Cambodia is poor because young people do not realize this

Cambodia- a country with a population of over 15million is located in the southern portion of the Indochina Peninsula in Southeast Asia. Cambodia has one of the fastest growing economies in Asia with growth averaging 6 percent over the last decade. Agriculture remains the prominent economic sector, with strong growth in textiles, construction, garments, and tourism also leading to increased foreign investment and international trade.

A country with this wonderful potential should have a steady cash flow. But first, what is cash flow?

Cash flow is the money that is moving (flowing) in and out of your business. In this case, it is the money that is moving in and out of the country from the businesses carried out within and outside the country.

How Cash flow into Cambodia:

A country should have its own source of consistent cash flow be it through agriculture, investment, grants, loans, and much more. Here are some of the sources of cash flows coming into Cambodia:

Overseas Labouring

One of the major cash flows for Cambodia is overseas laboring. Cambodia has sent at least 60,000 laborers to work in South Korea, Malaysia, and Thailand. This is usually carried out through the use of International Employment Agencies so as to protect these laborers from exploitation.

According to the Ministry of Foreign Affairs, some 660,000 Cambodians, or almost 5 percent of the country’s entire population, is currently working in Thailand.

In south Korea, there are currently more than 35,000 Cambodians working who send home remittances of about $200 million annually.

Recently, the Cambodian Prime Minister Hun Sen said that 30,000 Cambodians were currently working in Malaysia.

As a result of overseas laboring, the foreign remittances from migrant workers based overseas are expected to grow to over $1.5 billion this year, according to Acleda bank.

These remittances mostly come from Thailand, Malaysia, South Korea, the US, France, and Canada.

Investment

The Royal government of Cambodia has put in place a conducive environment for private sector to invest. This is to help aid economic growth and development.

In the past decade, the Cambodian gross domestic product (GDP) had dramatically grown. The tourism, garment, construction & real estate, and agriculture sectors accounted for the huge growth thereby lowering the rate of poverty in the country.

Cambodia’s open and liberal foreign investment regime provides investors with 100 percent foreign ownership of companies, corporate tax holidays of up to eight years, a 20 percent corporate tax rate after the incentive period ends, duty-free import of capital goods, and no restrictions on capital repatriation. The Phnom Penh Special Economic Zone has attracted some foreign investment such as Coca-Cola, Tiffany & Co., and American Licorice.

The largest share of investment comes from China, which in past years was the source of extensive investment in the field of resource development which includes rubber and tourism. China is followed by Korea. The other sources of investment include Malaysia, Taiwan, Hong Kong, and Thailand.

An example of this is a number of confidence investors have in the country’s growth which led to the investment of $7.2 billion, led by developers from China, South Korea, and Japan.

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Another example is the Kingdom’s investment in the construction sector which rose to $1.65 billion in the first quarter of 2016

Grants, Donations and Loans

The Cambodian government also gets some cash flows from grants and donations. As one of the poorest countries in the region, it relies on international assistance as a vital component in overcoming the challenges faced in Cambodia’s development.

Some of this funds may include funding for organizations to train stakeholders on local and regional conservation issues. Cambodia received $2.03 billion in aid grants from international donors between 2013 and 2015, with more than $639 million of that going to projects ranging from road and railway construction to flood relief and emergency food assistance.

This is another source of cash flow for the Cambodian government. China has been Cambodia’s largest foreign donor. They have provided Phnom Penh with approximately U.S. $3 billion in loans for 47 development projects and another U.S. $180 million in grants for another 10 since 2002.

In 2016, the visit of the Chinese president brought at least $60 million in new loans and forgives of $90 million in Cambodian debts to China from 2015. The Same year, the world bank also approved $130 million in new loans to Cambodia, ending a lending freeze that had been in place since 2011.

Export

The Cambodian export goods are dominated by textile as this accounts for 75% of all exports. Others include rubber, vehicles, footwear, and fish. The major export partners are Hong Kong, Singapore, the United States, Canada, Germany and the UK.

Tourism

Tourism also play significant roles in bring money into the country. According to Ministry of Tourism, there were about 5 million tourists visiting Cambodia in 2016. They spent approximately $3.2 billion.

With these sources of money, how is the money spent?

Some of the major needs of Cambodia has been infrastructure. The money gotten from loans, investments, grants, overseas laboring and any other source of cash flow has been used in the development of the country.

Some of the things the money has been used for include:

Country development

Cambodia has benefited some funding from both China and Japan. The “no strings attached” funding from China provides Cambodia with the needed infrastructure to aid country development.

One example of the infrastructure development is the reported in 2015 that the Cambodian firm Global CAM Project Development Plc signed a deal worth over $536 million with Korea’s Green Eco Energy Co. to build a 275-km high-speed expressway between Phnom Penh and Sihanoukville.

