Excellencies, Ladies and Gentlemen
It is a great honor and pleasure for me to be here with local and international investors and business people at this gathering. First of all, I would like to take this opportunity to express my profound and sincere gratitude to the US-ASEAN Business Council for organizing this important and useful meeting.
I would like to take this rare opportunity to brief you, Excellencies, Ladies and Gentlemen, on some important aspects of the situation in Cambodia, focusing on «My Vision for Cambodia». Afterwards, my colleagues in the government, investors, experts and representatives of the international financial institutions will get into the details of different aspects of the investment climate and how the government’s policy has been implemented to promote and attract foreign investment.
As you are aware, three years ago, Cambodia has finally turned a corner of history, putting firmly behind the darkness of its recent past history and emerging into a new dawn of its future. Following the July 1998 elections, which external and internal observer teams described as the “miracle on the Mekong”, we conducted a “win-win” policy leading to reach genuine national reconciliation without external influences. This policy resulted in the dismantling of the political and military organization of the Khmer Rouge and the unification of our territory for the first time during the last four centuries. Cambodia therefore has marched into the new century with a vibrant peace, ample national reconciliation and strengthened democracy.
Soon after the 1998 elections, we worked out a new political platform and formulated a “Triangular Strategy”, which has underpinned our domestic and foreign policy. The first side of this strategic triangle is building peace, restoring stability and maintaining security for the nation. The second side is Cambodia’s rapid integration into the international community, especially into the comity of regional nations, and normalization of our relationships with the international financial institutions. The third side of the strategic triangle is to promote development based on the favorable conditions created by the implementation of key reform programs: military demobilization, public sector, judiciary and economic reforms including fiscal and banking reforms, land reform, fisheries reform and stringent measures taken to crack down on illegal logging and to promote environmental protection.
The recent commune elections that we have conducted recently represent a forward step for democracy and the newly established commune councils represent a form of power delegated to local communities and become one of the main internal organizing principles of local governance in order to improve the delivery of public goods and services to Cambodians from all walks of life including the transfer of resources to the grassroots communities. These systems of power devolution and resource allocation will structure the process of change, which has become now “the blood and bone of the Cambodian”, in order to achieve the anticipated progress. It is my conviction that this process will not only unleash the powerful force of financial devolution and engender a far-reaching stimulus for strengthening grassroots democracy, but also significantly structure the social capital of local communities and promote further political stability and security in the country, which is vital for the country’s march toward improvement in the living standards of our people, better respect for human rights and sustainable development.
Hence, after going through untold sufferings, the Cambodian people, with the support and generous assistance from the international development partners, have risen from the ashes as a truly free nation to rebuild a socially connected, educationally advanced, and culturally vibrant society in Cambodia. Once a small and backward country shattered by genocide, internal strife and armed conflicts, Cambodia has ushered into an era of globalization and information and communication technology (ICT) and would like to become a real partner in regional and global affairs on par with many countries in the region.
What I have stated earlier is not just happening by accident, but was a tremendous effort to carry out some agendas, which are crucial for materializing my vision for rebuilding Cambodia.
«My Vision for Cambodia» is to turn the first decade of the new millennium into the decade of economic growth, combating poverty, social progress and prosperity for Cambodia and Cambodians from all walks of life.
«My Vision for Cambodia» is to create a socially connected, educationally advanced, and culturally vibrant society in Cambodia.
«My Vision for Cambodia» is to bolster up a once strong and proud nation to become a truly free and independent nation, which can fully reclaim its own destiny, be a real partner in regional and global affairs.
«My Vision for Cambodia» is to have democracy deeply rooted in the Cambodian society by strengthening the rule of law and good governance, as well as promoting the respect for the rights and dignity of Cambodians from all walks of life, religion or social strata.
To make this vision come true as the Head of the Royal Government of Cambodia (RGC) I proposed some ideas, which have been used to prepare strategies and policies for Cambodia’s development. May I raise some key issues, which are critical for realizing these visions:
First, Cambodia’s development should be anchored on three pillars:
- Development of the private sector by helping local investors to prosper and attracting foreign direct investment (FDI);
- Attracting overseas development assistance (ODA);
- Mobilizing domestic resources to fuel economic growth, create employment and improve the living standards of the population.
The government’s philosophy considers the private sector as a catalyst of development and the engine of economic growth. The government is a strategist and manager of development. In this role the government sets out visions and creates a favorable environment conducive to private sector’s activities. In this sense, the health of the private sector is key to development. Therefore, the government has given special attention to establish a proper legal framework that ensures fair competition, transparency, accountability of the private sector and its relations with the public sector. That is why the Royal Government has enacted laws and regulations to set proper and rigorous rules for the market.
