THE IMPACTS OF GLOBAL FINANCIAL CRISIS ON CAMBODIA’S GARMENT SECTOR

In the new millennium, Cambodia has put an end to its past miserable history of devastation due to war, anger, revenge, hostility and malevolence (Hing, 2003). Cambodia has undergone a difficult transitional period as the command economy moved into a free-market economy.  The integration of Cambodia into the regional framework and normalization with the international community improve its ability to attract foreign direct investment for development. Foreign direct investment has been a catalyst for the globalization process, which characterizes the economy of the modern world. 

The global financial crisis really started at the beginning of 2008 (CDW, 2009). Many stock exchanges around the world have fallen down and large financial institutions have collapsed or bankrupted. Many countries around the world received the bad impact from this crisis not only developing countries nor developed countries such as United State, European Union and some Asian countries.

The bad phenomenon from inter-connected business led to the economic slowdown and unemployment and led the developing countries into poverty. Cambodia is one of the countries which impacted from global financial crisis, and Cambodia has suffered so much from it. The financial crisis affected in both on micro-economic and macro-economic and also affected on social problem and poverty too (CDW, 2009). Four main pillars are affected from the crisis such as garment industry, construction, tourism, and agriculture.  The garment sector is one of the most important tools for Cambodia economic development, so it plays a vital role in providing jobs and benefits to Cambodia.

Export-oriented garment manufacturing emerged in Cambodia after the restoration of peace and resumption of normalized political and economic relations with the global community in the mid 1990s (MCLPCGI, 2005).

According to the Economic Review (GSWSAQ, 2009), the garment industry currently contributes more than 85% of Cambodia's exports, and the two major export markets for Cambodia garment are the United States and the European Union (EU).

Garment sector is a very important factor for Cambodia economy. As we can see, Garment export has grown dramatically over the past decade, from $26 million in 1995 to $1.6 billion in 2004. Also one-third of Cambodian labor is employed by this garment sector (MCLPCGI, 2005). The unemployment rate of Cambodian’s citizen decreased, and the Cambodian’s real gross domestic product (GDP) has grown sharply at about 9.1% per year on average. 

The purpose of this project is to find out the impacts of global financial crisis on Cambodia’s economy, unemployment and standard of living, especially on garment sector.

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Cause of Poverty in Cambodia

Cambodia now stands at the halfway point towards of making a realty goal, but the result uneven. Many years a go Cambodia met the war again and again. A lot of problem in the country such as economic, less education, population, homeless, and so on, all the problem about cause the Cambodia become the third world country. The Cambodian people have experienced in war, conflict and deadly political clashes almost continuously for the past 30 years. There is civil war from 19070-1975, the rule of the Khmer Rouge from 1975-1979, the Vietnamese invasion and occupation from political factions from 1993 to 1998.

Poverty in Cambodia is characterized by low income and consumption, poor nutritional status, low educational attainment, less access to public services including school and health services, less access to economic opportunities, and economic, social and political processes. The relatively high prevalence of HIV/Aids in Cambodia is an additional challenge to the current human development situation.

First, Civil war is the root problems that cause lot of people died; many children become orphans; destroy many building and many people become homeless and disable. 

On the other hand, natural disasters are serious problem that cause farmers move from one place to another place, destroy their property, and also kill their life too. 

Although the Kingdom of Cambodia is rich in natural resources, decades of war and internal conflict have left it one of the world’s poorest countries. For the social and economic are scars. Many millions of land mines were sowed throughout the country side, where millions still lie, hidden and unexploded. Many Cambodian who live in this areas, and they are an obstacle to agricultural development.  Poor Cambodian is in rural areas. Most of them depend on agriculture for their livelihood, but some of poor people are landless.  Landlessness is one of the causes of a strong goal of internal changing of country that is also driven by the pressures of rapid population growth and the desire to evade from recurring flood and drought in lowland areas. Many people are moving from the more densely populated province in the south and west to the more sparsely populated provinces in the north-east, which include some of the country’s poorest districts.

The higher population growths contribute to poverty. Because of the Cambodia during the pol pot regime they kill a lot high education that wise it cause the lack education and training skills, people have inadequate employment opportunities and low capabilities. They are insecure, excluded and vulnerable. They have limited access to natural resources. 

Poor And the end of cause is population growth that populations of poorest countries grow much faster than those of the developed. This is because they are lack of the understanding of the important of birth control or they are unwilling to practice birth control. Too much population growth creates dependency ratio-that is, the percentage of the population that is not of working age. In other words, it will be a big burden for every family to support their members.

Finally; the cause of poverty are wars that happen again and again, low education, economic, inflation homelessness and less investment. I think the main solution to these problems about is political stability. When the political is in stability, it can attract investors in Cambodia. Therefore, it also brings knowledge and skill to Cambodian people.

            

The cycle of poverty, ill health and high health care expenditure cripples poor Cambodian families economically. Until 1993 elections did not manage to bring the former non communist resistance armies in to a single unified force with the Phnom Penh military against the Khmer Rouge, but the elections neither stop the fighting, nor did they change fundamentally Cambodia’s political structure. Tens of thousands are fleeing their homes, and the civilian population is suffering abuses from both sides. While Cambodia is developing some social institutions that can check human rights abuses, such as an independent press, a lively domestic human rights community, and a body of independent and critical parliamentarians, these features are under threat as the political situation deteriorates.

      Second we talk about low educational attainment that is part of poverty. Education in Cambodia is one of the worst in the world because we don’t have enough teacher, school, some school is far away from their house, and other wise some family is poor let their children go to work out side the house for their living that mad children cannot go to school, and poverty remains with the children of the poor to take time off from work for their education. Cambodia had get low of education because lost lot of scholar by the war. 

