Excellencies, Ladies and Gentlemen,
It is a great honor and pleasure for me to be here with you again at the fifth Government-Private Sector Forum, held as scheduled. I wish to take this opportunity to make an overall assessment, take stock of the general developments in Cambodia, evaluate the efficiency of the government-private sector form mechanism in order to draw experience and improve our future performance.
Overall, during the last six months Cambodia has consolidated the foundation in all sectors with the view to ensuring economic take-off and achieving sustainable economic development. Economic developments in 2001 were generally favorable, but growth declined in the fourth quarter, owing to the deterioration in the world economic environment. Garment and tourism industries have become strong pillars of the Cambodian economy, despite the tragic events of September 11, which have had negative impacts on the short-term economic outlook in Cambodia. After the RGC making considerable efforts, real GDP growth for 2001 is estimated at 5.3 percent compared to 6 percent previously projected, and inflation was 0 percent, the exchange rate was broadly stable and the international reserves continued to grow.
Fiscal performance in 2001 has broadly been good, with improved revenue mobilization and expenditure restraint to make room for financing the commune elections and to reach the targeted fiscal balance. Compared with the economic developments during the 1993 and the 1998 elections, during the time of conducting the 2002 elections we have maintained macroeconomic stability, reflecting the conduct of stringent monetary and fiscal policies and the confidence of the public and investors in the Royal Government of Cambodia (RGC). The commune elections that we have conducted recently will not only represent a forward step for democracy, but also promote further political stability and security in the country, which is vital for the private sector and the country’s march toward sustainable development.
While this performance for 2001 is encouraging for us, we also notice the continued downfall in new investment approval by the Council for the Development of Cambodia (CDC). Indeed, the decline in new investment approvals can be observed throughout Southeast Asia, which has experienced this outflow of funds since the Asian financial crisis in 1997. However, it is worrisome for all of us. In this context, the Royal Government believes that a number of measures taken since the fourth forum, coupled with the deepening of systematic reforms including the enactment of laws and regulations related to trade, business, the amendment to the Law on Investment (LOI), the adjustment made to make the Law on Taxation consistent with the LOI should improve the environment and make Cambodia more attractive for investment, trade and businesses. Taking this opportunity, on behalf of the RGC, I appreciate the constructive contribution of the private sector to draft the Law on Corporate Accounting and Audit, prepare the amendment of the Law on Investment of the Kingdom of Cambodia, which will enter into force in the near future. I believe that not many countries would allow the private sector to discuss with government’s bodies laws and regulations governing the rules of taxation and private sector activities like in Cambodia. In this sense, I wish to reconfirm our commitment and strong will to cooperate further with the private sector in order to strengthen our partnership and establish favorable environment conducive to investments in the Kingdom of Cambodia.
As reflected in the report presented by H.E. KEAT CHHON, Chairman of the Council for the Development of Cambodia, the RGC has strengthened the mechanism of the 7 working groups, which were established in January 2001 in order to effectively allay investors’ concerns and reduce their difficulty. I have learnt that some working groups did not meet on a regular basis, although some did like in the case of the Working Group on Legislation, Taxation, Governance and SMEs, since most of the issues related to legal and financial aspects. Indeed, it is time consuming to have such a working group mechanism. At the same time, I have noted that this mechanism allow us to adopt a number of measures aimed at facilitating trade and strengthening the environment conducive to investments. This mechanism allows us to exchange views and experience, ensure a transfer of knowledge by promoting communications and seeking joint solution to various issues.
Therefore, we can say that in 2001 we have achieved encouraging results, although some problems still persist. We should continue our detailed discussions today and in the future of the concerns expressed by the business community, regarding the overall environment conducive to private investment and business activities. This includes a legal and institutional framework, infrastructure (water, electricity, roads and telecommunications), human resources, efficient domestic and external markets and continued efforts to combat smuggling. Indeed, government’s systematic and systemic efforts are required to achieve these objectives.
