Navigating Digital Technology for Cambodia's Trade and Productivity Enhancement

សារគន្លឹះ / Key Messages:

ប្រទេសកម្ពុជាស្ថិតនៅក្នុងដំណាក់កាលដ៏សំខាន់មួយដែលការទទួលយកបច្ចេកវិទ្យាឌីជីថល គឺពិតជាមានសារៈសំខាន់ក្នុងការលើកកម្ពស់ពាណិជ្ជកម្ម ផលិតភាព និងកំណើនសេដ្ឋកិច្ច ដែលស្របតាមចក្ខុវិស័យឆ្នាំ២០៣០ និងឆ្នាំបន្តបន្ទាប់ទៀត។
កំណើនពាណិជ្ជកម្ម និងផលិតភាពរបស់កម្ពុជា បានរួមចំណែកយ៉ាងខ្លាំងដល់វឌ្ឍនភាពសេដ្ឋកិច្ចរបស់ប្រទេស ជាពិសេសក្នុងវិស័យសំខាន់ៗនានា ដូចជា វាយនភ័ណ្ឌ កសិកម្ម ទេសចរណ៍ និងការផលិតគ្រឿងអេឡិចត្រូនិក។
ការសិក្សាជាក់ស្តែងនានាបានគូសបញ្ជាក់ពីតួនាទីដ៏សំខាន់របស់ឌីជីថលនីយកម្ម ក្នុងការកាត់បន្ថយថ្លៃដើមពាណិជ្ជកម្ម ការពង្រីកពាណិជ្ជកម្ម និងការបង្កើនផលិតភាព។ បរិវត្តកម្មនេះបាននិងកំពុងមានឥទ្ធិពលក្នុងការបង្កើនប្រសិទ្ធភាព និងភាពប្រកួតប្រជែង។
ដើម្បីរីកចម្រើនក្នុងយុគសម័យឌីជីថល ប្រទេសកម្ពុជាត្រូវអនុវត្តគោលនយោបាយយុទ្ធសាស្ត្រដែលផ្តោតលើការពង្រឹងហេដ្ឋារចនាសម្ព័ន្ធឌីជីថល ពង្រឹងចំណេះដឹងផ្នែកឌីជីថល បង្កើតក្របខ័ណ្ឌបទប្បញ្ញត្តិរឹងមាំ និងការគាំទ្រដល់សហគ្រាសធុនតូចនិងមធ្យម។
Cambodia is at a pivotal stage where embracing digital technology is crucial for enhancing trade, productivity and economic growth consistent with its 2030 vision and beyond.
Cambodia’s significant growth in trade and productivity has robustly contributed to its economic progress, particularly in key sectors such as garment and footwear, agriculture, tourism and electronics manufacturing.
Empirical studies underscore digitalisation’s critical role in lowering trade costs, expanding trade and boosting productivity. This shift has been particularly influential in enhancing efficiency and competitiveness.
To thrive in the digital age, Cambodia needs to implement strategic policies aimed at bolstering digital infrastructure, enhancing digital literacy, establishing a robust regulatory framework and supporting small and medium-sized enterprises.

A Vision for a Digitally Empowered Cambodia

Imagine a Cambodia where digital technology is not just a facet of daily life, but the driving force behind a thriving economy and significantly contributing to the 2030 vision and beyond. In this vision, farmers in rural Battambang use smartphones to check market prices, local artisans in Siem Reap sell their crafts globally through e-commerce platforms and start-ups in Phnom Penh innovate cutting-edge software. This isn’t a distant dream, but an emerging reality. As we step into an era marked by digital transformation, Cambodia stands at the cusp of a significant evolution. Digital technology, once a luxury, is now a necessity, shaping the way nations trade, innovate and grow. This blog discusses how Cambodia can navigate this digital revolution to enhance trade and boost productivity for sustained and resilient growth. In this blog, we will explore the crucial role digital technology plays in the global arena and why it is imperative for Cambodia to embrace this change.

A Closer Look at Cambodia’s Trade and Productivity Growth

Before we delve into how digital technologies affect the economy, it’s crucial to understand how trade and productivity have shaped Cambodia’s economic progress. Trade has been a pivotal force in driving Cambodia’s economic progress. World Development Indicators show a significant increase in Cambodia’s trade-to-GDP ratio, climbing from 75.6 percent in 1998 to 123.5 percent in 2019. This significant rise highlights the role of trade as a catalyst for Cambodia’s economic progress. Throughout this interval, merchandise trade experienced an average annual growth rate of 14 percent, rising from US$ 1.97 billion in 1998 to US$ 35.1 billion in 2019. Trade in services grew by an average of 15 percent annually, expanding from US$ 0.39 billion to US$ 9.4 billion.

