Asia

Cambodia Foreign Trade

Cambodia imported goods worth $ 18.8 billion in 2018 and exported goods worth $ 13.6 billion. The trade deficit was 21.5 percent of the gross domestic product and thus higher than ever. The deficit in the current account balance is financed by an almost equally high inflow of capital in urgently needed foreign direct investment (2017 according to the World Bank around 1.6 billion USD and almost 11% of GDP).

The clothing industry continues to be the backbone of Cambodia’s foreign trade and the most important factor in its steady prosperity, with exports worth US $ 10 billion (2018, up US $ 2 billion year-on-year). The most important market is and remains the European Union, to which around 29% of all exports went in 2018, ahead of the USA (24%) and the United Kingdom (9%). Most imports continue to come from the People’s Republic of China with almost 40% of all imports, ahead of Thailand (15.5%) and Vietnam (11.9%). In addition to raw materials for the shoe and textile industries, Cambodia also imports vehicles and mineral oil. Germany, on site primarily through the German Business Working Group visible, with a share of nine percent Cambodia is the third largest destination country for exports among the individual states.

According to Historyaah.com, more than 90% of all exports are covered by trade facilitations granted by the European Union and the USA. Due to the restructuring of Cambodia into a de-facto one-party state, there was a possibility that these trade facilitations could be removed. On February 12, 2020, the EU Commission decided to at least partially suspend this. The volume corresponds to around 19% of Cambodia’s exports to the EU in 2018; For example, trousers and T-shirts for men and boys, certain men’s underwear and nightwear as well as jogging and tights for women as well as travel items (suitcases, bags and rucksacks) and sugar should account for between 1.7 and 12% from August 12, 2020.

Since the end of 2018 there has been speculation as to whether the EU’s decision would mean the death knell for the Cambodian textile industry and thus the majority of the foreign trade – the criticism of the whole procedure was correspondingly fierce beforehand. With this decision that has now been made, the continued existence of the textile industry should initially be secured for the coming years. Nightmares such as mass unemployment, economic rapid-fire effects leading into the recession and mutually reinforcing spiral of poverty and debt have thus been dispelled for the time being.

Regardless of this, the US Congress has been dealing with the Cambodia Trade Act since January 2019 for the same reasons, through which Cambodia would suddenly have to observe export quotas and pay tariffs, as in the case of Europe. And even if this decision should turn out lightly: in 2027, two years after the expected end of the “Least Developed Country” status, all trade facilities will cease to exist anyway. Therefore, Cambodia will face considerable challenges in the next few years in order to reposition itself economically. Above all, the competitiveness compared to Vietnam could decrease further due to the free trade agreement between Vietnam and the EU.

As a result of the political opening of Myanmar, the labor supply in Thailand has increased significantly, which is likely to have an impact on the latter due to the higher productivity of Burmese workers compared to their Cambodian colleagues. In any case, the implications of this are enormous: If Cambodia does not make significant progress in the competitiveness of the manufacturing industry – the key sector for foreign trade – in the next few years, it will (have to) export hardly any products, but it will (have to) export workers.

In contrast, the Southeast Asian free trade zone, which came into force on December 31, 2015, has not yet shown any noticeable effects due to the low level of intra-regional trade (from which services and investments, unlike goods, have so far been excluded). But it shouldn’t stay that way for long: A common market is to be established by 2025 by dismantling tariff and non-tariff barriers to trade similar to the EU – a major challenge for a country with still weak institutions like Cambodia. In addition, the abolition of import duties for goods and services from other member states will force the country to develop alternative sources of income. The question of competitiveness and the protection of local small and medium-sized enterprises is now more clearly posed than in previous years and should primarily be answered with investments in the education sector and infrastructure.

Cambodia Foreign Trade