            Third, based on the data compiled by WHO showed that Cambodian public health is among the worst in the world. The mortality rate of children under five was 138 per 1,000 live births in the year 2003, a lot higher than the rate in East Asia region which is 40 per 1,000 live births¹.The primary causes of death for the general population are malaria, acute respiratory infection, tuberculosis, diarrhea and dengue fever. HIV/AIDS is also a main factor that contributes to low life expectancy among Cambodian citizens. Life expectancy at birth is estimated at only 57 years, about 13 years less than the life expectancy average in the region². Since the majority of Cambodian people are destitute, they are not able to access to private healthcare frequently. Therefore, they must depend on the public healthcare, but the public health service is very limited. 

            Fourth of cause is saving and investment because Cambodian people are poor, it is hard for them to generate the savings that are needed to investment. Usually, the investment rate of low income countries is lower than that of any other group of countries. This low rate of investment, in turn, contributes to the low rate of economic growth. In other words, Les investment leads to less employment opportunities.

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Infrastructure and Pro-Poor Growth

Infrastructure and rural services are central to agricultural development. In order to grow the government need to improved infrastructure and rural services not only expand opportunities for growth, but also help ensure that such growth is more diffused and equitable. Many third nation countries, especially in Cambodia, still have woefully inadequate levels of rural infrastructure and high population growth in rural area, human capital, and this is a major constraint to their development.

Despite this importance, many governments and donors have slashed their levels of investment in rural areas in recent years. It is clear that a “business as usual” approach cannot reach the target of halving the number of poor by 2015. This has shown that the trend is misguided; many public investments in rural areas give very favorable rates of return in Asia. Moreover, they also make important contributions to reducing rural poverty. Investments in rural roads, together with agricultural research and rural education, are some of the best win-win strategy, contributing the most to both agricultural growth and rural poverty eradication. It has also been shown that the targeting more investments towards less-favored areas could also be a win-win strategy in many countries, particularly those have already invested heavily in their higher potential areas. Moreover, feeder roads or low-cost rural roads give higher returns than higher-level roads in terms of agricultural production and poverty reduction.

The Royal Governments of Cambodia and partners countries need to increase their investment in rural infrastructure, technology and human capital in order to link between rural areas to urban areas. These investments are essential for the successful agricultural transformation of these countries.  

Relate Article: How Infrastructure Reduce Rural Poverty in Cambodia 

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How Infrastructure Reduces Rural Poverty in Cambodia

Until very recently, the direct impact of infrastructure was not perceived to be an important means for poverty reduction.  But infrastructure has multiple links to poverty reduction in Cambodia, as highlighted in the World Bank’s Annual Report 2001.

Improved infrastructure helps create jobs, raise worker productivity, and improve productivity of agriculture in the rural areas.  It saves time and human effort in transporting water/goods, crops, wood, and other commodities or supplies. It also improves health (by reducing indoor air pollution and emissions in urban areas and making clean water available) and education (by expanding access to schools). Among all types of rural infrastructure, rural transport is probably the most crucial for the livelihoods of the rural poor. It encompasses transport activities at all levels, whether local, urban and regional or national. It is composed of two elements: (1) rural transport services for passengers and freight by non-motorized and motorized means of transport, and (2) rural transport infrastructure, mainly rural roads, tracks, trails, paths and footbridges, and in some cases rural waterways/water system.

An inefficient transport system can act as a significant constraint on agriculture in rural areas, both by raising the costs and effectiveness of inputs in the production process and by delaying the sale of harvested crops. Rural children in developing countries face many problems in getting to and staying in school. The relationship between distance and schooling is particularly critical in rural areas where children must walk long distances to reach widely dispersed schools. While studies have shown that social and economic factors contribute to high drop out rates in rural areas, lack of public transportation and inability to pay for private transportation has led many rural children to abandon schooling after a few years.  Nonfarm or off farm employment provides a large share of the income of the rural poor.  But the development of nonfarm/off farm employment is often linked with infrastructure development.

Rural enterprises are often located in the areas where there is good access to roads, electricity, and availability of information area and telecommunication facilities.

Good infrastructure also provides opportunities for farmers to migrate to urban centers or regional area.

Several studies have demonstrated the direct link between rural infrastructure and rural poverty. Jalan and Ravallion (2002) find that road density has a significant positive effect on the consumption expenditure of rural farm households in poor regions of China. For every 1% increase in kilometers of roads per capita, household consumption increases by 0.08 percent. Research on Vietnam reveals that poor households living in rural communes with paved roads have a 67 percent higher probability of escaping poverty than those in communes without paved roads (Glewwe et al. 2000). Similarly, an evaluation of a World Bank-funded rural road rehabilitation project in Vietnam finds that the strongest positive impact was for poorest households (van de Walle and Cratty 2002). Escobal (2001) analyzed factors that determine market access for poor rural Peruvian farmers, showing the importance of key public assets such as rural roads in lowering transaction costs and in improving incomes of rural farmers.

Relate Article: Infrastructure and Pro-Poor Growth

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Small business for the poor in Cambodia

Cambodia still have high rate of poverty "35% living under poverty line". Recently, there are a lot of people running a small business for support there family. They put an effort with three-wheel cart which is full with roasted bananas, tomatoes and some people were full with coffee and soup and some were full with eggs grill. They routinely does it  from place to place in a whole day. 

It is the kind of business makes them earning a little to live from hand to mouth.

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