ADB’s Study Emphasises Need For Further Skills Training In Cambodia’s Workforce
The Asian Development Bank (ADB) has urged Cambodia to further boost education and vocational training in order to enhance the skills of the workforce to meet the demands of a diversifying economy. This recommendation was made in ADB’s new Country Diagnostic Study (CDS) on "Cambodia Economic Diversification" released in December 2024.
The release of the 2024 ADB CDS report follows its predecessor published a decade ago in 2014. The report begins by prefacing:
Much has happened in this decade. While significant economic and social progress was made until 2019, the coronavirus disease (COVID-19) pandemic, which lasted from 2020 to 2022, dealt a devastating blow to the country. Partly for this reason, many of the challenges identified in the earlier CDS are still binding constraints today.
A key point stressed in the study is that Cambodia’s labour productivity still lags behind many countries in the region. Labour productivity per worker in Cambodia in 2020 was only USD 2.89, which is well below Thailand’s USD 14.78 and Indonesia’s USD 12.04, and less than half of Vietnam’s USD 6.58.
One of the biggest challenges Cambodia faces is improving its human capital and skills base. The ADB report added that Cambodia needs to work further on reducing business costs, particularly in electricity and finance, saying it is crucial to attract investment and support local enterprises.
Cambodia Employment Trend Shifting To Services & Industry
Cambodia has seen a shift in employment from agriculture to services and industry. While the agriculture sector still generates a significant number of jobs, the industrial sector, especially garment manufacturing, has been a major driver of employment growth in the country.
The ADB study further stated that Cambodia has a large and expanding labour force estimated to be around 9.1 million workers in 2021, with a labour force participation rate of 83.7 per cent. Additionally, due to decades of strong economic growth, Cambodia's unemployment rate was at 4 per cent in 2019, according to the International Labour Organisation (ILO).
Another government report from the Labour Ministry in 2023 claimed that Cambodia maintains a high employment rate of 99.3 per cent of the total labour force, which is about 10.8 million people.
Within that number, 2.5 million are working in the industrial sector (equivalent to 23 per cent); 3.1 million in the service sector (29 per cent); 3.4 million in the agricultural sector (31 per cent); 500,000 work as public officials (5 per cent); and 1.3 million are migrant workers abroad (12 per cent).
The ADB study noted:
The labour force participation rate is relatively high, but there are disparities based on gender and urban-rural divides. Women are increasingly participating in the workforce, particularly in sectors like garment manufacturing.
Another important factor to take into account is the COVID-19 pandemic, which negatively affected the country’s employment, particularly in sectors heavily reliant on tourism and services, which led to job losses and increased vulnerability for many workers.
Agriculture Retains The Largest Share Of Cambodia’s Workforce
While economic transformation has been taking place, most Cambodians still live in rural areas (75 per cent in 2021), which is a minimal change from the 80 per cent recorded in 2010. Hence, as earlier noted, the agriculture sector still significantly contributes to employment in Cambodia, and, in fact, constitutes the largest share of the country’s workforce.
The share size of agricultural jobs within the country’s total workforce has, however, seen a decline, falling from 55 per cent recorded in 2010, to 39 per cent in 2021. In the same period, the share of manufacturing jobs rose from 16 per cent to 25 per cent, while the share of service sector jobs increased from 29 per cent to 36 per cent.
Challenges In Cambodia’s Labour Market
Cambodia’s labour market is growing but faces several challenges, including underemployment, inadequate skills among workers, and the need for more inclusive job creation that caters to the rising youth population.
The ADB report stated:
The main concern in the Cambodian labour market is not quantity, but quality. Informal employment and underemployment remain widespread, with most workers employed in low-productivity and low-wage sectors such as agriculture and informal services.
According to the ILO, 89 per cent of Cambodian workers were employed in the informal sector in 2019, working in low-paying jobs without social protection or job security. Worktime underemployment was reported at 11 per cent in 2019.
The Cambodian government has acknowledged this challenge and set goals to improve jobs and upskill its population in the Pentagonal Strategy (Phase I), the National Employment Policy 2015-2025, and the Industrial Development Policy 2015-2025.
Some of the steps the government has taken that the ADB report noted are the implementation of labour law, efforts to enhance quality of education, and training provision to boost skills and productivity. Nonetheless, ADB stressed that more fundamental reforms are still needed.
Impact Of The Covid-19 Pandemic On Employment In Cambodia
Low-skilled workers were found to have been affected the most during the pandemic due to the closure of hotels, restaurants, and other tourism-related businesses, which significantly undermined employment in the services sector.
According to the ILO, 1.1 million full-time jobs were lost in 2020, 1.3 million in 2021, and 1 million in 2022, mostly in the tourism, manufacturing, and construction sectors.
Additionally, the pandemic forced migrant workers in urban areas or overseas to return to their home provinces, reversing a long-term trend of net out-migration from rural areas.
Reversal Of Cambodia’s Human Development Index
Cambodia’s performance on the Human Development Index (HDI) has likewise suffered a reversal in recent years. From 1990 to 2018, the index showed a positive trend, increasing from 0.378 to 0.598. However, from 2018 to 2021, it decreased slightly to 0.593, categorising Cambodia as a country with medium human capital development, ranking 146th out of 191 countries in the world.
Significant gaps remain in the areas of health and education. Furthermore, Cambodia also performed poorly in the Global Competitiveness Report 2019, ranking 119th out of 141 economies in terms of overall competitiveness.
What Constrains Cambodia’s Economic Diversification?
The latest ADB report identified several constraints to Cambodia's economic diversification, including human capital, business costs, resilience and sustainability. The bank highlighted two primary types of constraints on structural change that especially need to be addressed:
- Human Capital Deficiency: Skills mismatching results due to a lack of adequate human capital.
- High Business Costs: Excessive costs hinder private sector development and deter domestic and foreign investment.
ADB also emphasised the need for enhanced versatility to respond to disruptions, manage consequences, and prevent growth drivers from stalling, which thereby would ensure greater sustainability.
Sustainability and resilience are stated to be contingent upon addressing:
- Climate change and other environmental pressures;
- Financial, health, and other shocks or crises;
- Technological change, particularly the shift toward a digital economy.
To improve the sustainability of Cambodia’s growth and its drivers, ADB has said it is essential to diversify sources of foreign direct investment (FDI), export markets, and import sources, thereby avoiding over-reliance on any single area.