“Look East” to Japan –MAKE Agriculture exciting and profitable for an ageing Malaysia

November 20, 2018

“Look East” to  Japan –MAKE Agriculture  exciting and profitable for an ageing Malaysia –FIMA Group 2.0

Opinion

by Phar Kim Beng

http://www.malaysiakini.com

COMMENT | Between 1990 and 2020, the size of the Malaysian population increased by 80 percent. But in the same period, the number of people who aged also increased by a whopping 210 percent.

By 2050, 23.5 percent of the total population of Malaysia will be above 65 years of age. By then, Malaysia will be an aged society. But Malaysia could be there even sooner. By 2030, 15 percent of the Malaysian population will be above 60 years of age.

An ageing society is one where up to seven percent of its population is above the age of 65; whereas an aged society is one which has 15 percent of its population above this age range. Currently, Malaysia is moving towards being an ageing society by 2030, then an aged society by 2040. Time is of the essence given the size, and speed, of this problem.

Based on the statistics of 1990-2020, those above the age of 65, in other words, have increased at almost three times the rate of youths in Malaysia.

While it took France 115 years to become an aged society, Malaysia will experience it in 24 years. Invariably, learning from Japan is not an option now but a strategic necessity. Between 2019-2025, Japan will be in need of 500,000 skilled and semi-skilled workers a year.

This labour shortage is caused by ageing effects which Malaysia will continue to face in 2030 and 2050 respectively. Therefore, it is important to learn from Japan now, especially when switching to robotics./technology and knowledge

Indeed, Japan has long passed the stage of being an aged society as defined by the UN. By 2045, its total population will further shrink from 130 million to 90 million people. But is ageing affecting the agriculture and fishing industry in Japan? Not quite. Malaysia should learn from this Japanese experience.

Research has shown that in 2016, the average age of Japanese farmers was already at 66 years. Those in the fishing industries are aged between 60 and 65.

But Japanese agriculture has increasingly used robotics and mechanisation to make up for the shortfall of labour. The top five Japanese fishing companies are Maruha Nichiro, Nihon Suisan, Toyo Suisan and Kyokuyo.

Each of them is doing well and will continue to do well with strong support from the Japanese government.

Aquaponics, for example, can produce three times a higher yield than natural methods of farming. A greenhouse that uses robotics, and an automatic system of water sprinklers, can produce 30,000 to 50,000 tonnes of cabbage a day as opposed to 21,000 tonnes a day with just human labour

The Ministry of Agriculture and Agro-based Industries in Malaysia may often be overlooked by the national planners. It received the lowest budget allocation last month. This is wrong and must be reversed if Malaysia wants to be the top food producer country in Asia.

Adapting to ageing

This ministry, however, can reverse the process of benevolent neglect especially if it begins to take the Look East initiative as a powerful policy compass. Looking East, it can learn from Japan on how to attenuate the problems of ageing and agro-farming and fishing in the long run.

To be sure, while Malaysia does not show it, the country will become an aged society in 15 years, when fifteen percent of its population will be above the age of 65.

Thus, it is incumbent upon Malaysia, especially the Agriculture and Agro-based Industries Ministry to Look East in order to understand how Japan adapts to the process of becoming an ageing society.

There is no silver bullet solution to all of the above. But a strong and confident ministry should not be ruled out as a potential national saviour; this provided it can set up a unit to learn from the aged population of Japan even as Malaysia is ageing. Why is this important?

What about FIMA2.0?

First of all, the contribution of agriculture to the GDP of Malaysia has always remained between 8-11 per cent between 1957-2018. Japan has faced the same dilemma before and overcome it.

Agriculture in Malaysia is coming from a low base and contributes close to RM3.5 billion to the GDP every year. But this is also how and why the agricultural economy can grow further, according to the Agriculture and Agro-based Industries Minister. All one needs is tenacity, a concerted effort of modernisation and mechanisation, all of which are possessed by Japan in abundance.

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Furthermore, the establishment of AirAsia, a low-cost carrier, has expanded the reach of Malaysia to half of the world’s population within a span of six hours. The latter is critical. What was originally an impediment – a large Asian geography – is now a strategic opportunity.