Another example when the government allocated $33 million to complete repairs to the northern line by 2017 due to cost overruns, resettlement problems, flooding, and construction quality issues.

Beijing also provided Phnom Penh with nearly U.S. $3 billion in loans for 47 development projects which will help improve the country’s infrastructural adequacy.

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Administration

The Cambodian government has put in a large percentage of the cash flowing into the country into making sure the administrative needs of the country are met.

Over $3 million has been spent on government and administration, over $8 million on education, community and social welfare have been allocated over $258 million while technology and communication got $17 million. All these are just from the projects funded by Chinese loans and grants.

About 12.4% of government spending is placed on education by the Cambodian government.

HealthCare

The Cambodian government places good importance on the welfare of the citizens. Over $258 million has been allocated to community and social welfare which represents 8% of the funding gotten from Chinese loans and grants.

The government has created support programs for the health sector with the aim to improve coverage and quality of health care services. It also helps to finance health outreach activities in remote and difficult to access areas.

With this initiative, Patients who reside in rural areas can now get the modern medical care that they need without traveling far or trying to come up with money that they don’t have.

The funds enabled access to a defined package of health, nutrition or reproductive services for more than 8.46 million visits to a health facility for medical care.

There is also over $50 million allocated to water and sanitation which represents a total of 2% of the funding gotten from the Chinese loans and grants.

Education

This is an important part of every country. This is because when citizens are well educated, the future of the country remains bright. Education sectors will get $500 million for its development countrywide.

Now, how does cash flow out of Developing Countries?

In this section, I am not going to talk about Cambodia, but developing countries in general.

According to the United Nation, developing countries have been exporting money to the developed world at least since 2004; especially the East and South Asia.

How does the UN know this? The UN has taken into consideration the large amounts of money that developing countries have been lending to rich countries for many years through building their reserves. This simply means that developing countries buy assets in rich countries so as to increase or build their reserves.

Another way cash has been flowing out is through the pirate flow which is made up of Foreign Direct Investment, portfolio investment, and international bank claims. Overall, the UN estimates that these private flows created a net outflow of $431 billion in 2016.

The portfolio investment which is worth minus $218 billion for developing countries in 2016 has been negative for five of the past ten years. This is because the portfolio investment can be very volatile which means stock can be dumped if you are in trouble or the country which the investment is made lands in trouble.

The International bank claims which caused an outflow of $422 billion from developing countries in 2016 simply means the net total of how many foreign banks owe/are owed in developing countries, plus what is owed in the domestic banking system in foreign currencies.

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Conclusion

Debts

As for loans from the multi-laterals, a jointly run website by the World Bank and International Monetary Fund (IMF) states that Cambodia owes them and the ADB around $653 million.

With these, it is evident that loans have climbed past Hach’s warning level of 50 percent of GDP. In fact, Cambodia owes at least $3,073 million on a GDP of $3.2 billion.

Cambodia recorded a government debt that equaled 32.30 percent of the country’s Gross Domestic Product in 2014 with the government Debt to GDP in Cambodia averaging 33.85 percent from 1996 until 2014.

These debts as a percent of GDP is used by investors to measure the ability of the country to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

In January, Russia refused to cancel Cambodia’s debt of $1.5 billion and the U.S. also refused to write off a much smaller sum of $300 million. This debt prompted Prime Minister Hun Sen, an admirer of President Donald Trump, to appeal to him to forgive the debt.

Possible solutions

Since 1970, Cambodia has gone through major changes in its political, social and economic systems. However, the country has been suffering from major setbacks like debts, human resource development, adequate use of natural resources, and much more.

To solve these problems, the government has to effectively utilize its resources while giving little or no chance of corruption. Some solutions to the problems facing the country include:

Human Resource Development: One major way to bring human resources to its full potential is through quality education. The government should allocate a very good amount of the budget to the educational sector so as to well equip citizens and help them acquire valuable skills that can improve Cambodia’s ability to adopt a strategy of export-led industrialization based on skilled and semiskilled labor. Most importantly, young Cambodians have to learn how to love and support their local products to prevent money from flowing out of the country.

Use of Natural Resources: The Cambodian government should encourage sustainable use of natural resources. Cambodia is a well-endowed country with natural resources, including minerals, timber, inland and coastal fisheries, and various agro-ecological conditions suited to a wide range of crops and livestock.

Effectively utilizing these resources can play a major role in developing the country and make the country one of the major exporters of goods and valuable resources which will, in turn, bring in more cash flow.

Cambodia is a country with a whole lot of potential for growth and economic development. But, in order to achieve this, there is a need for transparency in the way the country is administrated and effective use of resources- both human, material and monetary.

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