After years of conflict, Cambodia’s socio-economic development faced many challenges, which led to UNCTAD designating the Kingdom a Least Developed Country (LDC) inn 1991.
According to UNESCO, the LDCs are nations that have low income and little human resources and are vulnerable to economic and environmental shocks. Currently, the UN classifies 46 countries as LDCs. Members must meet at least two out of three criteria during two consecutive triennial reviews to graduate from LDC status.
During its years as an LDC, Cambodia saw many achievements in economic growth, reduction of poverty and social development. The UNDP reported that Cambodia met the first graduation criteria in 2021, and all three in 2024. It will graduate from LDC status in 2029.
Many experts have warned, however, that graduation could be a threat to the country’s economic growth, as once the country graduates, some preferential trade agreements will be lost, affecting the stability and development of Cambodia’s economy.
The government has noted that although there are some challenges to overcome, it does not see graduation as a threat, but as an opportunity, or catalyst, for Cambodia’s structural evolution.
Consequently, economic diversification and market expansion have been designated top priorities under the Pentagonal Strategy of Prime Minister Hun Manet.
By graduating from LDC, Cambodia can project itself as a stable and self-reliant country that can be trusted by trading partners.
After decades of building their policies around social and economic growth, the government has finally brought their people out of extreme hardship.
According to a report by the World Bank Group, Cambodia’s Gross Domestic Product (GDP) has grown at 7 per cent per annum for a decade, helping push the Kingdom into a lower middle-income nation in 2019. With the new income status, the poverty rate in Cambodia dropped from 53 per cent in 2004 to 20.5 per cent in 2011 and to 10 per cent in 2013.
It has fallen further since, with the World Bank describing the Kingdom’s poverty reduction rate as “remarkable”.
According to the ASEAN-Japan Center (AJC) Trade Resilience Report, to ensure a smooth transition from LDC status, Cambodia has to strengthen its trade relations with other countries and its trade competitiveness. Utilising Free Trade Agreements (FTAs) such as the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) and the Regional Comprehensive Economic Partnership (RCEP) is an excellent approach.
During the ‘Cambodia Trade: Looking Ahead to the LDC Graduation in 2029’ workshop, the Ministry of Commerce, together with the AJC, shared insights and discussed the changing trade landscape, insights on FTAs and hands-on training about the Rules of Origin (RoO).
Although graduation means a more stable and self-reliant economy, it also cuts off some benefits, for instance, the loss of preferential access, which allows Cambodia to trade with bigger nations with low or non-existent tariffs.
In 2020, a small percentage of exports were withdrawn from the preferential treatment list of duty-free quota-free products under the EU’s Everything But Arms (EBA), a trade agreement favouring LDC countries.
According to the UNDP, exports to the EU will face several changes after LDC graduation, increasing from 0 per cent tariffs under the EBA and Generalized System of Preferences Plus (GSP+) to 8.8 percent under the Generalised System of Preferences (GSP) and 11.5 percent under the Most Favoured Nations (MFN) rates.
This means Cambodian goods will face higher tariffs, and the number of export goods will also fall.
In addition, graduation will transition international grants and aid into commercial loans, adding to the Kingdom’s debt.
A positive sign is that as grants are seen as charity, gradation serves notice that the Kingdom is now capable of standing alone, and does not require aid.
In order to ensure a smooth graduation, however, several strategic changes should be implemented, to support the Kingdom, both economically and structurally.
First, the education system and institution should be reformed to cultivate more human capital. According to an article by Vann, the number of Cambodian students enrolling in true science dropped from 90 per cent in 2012 to 34 per cent in 2021, resulting in about only 30 per cent of students in higher education who graduated in the Science, Technology, Engineering, and Mathematics (STEM) fields.
To counter this, the Ministry of Education, Youth and Sport should propose collaboration with private sectors to draft a plan that will fulfil industrial demand.
The STEM system should be included in school curriculums, both public and private, at lower grades to increase their uptake. In addition, vocational training programmes should be made available for all age groups.
Second, the nation’s dominant and growing industries should work to enhance competitiveness.
Unfortunately, the dominant industries in Cambodia (garments, footwear, and travel goods) are not competitive and are at a lower part of the chain value, and the Kingdom will struggle to keep up with other nations if no other higher-value industries are created.
According to an article by Elma, Cambodia’s Travel Goods (GFT) sector relies on basic assembly (Cut-Make-Pack) with limited backward linkage, meaning they export most of the raw materials like fabric and yarn, meaning they are placed low in the Global Value Chain (GVC) and will be exposed to massive shock when their preferential tariffs expire.
Pathways for industries such as technological, automotive and electric assembly should be laid out to help the nation keep up with global needs.
Third, the government should maximise profit and expand export and market diversification.
Cambodia currently has many trade agreements with other nations; however, a number of these trade agreements will expire upon graduation. The government should renegotiate trade agreements with old trade partners and seek out new partners to expand her global connections.
This will help stabilise the economy and ensure that the Kingdom’s exports face lower tariffs.
LDC graduation is not just an economic shift but also a governance and regulatory challenge that requires coordination from both the government and other involved actors.
The Kingdom not only has to enhance and upgrade industries but also requires coordination within the country. Meetings, conferences and seminars where the government and private sectors can communicate, share insights and voice their concerns about the needs and changes in the industry should be held monthly.
These meetings will help both parties to understand and come up with solutions and precautions for any situations that may occur and minimise their effects.Ren Vimean is an undergraduate student pursuing a Bachelor’s Degree in international relations from the Institute for International Studies and Public Policy. The views and opinions expressed are her own.