If anything, it is important to learn from Japan in terms of how fast it can deliver its exotic fruits and food to almost half of Asia. Indeed how? Even with a low population farmer base of fewer than two million farmers in Japan in 2017, Japan has become adept at combining robotics, aquaponics and the use of farmland banks to improve its exports.

Nevertheless, farming and fishing are two planks of the industry that require careful planning at all stages. Malaysia is no exception. This is why it is better to learn from Japan now.

If the Agriculture and Agro-based Industries Ministry seems to feel that Malaysian agriculture might be facing the same problems in terms of an ageing society, shortage of labour and high migration to urban centres, it is high time that it has a Look East policy that draws from the inspiration of Japan.

In this sense, in an interview with Johan Jaffar in Sinar Harian last week, Salahuddin Ayub was right in affirming the importance of Look East, not just in focusing on the revival of Malaysian agriculture but also learning on other matters from Japan.

The sooner this ministry learns from Japan, including Japan’s industry and livestock, the sooner Malaysia will move away from the perpetual fear that the farmlands and industries will collapse.

Indeed, it would be wonderful to see Malaysia’s Agro Bank and farmland banks working side-by-side to make Japan and Malaysia the fruit basket of the whole of Asia ranging from tropical fruits to saltwater fish.

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PHAR KIM BENG is a multiple award-winning head teaching fellow on China and the Cultural Revolution at Harvard University.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Agricultural Trade Liberalization Undermined Food Security

May 21, 2018

By Jomo Kwame Sundaram and Anis Chowdhury*

http://www.ipsnews.net/2018/05/agricultural-trade-liberalization-undermined-food-security/

Africa has been transformed from a net food exporter into a net food importer, while realizing only a small fraction of its vast agricultural potential. Credit: Busani Bafana/IPS

Agriculture is critical for achieving the Sustainable Development Goals (SDGs). As the Food and Agriculture Organization (FAO) notes, ‘From ending poverty and hunger to responding to climate change and sustaining our natural resources, food and agriculture lies at the heart of the 2030 Agenda.’

For many, the answer to poverty and hunger is to accelerate economic growth, presuming that a rising tide will lift all boats, no matter how fragile or leaky. Most believe that market liberalization, property rights, and perhaps some minimal government infrastructure provision is all that is needed.

Tackling hunger is not only about boosting food production, but also about enhancing capabilities (including real incomes) so that people can always access sufficient food. As most developing countries have modest budgetary resources, they usually cannot afford the massive agricultural subsidies common to OECD economies. Not surprisingly then, many developing countries ‘protect’ their own agricultural development and food security.

The government’s role should be restricted to strengthening the rule of law and ensuring open trade and investment policies. In such a business-friendly environment, the private sector will thrive. Accordingly, pro-active government interventions or agricultural development policy would be a mistake, preventing markets from functioning properly, it is claimed.

The possibility of market failure is denied by this view. Social disruption, due to the dispossession of smallholders, or livelihoods being undermined in other ways, simply cannot happen.

Flawed recipes

This approach was imposed on Africa and Latin America in the 1980s and 1990s through structural adjustment programmes of the Bretton Woods institutions (BWIs), contributing to their ‘lost decades’. In Africa, the World Bank’s influential Berg Report claimed that Africa’s supposed comparative advantage lay in agriculture, and its potential would be best realized by leaving things to the market.

If only the state would stop ‘squeezing’ agriculture through marketing boards and other price distortions, agricultural producers would achieve export-led growth spontaneously. Almost four decades later, Africa has been transformed from a net food exporter into a net food importer, while realizing only a small fraction of its vast agricultural potential.

Examining the causes of this dismal outcome, a FAO report concluded that “arguments in support of further liberalization have tended to be based on analytical studies which either fail to recognize, or are unable to incorporate insights from the agricultural development literature”.

In fact, agricultural producers in many developing countries face widespread market failures, reducing their surpluses needed to invest in higher value activities. The FAO report also noted that “diversification into higher value added activities in cases of successful agriculture-led growth…require significant government intervention at early stages of development to alleviate the pervasive nature of market failures”.

Avoidable Haitian tragedy

In the wake of Haiti’s devastating earthquake in 2010, former US President Bill Clinton apologized for destroying its rice production by forcing the island republic to import subsidized American rice, exacerbating greater poverty and food insecurity in Haiti.

