Industrial Development Discussion Paper
Cambodia has achieved significant success in recent years and has enjoyed the fastest growth in South-East Asia over 2001-2010. The garment sector dominates its manufacturing, but it has also achieved strong performance in agriculture, tourism and construction. Nevertheless, it is well recognized by the Government and development partners that Cambodia faces challenges in the industrial sector if its success is to continue. These challenges include achieving greater diversification within manufacturing, and sustaining employment generation that can provide employment, increased wages and better conditions; all of this involves moving up the value chain in manufacturing.
It is already widely understood both by the Government and development partners that Cambodia must improve its physical infrastructure and aspects of its governance, in particular the enforcement of property rights and the rule of law, both of which underpin market efficiency. Less frequently recognized are the implications of the as-yet limited participation of domestic Cambodian entrepreneurs in manufacturing. In the early stages, a manufacturing sector dominated by foreign investment and ownership can be a driver of growth, but in a middle-sized country like Cambodia, long-term sustainability of growth requires the development of a domestic entrepreneurial class. Foreign investors who specialize in particular manufacturing sectors may relocate if better opportunities for that sector emerge in other countries. The advantage of domestic entrepreneurs is that even if a particular sector declines, domestic entrepreneurs will look to develop new opportunities within the country, even if that is initially difficult.