A recent report from
the International Monetary Fund (IMF) has stated
that in a moderate-case scenario, oil-generated
income for Cambodia would start at US$174 million
by 2011 and peak at $1.7 billion per year by 2021.
These predictions are based on the current project
led by Chevron off the coast of southern Cambodia
that looks set to begin production in next year.
The project holds an estimated reserve of
700 million barrels of oil in a technologically
challenging arrangement. The IMF predictions do
not include a potentially larger basin currently
caught up in a dispute over an overlapping claims
area (OCA) on the maritime
border between Thailand and
Cambodia.
The Cambodian Ministry of
National Defense has recently announced plans for
a tripling in the size of the navy to provide
security for the oil-production facilities.
According to Defense Minister Tea Banh, the recent
expansion plans cite anti-terrorism and
anti-piracy as the underlying justification for
the expansion.
The implications for
Cambodia are significant. The economic benefits of
the resource revenue generated by the oil projects
have the potential to make considerable
improvements to Cambodian society and the national
economy. However, factors are already in place to
suggest that the impact may not be all positive.
The income based on resource rents would in effect
double the country's gross domestic product in the
initial stages of the project.
If this
massive input is managed poorly, it could lead to
severe inflation and have a considerable impact on
the garment sector that currently makes up 80% of
Cambodia's export economy. Significant governance
issues, chronic rates of corruption, a significant
population bubble of young adult males, a reported
high rate of availability of small arms due to 30
years of internal conflict, weak economic
institutions, a recent history of civil war, and a
predilection toward political violence suggest
that Cambodia faces a strong possibility of other
and more considerable obstacles on the path to
economic benefits.
The pattern to date of
resource-extraction benefit in the forestry and
fishing sectors is one of collusion between the
political and military elite for self-enrichment
at the expense of traditional stakeholders.
According to some observers, the diversion of
benefits from social investment to self-enrichment
has meant that the social cleavages within the
society have had little opportunity to heal. If
this pattern is extended to the oil-and-gas
sector, then the potential for systemic abuse is
strong, as is the potential for social unrest.
The tripling of the size of the Royal
Khmer Navy will likely make Cambodia's neighbors
nervous. The overlapping claims area with Thailand
in particular is a sensitive area because of the
considerable resources represented under the
claim. Border disputes with Thailand in the past
have been a cause for nationalist displays of
violence, producing an alarming opportunity for
nationalist political expression especially in the
face of domestic social unrest due to the
previously mentioned impact of resource revenue.
Instruments are in place for the
resolution of the disputed area, but there has
been no movement since the memorandum of
understanding was signed in 2001. Despite a
diplomatic breakdown in 2003, the two sides
continue to meet annually in an attempt to resolve
the dispute.
In regard to China, the
post-1997 coup relationship with Cambodia
continues to strengthen. Economic, strategic,
diplomatic and cultural ties have filled the void
left by the international community, which
generally withdrew from Cambodia after 1997. China
continues to be the major donor for the Royal
Cambodian Armed Forces and is likely to remain so
in the near future.
The diplomatic benefit
of the relationship for China accrues from the
anti-Taiwan stance of the Cambodians, along with
it being an important ally in the Association of
Southeast Asian Nations community. The discovery
and production of oil in the immediate vicinity of
China will only strengthen Beijing's efforts to
cultivate and promote a regional ally.
The
United States has had poor relations with Cambodia
since the coup in 1997, but it is now making
strong overtures to the present leadership. For
the first time in three decades, the US Navy paid
a visit to Cambodia early this year. In February,
the 10-year ban on US aid to the country was
lifted and a bilateral trade and investment
framework agreement was signed last year to
promote better trade relations.
The
benefits for the US include economic interests in
the oil-and-gas sector, democracy promotion in the
region, and an attempt to counter Chinese
influence in Southeast Asia. The strongest
opportunity for Washington to influence Cambodian
policy in the short term lies in the garment
sector, which faces an end to favorable trade
status at the end of this year. Cambodian
officials have been lobbying Washington to provide
some reprieve from the anticipated sharp impact
that the cessation of quotas will generate.
The bottom line is that the sudden and
considerable flow of resource revenue may have a
serious impact on the Cambodian state. The OCA
between Thailand and Cambodia offers a strong
potential for revenue sharing and bilateral
cooperation but requires a concerted effort to
avoid nationalist sentiment and a problematic
precedent of conflict over border issues.
Chinese influence may continue to deflect
and dilute international efforts to establish the
strong governance and economic institutions
required to manage the inflationary impact of the
large revenue increase. The seemingly positive
news of an oil and gas discovery must be tempered
in light of the complex issues surrounding revenue
generation and its impact in Cambodia.
Published with permission of thePower and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
tocontent@pinr.com.
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