For nearly two centuries after independence in 1804, Haiti was self-sufficient in rice until the early 1980s. When President Jean-Claude Duvalier turned to the BWIs in the 1970s, US companies quickly pushed for agricultural trade liberalization, upending earlier food security concerns.

 

US companies’ influence increased after the 1986 coup d’état brought General Henri Namphy to power. When the elected ‘populist’ Aristide Government met with farmers’ associations and unions to find ways to save Haitian rice production, the International Monetary Fund opposed such policy interventions.

Thus, by the 1990s, the tariff on imported rice was cut by half. Food aid from the late 1980s to the early 1990s further drove food prices down, wreaking havoc on Haitian rice production, as more costly, unsubsidized domestic rice could not compete against cheaper US rice imports.

From being self-sufficient in rice, sugar, poultry and pork, impoverished Haiti became the world’s fourth-largest importer of US rice and the largest Caribbean importer of US produced food. Thus, by 2010, it was importing 80% of rice consumed in Haiti, and 51% of its total food needs, compared to 19% in the 1970s.

Agricultural subsidies

While developing countries have been urged to dismantle food security and agricultural support policies, the developed world increased subsidies for its own agriculture, including food production. For example, the European Union’s Common Agricultural Policy (CAP) supported its own farmers and food production for over half a century.

This has been crucial for ensuring food security and safety in Europe after the Second World War. For Phil Hogan, the EU’s Agriculture & Rural Development Commissioner, “The CAP is at the root of a vibrant agri-food sector, which provides for 44 million jobs in the EU. We should use this potential more”.

Rice field view at Kompot province Photo by: Mardy Suong Photography Location: Kompot province, Cambodia

Despite less support in some OECD countries, farmers still receive prices about 10% above international market levels on average. An OECD policy brief observed, “the benefits from agriculture for developing countries could be increased substantially if many OECD member countries reformed their agricultural policies. Currently, agriculture is the area on which OECD countries are creating most trade distortions, by subsidising production and exports and by imposing tariffs and nontariff barriers on trade”.

Double standards

If rich countries can have agricultural policies, developing countries should also be allowed to adopt appropriate policies to support agriculture, to address not only hunger and malnutrition, but also other challenges including poverty, water and energy use, climate change, as well as unsustainable production and consumption.

Rice Planting in Cambodia

After all, tackling hunger is not only about boosting food production, but also about enhancing capabilities (including real incomes) so that people can always access sufficient food.

As most developing countries have modest budgetary resources, they usually cannot afford the massive agricultural subsidies common to OECD economies. Not surprisingly then, many developing countries ‘protect’ their own agricultural development and food security.

Hence, a ‘one size fits all’ approach to agricultural development, requiring the same rules to apply to all, with no regard for different circumstances, would be grossly unfair. Worse, it would also worsen the food insecurity, poverty and underdevelopment experienced by most African and other developing countries.

*Jomo Kwame Sundaram, a former economics professor, was Assistant Director-General for Economic and Social Development, Food and Agriculture Organization, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. He was recently appointed to Council of Elders led by former Malaysian Finance Minister Daim Zainuddin to advice by the new Mahathir Government .

Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok.

 

Planning for success in Cambodia

October 14, 2017

by Jayant Menon

https://blogs.adb.org/blog/planning-success-cambodia

Weak human capital is arguably the biggest challenge for Cambodia to reach middle-income status.

Cambodia recently made the transition from a low income to a lower middle-income country, according to the World Bank’s rankings.

This is good news, but it poses a question: Does Cambodia need to rethink its model of export-driven economic growth, as preferential access for its exports to developed countries is gradually reduced or as aid flows diminish? Not necessarily, at least for now. But it should start preparing immediately.

Cambodia still has least developed country or LDC status as defined by the United Nations, and will likely retain its trade privileges for a while yet. But it will likely transition out of LDC status by around 2030 if it maintains current growth rates. With adequate advance planning, Cambodia can avoid being a victim of its own success when it does so.

