ADB Urges Green Investment Ramp Up

With a slight expansion expected on GDP this year, ADB calls for Cambodia to scale up green investments and seize opportunities arising from lower carbon footprint
River front in Phnom Penh. Kiripost/Siv Channa
River front in Phnom Penh. Kiripost/Siv Channa

Although a multitude of risks grey Cambodia’s outlook this year, gross domestic product (GDP) growth is forecast a tad higher at 5.5 percent from an estimated 5.2 percent in 2022, according to the Asian Development Bank (ADB) earlier this month.

These risks include weaker growth in the US and Europe, high level of private debt and less-than-expected growth of tourist arrivals and foreign direct investment from China, high energy prices and extreme weather impacting agriculture productivity.

ADB country director Jyotsana Varma, who pointed out these risks, said “more robust” tourism recovery and higher growth in the services sector underpin the slight economic expansion this year with an improvement to six percent next year.

“Cambodia’s economic outlook is positive with robust growth, shrinking current account deficit and moderate inflation in 2023.”

Last year, despite weaker global demand, the economy continued to perform well led by ongoing tourism recovery.

ADB’s Asian Development Outlook report released this April mentioned that the better economic performance in 2022 was primarily due to rising external demand for Cambodian products and tourism services.

This resulted in a revival of demand for food and accommodation, and growth in local trade, transport, and communications subsectors.

One-stop service

In 2023, the tourism sector could expand by 7.3 percent before easing to 6.8 percent in 2024. Inflationary pressure could moderate at an average of three percent in 2023 and four percent in 2024.

“Cambodia’s economic outlook also hinges on its continuing efforts to scale up green investment to unlock long-term growth potential,” the report stated.

In the meantime, the industrial sector would continue to benefit from policy reforms including the investment law 2021 which created a one-stop service for investors, and new trade agreements, ADB said.

Industrial output is expected to grow by 5.8 percent in 2023 before accelerating to 7.8 percent in 2024, however, construction is expected to remain slow.

ADB said agriculture might register a 1.1 percent growth this year and 1.2 percent in 2024, boosted by crop production for exports.

Impact on GDP

Touching on climate change, ADB said Cambodia is “highly vulnerable” in terms of geography, weak governance, has a high dependence on climate-sensitive pursuits and is one of the countries least ready to improve its climate resilience.

ADB said climate change can “significantly hamper” Cambodia’s potential long-term growth and could “hold down Cambodia’s GDP by about 10 percent by 2050, mainly from labour productivity lost to extreme weather events and rising temperatures.

It urged Cambodia to consider climate change while pursuing its economic growth mandate.

Shrinking its carbon footprint would present Cambodia with new growth opportunities, given rising global demand for environmentally sustainable products and services. Transitioning to a net zero economy would also create higher-quality jobs and give Cambodia better access to global investors increasingly interested in green investment.

Green investment

In that, ADB has advised Cambodia to scale up green investment in priority sectors, adding that it would help Cambodia unlock its long-term growth potential.

Currently, the government is committed to pursuing green growth through its National Strategic Plan on Green Growth, 2013–2030 and its Long-Term Strategy for Carbon Neutrality by 2050.

“Cambodia has potential to scale up investment in renewable energy and energy efficiency using its abundant solar energy resources,” ADB said.

In addition, given the importance of agriculture to Cambodian food security and its potential for commercialisation, investment in climate-smart agriculture and natural capital management should be prioritised.

“Finally, investment in climate-resilient infrastructure will be critical to promoting growth and ensuring long-term sustainability,” it said, adding that about $2.4 billion of investment projects are being implemented by ADB in Cambodia, with an average annual lending of more than $350 million from 2016 to 2022.