Friday, February 22, 2008

Cambodia - Thailand – Vietnam – Romania – Bulgaria -- A Comparison of 5 Economies

Part III - Annotations

It must be pointed out that the inclusion of Bulgaria and Romania has no real significance in the comparison, as the underlying conditions are vastly different. They were only included to obtain some kind of perspective as to how other formerly decrepit Communist economies have fared after the collapse of the Soviet Union.

The numbers practically speak for themselves. Cambodia is the smallest country of the three SE Asian nations here with only a little over 14 million people (latest estimate) versus the more than 85 million in Vietnam and 56 million in Thailand. Efforts to achieve progress in a smaller poor country are disproportionately more difficult due to the lack of adequate human resources.

Nevertheless, Cambodia has made great strides in the past 8 years or so reaching a per capita GDP of $1800 (it used to be in the $200 to $500 range before) compared to the $2600 in Vietnam. Given the disparate underlying conditions for development in both countries, this is a rather good result.

The agricultural sector is Cambodia is far greater than in both neighboring countries, almost one third of the GDP. Since subsistence farming makes up more 60% of that, this would clearly be one sector that needs the government’s close attention. It is obvious that most of these farms are family-run and have no employees.The transformation of the agricultural sector becomes even more imperative when seeing the 75% of the work force being employed there.

It is, therefore, somewhat difficult to really measure the labor force/industry ratio in Cambodia’s case where 75 % of the labor force contribute 31% to the GDP, versus 56.6% of the labor force contribute only a mere 8.7 % to the GDP in Vietnam, and 49% of the labor force contribute 10.8% to GDP in Thailand.These figures, of course, demonstrate the large concentration in all three countries in rural areas. Bulgaria as a smaller industrialized country shows a preponderance of the service sector, whereas in Romania the production forces appear to be evenly distributed.

Cambodia shows a 26% share of industry, which is mostly garment processing, a 43% share in the service industry, which is mostly the tourism and hospitality sectors, whilst Vietnam has a large industrial base almost equivalent with Thailand. Even the two semi-developed Southeastern European countries Bulgaria and Romania do not have such a high percentage of industry.

The unemployment rate of 2.5% in Cambodia appears to be very low. This would translate into 175,000 people without job, although it is known that only a very small portion of the about 300,000 school graduates entering the job market per year can find jobs. This figure obviously does not take into account that the subsistence farmers and their families, for all intents and purposes, are at least to some extent part of the unemployed work force. They are not reflected in that low figure. Similarly, the number in both Vietnam and Thailand seem rather low, especially in rural areas. The cause may be inaccurate record keeping capabilities in all three countries. Bulgaria and Romania with a functioning bureaucracy show more realistic numbers.

Similarly, the population below the poverty line appears somewhat low too. Lately, the poverty was drawn at $2/day income in Cambodia, which would make it roughly $60 a month. That may just be enough in the countryside to feed and clothe your family but in the cities this is barely sufficient to feed you, not to mention housing.

The inflation rate has been rising steadily because of exorbitant oil prices in all countries.The share of investment in Cambodia is still too low. Both Vietnam, which spends 33% and Thailand with 27.4% far outdo Cambodia in this very important sector.

Cambodia has fewer agricultural products in comparison to its similarly structured neighbors. By adequate education of farmers and implementing appropriate programs the country could greatly increase its rice production and become a seafood exporter.

Today Cambodia is basically a dual-industry economy, tourism and garments, which outweigh the rest by far. The natural rubber industry could be expanded considerably. There is bauxite for mining, which is virtually untapped. The fishing industry can be transformed into a substantial segment by using more modern methods and by tapping into the resources of the Tonle Sap, the Mekong River, and the coastal waters.

Though industrial growth rates have been impressive, the further development of existing industries and the establishment of more diverse industries in line with today’s world markets, such as light machinery, automobile parts, computer parts will be key to averting the dependence on the dual-industry structure.

As known, Cambodia has a long way to go in electrification. Most of the power plants are fossil fuel driven, polluting the environment. Alternative power sources need to be developed. The latter sector has created jobs on a large scale in other countries.

Oil is the scourge of today’s world. With increasing motorization and power needs, oil consumption will continue to rise in the foreseeable future. The oil reserves and exploitation due to begin in 2011 will alleviate the problem considerably, if handled for the benefit of the Cambodian people as a whole.

Cambodia will become an oil-exporting country, although small in comparison to other oil-producing nations. Nonetheless, oil will contribute substantially to the GDP. With the modernization of the natural rubber processing plants, rice, and seafood products, an enlarged export range will gradually transform the outlook and shape of the Cambodian economy.

Currently, the U. S. is the most important export-trading partner. In paraphrasing the saying, ‘If the U. S. sneezes, Cambodia will catch cold’, it is clear that this dependence must be abandoned completely. The EU constitutes a vast market for all Cambodian products. This needs to be cultivated. Both Bulgaria and Romania, as members of the EU, export most of their commodities to other EU nations. This is a clear advantage of a common market. ASEAN is aiming to emulate some aspects of the EU.

With the advent of oil exploitation and exportation the era as an economic aid recipient should come to an end.

Cambodia will establish a stock exchange in 2009. The shares of which companies are to be traded there remains to be decided. So far there is not one public company registered in Cambodia. Only foreign registered and traded companies make direct foreign investment there. The trading of their stock on the exchange won’t benefit the Cambodian economy at all. It is very doubtful whether the current larger Cambodian companies will go public which entails making public balance sheets, earnings, etc. Most observers don’t see this happening very soon. It can be assumed that the stock exchange will only be another vehicle for foreign speculators to earn non-taxable profits abroad.

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