Socio-economic impact of COVID-19 on Cambodia

The first outbreak of COVID-19 was reported in China in late 2019 and on 30 January 2020 the World Health Organization (WHO) declared it as a Public Health Emergency of International Concern (PHEIC).¹ The COVID-19 pandemic has affected the global economy and the growing crisis is hitting developing countries, not only as a health emergency but also devastating social and economic development.² All ASEAN member states are experiencing the socio-economic impact of COVID-19.³ The global outbreak has led to the disruption of supply chains and freezing demand limiting the flows of travel, trade, and investment and has brought immediate interruption in all sectors of economic activity in ASEAN countries including Cambodia. ⁴

A view of Phnom Penh city. Picture: Chris Ellinger, taken on 7 December 2015. Licensed under CC BY-NC-ND 2.0.

Economic impact

COVID-19 posts economic threats to different aspects of Cambodia’s development, with tourism, manufacturing for export and construction seen to be the most affected sectors. In combination, these sectors contributed more than 70% of Cambodia’s economic growth and around 39.5% of total employment in 2019.⁵ The global response preventing the spread of the virus, in turn, creates a decline in tourism and hospitality services. In 2020, Cambodia alone was estimated to experience a loss of revenues in the tourism sector of around $3 billion according to the Minister of Tourism. In the first four months, around 1.6 million foreign visitors visited Cambodia, representing a decline of 52% compared with the same period a year earlier. Cambodia’s most visited tourist destination, Siem Reap, recorded a contraction of 45.6% of tourist arrivals and a 99.6% reduction year-on-year for the month of April 2020. Around 2,956 tourism-related businesses have been closed, causing the unemployment of 45,405 people,⁶ while an estimate from the World Bank shows that at least 1.76 million jobs are currently at risk.⁷ A total of 433 factories and tourism-related businesses across the country have temporarily closed down according to the Ministry of Labour and Vocational Training. ⁸These suspensions have left some 135,000 garment workers and 17,000 tourism workers unemployed.⁹

The COVID-19 outbreak meant that garment, footwear, and travel goods exports increased by only 7.5% in the first three months of 2020, dropping from 17.7% compared to the same period of 2019. According to the World Bank, this drop was led by a contraction of garment, footwear, and travel goods exports to the EU (including the UK) market by 0.5%, falling for the first time since the 2008–2009 global financial crisis.¹⁰ According to the Asian Development Bank (ADB), industry growth is predicted to slow down to 6.5% in 2020 with declines in garment production for export and in construction. This is largely the result of arrested growth in major advanced economies and a sharp slowdown in the People’s Republic of China (PRC), and particularly in the curtailment of European Union trade preferences starting in August 2020.¹¹

The inflow of Foreign Direct Investment (FDI) which is largely concentrated in the construction sector accounted for more than 50% of total FDI in Cambodia, coming mostly from China (including Hong Kong SAR) and Taiwan in recent years. However, after the COVID-19 outbreak in China, the value of approved FDI has contracted substantially.¹² Growth of investment in the construction sector was around $11 billion in 2019, nearly doubling from 2018’s $5.5 billion. COVID-19 has been estimated to bring this to a negative rate growth of 5.3% in 2020 due to a decrease in FDI in the construction sector from China, according to an updated report from the Ministry of Economy and Finance.¹³

According to the Organization for Economic Co-operation and Development (OECD), the economic shocks will have more medium-term impacts on poverty and welfare, especially among the more vulnerable in society and those who work in the informal economy.¹⁴ Highlighted in a policy brief, the Food and Agriculture Organization (FAO) showed that the pandemic will exacerbate the vulnerability of specific groups of workers including women, children, indigenous people and migrant workers due to unemployment and underemployment of informal workers.¹⁵ According to the International Labour Organization (ILO), almost 1.6 billion informal economy workers have suffered damage to their ability to earn a living. This is due to the country’s lockdown and preventive measures and/or because they work in the hardest-hit sectors.¹⁶ In Cambodia, the situation is worse in the informal sector because garment workers stimulate the economy for street food vendors, hairdressers and transport providers. One past study estimated that each wage earner in the garment sector supports five to six persons in the informal sector via local economic stimulation.¹⁷ Thus, the unemployment of factory workers considerably affects those in the informal economy.¹⁸ There is also a decrease of remittances in Cambodia. According to Emerging Markets Consulting (EMC), Cambodia could lose about $90 million for six months of remittances from Thailand. Data from ACLEDA Bank Plc for the first quarter of 2020 shows remittances from Cambodian workers in the Republic of Korea (South Korea) was $3.5 million, with 1,373 transactions, down almost half from $6.2 million with 2,270 transactions in the same period the year earlier.¹⁹ After two decades of strong performance, Cambodia’s economic growth is expected to decline in 2020. This is due to the COVID-19 pandemic and by-product effects of economic slowdown in the major advanced economies and the People’s Republic of China, together with the country’s reduced access to export markets, according to the Asian Development Bank.²⁰ However, there is variation in the growth forecasts from different institutions as well as the Cambodian government in 2020 and especially the projection for the up-coming year​ 2021, as shown in the table.

