VZCZCXRO6130
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0312/01 0991042
ZNR UUUUU ZZH
P 081042Z APR 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHINGTON DC PRIORITY
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 PHNOM PENH 000312 
 
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SIPDIS 
 
STATE PLEASE PASS TO USTR--BISBEE 
STATE PLEASE PASS TO USAID/ANE/TS--MARY MELNYK 
STATE FOR EAP/MLS, EEB/TPP/BTA/ANA, EAP/EP, AND OES 
BANGKOK FOR FCS--BACHER 
HANOI FOR FCS--NAY 
HO CHI MINH CITY FOR FCS--MARCHAK AND LE 
TREASURY FOR INTERNATIONAL AFFAIRS--CHUN 
 
E.O. 12958: N/A 
TAGS: ECON SENV EPET PGOV PHUM EAGR CB
SUBJECT: LONG TERM CHALLENGES IN CAMBODIA'S BOOMING ECONOMY 
 
 
¶1.  (U) Summary.  While Cambodia has displayed remarkable 
economic growth over the last four years, structural 
challenges in employment generation and natural resource 
management must be solved if this rapid growth is to continue 
and be shared equitably.  At a recent economic conference, 
speakers ranging from the Prime Minister to NGO 
representatives agreed that Cambodia's economic growth has 
disproportionately benefited wealthier, urban populations. 
Speakers called for increased government spending in priority 
areas, better management of forests and fisheries, and 
improved alignment between existing workplace capability, 
vocational and higher education, and employment 
opportunities.  End Summary. 
 
PM Hails Economic Growth, Bristles at Oil Worries 
--------------------------------------------- ---- 
 
¶2.  (U) The Prime Minister's prepared remarks to the Outlook 
Economic Conference, an annual event sponsored by ANZ Royal 
Bank and the Cambodian Development Research Institute (CDRI), 
were a tour d'horizon of the Cambodian economy's recent 
success and remaining challenges.  Saying that political 
stability had "opened up opportunities for social and 
economic development," Hun Sen lauded Cambodia's 10% average 
economic growth over the past four years, doubling of per 
capita GDP over the last decade, and growing government 
revenues and garment sector exports.  He highlighted progress 
made on social indicators such as child mortality and 
malnutrition, but warned that poverty and inequality remained 
high and that "the fruits of growth have not yet been 
distributed equally to all social strata in the rural areas." 
 Cambodia's natural resources can be used to spur economic 
development, but the PM admitted that the government faced a 
challenge in ensuring that they were used correctly, citing 
land disputes, management of oil revenue, and the 
environmental impacts of mining as examples.  Going forward, 
he called for private sector-driven growth, especially the 
promotion of small and micro-enterprises; continued economic 
reforms; and economic diversification. 
 
¶3.  (U) In typical Hun Sen fashion, the Prime Minister 
deviated seemingly extemporaneously from his prepared remarks 
to issue several pointed retorts to recent events.  He told 
the international community not to pose any more "stupid 
questions" about how potential oil revenues will be used.  He 
emphasized that the government already had a development plan 
in place and should not be pushed to make other, more 
specific plans to spend the revenue while Cambodia's oil 
potential was still unproven. 
 
Can Economic Growth Last and Be Shared Fairly? 
--------------------------------------------- - 
 
¶4.  (U) Cambodia's 9.5% growth rate in 2007 was more than 
double the global average and marked the country's fourth 
year of double digit (or nearly double digit) growth.  IMF 
Resident Representative John Nelmes predicted 7% growth in 
2008--a strong level, but slower than previous years due to 
competition with Vietnam in the garment sector and a slowing 
U.S. economy.  While Nelmes praised the RGC for their 
remarkable 40% annual increase in revenue collection, he also 
cautioned that spending has been overly constrained in light 
of this higher income and significant social needs, with 
government expenditures up only 4%.  Nelmes called for more 
spending on infrastructure, health, and education; and 
stronger efforts to control inflation--both measures 
necessary to keep Cambodia's economic growth in the double 
digits. 
 
¶5.  (U) Both the IMF Resident Representative and an executive 
from a leading international bank hailed the extraordinary 
growth in the banking sector, with deposits growing by 72% 
and loans growing by 64% during 2007, albeit from a low base. 
 ANZ Royal Bank executive Gary Runciman predicted continued 
rapid growth, but also cautioned that high degrees of 
risk--due largely to poor transparency, lack of financial 
documentation, and uncertainty surrounding the enforcement of 
bankruptcy and other laws--make it difficult for banks to 
lend and lead to lower than expected returns. 
 
¶6.  (U) Cambodian Development Research Institution (CDRI) 
Research Director Hossein Jalilian said that two factors 
explained why Cambodia's economic growth has not been shared 
equally among all segments of society.  First, while the 
 
PHNOM PENH 00000312  002 OF 003 
 
 
industry and service sectors have seen sustained growth, the 
agriculture sector has been unstable and even experienced 
negative growth rates at times.  Secondly, there are few 
linkages between the successful service and industrial 
sectors and the rest of the economy--an experience borne out 
by Siem Reap province, which has one of the highest poverty 
rates in the country despite being home to the world famous 
Angkor Wat temples.  Reversing this trend of growing 
disparity will require improving the business environment; 
channeling investment toward economic development rather than 
real estate speculation; and strengthening institutions, 
including efforts to provide land titles. 
 