This remarkable growth in the trade sector is the result of deliberate strategic choices, notably a shift in policy towards trade liberalisation. This policy shift has been complemented by increased global integration, as evidenced by Cambodia’s active participation in free trade agreements, which has further integrated its economy with the rest of the world. Additionally, foreign direct investment has played a significant role bringing in not just capital, but also technological and managerial expertise. This has been essential for modernizing and expanding trade-related industries. Investment in infrastructure has also been a cornerstone of trade development, improving the efficiency of transportation and logistics systems for seamless international trade.

These trade dynamics have bolstered Cambodia’s exports and integrated its economy into global value chains, further fuelling economic growth. The garment industry has notably thrived under these conditions, becoming a major export sector and a significant source of employment. Other sectors like agriculture, tourism and electronics manufacturing have also seen significant growth. Agriculture, with commodities like rice and rubber, has become a substantial source of revenue through exportation. Tourism, boosted by the allure of Cambodia’s historical sites and natural beauty, has attracted increasing numbers of international visitors. The electronics manufacturing sector has attracted multinational companies, leveraging Cambodia’s competitive labour costs and strategic Southeast Asian location.

Productivity growth in Cambodia has also been noteworthy, with an average annual increase of 3.6 percent from 1998 to 2018^[1]. This growth indicates significant improvements in economic output per person engaged , outperforming key ASEAN counterparts like Vietnam, Thailand, Malaysia and Singapore. This rapid productivity growth reflects effective labour utilisation and a significant rise from a lower economic base. The robust improvement in productivity has been the major driving force behind Cambodia’s sustained economic growth over the past two decades. Our growth accounting framework analysis^[2] provides insightful revelations into Cambodia’s economic expansion from 1998 to 2018. It highlights that 35 percent of the GDP per capita growth can be attributed to deepening physical capital, reflecting a significant escalation in investments towards modernising machinery, equipment and infrastructure. Furthermore, productivity growth has played a pivotal role, contributing 30 percent to the GDP per capita increase. Equally important is the human capital factor, accounting for the other 35 percent of GDP growth. This is attributed to enhanced educational standards and skillsets, alongside a growing labour force buoyed by demographic shifts.

The Imperative of Digital Transformation in Cambodia’s Future Economy

In today’s world where digital technology is reshaping global economies, Cambodia’s commitment to digital transformation is not only beneficial, but essential. This necessity stems from two primary factors. The first is alignment with global trends. Globally, the integration of digital technologies into economic frameworks marks a significant shift, altering how nations engage in trade, enhance productivity and achieve economic growth. Several countries have emerged as success stories in harnessing digitalisation for economic development. South Korea’s focus on innovation and technology has made it a powerhouse in electronics and telecommunications, driving economic growth and global competitiveness. Singapore’s Smart Nation initiative demonstrates how digitalisation can enhance urban living and governance with integrated digital infrastructure and services. China’s digital marketplace is reshaping its economy. E-commerce giants like Alibaba and Tencent have transformed business practices through digital payments and online retail, generating significant economic value and establishing China as a leader in technological advancement. The Vietnamese government’s focus on developing the digital economy, coupled with investments in tech education and infrastructure, has positioned the country as an emerging hub for technology and innovation in Southeast Asia. These examples highlight the importance of government support, investment

in infrastructure, fostering innovation and building digital skills within the workforce. By adopting digital tools, Cambodian businesses can access global markets more easily, leveraging e-commerce and digital marketing to expand their reach. Additionally, digitalisation fosters economic diversification, such as opening new sectors like fintech and digital entrepreneurship, which are crucial for sustainable growth. It also boosts productivity through automation and data analytics. Moreover, Cambodia’s commitment to digital transformation attracts foreign investment, as investors seek innovative and adaptable markets. Aligning with global digital trends, Cambodia can position itself as an attractive technology-driven hub.

The second rationale for Cambodia’s need to navigate digital technology is grounded in empirical evidence demonstrating digitalisation’s growing significance in trade and productivity enhancement. Studies have shown that digitalisation significantly lowers both domestic and international trade costs and is emerging as a key driver of trade in goods and services (World Trade Organization, 2018). A mere one percent increase in bilateral digital connectivity can boost domestic trade by 2.1 percent and international trade by 1.5 percent (González, Sorescu, and Kaynak, 2023). Hing and Thangavelu (forthcoming) present similar findings within the ASEAN context, where even a marginal one percent rise in digital connectivity correlates with a 0.129 percent expansion in merchandise exports and a 0.08 percent increase in digital trade. Furthermore, they found a positive link between digital trade facilitation and merchandise exports in ASEAN countries, with a one percent enhancement in digital trade measures corresponding with a notable 0.24 percent surge in exports. A combined improvement in digital connectivity and trade facilitation measures could potentially lead to a significant 4.49 percent growth in merchandise trade. This underlines the need for a holistic approach encompassing both aspects in order to amplify trade expansion (Hing and Thangavelu, forthcoming).