Social impact

The COVID-19 pandemic has drastically altered the world economy and has affected all aspects of life in many countries. Cambodia is no exception. The economic impact of COVID-19 in Cambodia is enormous. This part however, will explore COVID-19’s social consequences specifically in the education sector and on indigenous people. In order to get access to online education, students need access to a stable internet connection and technological devices. These requirements have broadened inequality gaps among students in rural and urban areas.²¹  It is more likely that those in urban areas will receive and have better access to online education than those in rural areas. Private schools seem to have better online education programs and materials compared to the no-cost public ones.²² According to the Ministry of Education, in the 2018–2019 academic year, 210 000 students studied in 1 222 private schools compared to 3.2 million students in the public ones.²³ Most of the 1 222 private schools are concentrated in urban areas – only 35 511 students living in rural areas study in private schools.²⁴ Half of the students who are able to access e-learning or self-learning at home spend less than 10 hour a week to study, which equates to only around half of their normal time studying in the classroom.²⁵ In some areas where the internet is not accessible, informal education is pursued during school closures due to the pandemic.²⁶  This pandemic has also affected students with disabilities in getting equal access to education due to the lack of disability support programs and facilities at home. ²⁷

Indigenous people, one among the most vulnerable social group also face great challenges during the COVID-19 pandemic. ²⁸ Traditionally, indigenous people have faced social marginalization including in political participation, economic life and education.²⁹ At the time of the pandemic, indigenous people around the world, including the 24 indigenous groups in Cambodia, are at higher risk to get transmitted to the disease, mainly due to the absence of quality healthcare and services and access to information.^{30 31}  Speaking at the International Day of the World’s Indigenous People, UN Secretary-General,  Antonio Guterres, expressed his deep concern and called on leaders to include indigenous groups in COVID-19  protection and response strategies.³²

Economic response

So far, the responses made by the Royal Government of Cambodia have been highly effective, with no COVID-19-related deaths or community transmission. However, the country is facing a sharp economic downturn and severe social dislocations³³ from the pandemic and the partial withdrawal of the Everything but Arms (EBA) benefits. In late February, the Cambodian government has taken a series of emergency measures around the most affected businesses, such as the garment industry and tourism sector that generate billions of dollars of income to Cambodian workers, mostly women.^{34 35}According to the Ministry of Economy and Finance in its letter No. 1313, registered taxpayers in the Siem Reap province who run businesses relating to hotels and guesthouses will be exempted from the payment of all monthly taxes for the period of four months from February 2020 to May 2020, while in the garment, footwear and bags sector, a tax exemption for the period of 6 months to 1 year will be provided for factories severely impacted by the lack of raw materials due to supply-chain issues caused by COVID-19 and/or the suspension of EBA.³⁶³⁷ With the closedown of some factories, the government will offer $40 for each laid-off worker and the factory owners will offer another $30, totaling $70 per month.​³⁸

Another working day of Cambodian factory workers. Picture: UN women., Taken on 6, September 2016. Licensed under CC BY-NC-ND 2.0.

