Continued reform can ensure a better future for Cambodia

Richard Armitage and Kara Bue say foreign investor confidence is essential

PUBLISHED : Wednesday, 22 April, 2015, 12:56pm
UPDATED : Wednesday, 22 April, 2015, 12:56pm

Cambodia's Prime Minister Hun Sen was in Indonesia this week for the World Economic Forum's Asia edition, following his first-time appearance in Davos earlier this year. For anyone who has followed Cambodia's not-so-distant past, his appearance there was both head-turning and welcome.

From 1975 to 1979, the Khmer Rouge collectivised land, forced people out of cities, abolished currency and separated families in an attempt to create a utopian communist society. Almost two million people died through torture, killing or starvation.

Cambodians who survived the era were given little reprieve when Vietnamese forces took over in 1980. It wasn't until 1989 that peace efforts began in earnest, which concluded with elections in 1993. By then, many of Cambodia's college-educated citizens had been killed, generations of its people were traumatised and the nation's infrastructure was left in tatters.

In the ensuing 22 years, Cambodia has engaged in a slow and difficult process of rebuilding that has been plagued by rampant corruption, disregard of human rights and over-reliance on foreign aid. For the international community, these challenges, together with Cambodia's uniquely violent past, have resulted in a narrative of Cambodia that speaks more of dysfunction than progress.

And so, Hun Sen's presence at Davos provided a moment of hope that Cambodia could rewrite its internationally accepted narrative.

That hope is not futile. In the past 10 years, Cambodia has maintained an average annual growth rate of over 8 per cent, lifting millions out of poverty and placing Cambodia fourth out of 69 countries in poverty reduction over the past five years.

To encourage further growth, Cambodia has developed one of the most progressive, business friendly regulatory frameworks in the region; with 100 per cent foreign ownership of businesses, uncomplicated repatriation of profits and attractive corporate tax exemptions for qualified investments. Most recently, the government announced a new industrial policy that seeks to boost manufacturing from its current 24 per cent of gross domestic product to 30 per cent by 2025. And, Cambodia stands to benefit from this year's creation of the Asean Economic Community.

Progress is visible in other areas as well. There are signs of growing maturity in the political party system. Statistics on maternal health and primary education have improved and communications technology is proliferating.

This is very welcome for a country seeking to shed the weight of its past. But, for progress to continue, demographics demand that Cambodia maintain those high levels of economic growth. Today, 70 per cent of Cambodia's 15 million people are under 35, and economic opportunity for them must be created if the nation's narrative is to be rewritten.

This is a tall order, but one made possible through increased levels of foreign direct investment. Cambodia's economy cannot grow to the scale necessary to support its youthful and growing population without it.

FDI, however, needs more than a pro-business regulatory framework to grow. It needs confidence - in the government, the rule of law and the sanctity of contractual obligations.

Without these, foreign investors will continue to question the value of doing business in Cambodia and hew to the commonly accepted storyline of Cambodia's dysfunction.

In public remarks, Hun Sen has addressed this challenge with vows to combat corruption, and implement legal, judicial and financial reforms. His comments are welcome, but real change is required to harden the resolve of investors.

Our hope is that Cambodian leaders rise to this challenge. Cambodia could write its own narrative, with a better ending.

Richard L. Armitage was US deputy secretary of state from 2001-2005. Kara L. Bue was US deputy assistant secretary of state for Political-Military Affairs from 2003-2005. They are partners in the international business consultancy Armitage International