Phnom Penh

Cambodia has undergone magnificent economic transformation in recent years despite a tumultuous history characterized by French colonization, the lethal Khmer Rouge and Vietnamese occupation until the early 1990s. Today Cambodia exists without physical foreign presence. However, make no mistake about it: Cambodia’s trajectory has been defined by overseas development aid (ODA), NGOs, foreign direct investment (FDI) and tourism. Whilst positive effects cannot be denied—from 1998 to 2008 GNI per capita doubled—ample foreign presence has had repercussions.

Overseas development aid (ODA) to Cambodia starting in the 1990s has been some of the highest in the world. The graph shows the Cambodian ODA per capita and as a share of GNI. In 2008, ODA was close to 10% of GNI. Nevertheless, the graph below is an understatement of the real figure because China is not included (as a non-OECD country), which reportedly became Cambodia’s largest donor in 2008.

Cambodia ODA graph

While aid can be helpful, it also comes at a price; one example being conditionality agreements accompanying the given aid. Beyond that an overflow of ODA has resulted in weaker government institutions. According to Cambodian-American scholar Sophal Ear, the most telling statistic is that between 2002 and 2010 for each dollar the Cambodian government spent it received—on average—more than 94 cents on the dollar in net foreign aid. Ear further argues that Cambodia is actually worse off today than it was in the early 1990s, at least in terms of government stability and transparency. Instead of efficiently allocating funds, Cambodian ministries argue over who gets what. Moreover, copious aid makes it easy to not collect taxes or perform other duties.

Along with aid in the early 90s came international NGOs. Today it is estimated that Cambodia has the largest presence of foreign NGOs per capita in the world. In 2011, 3,000 NGOs were registered with the Ministry of Interior. Their presence has caused some government talent to flee, picking up positions at better-paid NGOs. Not to discredit any of their work, but NGO presence enables government institutions to disregard certain responsibilities by passing them to the NGOs.

Furthermore, Cambodia also receives vast FDI. According to a KPMG study, since Cambodia first shifted to a free economy in 1989 it has received more than USD 25 billion in FDI. Generally FDI is viewed as favorable; but investment in Cambodia is concentrated in cities like Phnom Penh and Siem Reap. Meanwhile rural progress hinders, adding to inequality and bleak human development.

Benefiting from FDI is the service sector with restaurants and hotels proliferating, triggering a tourism boom. On the surface tourism seems like a win-win; yet a recent article published by Forbes on Cambodia’s orphanage tourism industry reveals otherwise. The article states that Cambodia’s 250% increase in tourism since 2005 and its 75% increase in orphanages during the same period is no coincidence. Many of these newfound orphanages are a scam, charging foreigners to “volunteer” for even just a day. Tuk tuk drivers can direct tourists to an “orphanage,” where most of the children in fact have parents. As long as the price is paid, anyone is let inside.

Cambodia’s debilitated government has made it one of the most corrupt countries in the world, enabling operations, like these orphanages, to function. In 2012 Transparency International’s Corruption Perceptions Index ranked Cambodia 157 out of the 176 countries assessed.

Although GDP growth since the 1990s has been impressive, it is set on a stage with rising inequality, poor human development and corruption. In order to achieve a middle-income level economy, strong governance is essential. One way for the Cambodia’s government to regain relevance is with less foreign presence.

 

Image Credit – Phnom Penh aerial view by Milei Vencel, Hungary (Own work) via Wikimedia Commons

Graph Credit – Overseas Development Institute, May 2010 via UN.org

version of the article was originally featured on Investvine.com 

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