Cambodia will face economic crisis?

Recent developments

2007 GDP grew an estimated 9.6%, in line with the 2000/06 average of 9.5 percent. Foreign direct investment reached US$600 million (7% of GDP), slightly more than was received in foreign aid. Garment exports rose almost 8%, tourist arrivals jumped nearly 20%, and construction activity doubled. With exports decelerating somewhat, the 2007 GDP growth was driven by consumption and investment. Foreign direct investment (FDI) inflows reached US$600 million (7 percent of GDP), slightly more than the country received in official aid. Domestic investment, driven largely by the private sector, accounted for 23.4 percent of GDP. Approximately 2,860 new businesses registered for operation in 2007, a 71 percent increase over 2006.
Although risks have increased, economic prospects for 2008 remain strong. The projected 7.5 percent growth rate for 2008 reflects a mix of growth in services (mainly tourism) and construction combined with a slowdown in garment exports. Export growth, especially to the US, began to slow in late 2007 accompanied by stiffer competition from Vietnam and emerging risks (slowdown in the US economy and lifting of safeguards on China’s exports). Although exports of cash crops have grown fast in recent years, developments in the garment industry have a major impact on Cambodia’s export performance. On the other hand, Cambodia’s exporters might benefit from the depreciation of the dollar. Another risk is uncertainties in the construction sector. However, although the boom driven by real estate could slow, other sources of demand––tourism and infrastructure––could enable continued growth in construction.

Sustainable Development and Predictions of Future Crises

While foreign investors and international banks look at Cambodia's "growth" statistics based on income, sustainable development analysts believe the country is on a path towards unsustainability based on two key factors: population that continues to grow and that has largely doubled in the past 30 years and rapid destruction (sale) of forest and other natural resources. The sustainability of the country's ethnic indigenous minority cultures, particularly in the northeast, is at risk. Rural land is being sold or appropriated by large businesses and officials, urban areas are rapidly growing as available land is exhausted, and large disparities remain between rich and poor. The country's growth in income is largely based on tourism that is said to already be at its limits at major sites like Angkor where tourism is already blamed for deterioration of the monuments; by sales of resources; and by some copying of foreign technology. One foreign analyst, David Lempert, has argued that the country's development policies are now following the very same development model that foreigners brought or imposed on the country during the period of French colonialism and early independence and that conditions are being recreated for the same kind of political instability that led to peasant rebellions and civil war.

The recent discovery of oil off of Cambodia's coast could provide enough income to feed the growing population for an additional 15 years, but such resource sale is evidence of unsustainable development. If the oil income is used to support consumption but without slowing population growth, educating the population for continued productivity increases, and protecting resources, the problems are only being postponed.