Abstract/Summary

To realise its aspirations to become an upper middle-income country by 2030 and a high-income country by 2050, Cambodia has to pursue inclusive growth that is also sustainable and resilient. This is the type of growth that generates sustainable jobs in the manufacturing and services sectors, and fair and consistent returns for the self-employed, in the formal and informal sector. A key constraint of this growth is the lack of diversification within the economy, which has not affected the rapid pace of the economic growth but only the inclusiveness and sustainability of that growth. The early phase of diversification involving rural-urban migration from the agricultural sector into the industrial and service sectors may be reaching its limit; future increases in productivity must come from intra-sectoral diversification. This involves the vertical shift into higher value-added products and activities within each sector. 

Intra-sectoral diversification requires two key constraints to be addressed. First is the limited skillsets of the current workforce, requiring improvements in the quality of education at all levels, starting with primary and secondary before technical and tertiary education. Second is the high cost of doing business, which stems from limited physical and logistics infrastructure, high energy cost, and the high cost of finance. Addressing these constraints should increase the inclusiveness of economic growth. To ensure that these achievements are not short-lived, another set of constraints that affect resiliency and sustainability need to be addressed. Increasing resilience includes addressing the impacts of: (i) climate change and other environmental pressures; (ii) financial, health and other shocks or crises; and (iii) technological change, especially the acceleration towards a digital economy. Improving the sustainability of growth and its drivers involve diversifying trade and investment flows.