Human capital upgrading in Cambodia: Learning from the East Asian Experience

Sep 8, 2016

On 1 July 2016, the World Bank officially announced that Cambodia had become a Lower Middle Income Country (LMIC). With Cambodia’s economy growing at an average of 7% over the last two decades, the announcement had long been anticipated. While Cambodia will remain a Least Developed Country for at least the next 10 years, crossing the LMIC threshold is a step closer towards the aspiration that Cambodia achieve Upper Middle Income Country status by 2030, the same end year for achieving the Sustainable Development Goals.

There are a few lessons that Cambodia can learn from the East Asian Tiger economies’ rapid economic growth and improvements in well-being. One, these economies’ growths were attained during their demographic dividend period. Cambodia is still in the midst of its demographic dividend, projected to last until 2038. Like these East Asian economies which had an average annual growth of 2.7%, Cambodia’s labor force is outpacing its population growth, currently at 1.8%.

Two, the East Asian experience showed that demography has to be complemented by massive investments in improving human capital, i.e., upgrading the skills of the labor force and regarding these as a resource or asset. The challenge is that Cambodia’s human capital endowment is not enough to meet the current demand for semi-skilled and skilled labor, neither is it adequate to meet the demand for Cambodia to move up regional value-chains. For now, at least.

In the recent past, East Asian workers would need at least nine years of basic education to take advantage of manufacturing jobs or semi-skilled employment. With mean years of schooling ranging from 4.4 — 4.7 years of education, the Cambodian worker is on average, an unskilled worker. 

While duly recognizing progress in enrollment levels, educational attainment is another matter. According to UNDP’s Human Development Report Office and internationally comparable data from UNESCO, Cambodia’s mean years of schooling has remained unchanged since 2010.  Hence, Cambodia’s oversupply of unskilled workers (39%) in the labor force coexists with an almost equal shortage of semi-skilled workers (37%). Without significant improvements in educational attainment, the situation can only get more challenging over time.

According to a recent ILO report, the emergence of new manufacturing technologies such as 3D printing, body scanning technology, computer-aided design (CAD), wearable technology, nanotechnology, environmentally friendly manufacturing techniques and robotic automation, could potentially limit the transfer of manufacturing facilities away from developed countries to developing countries such as Cambodia. Much ado has been made about the potential impact of the tech industry on the garments industry but the concern goes well beyond that.

These new technologies require greater ICT literacy and skills or greater mean years of schooling. These threaten the prospects for Cambodia to go up the manufacturing value chain and increase value-added, critical for improving incomes and standards of living, tomorrow. Preparing the unskilled workers to take advantage of these technological opportunities would require a minimum of 4-5 years additional schooling, and would be a tall order for a number of reasons.

For one, many of these Cambodians have already left the formal school system and are in some form of informal and vulnerable employment. Also, the outreach of Cambodia’s technical education and vocational training systems remain restricted to only a few thousand every year. And while the law requires all enterprises to invest in in-house training, this is limited to enterprises with 60 or more employees. With 90% of all Cambodian enterprises employing 1-5 persons, the law does not apply for most enterprises.

A difficult situation? Perhaps, but not an impossible one.

If Cambodia is to realize its aspirations to become an Upper Middle Income Country (UMIC) by 2030, enrollment rates have to be complemented by an equal push for completion rates for basic education, which has not been faring well for some time now. It also requires taking a long view. In this regard, the experience of East Asian countries like the Republic of Korea, Malaysia, and Thailand are particularly instructive. Today, Cambodia’s level of educational attainment is roughly that of South Korea in 1960, Malaysia in 1975 and Thailand in 1990, according to a study by Baro and Lee published in 2013 in the Journal of Development Economics. All three countries achieved a level of schooling close to nine-years basic education, by the time they became a UMIC.

How long did it take these countries to go from a mean years of schooling of less than five years, to that required of an UMIC? When South Korea became an UMIC in 1987, it had taken the war-devastated country some 27 years to go from less than five years to nine years of schooling. Malaysia took 17 years to reach 8+ years of schooling when it became an UMIC in 1992.  Thailand took some 20 years to reach eight years of schooling by the time it became an UMIC in 2010. With 2030 just some 14 years away, it would appear that Cambodia has some serious catching up to do.

It would be tempting to think that Cambodia would need to invest in human capital first before reaping the benefits in terms of economic well-being. Fortunately, the East Asian experience shows that this wasn’t the case. The upgrading of human capital and economic and industrial upgrading wasn’t pursued in a simple linear fashion. Take the three countries mentioned earlier: all countries pursued human capital upgrading and economic and industrial upgrading almost simultaneously.  Whether through active targeting of industrial sectors (Korea and Malaysia), following market forces (Thailand) or fostering domestic enterprises (Korea), all these countries ensured that the education and training system met the requirements of economic and industrial upgrading, facilitated the expansion of decent employment and encouraged the progressive investment in human capital.

This required the close coordination of education and industrial policies, which in the case of Cambodia is now possible given the launch of the Industrial Development Policy and education system reform measures. Indeed, as a UNDP research suggested, Cambodia could still stand to gain from a fast-track approach to raising the levels of educational attainment, by adapting to national realities the approaches previously laid out by East Asian countries.

 

By Napoleon Navarro, Senior Policy Advisor to United Nations Development Programme in Cambodia

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