Cambodian Economy Growing Fast

Sources: Pol Pot Victims From Killing Fields Plan Resorts by Angkor Wat, Bloomberg

Cambodia, site of the “killing fields” and once under the brutal dictatorial reign of Pol Pot, is possibly the next hot destination in the foreign investment market. With a 9.7 percent growth rate each year between the years 2000 and 2007, it is the fastest growing country in Asia after China. Cambodia’s recent growth spurt is due in part to the influx of former refugees returning to their home country to rebuild. Because Pol Pot executed his highly educated and urban citizens in order to quickly convert Cambodia into an egalitarian and agrarian society, the returning refugees—many of whom have taken advantage of foreign educational systems—are the most likely to play a key role in jumpstarting Cambodia’s economy.

In addition to returning refugees, Cambodia’s growth appears to be driven in large part by its government, which has been increasingly friendly to foreign investors. For example, a 1994 law has allowed foreign investors to own 100 percent of a Cambodian company. These investors also face no restrictions on taking money in or out of the country, unlike other countries in Asia. This has led global companies, including Chevron, General Electric, and KFC, to open offices in Cambodia. The country is scheduled to open its first stock and bond markets in 2009.

Cambodia’s sunny future isn’t without its clouds, however. For all of its fast growth and economic accomplishments, it still faces some imposing hurdles. Cambodia is considered to be one of the most corrupt countries in the world and has been ranked near the bottom of the World Bank and International Finance Corporation’s list of Places to Do Business. The U.S. Agency for International Development estimates that $500 million of the country’s revenue “is diverted from government coffers” each year. Poverty is also a persistent problem in the country and most Cambodians live on less than 50 cents a day.

Questions:

(1) Will Cambodia’s growth continue at such a rapid rate or will the widespread corruption hamper its development efforts?

(2) How will the rapid economic development affect Cambodian society? Will the rich get richer and the poor remain poor or will the government institute effective welfare programs designed to improve the lives of all of its citizens?

(3) What problems is Cambodia likely to encounter as foreign investment increases?