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Apparel and Footwear Exports Help Boost Cambodian Economy

Cambodian exports of apparel, footwear and travel goods, which account for more than two-thirds of total merchandise exports, recorded a five-year high increase last year, rising 17.6 percent from 2017, when it posted an 8.3 percent gain from the prior year.

A new World Bank report credited the sector’s growth for helping to boost the Cambodian economy to a 7.5 percent improvement in 2018. The World Bank’s “Cambodia Economic Update” said this better-than-expected growth was driven largely by the rapid expansion of exports and ongoing construction boom.

U.S. imports of apparel from Cambodia rose 3.88 percent to $420.48 million worth of goods for the year to date through February compared to a year earlier. Imports of footwear from Cambodia were up 8.2 percent to $64.19 million in the same period.

The construction, real estate and tourism sectors were also strong, accounting for about 60 percent of total approved investment in 2018. To support the construction boom, manufacturing of building materials, furniture metals and plastic products also increased substantially.

However, increased political and economic uncertainty has intensified risks, the report stressed. The European Union (EU) market, including the U.K., now represents more than one-third of Cambodia’s exports, particularly apparel, footwear and bicycles.

The potential end of the country’s duty-free access to the EU market for exports, known as the “Everything But Arms” arrangement, will likely result in slower exports, the World Bank said. The EU has said it will end the preferential trade program due to Cambodia’s ongoing labor rights issues.

In addition, the construction and real estate sectors are typically more prone to boom and bust cycles, and rising domestic credit financing in the construction sector increases the vulnerability of the financial sector, the report noted.

“Improving the investment climate and reducing the cost of doing business, along with building skills for future economy are key priorities to sustain strong growth in the medium term,” Inguna Dobraja, World Bank country manager for Cambodia, said. “Growing evidence highlights that investments in people are essential to drive economic progress and sustainable development. Investing in people and improving the quality of Cambodia’s human capital should remain at the core of Cambodia’s aspirations to reach an upper middle-income economy by 2030.”

The report also calls for filling skills gaps as a means of investing in human capital to strengthen Cambodia’s long-term economic growth.