That means stronger efforts to improve the tax collection mechanism, and curbing tax avoidance and evasion. Strengthening institutions to improve tax collection, and creating a culture where businesses and citizenry feel an obligation to contribute towards the provision of public goods and services, can take years, so it needs to start now.

Weak human capital is top challenge for Cambodia to reach middle-income status

Cambodia also needs to expand the tax base, and hasten the move from direct to indirect sources of tax collection, while reducing its reliance on trade taxes. These initiatives are essential to mobilize domestic resources to fund development, given that overseas development aid and concessional financing will wane as the country gets more prosperous.

Cambodia also has several domestic obstacles to overcome, not only to prepare for a transition to upper middle income status, but to speed up that journey.

Arguably the most important challenge is weak human capital, as well as a skills mismatch. To fix this requires a much greater investment in education – not only in vocational or higher education but also at primary and secondary school. The enormity of the task that lies ahead is underscored by the World Economic Forum’s Global Human Capital Report 2017, that placed Cambodia at the bottom of the list in ASEAN.

The goal is making sure all Cambodians have at least 10 years of schooling, forming the basic building block for a much more productive workforce. Then we can talk about specialized vocational or tertiary education, and matching employee skills to employer needs.

At this stage, and based on interviews with Japanese firms operating in the Phnom Penh Special Economic Zone (PPSEZ), what employers are seeking is not necessarily “trained” labor, but “trainable” labor, as skills required are quite job-specific and usually provided on-site.

Agriculture to remain backbone of Cambodia’s economy

Other challenges include the elevated cost of electricity, one of the highest in Asia. Apart from the skills constraint, the cost and unreliable supply of power is the other key factor limiting industry’s progression up the value chain from simple assembly to production of parts and components. If the former is labor intensive, the latter is energy-intensive, and remains uneconomical at current tariffs.

Agriculture, however, will remain the backbone of the country’s economy for years to come, and during the transition to the next income bracket. Most Cambodians continue to be employed in this sector – either directly or indirectly.

To further reduce poverty and inequality, the agriculture sector must become more productive. To do this requires better irrigation systems, more fertilizer usage, and easier access to high-yielding varieties of crops. The size of farms and variety of their produce should also be enhanced to exploit economies of scale and scope, respectively. Land reform will be essential here.

 

Another option is to pursue agro-processing to raise value-addition. Agro-processing combines agriculture and manufacturing. We can see this in products like pepper, cassava or coffee, which add value along the supply chain and boost economic returns.

Cambodia is making good progress towards upper middle-income status by diversifying its economy. There is a lot of new investment from Japanese firms in the PPSEZ that is plugging it into regional supply chains for the first time.  This trend will only continue to grow in the future, creating good jobs for more of the workforce.

Cambodia must plan carefully to preserve economic gains for next generation

While agriculture will remain important for some time yet, there is no denying the long-term trend decline in its share of economic output, and the increasing shares of services and manufacturing. These structural transformations will require reskilling of the labor force to reduce adjustment costs and unemployment.

The challenges in the labor market extend further, however, and involve demographic transitions in a young population seeking productive employment; the much-vaunted demographic dividend will only be realized if the jobs are there to be filled.

These structural changes will also result in rising urbanization as rural-urban migration increases. This must be managed by better town planning to prevent urban slums and create livable cities. One only needs to look at how Phnom Penh’s infrastructure has been stretched over recent years to appreciate the magnitude and importance of this challenge.

Cambodia’s socio-economic achievements since the early 1990s peace settlement have been remarkable. But success brings with it new challenges.If Cambodia plans carefully for graduation from LDC status, it would ensure that the hard-won economic gains are preserved for the next generation.

Tags:

Jayant Menon, Cambodia, lower middle-income economy, middle-income status, middle-income transition, export-driven economic growth, LDC status, tax collection, tax base expansion, weak human capital, skills mismatch, special economic zones, cost of electricity, agro-processing, value chain, structural transformation, labor market

Geo-Politics of Environment

March 19, 2017

The Geopolitics of Environment

by Giulio Boccaletti

https://www.project-syndicate.org/commentary/environment-economic-and-geopolitical-challenges-by-giulio-boccaletti-2017-03

Much of the world seems to be on edge. The West’s relationship with Russia, the future of NATO, the Syrian civil war and refugees, rising right-wing populism, the impact of automation, and the United Kingdom’s impending departure from the European Union: all of these topics – and more – have roiled public debate worldwide. But one issue – one might say the most significant of them all – is being ignored or pushed aside: the environment.

