Digital Transformation Essential for Economic Resilience

Digital adaptation, including ramping up e-commerce, is key for Cambodia’s MSMEs, which form the backbone of the economy, to thrive into the future, experts claim.
Online marketplace serves SMEs to sell their products (Kiripost/Siv Channa)
Online marketplace serves SMEs to sell their products (Kiripost/Siv Channa)

Cambodia’s micro, small and medium enterprises (MSMEs) form the backbone of its economy, contributing approximately 58 percent to the country’s GDP and creating about 70 percent of total employment.

In addition, the majority of MSMEs owners are women. A total of 90 percent of local MSMEs are micro with no more than 10 employees. Facebook, Instagram, and Telegram are the medium of choices among MSMEs.

Alissar Chaker, UNDP Cambodia Resident Representative, said at yesterday’s e-commerce for business workshop, “The Covid-19 pandemic has exposed the importance of digital transformation for resilience. It has also shown e-commerce as a powerful medium for connecting with customers and being part of a wider supply chain, and as a new, efficient, and highly competitive business model.”

She asked,

“How can MSMEs in Cambodia ensure that the changes brought by digital technologies benefit all and support inclusive growth?”

At the workshop on ‘Introduction to Export Readiness and Cross Border E-commerce for MSMEs’, Chaker said, “There is a need to reform the rules that govern trade, and these should be designed in a manner to ensure inclusiveness.”

The potential for e-commerce is significant and promising for economic diversification, job creation, and financial inclusion, she added.

The state of electronic commerce in Cambodia

Yet E-commerce is relatively underdeveloped compared to its neighbours (Thailand and Vietnam) and has not yet contributed to export diversification despite its potential in particular agricultural commodities, handicrafts and garments, noted the UNDP representative. This has put the country at a disadvantage in terms of competitiveness and integration into regional and global trade networks.

It was not until 2017 when government-led coordination of e-commerce development efforts began. Cambodia Trade Integration Strategy 2019-2023 said the potential for e-commerce development is significant, promising to diversify the economy, provide new jobs, and increase financial inclusion, as well as contribute to improved lives and livelihoods.

While Cambodia’s e-commerce sector is still in its infancy, challenges, gaps, and barriers indicate the presence of market opportunities. “The growing adoption of e- payment modalities and the increase in logistics project development have attracted a large number of investors, start-ups and entrepreneurs across Cambodia and globally to contribute to the growth of the e-commerce sector,” said the trade strategy report.

It added that the newly-forming middle class demand for inter-connected life will prop up the e-commerce market, and will directly promote economic growth and social development.

In September last year, the Ministry of Commerce (MOC) launched online marketplace to serve SMEs to sell their products online to potential clients in the domestic and cross-border markets. “Cambodia exports of goods and services as a percentage of GDP is 61.09 percent,” reported 2019 data by World Integrated Trade Solution (WITS).

Cambodia’s law on e-commerce

Cambodia was the last member of the Association of Southeast Asian Nations (ASEAN) to adopt a domestic e-commerce law.

In 2019, Cambodia enacted several laws and regulations related to e-commerce, which is a crucial step for the country as it provides more opportunities to MSMEs. The law took effect in May 2020. The e-commerce law “regulates domestic and cross-border e-commerce activities in Cambodia, establishes legal certainty for electronic transactions, and enacts a number of important protections for consumers.”

Ouch Richard, a Research Fellow of the Centre for Inclusive Digital Economy (CIDE) at the Asian Vision Institute (AVI), wrote State of E-Commerce in Cambodia in 2020 “It is without a doubt that e-commerce will become a mainstay of Cambodia as the country develops further into the future. However, cash remains the primary source of payment, as digital literacy and trust in online forms of payment remain a challenge.”

He added, “Despite these hurdles, e-commerce market indicators, such as internet penetration and revenue numbers, are expected to continue its growth well into the future.”

Explaining what the electronic commerce law means for business, Pichrotanak Bunthan and Jay Cohen, of regional law firm Tilleke & Gibbins, wrote, “The E-commerce Law is much-welcomed by consumers, and is a positive step for the country’s digital environment. In addition, the harmonization that it brings with other countries should encourage cross-border transactions and paperless interactions among businesses and between businesses and governmental bodies.”