Cambodia Services Trade : Performance and Regulatory Framework Assessment

Abstract

As a result of a determined regulatory reform process and an economic modernization process over the past two decades, Cambodia has experienced extraordinary economic growth. In 2004, Cambodia became the first low-income country to join the World Trade Organization (WTO). Since then, Cambodia has grown to become one of East Asia s most open economies, especially in the services sector. Cambodia s impressive economic growth owes much of its driving force to the boom in services trade. Services exports grew more than 20 percent a year for most of the past decade led by a rapid expansion in tourism. Foreign direct investment (FDI) particularly in tourism, construction, infrastructure, agro-processing, and telecommunications also supported the expansion of services trade, not only by attracting foreign capital and expanding employment into Cambodia, but also by improving domestic technology and enhancing domestic skills. Cambodia is quickly becoming a sophisticated economy that needs to move beyond the pillars of textiles and tourism exports by diversifying into the export of modern services. Cambodian firms are already tentatively exporting some niche services such as computer-based animation. Modern services exports to other East Asian countries, including information technology (IT)-related services, are likely to play a more important role in Cambodia as a source of employment, revenue, and investment. In the regional context, Cambodia stands to benefit from its chairmanship of the Association of Southeast Asian Nations (ASEAN), by showcasing its economic reform and modernization process, and increasing the potential to attract investments from services firms interested in serving the region as whole. Cambodia should act quickly to address potential competition from other least-developed (LDC) and developing countries across the regions that are also expanding their services industries.