That was the case at this year’s annual meeting of the World Economic Forum at Davos, Switzerland. Beyond a mention of the Paris climate agreement by Chinese President Xi Jinping, topics like climate change and sustainable development didn’t even make it to the main stage. Instead, they were relegated to side meetings that rarely seemed to intersect with current political and economic events.

Allowing environmental issues to fall by the wayside at this time of geopolitical and social instability is a mistake, and not just because this happens to be a critical moment in the fight to manage climate change. Environmental degradation and natural-resource insecurity are undermining our ability to tackle some of the biggest global issues we face.

Environmental insecurity is a major, though often underestimated, contributor to global instability. The UN High Commission on Refugees reports that natural disasters have displaced more than 26 million people per year since 2008 – almost a third of the total number of forcibly displaced people in this time period.

Even the current refugee crisis has an environmental element. In the years leading up to the war, Syria experienced its most extreme drought in recorded history. That drought, together with unsustainable agricultural practices and poor resource management, contributed to the internal displacement of 1.5 million Syrians and catalyzed political unrest ahead of the 2011 uprising.

The link between environmental and agricultural pressures extends far beyond Syria. Over-reliance on specific geographies for agriculture means that food production can exacerbate environmental problems, or even create new ones. This can pit global consumer interests against local citizen interests, as it has along the Mississippi River, where fertilizer runoff from one of the world’s breadbaskets is contributing to concerns about water quality.

The connection goes both ways, with environmental conditions also shaping agricultural production – and, in turn, the prices of agricultural commodities, which represent about 10% of traded goods worldwide. For example, rising temperatures and altered precipitation patterns are already driving up the price of coffee. With the global land area suitable for growing coffee set to contract by up to half by 2050, price pressures will only intensify.

A sudden shift toward trade protectionism could drive up agricultural commodity prices further. Such an increase would affect farm-level household income, favoring some farmers while harming others. End consumers, particularly the poor and vulnerable, would also suffer.

Another reason why the environment should be at the center of economic debates is its role as the world’s single largest employer. Almost a billion people, just under 20% of the world’s labor force, are formally employed in agriculture. Another billion or so are engaged in subsistence farming, and therefore don’t register in formal wage statistics.

Any initiatives to support economic development must support this population’s transition toward higher-productivity activities. This is particularly important at a time when increasingly sophisticated and integrated technology threatens to leapfrog an entire generation of workers in some countries. Efforts to benefit this huge population must focus not only on training and education, but also on new models that allow countries to capitalize on their natural capital – the landscapes, watersheds, and seascapes – without depleting it.

Just as natural-resource insecurity can cause displacement and vulnerability, effective natural-resource management can support conflict resolution and sustainable economic development. On this front, efforts to achieve environmental remediation, to boost the resilience of rural communities, to advance sustainable agricultural production, and to support community-based environmental stewardship have all shown promising results.

Consider the Northern Rangelands Trust, an organization focused on creating community conservancies to enable sustainable and equitable land use in Kenya. NRT has helped pastoralist communities establish effective governance mechanisms for the environment on which they depend, reducing conflict over grazing rights, especially in times of drought.

For many communities, members’ relationship with the landscape in which they live is an integral part of their identity. With effective governance and planning, open dialogue, resource-sharing frameworks, and sufficient investment, including in skills training, these communities can translate this relationship into effective environmental stewardship – and build healthier and more secure societies.

The crises engulfing the modern world are complex. But one thing is clear: the environment is connected to all of them. Solutions will mean little without a healthy world in which to implement them.

 

Universal Values, not just Globalisation

February 26, 2017

by Dr Munir Majid @www.thestar.com.my

 

We have been so obsessed – and this is a failing – by the economics of globalisation, the trade and finance and free movement of labour, that we do not give higher value to the fundamental human values and intercourse that are at risk.–Dr. Munir Majid

 

 

THE gravest threat of the rise of nationalist populism is to the universal values and practices of a civilised world which took several decades to develop. It is this that modern tribalism in Europe and America seeks to cannibalise.

