputs/materials. The current trends in the Cambodian garment industry show a slowdown in market growth, which could cause damage to the industry if measures are not taken to address this backward trend. Cambodia suffers from poor infrastructure and high cost of utilities. Attention should also be paid to labour costs in Cambodia which have been rising steadily without a matching increase in productivity. Electricity prices, transportation and port handling costs in Cambodia, are high when compared to other countries in Asia. While the still cheap labor cost will be an attraction for foreign investments, this alone will not be sufficient to attract foreign investors as large-scale producers such as India or China also enjoy a similar advantage. It is crucial that Cambodia maintains its competitive advantage as a low-cost production centre by addressing the high costs of transportation, utilities and handling of containers at the ports. Mechanisms to link wage increases to productivity improvement should also be focused upon. Within the garment industry, expansion of both product range and markets is essential if the industry is to survive and grow. Attention should be given to the further expansion of garment products outside of the quota system. To reduce transport costs, attention has been given to improve the road network across the country. Large investments have been made in the improvement of national, provincial and rural road infrastructure. The government has also conducted a study on the operational cost structures, especially import-export and container handling costs. Concrete actions should be followed up in order to reduce operational costs at the international port. Reproduced from Cambodian Economy: Charting the Course of a Brighter Future. A Survey of Progress, Problems and Prospects by Hang Chuon Naron (Singapore: Institute of Southeast Asian Studies, 2012). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at 264 There are several downside risks facing Cambodia. Reflecting the deteriorating global economic environment, the growth momentum of Cambodia's exports has weakened. Moreover, prospects for Cambodia will depend significantly on developments in the domestic political environment and the state of the world economy, about which there is currently considerable uncertainty. Foreign direct investment and continuing donor support will be crucial to the achievement of GDP growth targets of 6-7 % per year in the medium term. Attraction of FDI will require relaxing several constraints that weaken Cambodia’s competitiveness. Cambodia will be in competition with other countries to win the approval of foreign investors. Several potential sources of growth have been identified, including diversification of production and improvement in agricultural sector. Large areas of land remain underutilized. Cambodia has a potential to increase rice yields, improve food security and expand rice exports. Agro-processing and fish farming can also become promising sources of growth. In the short to medium term, the civil service and legal and judicial system must be improved in order to facilitate the implementation of governance reforms and to enhance the environment for private investment, reduce trade facilitation costs and generally foster private sector development and trade-driven growth. It will also be important to improve road infrastructure to facilitate market access and reduce transportation costs, as well as enhance port management and power and utility services to reduce production costs. 12.2. Diversification of Industrial Development Diversification within the garment industry as well as the development of new industries will be crucial steps in Cambodia’s industrialization strategy. The development of new industries should however, be strategic, sustainable and evaluated in terms of their benefit to Cambodian people. The development of high quality products will require investments in technology, training, and quality control. It is important to promote the development of ancillary industries in order to reduce Cambodia's dependence on imported inputs. Supporting...


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