While Cambodia’s economic development is often compared to that of neighbouring Vietnam and Thailand’s, industry insiders say the Kingdom needs to keep a close eye on the steady progress being made in Myanmar, which is predicted to eat into Cambodia’s exports in the long term.
After decades of isolation, Myanmar has in the last four years seen structural reforms.
An improved business environment propelled its gross domestic product growth to 7.7 per cent in 2014, and it is expected to reach 8.3 per cent for 2015, according to the Asian Development Bank.
While Myanmar may not pose an immediate threat to Cambodia, Jayant Menon, lead economist at the Asian Development Bank’s office of regional economic integration, said the Kingdom will need to improve its productivity and increase its pool of skilled labour.
Trade costs in Myanmar are still high, given the dearth of investment and infrastructure development, but as economic reforms begin to kick in, the country will increasingly grow its presence on the ASEAN stage, Menon added.
“In the longer term, Cambodia may have to lift its productivity if it is to compete with the well-educated workforce available at relatively low cost in Myanmar.”
On the rice export front, Cambodia is already facing steep competition from Myanmar. Rice shipments leaving the Kingdom last year totalled a little more than 387,000 tonnes, compared to Myanmar’s 1.7 million tonnes – a large amount of it going to China.
Cambodia may currently have the edge in exporting higher-quality fragrant rice, said Song Saran, CEO of leading rice exporter Amru Rice, but Myanmar is fast catching up and moving beyond its export of lower quality broken rice and parboiled rice.
“In the long term, Myanmar will be a big threat to Cambodia, because they have started to improve their facilities,” Saran said. “And in the next 4 to 5 years there will be more stress for Cambodian rice in the European market.”
Cambodia’s rice industry benefits from favourable trade agreements that may soon be revoked. Vireak Mai
Saran said that when Cambodia graduates to a low-middle income economy and loses its European Union-granted Everything But Arms (EBA) status – giving least developed countries duty free exports to the economic bloc – Myanmar, which also enjoys the preferential treatment, could extend its advantage given that its exports will be cheaper than the Kingdom’s.
“When EBA is off, we are going to have more hardship and the possibility of losing market share to Myanmar,” he said.
“But with jasmine rice, I am still optimistic that we can maintain our market share even if EBA is off.”
On the economic front, both countries are using similar sectors, including rice and garments to fuel growth.
However, Myanmar also has to deal with the “overhang of the elections” in November, as well as ethnic and religious tensions, said Grant Knuckey, CEO of ANZ Royal Bank, who is also the head of Myanmar operations for ANZ.
“Despite that, Myanmar is a genuine threat based on both potential and clear intent,” Knuckey said, referring to economic reforms that are focused on increasing commodity exports.
Infrastructure and logistical capacities are two key issues holding back both nations, but, according to Knuckey, investments made in deep sea ports and a better special economic zone policy can help Myanmar leapfrog the progress made by Cambodia in the past few years.
“Myanmar will soon have a real edge, with deep sea capacity at both Thilawa and later Dawei,” he said.
“Myanmar has also moved very aggressively on the SEZ framework, where Thilawa is more of a special administrative zone than an industrial park, which is the current Cambodia model.”
Srey Chanthy, an independent economist, said that as Myanmar grapples with the same “pitfalls” that Cambodia has had to address, such as low productivity, it will have to make good use of its young and well-educated population to accelerate its ascent up the ASEAN pecking order.
“If the Myanmar government can significantly improve the domestic business-enabling environment to attract direct foreign investment, these things can be done in the short to medium terms, they need not wait for the long term.”
Source: The Phnom Penh Post