 We have been so obsessed – and this is a failing – by the economics of globalisation, the trade and finance and free movement of labour, that we do not give higher value to the fundamental human values and intercourse that are at risk.

@http://web.stanford.edu/group/ccr/blog/2009/04/intercultural_communication_in.html

The world has become more possessed by economics than even Marx could have predicted. The disparity of income and wealth is as wide as he saw in post-industrial revolution Europe.

The political turmoil of Leninism, the rise of fascism, the Gulag and the Holocaust – and war – were some of the worst outcomes that followed.

We must recognise this looming threat. We will not get there unless we first recognise the main failing of globalisation, this obsession with economics.

Economic and financial benefit – however ill-distributed – was its driving force, mainly through trade, free movement of capital and labour. Such benefit did not become self-evident truth, however, as too many were left behind for too long.

Would it have made a difference had such benefit been better distributed? It would seem unlikely as non-economic values in the nation-state were disturbed as much as production and income structures were overturned.

“Give us our country back”, is more than about economics. It is about the deemed imposition of global values and the perceived dilution of national character.

The appeal to nationalist populism, which last year saw the vote for Brexit and the election of Donald Trump as United States president, was primarily occasioned by globalised economic and financial supercharge which isolated the low income and divided societies while the top earners spirited away with handsome benefits, but the potent response came from nationalist reassertion against foreign threat.

Against loss of jobs to….Against loss of country to….Against loss of control because of….All because of globalisation. Global is foreign.

Universal values and international behavioural practices got to be associated with the ills of globalisation. This is the most dangerous threat to civilised world order.

The 1948 Universal Declaration of Human Rights, however extant its violation, for instance, well preceded the wave of globalisation. The 1951 Refugee Convention defines the rights of refugees and the obligations of states towards them which are now part of customary international law.

What might now seem mundane, the Universal Postal Union, was established in 1874, and now has 192 members as it serves a universal communication need. There are many others of this ilk.

Cross-border immigration took place to fill up jobs locals would not or could not do. The world was enriched by these kinds of common necessities, not by an enforcement of globalisation.

The point is that universal and international necessities were and are way ahead of the globalisation against which there is such massive revolt. Their values, standards and practices are in dire threat of being sacrificed on the altar of narrow populism.

We can talk too much about globalisation. It is far better now to talk less and do more – and not to use the term globalisation ad nauseam.

The kinds of demonstrations for the values of good society and nationhood across America and Europe that we have seen in response to rules of dictatorship, rules of violation of rights and universal values, against racism and acts of inhumanity, are significant signs that civilised standards of life will not be allowed to be trampled on and to die.

On the other hand, we must also do more “for” things, before we have to demonstrate for them. The good earth has been so much abused. We now talk about climate change and environmental protection. We need to look at the big picture of course, but we should also do more and more, and highlight more and more significant efforts that can and are being made to save the planet – for the good of mankind.

I know, as a significant example, of a documentary feature, Great Green Wall, being produced by acclaimed Oscar-nominated film-maker Fernando Meirelles, which proposes to tell the story of one of the most ambitious endeavours taking place on the edge of the Sahara desert: “A dream to grow a wall of trees and plants across the entire width of Africa, and stop the ravages of climate change firmly in its tracks.”

I know one of the persons involved at the start of the project in 2007 which when completed in 2030 will make the Great Green Wall the largest living structure on planet earth – three times the length of the Great Barrier Reef.

Businesses and governments should support and get involved in these kinds of global efforts to deliver goods that make and realise the point of universal values that are so much under attack from modern tribalism in the contemporary world.

There is no reason why the government and companies in China which so want to show global leadership cannot support projects such as the Great Green Wall or, indeed, embark on their own projects, such as to reclaim the Gobi desert.

There must in the world – especially among business corporations – be a greater realisation that value-at-risk is not just about dollars and cents. Yes, the good will ultimately come to the economy. But do not talk too much about it as if that is all there is.

Dr. Munir Majid,  Visiting Senior Fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is Chairman of CIMB ASEAN Research Institute.