As you are aware, to address the concerns expressed by investors and the business community regarding price competitiveness between domestic products and smuggled goods, I myself decided to establish an inter-agency cooperation to combat smuggling, detailing requirements and practical arrangements at both central and provincial levels among the Armed Forces, the Military Police, the Police and the local authorities to assist the Customs and Excise Department in preventing and cracking down on smuggling. I take this opportunity to issue this public notice to relevant government bodies and agencies to carry out effectively the order of the government No 2 dated 19 December 2001 on the Measures Aimed at Preventing and Cracking Down on Smuggling, as it does not only result in substantial loss of revenue, but also undermines investment and business climate in Cambodia. Indeed, at the same time we should recognize that the key to resolving this problem is to strengthen customs and tax administration, which is the government’s priority intervention over the medium term.
To achieve gradual reduction in electricity tariff, the Ministry of Industry, Mines and Energy (MIME) has carried out a Strategic Plan for the Development of the Power Sector, which envisages step-by-step installation of a national grid linking Cambodia’s power transmission system with those of our neighbors. Moreover, the construction of the Kirirom Hydro-Power Station under the BOT contract will be finished in July 2002. The construction of such hydro power station is capable of supplying low-cost and reliable electricity.
You might have noticed and seen the attention given by the RGC to the development of infrastructure and other tourism-related facilities by our the campaign launched last year to rehabilitate and improve physical infrastructure, especially roads and bridges in strategic areas of the country, which constitutes the lifeblood of our economy. As the Head of the Government, I have given high priority and special attention to this area of work by embarking on a campaign to build road and bridge infrastructure, which I call the “Locomotive Strategy” for economic growth. In 2001, I officiated on many occasions the groundbreaking ceremony for the rehabilitation and construction of roads and bridges.
By implementing this “Locomotive Strategy” 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 releasing the potential of the Cambodian people and our economy. Indeed, we need more resources in order to achieve this goal and Cambodia is fortunate to get generous assistance from international partners to supplement our meager budget resources. I hope that our private sector partners have clearly identified the enormous needs of Cambodia in this sector and get prepared for actively participating alongside with the government in this endeavor.
The RGC recognizes that there is a significant correlation between 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. The RGC is conscious that the market economy cannot be developed without adequate legal underpinnings. Our efforts therefore are being concentrated on putting in place basic elements of the legal framework to underpin the development of a vibrant market 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. Moreover, since it is necessary to create and ensure a favorable environment for private sector development, the RGC strives to create and enforce a transparent legal framework with clear rules of the game for eventual dispute resolution. In this sense, the Council for Legal and Judicial Reforms is drafting a Joint Master Plan for Legal and Judicial Reforms, which will become our national agenda for reforms in the near future. Indeed, a lot remain to be done and it requires close cooperation between the RGC, the Parliament, the courts and all our external partners, who always want to see Cambodia’s judicial system independent, impartial and professional.
I wish to take this important occasion to brief you on the main direction of the government’s economic and industrial policies. On 26 February 2002 I delivered an address to the closing ceremony of the annual conference organized by the Ministry of Industry, Mines and Energy to review the achievements in 2001 and consider the corporate plan for 2002 and 2003. This address set a direction of the government’s industrial policy. In the 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 simple 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 water and power supply, low-cost 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 industry;
Second, promote the development of agribusiness by strengthening legal framework for longer-term land management and providing 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 by using technology and sustainable sources of energy;
Fourth, promote SMEs, micro-enterprises and handicraft by providing micro-finance, streamlining procedures, providing marketing services, training on production techniques, management 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, streamlining procedures and encouraging investments. These zones can be established in 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.
I understand that it is time to give you the floor so that you can air in a frank and candid manner your grievances, concerns and suggestions. I encourage all my colleagues in the government present here and the representatives of the private sector to continue our good tradition of close partnership and to discuss in an open and candid manner all issues and challenges, and explore ways to establish favorable conditions to attract investments to Cambodia.
My colleagues and I will be happy to answer to your questions and provide comments on any issues that have been your concerns or that you consider as impediments to doing business or undertaking investments in Cambodia. I would like to sincerely thank you all for your kind attention.