On top of these measures, on 24 June 2020 Cambodia launched a cash relief program for 562,686 poor and vulnerable families of nearly 2.3 million people, with the government spending around $25 million per month.³⁹ The government stated that it has withdrawn $1 billion from its reserves to support spending against COVID-19 and to sustain, boost and restore the economy.⁴⁰ The Cambodian Government and the National Bank of Cambodia have announced measures to relieve the burden on banks, micro-finance institutions (MFIs) and affected borrowers by providing low-interest rate loans to banks and MFIs to enable them to pass on low-interest loans, delay due date payment and refrain from seizing borrowers’ property. The National Bank of Cambodia (NBC) has provided more liquidity to Cambodian banks and finance institutions to help mitigate the impact of the COVID-19 on Cambodia’s economy.⁴¹ Since early March, the Government has prepared special loans of $50 million for the agriculture sector through the Agriculture Rural Development Bank (ARDB), and has also injected $50 million into the SME Bank’s Co-Financing Scheme together with another $50 million from 33 participating financial institutions (PFIs).⁴²

The Government has also reserved another $500 million to support the SME sector by providing $200 million as credit guarantee schemes (CGSs) and another $300 million to further assist SMEs with loans and the Government’s special loan to the ARDB.⁴³ On 26 May 2020, the Government continued to set out the fourth round of measures to alleviate the COVID-19 impact faced by businesses which includes extending the validity of the measures previously set out by the Government and setting out new measures.⁴⁴ On top of existing measures, the Government has decided to set out a fifth round of measures representing the combination of new and existing measures which will further support:

1. Garment, textile, footwear, travel products & bags sectors
2. Hotels, guesthouses, restaurants & travel agents
3. Tourism & aviation sectors
4. Financial support program for poor & vulnerable families.⁴⁵

On 30 September 2020, the Royal Government of Cambodia has continued its effort to maintain and restore the socio-economic stability​​ through releasing another sixth round of measures. This round is intended to take on further action on the previous round.⁴⁶

Social and public health response

The initial step that the Cambodian Government took to fight COVID-19 was the establishment of an Inter-Ministerial Committee for Combating COVID-19 in early April.⁴⁷  In collaboration with the Ministry of Health, this committee is responsible for all COVID-19 related issues in the Kingdom. As recommended by WHO, social distancing is currently the frontline and the most effective measure to control the spread of COVID-19 since vaccines are still in the developing stage.⁴⁸  The Cambodian Government has followed expert recommendations and responded in a timely way to the issues. Many instructions and guidelines about COVID-19 including preventive measures, hygiene practices, quarantine and other foreign travel measures were issued by the Inter-Ministerial Committee for Combating COVID-19 and disseminated to the public. Awareness of the pandemic is being raised throughout the country by broadcasting on social media, television, radio and street banners. There are different promotional materials including short instructional videos. Those projects are usually in partnership with development partners like Non-governmental Organizations (NGOs) and the United Nations’ agencies as well as WHO.

The Government has made efforts to widen social distancing​ practices to curb the transmission. For instance, the authorities ordered schools across the countries to have an early small summer vacation, decided to postpone the 2019–2020 grade 9 and grade 12 national examinations and suspend all educational institutions from operating from the 16th of March. This affected approximately 13, 300 schools.⁴⁹  In addition, entertainment places like casinos, cinemas and public gyms were also ordered to temporarily close. The Government also postponed Khmer New Year 2020 festivities (traditionally held in mid-April) to prevent social contact and cut down the risk of COVID-19 infection. Despite public criticism, the Government has also drafted and enacted a law on state of emergency in case COVID-19 gets out of control. On top of that, travel restrictions from various high-risk countries have been imposed to stop any potential COVID-19 infections in the country.

The practice of social distancing to minimize the risk of a COVID-19 outbreak has posed negative consequences for the education sector as students will not be able to learn in school. The Ministry of Education has recognized this problem and has responded with various online educational programs. The Ministry of Education in collaboration with the Ministry of Information has initiated distance learning and e-learning programs to provide basic education to all students at all levels in Cambodia, especially those in rural areas where they cannot get access to internet connection.⁵⁰ The Government has also partnered with civil society and NGOs such as Asia Foundation and UNESCO to implement e-learning programs and establish ICT initiatives to facilitate students’ learning at home.

Related to socio-economic impact of COVID-19 on Cambodia

• Economy and commerce

• Small and medium enterprises (SME)

• Disasters and emergency response

• Labor

• Social development 

• Industries