Second, to create a socially connected, educationally advanced, and culturally vibrant society in Cambodia requires from the Royal Government to rigorously implement its strategy to reduce poverty and to promote equitable economic development, which should be inextricably linked to social development.
As I have highlighted on many occasions, our government’s strategy for poverty reduction consist of three key elements:
- Ensuring long-term economic growth rate of 6 to 7 percent per annum;
- Promoting equitable distribution of the fruits of economic growth between the rich and the poor, urban and rural areas, and men and women; and
- Maintaining sustainable management and use of environmental and natural resources;
Economic growth is the most powerful weapon in the fight against poverty. Faster growth will require government policies that encourage macroeconomic stability, shift resources to more efficient economic and social sectors, and integrate our national economy with the regional and global economy to ensure the economies of scales. However, the poor may not be able to fully benefit from economic growth if the distribution of income is not equitable. In this sense, the Royal Government of Cambodia (RGC) has adopted concrete measures that target interventions to improve health and education outcomes. At the top of the list are female education to ensure gender equality, safe water and sanitation, child immunization, as well as social safety nets to protect the most vulnerable. Attention is also given to the social structures and institutions, which affect development, otherwise called social capital. In the spirit of this motto, the government’s pro-poor policy is being geared toward establishing a favorable environment to promote and generate economic growth without environmental degradation, while ensuring equitable distribution of resources.
Third, Human resource development and strengthening institutional capacity is crucial for Cambodia’s development. In the 21st century-the age of knowledge and information-economic growth and most of comparative advantages are generated by creativity, innovation and know-how, much more than traditional production factors, such as land and labor. Further advance in information technology has created a new momentum for this development. The new era, which is characterized by the increase in the importance of intellectual energy and human factor, the intelligence of human capital plays a determining role in transforming economic potentials and comparative advantages of each and every nation into the reality and competitiveness.
Moreover, institutions such as code of conduct, laws and regulations determine the rules of the game, which shape human interactions in a society. In this sense, institutional reforms and strengthening government’s institutional capacity is a sine qua non condition for long-term economic growth. Institutional reform reduces uncertainty and transaction costs. This would promote the increased inflows of capital and technology into Cambodia, which in turn fuel economic growth. Based on this philosophy the Royal Government has embarked on reforms of the public sector, including implementing institutional reform and strengthening institutional capacity, and good governance has become the backbone of our government’s reform program.
After making a general comment, I would like to spend some time to make a brief overview and assessment of the political and economic developments in Cambodia, while highlighting our government’s strategies and policies to promote private sector development and especially to attract foreign direct investment.
The commune elections that we have conducted recently testified to the fact that the political situation in Cambodia is solid and stable, since the big political parties in Cambodia have displayed their political maturity by putting national interests ahead of their own. Developments before and after the elections have shown that Cambodians from all walks of life have clearly understood democratic values, reflected in the dramatic decline in violence and the resilience and stability of the Cambodian economy. Moreover, the art of compromise between the two big parties – the Cambodian People’s Part (CPP) and the FUNCINPEC – for our common national cause constitutes the main factor to ensure political stability during the second term of the current government. This has built up public confidence in peace, security and political stability in Cambodia, thus creating a solid, favorable condition for Cambodia’s march towards sustainable economic growth over the long-term. The Royal Government is resolved and strongly committed to enhancing in a systemic manner this democratic process. In this sense, the forthcoming 2003 general elections will further confirm this irrevocable determination of the government and further consolidation of political and economic stability in the Kingdom of Cambodia.
Cambodia has marched with resolve in rigorously implementing its economic and financial reform programs, aimed at sustaining macro-economic stability, strengthening banking and financial institutions, pursuing fiscal reforms, strengthening budget management, ensuring sound management of state property and increasing investments in physical and social infrastructure to promote human resource development and improving the living standards of our people. I am pleased to inform you that the National Institute of Statistics, Ministry of Planning, with technical assistance of the Asian Development Bank (ADB), has revised the macroeconomic data for Cambodia and released an encouraging report on economic performance over the last years. According to this report, the real GDP grew 7.7 percent in 2000 against 5.4 percent as previously estimated. In 2001 the Cambodian economy grew 6.3 percent, against 5.3 percent estimated. The three-month averaged inflation declined from 0.5 percent in December 2000 to –0.5 percent during the same period in 2001. The Riel/US dollar exchange rate was broadly stable. The latest figures show that the Royal Government has achieved the target of 6 to 7 percent of economic growth per annum over the long run. This would substantially contribute to our efforts to promote rapid poverty reduction. Indeed, the revised macroeconomic indicators will result in some quantitative changes in economic data of other sectors, including the budget framework. In this context, I wish to emphasize that the quantitative change in statistics will not affect our government’s strong determination and commitment to ensure the qualitative change, especially in fiscal and budget reforms. The Royal Government will continue to proactively honor all qualitative benchmarks aimed at enhancing revenue and rationalizing expenditure.
