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The Remarkable Growth of Cambodia’s Manufacturing Sector

by Surya Narayan
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A Testimony to Peace and Political Stability

In recent years, Cambodia has experienced a remarkable surge in the number of garment, footwear, and travel bags factories. What was once a modest industry with only 68 factories in 1997 has now grown to an impressive 1,326 factories in 2023, providing employment opportunities to over 840,000 workers. This surge in industrial growth is a significant testament to Cambodia’s flourishing manufacturing sector.

During an address to factory workers at the Royal Group Phnom Penh Special Economic Zone, Prime Minister Hun Sen attributed this remarkable growth to the prevailing peace and political stability that have successfully attracted both domestic and foreign investors to Cambodia’s thriving industrial landscape. The country’s conducive environment, prioritizing stability and growth, has fostered local production and boosted the nation’s export capacity.

Economic Impact and Growth Prospects

The garment, footwear, and travel goods industry, renowned as Cambodia’s largest foreign exchange earner, continues to drive economic prosperity. It is expected that the Cambodian industry will grow by 9.2 percent in 2023, supported by improved external demand that helps boost both garment and non-garment manufacturing. Specifically, the garment sector is projected to grow by 8.1 percent due to demand in the United States, the European Union, and the Southeast Asian region, primarily Myanmar.

This anticipated growth in the manufacturing sector will contribute to Cambodia’s overall economic growth. The country’s economy is projected to grow by 6.6 percent in 2023, which is 1.2 percent higher than the projected growth for this year. This positive outlook is supported by better trends in global demand and higher investor confidence, thanks to the relaxed and controlled COVID-19 pandemic situation.

Inflation, Intervention, and Investment

Efforts to mitigate the impacts of rising inflation and boost domestic investment are key priorities for the government. Inflation is estimated to drop to 2.5 percent this year from the projected 5 percent in 2022. To support economic development and job creation, the government is considering increasing intervention packages.

Foreign direct investment (FDI) is expected to recover in 2022 and 2023, reaching around 12 percent and 11.6 percent of the gross domestic product (GDP) respectively. Rising investor confidence and changes in regional and global production and supply chains will contribute to this recovery. Furthermore, the expected increase in FDI will enable Cambodia’s international reserves to reach about $21 billion in 2022 and around $22 billion in 2023, ensuring stable import capabilities for the economy.

Focusing on Agriculture for Future Growth

Despite the growth in the manufacturing sector, the economy in 2023 will still require support from the agriculture industry. It is projected to rise by 1.1 percent, with strong progress in animal raising, plantation, and fisheries sub-sectors. Exporting agricultural products, especially mixed and agro-industrial commodities, is expected to play a significant role in driving this growth.

The remarkable growth of Cambodia’s manufacturing sector, particularly in the garment, footwear, and travel goods industry, is a testament to the country’s peace and political stability. This growth has been possible due to a conducive environment that attracts both domestic and foreign investors. As Cambodia looks towards the future, continued focus on maintaining stability, supporting investment, and exploring opportunities in other sectors such as agriculture will contribute to sustained economic growth and prosperity.

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