Cambodia: Sustaining high economic growth

January 1, 2017

by  Heng Pheakdey, Enrich Institute

http://www.eastasiaforum.org/2017/01/01/keeping-cambodia-competitive-beyond-2016/

Here Comes Cambodia: Asia’s New Tiger Economy

After decades of conflict and poverty that captured the world’s attention, Cambodia has enjoyed five years of high economic growth that is moving it toward becoming one of the new tiger economies of Asia, according to forecasts in the Asian Development Bank’s Asian Development Outlook 2016.

For the last two decades Cambodia has been one of the fastest growing countries in Asia with an average annual GDP growth rate of 8.1 per cent.

Cambodia has been highly successful in embracing the ‘factory Asia’ model of growth, supplying its low-cost labour to export-oriented industries. Economic progress in recent years has allowed Cambodia to invest in physical and social infrastructure, attract foreign direct investment, create jobs and lift millions of its people out of poverty. The Asian Development Bank called Cambodia Asia’s new ‘tiger economy’.

Cambodia’s economic performance in 2016 remained robust, with growth continuing at 7 per cent. Strong garment sector exports and foreign investment in construction drove this economic performance. Exports in the garment and footwear industries rose by 9.4 per cent in the first half of the year, almost double the pace in the same period of 2015 thanks to improved production processes and high demand from the European market. As of September 2016, the value of approved commercial projects in the construction sector more than doubled to US$7.2 billion. Imports of construction equipment and materials also increased to support the construction boom.

But solid growth in the industrial sector has been offset by a slowdown in agriculture and tourism. Unfavourable weather conditions and falling commodity prices have resulted in agriculture’s sluggish performance, which grew at a rate of only 0.2 per cent in 2014–2016. Tourism also underperformed in early 2016 due to a decline in tourist arrivals from Vietnam, Laos and South Korea. 1.3 million tourists visited Cambodia in the first quarter of the year, a mere 2.6 per cent increase compared to the same period in 2015.

The World Bank reclassified Cambodia in July 2016 as a lower middle-income country after its gross national income per capita reached US$1070 in 2015, surpassing the minimum threshold of a lower middle-income nation of US$1026. While this sign of progress should be welcomed, it comes with its own set of challenges. Analysts fear that this new classification will reduce Cambodia’s benefits from international foreign aid and preferential trade agreements that the country enjoyed while still a ‘least developed country’.

To prepare for the anticipated reduction in international assistance and trade privileges, Cambodia needs to strengthen its competitiveness, diversify its economy and upgrade its industries.

Although garment exports have held up well so far, the sector remains narrowly based and concentrated on a few markets, making it vulnerable to external shocks. To preserve Cambodia’s attractiveness relative to its regional competitors such as Vietnam and Bangladesh, it must diversify into higher value products and services and strengthen labour productivity to reflect the rise of the minimum wage.

The modernisation of agriculture would also help to sustain productivity in the long run. Employing more than half of Cambodia’s labour force, agriculture has contributed significantly to poverty reduction. But high reliance on rain-dependent rice production, slow adoption of quality seeds and inadequate agricultural extension services and irrigation facilities remain key constraints in the sector. Diversifying to less water intensive crops, developing the agribusiness and agro-processing industry, promoting a modernised value chain and cost effective logistics are crucial to put agriculture back on a higher growth path.

Efforts have been made so far to support economic diversification. The Cambodia Industrial Development Policy was launched in March 2015 to transform and modernise Cambodia’s industrial structure from a labour-intensive industry to a skill-driven industry by 2025. This implies increasing the GDP share of the industrial sector, diversifying goods exports including non-textiles and processed agricultural products and modernising the registration of enterprises. The policy also supports stronger regulations and enforcement and helps create a more favourable business environment.

Domestic investors also have an important role to play in the diversification process. Experts believe that the success of Cambodia’s economy will be driven by local entrepreneurs and the private sector, not by international donor assistance. Providing support to domestic investors in trade facilitation, logistics, infrastructure and human capital is just as important.

Cambodia faces many challenges to stay competitive. To realise its vision of becoming an upper middle-income country by 2030 requires strong commitments to address infrastructure bottlenecks, build a high-quality human capital base, strengthen natural resource management, enhance governance and improve financial services and the business environment.

Heng Pheakdey is the founder and chairman of Enrich Institute.