To strengthen the banking system and promote corporate governance, the National Bank of Cambodia (NBC) has rigorously implemented the Law on Banking and Financial Institutions by re-licensing all commercial banks. To this end, non-viable, insolvent and badly managed banks are closed down through voluntary liquidation or legal process. The objectives of this bank-restructuring program are to build up a strong banking system, which mobilizes savings and enhance public confidence in the national financial system. Despite of shrinkage of number of banks, liquidity of the banking sector recorded a robust growth of 20 percent in 2001 and 10 percent in the first quarter of 2002. Foreign currency deposits recorded an increase of 8 percent and credit to private sector rose by 4 percent. Gross official reserves continued to grow by 6 percent in the first half of 2001, reflecting strong export performance and sustained tourist arrivals.
From my earlier comment you can see that political and economic developments in Cambodia have created favorable conditions for development. As I have stated on many occasions the current government is an “economic government”, which gives special attention to development and poverty reduction. Normalization of its relationship with the international community allows Cambodia to receive a substantial amount of international assistance for the rehabilitation and development of the country. However, to achieve sustainable development it is important to encourage the maximum inflow in private investments. An increase in private investment would allow us to reduce the reliance on ODA for a survival strategy and use this assistance to fuel economic growth. It is my confidence that Cambodia will be able to achieve this objective.
Private investment will not only increase budget revenue, but also reduce the gap between the rich and the poor, once these investments are brought under the legal framework. A private investment will not only bring profit to investors, but also help the people to keep up dynamism through employment creation. The government collects revenue using the tax system, which is an important mechanism for income distribution. The revenue is used for common national cause, especially to increase public investment in physical and social infrastructure and public utilities, whose development in turn facilitate private investment. Therefore, if we fail to attract private investment we will not be able to create a dynamic and prosperous Cambodia, but also we will not be able to pull Cambodia from the shackles of poverty. Thus, we will have to rely forever on foreign aid.
Recognizing the crucial role of investment for progress and poverty reduction, I have made tremendous efforts to remove the impediments to investment in Cambodia. In this regard, allow me to elaborate on the following measures undertaken by the Royal Government to attract and facilitate private investments in Cambodia:
First, The RGC will continue to give top priority to ensure and promote social environment for peace, security and stability in all parts of the country.
Second, The RGC has developed and strengthened the legal and regulatory framework, conducive to private investment and business activities in Cambodia. To further improve and enhance investment climate in Cambodia, the Royal Government has recently adopted the amendment to the Law on Investment of the Kingdom of Cambodia. This was done in a transparent manner with intensive consultation with the private sector and the donor community in order to ensure that the interests of investors, the government and the people of Cambodia are protected. As part of this amendment I proposed that attention should be given to additional measures to facilitate investors by streamlining procedures and paperwork in applying for investment approval, imports and exports of goods and equipment within the framework of the investment project. The main objective is to simplify the paperwork, promote transparency and predictability of the approval, monitoring and implementation of investment projects. My colleagues in charge of investment will provide you with the details.
Third, I have initiated a mechanism for consultation between the government and the private sector. This is an open consultation forum chaired by me and is held once every six months to bring together both the government officials and the private sector to sort out together any problem and to take measures to facilitate and promote investment in Cambodia. In between 7 sectoral working groups were established to allow investors an avenue to raise their concerns and address the difficult issues through the promotion of sectoral discussion of technical aspects of each and every issue. Overall, the consultation mechanism between the government and the private sector proves to be efficient in facilitating and promoting investment in Cambodia.
Fourth, To ensure equal treatment regarding price competitiveness between domestic products and smuggled goods, I myself decided to establish an inter-agency cooperation to combat smuggling, detailing requirements and arrangements for the participation of the Royal Cambodian Armed Forces (RCAF), the Military Police, the Police and the local authorities at all levels to assist the Customs and Excise Department in preventing and cracking down on smuggling in Phnom Penh and in the provinces.