Natural Resources Under Threat 
------------------------------ 
 
¶7.  (U) Cambodia's forests and fisheries, which represent a 
safety net for the poor and account for a considerable amount 
of their income, are under threat.  Cambodia's fisheries 
generate jobs for more than 1 million people, account for 
more than 1/4 of the value of Cambodia's agricultural output, 
and contribute 75% of the protein in the Cambodian diet, 
according to government and UN Development Program speakers. 
According to a 2006 CDRI study, non-timber forest products 
account for 42% the income of Cambodia's rural poor and 30% 
of the income of non-poor living in rural communities.  Yet 
despite their importance, these resources are poorly managed 
and often not available to the vulnerable groups who need 
them the most.  Chan Tong Yves, Secretary of State from the 
Ministry of Agriculture, Forestry and Fisheries (MAFF) 
highlighted the government's "strict measures to prevent 
deforestation," the apprehension of 30 illegal loggers, and 
the 2001 cancellation of 56% of the country's fishing 
concessions.  However, even this official admitted that the 
RGC lacks the capacity to enforce environmental laws or 
address land encroachment and illegal fishing. 
 
¶8.  (U) While illegal logging has been substantially reduced, 
equitably managing Cambodia's forests and other land remains 
a major challenge.  The government owns a majority of 
Cambodian land, including a large percentage of forested 
land, but little of this public land serves the public good. 
Economic land concessions (ELCs) claim more than 1 million 
hectares, but only 2% of ELC land area is cultivated or 
otherwise developed, while the rest sits idle or is stripped 
of timber without being put to its intended use.  In 
addition, purported developers often begin clearing forests 
before having their ELC applications approved, according to 
Chhith Sam Ath, Executive Director of the NGO Forum.  World 
Bank Country Representative Nisha Agrawal summed up the 
situation, saying that ELCs were "all about stripping forests 
or holding on to land for speculation, something Cambodia 
can't afford when 20% of the population is landless." 
Agrawal emphasized that Cambodia already had the necessary 
laws in place to manage its natural resources well, the 
question now was actually implementing the laws; attracting 
high-quality investors who intend to live up to those laws; 
and building capacity and public discourse about these issues 
at the community level. 
 
Mismatch Between Jobs and Job Seekers Creates Unemployment, 
Illegal Migration, and Employer Woes 
--------------------------------------------- -------------- 
 
¶9.  (U) Job seekers' skills and qualifications are poorly 
matched to the needs of Cambodia's economy, creating both 
high levels of unemployment and difficulty in recruiting 
qualified staff.  Ministry of Labor Secretary of State Pich 
Sophoan told participants that there was a strong need for 
unskilled jobs in rural areas to match Cambodia's largely 
rural and poorly educated workforce.  Siphoan highlighted the 
government's small but well-respected vocational training 
program, which meets workforce needs but suffers from the 
perception that university is the only route to good 
employment.  One result of the lack of unskilled jobs in 
Cambodia is rising levels of economic migration.  Government 
reports of 20,000 Cambodians working legally in Malaysia, 
South Korea, and Thailand over the last decade are dwarfed by 
estimates that 180,000 Cambodians are working illegally in 
Thailand alone.  Chan Sophal, senior researcher at CDRI, 
called for the Cambodian government to facilitate safe 
economic migration, saying that something as simple as 
lowering passport fees to the regional average of USD 30 
would result in a loss of USD 3 million but would generate 
 
PHNOM PENH 00000312  003 OF 003 
 
 
USD 200 million in income for poor families who either fail 
to migrate due to cost or migrate illegally, facing 
harassment and underpayment as a result of their precarious 
status. 
 
¶10.  (U) At the skilled end of the job market, HR Inc. 
President Sandra D'Amico complained that low and uneven 
university standards mean that employers can't rely on 
degrees or certifications as a reliable measure of an 
applicant's skills and knowledge.  Applicants frequently lack 
critical thinking skills, creativity, and initiative; and hop 
from one job to the next when a better paying position opens. 
 Yet while employers have trouble finding qualified 
applicants, recent graduates have trouble finding 
jobs--spending an average of nine months to find their first 
position. 
 
¶11.  (SBU) Comment:  Despite its impressive economic growth, 
Cambodia faces long term challenges due to poor alignment 
between the country's human and natural resources and the 
economy's needs.  Young people anxious to advance pay 
relatively large sums for university educations that fail to 
qualify them for skilled jobs.  Much of Cambodia's land sits 
idle in the hands of timber barons (posing as developers) or 
property speculators while a fifth of the population is 
landless and more than one-third are poor.  Concerns and 
unrest surrounding inflation, which have come to the fore 
since this conference, underline the precariousness of many 
Cambodians' economic survival.  If Cambodia's remarkable 
economic growth is to continue, and if that growth is going 
to benefit more than a few, Cambodia faces the difficult task 
of re-aligning its resources to address the needs of the 
majority of its population rather than the elite. 
MUSSOMELI