Beyond trade, digital technologies offer extensive opportunities to enhance productivity across various sectors. Research shows that they not only boost productivity and efficiency, but also provide competitive advantages, increase organizational flexibility and resilience and reduce market entry barriers (Cirillo, Fanti, Mina, and Ricci, 2022; Deloitte, 2019; ERIA, 2019; Tan and Chian, 2019). In Cambodia, innovation and technological capabilities are increasingly vital to productivity improvements. Firms with advanced and information and communications technology (ICT) infrastructures tend to exhibit higher productivity levels (Hing, Thangavelu, and Kong, 2023). The study on Cambodia’s micro, small and medium-sized enterprises (MSMEs) in the tourism sector demonstrates a significant productivity increase among MSMEs that adopt digital technology, especially during challenging economic times

Setting the Digital Agenda: Policy Priorities for Cambodia’s 2030 Vision and Beyond

In the digital era, Cambodia has a unique opportunity to harness the potential of digital technology. To maximize these benefits, a strategic approach to policy-making is essential. Firstly, the government should prioritise substantial investments in high-speed broadband connectivity, particularly in rural and underserved areas, to bridge the digital divide. This effort should be in tandem with upgrading national ICT infrastructure to support advanced digital technologies like cloud computing and the Internet of Things. Equally important is the integration of digital literacy into the national education curriculum, ensuring that future generations are adept in digital skills. Additionally, providing ongoing professional development programmes to enhance the digital competencies of the current workforce is essential.

For businesses, especially SMEs, establishing a robust support mechanism is vital. These should be subsidies for digital tools, specialised training in e-commerce and digital marketing and access to digital finance solutions. Furthermore, fostering a culture of innovation and entrepreneurship within the digital sector through incentives like tax breaks, grants and incubator programmes for tech start-ups is crucial. On the regulatory front, enacting comprehensive data protection and cybersecurity laws will build trust in digital systems and safeguard the nation’s businesses against cyber threats. Additionally, developing digital trade policies that facilitate online commerce and standardise digital products and services will bolster digital trade.

Finally, Cambodia must actively engage in international partnerships to gain access to advanced digital technologies and adopt best practices. Participation in global digital initiatives is also crucial to keep pace with the rapidly evolving digital landscape. By implementing these policy measures, Cambodia can create a conducive environment for digital technology adoption, spurring economic growth and enhancing its position in the global digital economy.

Concluding Remarks: Embracing the Digital Future

As Cambodia stands on the brink of a digital revolution, the journey ahead is filled with challenges and immense potential. The journey requires collaborative efforts from policymakers, businesses and the public to create a robust digital ecosystem and foster a digitally-savvy population. As we look to Cambodia’s digital future, are we ready to embrace the digital opportunities ahead? This journey is not just a call to action, but an invitation to be part of a transformative process shaping Cambodia’s economic destiny.

References

Cirillo, V., Fanti, L., Mina, A., and Ricci, A. (2022). New digital technologies and firm performance in the Italian economy. Industry and Innovation, 1-30.

Deloitte. (2019). Benefits of small business digital engagement. Retrieved from https://www2.deloitte.com/au/en/pages/economics/articles/benefits-small-business-digital-engagement.html.

Economic Research Institute for ASEAN and East Asia (ERIA). (2019). Study on MSMEs Participation in the Digital Economy in ASEAN: Nurturing ASEAN MSMEs to Embrace Digital

González, J. L., Sorescu, S., and Kaynak, P. (2023). Of bytes and trade: Quantifying the impact of digitalisation on trade. Retrieved from https://www.oecd-ilibrary.org/content/paper/11889f2a-en https://doi.org/10.1787/11889f2a-en

Hing, V., and Thangavelu, S. (forthcoming). Quantifying the Impact of Digitalisation on Trade for ASEAN.

Hing, V., Thangavelu, S., and Kong, R. (2023). Technology, Innovation and Firm Competitiveness: Firm Level Analysis in Cambodia. Asian Development Bank Institute (ADBI) Working Paper Series No. 1353.

Tan, M., and Chian, N. W. (2019). Digital adoption among firms and impact on firm-level outcomes in Singapore. Singapore: Ministry of Trade and Industry.

World Trade Organization (WTO). (2018). World Trade Report 2018: The future of world trade: How digital technologies are transforming global commerce Geneva. Retrieved from https://www.wto.org/english/res_e/publications_e/world_trade_report18_e.pdf.

^[1] Labour productivity is measured as real GDP per worker. The computations and comparisons of Cambodia’s productivity with other ASEAN nations are based on data sourced from the GGDC/UNU-WIDER Economic Transformation Database (ETD).

^[2] The growth accounting framework is an effective analytical tool for examining the components of economic growth. It dissects the elements influencing economic output, such as capital investment, labour force expansion, and productivity growth. The present analysis forms part of CDRI’s “Cambodia Vision 2030” project, which assesses Cambodia’s goals for achieving resilient, inclusive and sustainable growth as an upper-middle income nation. This project is funded by the Australian government’s Department of Foreign Affairs and Trade through the Cambodia-Australia Partnership for Resilient Economic Development Programme.