Fifth, The RGC recognizes that there is a significant correlation between sound institutions, especially effective legal and judicial systems and sustainable economic growth. Legal and judicial change is necessary to support the evolutionary process of social and economic change. Our efforts therefore are being concentrated on strengthening the legal framework to underpin the development of a vibrant economy – laws on property especially the Land Law, the creation and winding-up of business entities, contract and a fair marketplace, banking, tax, investment, corporate accounting and audit. In this spirit, the Council of Ministers has drafted a Joint Master Plan for Legal and Judicial Reforms, which will become our national agenda for reforms in the next few years.
Sixth, To facilitate investment the Royal Government has given priority to the development of physical infrastructure by increasing government budget and mobilizing external assistance to improve physical infrastructure, especially roads and bridges in strategic areas of the country, which constitutes the lifeblood of our economy. I name this campaign to build road and bridge infrastructure, the “Locomotive Strategy” for economic growth. In the near future Cambodia will have a sophisticated road network that helps to open up and link Cambodia’s economic and tourism opportunities within the country and between Cambodia and other countries in the region. With adequately developed physical infrastructure, such as roads and bridges, the transportation of goods and services will be facilitated, further facilitating your investment and releasing the potential of other economic factors.
Seventh, To achieve gradual reduction in electricity tariffs, the Royal Government has carried out a Strategic Plan for the Development of the Power Sector, which envisages step-by-step installation of a national power transmission grid and initiate negotiations to link Cambodia’s power transmission system with those of our neighbors. Moreover, the construction of the first Kirirom Hydro-Power Station under the “Build-Operate-Transfer (BOT)” contract will be finished and operationalized in the near future. The construction of such hydro power station is capable of supplying low-cost and reliable electricity. At the same time, the government is preparing for the implementation of the rural electrification project, beginning with the installation of a power transmission network in eight provinces.
Eighth, To prepare for Cambodia’s participation in various regional and sub-regional initiatives, such as the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), the ASEAN Industrial Cooperation Scheme (AICO), the Greater Mekong Sub-Region (GMS), as well as for accession to the World Trade Organization (WTO), the Royal Government has taken many measures to reform the investment and foreign trade regime by focusing on the liberalization and decentralization of decision making process, reducing the bureaucratic red tapes, removing impediments to investments in Cambodia, implementing reform programs and initiating the modernization of the national economy and upgrade its competitiveness to the regional and international standards.
Ninth, While efforts have been deployed to reform the domestic trade regime, Cambodia has ready access to various international markets, including those through the “Generalized System of Preferences (GSP)” and the “Most Favored Nation (MFN)” status with its major trading partners, including the European Union, the US, Japan, Canada and Australia.
Tenth, The Royal Government has given due attention to the protection and insurance of investment in Cambodia. In this sense, Cambodia signed the Agreement on Investment Protection and Promotion with a number of countries, including ASEAN members and other bilateral partners, such as China, Korea, Germany and Switzerland. We continue to work with many other bilateral and multilateral partners in this area. Cambodia has recently joined the Multilateral Investment Guarantee Agency (MIGA) of the World Bank, which provides the guarantee of political risks for investors. Furthermore, following strenuous efforts of the RGC, Cambodia was admitted to the International Center for Settlement of Investment Disputes (ICSID). I believe that in conjunction with the efforts mentioned earlier, these agreements will further improve the conditions and climate for your investments.
Cambodia has some important comparative advantages and is endowed with great potentials in agriculture, agro-industry, labor-intensive industry, processing industry, tourism and in some other production and services, due to its endowment in land area, soil, climate, natural resources, cheap labor, historical heritages and the beautiful scenery of its beaches, rivers, lakes and forests. These potentials are awaiting investment and sustainable development.
Taking into account these potentials and the need for building up a solid foundation for economic growth and for ensuring Cambodia’s long-term competitiveness the Royal Government has given priority to develop the following six sectors:
- Physical infrastructure, transport and telecommunications;
- Electrical power supply;
- Labor-intensive and export-oriented industries;
- Tourism industry; and
- Human resources development.
In this context, the Royal Government prepared a list of priority BOT and other form of projects related to physical and social infrastructure to be made available to investors for their participation, in particular in the following supporting sectors, such as road and bride, power and telecommunications.
