Cambodia's export evolution: Navigating emerging sectors

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Cambodia stands at the brink of a new economic era, marked by an impressive diversification of its export portfolio. As a matter of fact, over the past decade, this Southeast Asian nation has witnessed exponential growth, outstripping many of its regional counterparts. This remarkable expansion, according to the International Monetary Fund (IMF), has been fueled by industrialisation, an uptick in overseas capital inflow, and a significant increase in exports, extending beyond its traditional stronghold in labour-intensive manufacturing. Recent reports from The General Department of Customs and Excise (GDCE) further underscore this growth, revealing a 1.2% increase in exports to emerging international markets, totalling US$20.49 billion from January to November, compared to US$20.24 billion during the same timeframe in 2022. 

What is the possible reason behind this growth? 

The IMF lauds the manufacturing sector's pivotal role in this upward trend. While the agriculture sector grapples with environmental and cost-related challenges, the service sector, alongside electronics exports, has bounced back robustly. In addition, according to Agriculture Minister Dith Tina, during the initial three quarters of 2023, the export volume of latex items exceeded 242,000 tons. This growth narrative and diversification of its export portfolio, especially in non-garment goods, underscores the broadening spectrum of Cambodia's economic foundations, setting a promising outlook for its future in the global trade arena.

Diversification of Cambodia's exports: Beyond textiles to dynamic sectors

Cambodia's export landscape is witnessing a significant transformation, with a shift from its traditional reliance on garments, footwear, and travel goods towards a more diversified portfolio. Despite these items being globally sought after, especially during the holiday seasons, recent trends have indicated a pivot. The General Department of Customs and Excise's 2023 report reveals a downturn in the garment sector, which can be attributed to reduced orders from key markets in the United States (US) and Europe, impacting both the demand for raw materials and finished products within the country.

Contrastingly, other sectors have shown remarkable growth, underscoring the resilience and adaptability of Cambodia's export economy. Electrical machinery and parts, for example, have seen a surge in exports by 56.6%, followed by rubber and rubber products at 69.9%, and notable increases in agricultural outputs such as edible vegetables, roots, and tubers by 52.6%, and cereals by 45.1%. This growth in diverse sectors like agriculture leading the charge, alongside emerging products like natural rubber, vehicles, and fish, as listed by Trading Economics, paints a promising picture of Cambodia's export potential.

As Cambodia navigates these evolving trends, the imperative to expand its trading partnerships becomes clear. After all, such strategic moves are essential for fostering long-term resilience and growth in Cambodia's exports. 

Cambodia's trade relationships and emerging markets

Cambodia's international trade dynamics are evolving, showcasing a diverse and expanding array of trade partnerships that promise new export opportunities. Beyond its traditional ties with the US, China, Japan and Vietnam, Cambodia is strengthening relationships with countries like Singapore, Canada, Germany, and the United Kingdom (UK). 

These burgeoning connections are pivotal in shaping Cambodia's future in the global market:

1. Singapore: A growing trade partnership

Singapore stands as a testament to Cambodia's expanding trade network, with bilateral trade reaching nearly close to a billion in 2023. This 7.1% increase from the previous year underscores Singapore's role as Cambodia's ninth-largest trading partner. The trade primarily includes textiles and agricultural products, highlighting the potential for further economic collaboration between the two nations and enhancing Cambodia's export diversity.

2. Canada: Strengthening bilateral ties

The longstanding relationship between Canada and Cambodia has entered a new phase with the signing of a memorandum of understanding (MoU) aimed at deepening diplomatic, trade, and investment ties. And as anticipated by The Cambodian Footwear Association (CFA), this collaboration is expected to boost Cambodia's footwear exports, among other products, reflecting the positive impact of strengthened ties on Cambodia's export sector.

3. Germany: Leveraging preferential trade agreements

Cambodia's export relationship with Germany, a key EU member, has been bolstered by the EU's 'Everything But Arms' trade scheme, offering preferential treatment for Cambodian goods. With Cambodian exports to Germany already predominantly consisting of garments, footwear, travel goods, bicycles, electrical components, and agricultural products, there is an anticipation for increased bilateral trade driven by the effective collaboration between both countries' public and private sectors.

4. United Kingdom (UK): A growing trade partnership

According to the Department for Business and Trade, the UK emerges as Cambodia's 10th-largest trading partner, with total trade in goods and services reaching £829 million leading up to the end of Q3 2023. Cambodian exports to the UK, primarily consisting of clothing, footwear, bags, bicycles, and agricultural products, underscore the diversity and potential of this trade relationship. Plus, the significant role that the UK already plays in Cambodia's trade portfolio further highlights the opportunities for further growth and collaboration between the two countries.

These evolving trade dynamics reflect Cambodia's potential to widen its net of trading partners and adapt to global market demands. By continuing to invest in infrastructure development and upskilling its workforce, Cambodia is well-positioned to enhance its resilience and sustainability in the international export sector.

Navigating new frontiers: How is Cambodia shaping its trade future?

So, what is the blueprint for Cambodia's strategy in nurturing its emerging export sectors? 

At the heart of Cambodia's economic narrative is an innovative approach to trade policy, characterised by its willingness to explore uncharted territories and adopt new methodologies. This is supported by the fact that the Cambodian government has been instrumental in supporting and expanding these nascent sectors through strategic initiatives and policies, aligning with the evolving dynamics of emerging markets and developing economies.

The Cambodia Export Diversification and Expansion Programme (CEDEP), executed with the support of the Enhanced Integrated Framework (EIF) and other international partners, exemplifies this forward-thinking approach. While the initial phase of CEDEP focused on bolstering the rice and silk industries, its subsequent iteration expanded its scope to include cassava, marine fisheries, and a culinary academy, demonstrating a diversified focus. 

And in its pursuit of creating a conducive environment for trade and export, Cambodia has actively engaged in signing free trade agreements (FTAs) and ratifying significant partnerships. This includes the landmark approval of the Regional Comprehensive Economic Partnership (RCEP) Agreement and bilateral FTAs with powerhouse economies like China and the Republic of Korea in 2022. 

When it comes down to the aforementioned emerging markets, a notable example of Cambodia's strategic trade alliances is its participation in the ASEAN Free Trade Area (AFTA), a testament to its active membership in the Association of Southeast Asian Nations (ASEAN). The AFTA, under the umbrella of the Asian Economic Community, encompasses the ASEAN Trade in Goods Agreement, which aims to eliminate tariffs on nearly all goods and services among the 10 ASEAN countries, including Singapore. Additionally, the Singapore–Cambodia Mutual Recognition Agreement (MRA) ensures that goods exported by Cambodia's Authorised Economic Operator companies are recognised by the Singapore Customs as being of lower risk, facilitating smoother trade flows.

Through these comprehensive trade policies and strategic partnerships, Cambodia is carving a path toward becoming a pivotal player in the international trade arena, particularly within emerging markets. 

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