After enduring a Covid-19-induced economic stress test, Cambodia is moving steadily into 2021. While some blips appeared in the economy last year, quick and innovative action, both from the public and private sectors, helped avoid any major financial hiccups.

This year appears a challenging one as well, with uncertainty continuing to haunt corporate corridors.

However, the domestic economy has proven its resilience more than once, having bounced back from previous slowdowns – and this year it could face another litmus test.

So could the Kingdom overcome a stubborn economy in the year of the ox? Obvious positive indicators show that it well placed to do so, but an unpredictable global economy plus coronavirus-triggered health threats may impede the march forward.

Here are some key variables that are likely to dictate how the economy will behave in the coming months.

Headwinds

Covid-19 vaccine

The coronavirus pandemic will continue to pain economies around the world, with Cambodia no exception.

Temporary lockdowns, should they occur, would bite into productivity, and laying off workers in a time of crisis would impact per capita income and consumer spending, which would have a profound cascading effect on the growth of the domestic economy.

So far, with 364 positive cases and no deaths, Cambodia has been safe and remains vigilant in handling the virus threat. Keeping the virus at bay to avoid any major outbreaks will be a pressing concern for policymakers.

The arrival of a Covid-19 vaccine would be a solace, but the timing is not certain.

Tourism

Tourism dollars dried up with the closing borders of foreigners, deeply impacting the once money-making sector since the outbreak of Covid-19 early last year.

International tourists arrivals dipped drastically to only 1.2 million in the first nine months of last year, compared to the 4.8 million registered in 2019.

This resulted in around 45,000 jobs lost, while some 3,000 tourism-linked businesses ceased operations.

While a quick revival of the once flourishing sector will certainly be a tonic for the economy, continuous global restrictions on cross-border movements would slow down the sector’s recovery.

Aviation

Another industry that will face a tough recovery due to international flying restrictions. Domestic and international flights which contributed to the local economy have fallen almost silent.

Higher fixed costs and lower revenues will weigh heavily on operators.

While a limited number of flights are permitted to fly into the Kingdom and so are domestic carriers, the industry is yet to fully recover.

There will be a spillover effect on the tourism sector.

Garments

The garment sector that hires about 700,000 felt the initial pinch of the pandemic after foreign orders dwindled.

Around 1,100 factories were forced to shut down, while nearly 50,000 workers lost their livelihoods.

A speedy revival of the sector is vital as it will further spur economic activities.

SMEs

A majority of small and medium-sized enterprises (SMEs) survived the onslaught of the pandemic, parcticularly those involved in food production.

However, their continuous sustainability depends on the economic mood and financial support, particularly for cash-strapped businesses.

Therefore, how friendly commercial banks and microfinance institutions can be in providing credit and restructuring

loan repayments will dictate the direction of the nearly one million SMEs that employ around 90 per cent of the Cambodian workforce.

Geopolitical risks

The foreign policy if incoming US president Joe Biden’s – such as how his administration handles trade tensions with China, Iran and North Korea’s nuclear programme expansion – could affect the global economy.

Oscillating crude oil prices due to a global glut and weak demand could also have serious ramifications on global trade in coming months.

Positive signs

GDP growth

The National Bank of Cambodia’s (NBC) forecast of four per cent growth in 2021 – almost double that of last year – on the back of a strong financial sector comes as welcome news.

This figure is also in line with the World Bank’s four per cent growth forecast for this year.

Apsara oil production

Cambodia’s maiden oil production from the Apsara field located in the Khmer Basin in the Gulf of Thailand on December 28 is promising news too.

Production is expected to reach a peak of around 7,500 barrels per day when the drilling programme is completed in mid-February of this year offering newfound gains for the economy.

Rising exports

The export sector is upbeat despite the global economic slowdown. Cambodia exported nearly three million tonnes of cassava products in the first nine months of 2020, almost a 49 per cent spike year-on-year in contrast to the previous year.

And in the first nine months of last year, Cambodia exported 488,775 tonnes of rice, a 22.6 per cent jump compared to the same period in 2019, the Ministry of Agriculture, Forestry and Fisheries reported.

The Kingdom’s total exports ballooned to $16 billion last year – an increase of 14 per cent compared to 2019.

Digital economy

More companies, especially banks, are moving swiftly into the digital space, creating a conducive payment ecosystem for consumers.

Digitalisation is also helping provide banking to the Kingdom’s most remote and unbanked segments.

The introduction of the Bakong payment platform by the NBC, for instance, is another innovative step to ease the transfer of money.

E-commerce

As e-commerce continues to transform the way business is carried out, it is also rapidly propelling the e-retail market – particularly during the pandemic.

While the spurt in online businesses – from fashion and apparel, to food and consumer goods – is largely driven by rising internet penetration, cheaper smartphones and lower data prices, there is further room for further growth with the industry yet to reach its peak.

So with such a range of positive factors, the Cambodian economy, like the ox – which is famously hardworking and resilient – is well placed to face the challenges of an uncertain 2021.