In the near future, apart from developing the garment industry the RGC will give priority to the development of other labor-intensive industry, such as toy, foot-ware, assembly of electrical and electronics appliances for domestic and industrial use. The RGC will continue to attract technology and management transfer. In this sense, the RGC has set out policy to increase Cambodia’s international competitiveness by focusing on development and improvement in physical infrastructure to effectively respond to the increasing needs for basic services, such as low-cost water and power supply, financial, information and telecommunications services.
Overall, our industrial policy will be concentrated on seven main points:
First, continue to develop labor-intensive industry, such as garment, toy and foot-ware industries;
Second, promote the development of agribusiness by strengthening legal framework for longer-term land management. Moreover, the government will provide incentives to establish factories to process agricultural products, such as cotton, jute, sugar, palm oil, cashew nuts, rubber, cassava and fruits;
Third, develop industries based on the utilization of basic natural resources, mainly by processing the existing natural resources in the country such as fish, meat, cement production, brick and tile;
Fourth, promote small and medium enterprises (SMEs), micro-enterprises and handicraft. The critical issue for SMEs is to provide micro-finance, streamlining procedures, providing marketing services and supplying information on sectoral development;
Fifth, encourage the transfer of technology and diversification of export products by promoting the assembly of electrical appliances and electronics products for domestic and industrial use and improving product quality. It is necessary to establish a system of quality control of export products to meet international standards and enforce the intellectual property laws.
Sixth, establish industrial and export processing zones by developing infrastructure, improving service quality and encouraging investments. These zones can be established on the outskirt of Phnom Penh, Sihanoukville, Banteay Meanchey or Koh Kong. The RGC will take action to build road network, develop power and water supply, ensure waste management and environmental protection, provide education and vocational training, upgrade health services, establish warehouse and reduce customs procedures, etc.
Seventh, increase the production of goods for import substitution to some extent by encouraging the development of paper, chemical industries, such as the production of fertilizers, acid, as well as daily consumption goods such as soap, paint, electrical appliance, water pump and agricultural inputs etc.
Let me elaborate on the importance of the tourism sector. Cambodia’s geography provides a variety of rare natural attractions, which complement our unique cultural sites. These favorable conditions prompt the government to promote “cultural and natural tourism” development in Cambodia. These potentials will be crucial for Cambodia’s economic take-off. That is why the Royal Government has purportedly included tourism as one of the six priority sectors in our strategy to fuel economic growth and reduce poverty in Cambodia. The government’s open skies policy and other facilitation measures have already brought substantial benefits to the Cambodian people. It is my conviction that Cambodia’s open skies policy, coupled with measures to open road and waterway transport will further facilitate tourism inflows and further promote economic development in Cambodia in general and develop tourism in particular.
Based on this concept, the Royal Government has made tremendous efforts to rehabilitate and develop road and bridge infrastructure, airports, seaports and other physical facilities, such as water supply and power distribution systems, as well as telecommunications network, which form the foundation and play a key role in turning the above great potentials and comparative advantages into reality.
Apart from the efforts deployed to open up domestic tourist markets, we are conscious that there is a great potential to link up the ASEAN and GMS tourist markets. Liberalization of regional tourist markets by linking many countries into a single tourism destination would provide the economies of scales for the tourism sector and allow all participating countries to share the “win-win” situation. In this sense, Cambodia has been working so that we could reach a Framework Agreement on Tourism in the near future (T-ASEAN).
I have spent a lot of time briefing you on the policies, strategies and measures set out by the RGC to establish a favorable environment conducive to private investments. Cambodia is endowed with great potentials in many areas, which await investment. Cambodia needs financial resources to expand production and create employment. We are also in dire need for technology, knowledge and know-how to improve our capacity and productivity. These factors mentioned lately constitute the private sector’s strength. This is the cornerstone of the government’s policy, which regards the private sector as an engine of growth and its development partner. We clearly understand that in the world of globalization, capital and technology will flow into business and investment-friendly countries. As a government, we can guarantee to all investors a favorable environment conducive to investment, especially peace, security, political and macroeconomic stability, efficient legal and institutional framework, transparency, accountability and predictability.
As I mentioned earlier the Royal Government has goodwill and strong commitment to build up a foundation for genuine cooperation with the private sector, both domestic and foreign, with the view of improving the living standards of the Cambodian people, so that they are assured by improved welfare and live in harmony, become a master of their own destiny and Cambodia’s development. In this spirit, I invite all of you to joint us to address this challenges in a more proactive manner.
I would like to sincerely thank you all for your kind attention. My colleagues and I will be happy to answer to your questions and provide comments or make clarification on any issues that investors and business people are interested in…