Keynote Address to the Phnom Penh Gathering “Seizing the Global Opportunity: Our Hope, Our Strategy, Our Actions”

Samdech, Your Royal Highnesses,
Excellencies, Distinguished Guests, Ladies and Gentlemen,

 

It is a pleasure for me to be here and a privilege to be speaking to this distinguished audience about a growth strategy for Cambodia in an Era of Free Trade. I would like to take this opportunity to express my profound gratitude to the World Bank, the European Union, UNDP, AusAID, the US-ASEAN Business Council, the Global Fairness Initiative and other organizations for sponsoring this conference. At the same time, I would like to congratulate once again to the winners of the 1^st Cambodia Corporate Citizenship Awards 2005. Since today marks the beginning of the Chinese New Year, allow me to extend to those of you with Chinese connections my best wishes for a prosperous and happy New Year. I appreciate very much the guests with Chinese descent who are attending today’s conference instead of enjoying family reunion at home.

This policy conference can become a useful mechanism for dialogue between business, trade unions, governments and international organizations and institutions on investments and trade related issues in the new era of free competition. I believe that we should focus more concretely on the policy issues Cambodia is facing.  To help frame this conversation, I would like to share with you our hope, our strategy and our actions to support our vision of a vibrant, profitable and responsible private sector.   Much of this draws upon our Rectangular Strategy for Growth, Employment, Equity and Efficiency. The core of which is good governance, and a large part of which involves private sector growth, so that they can play a meaningful role as driving force for growth.

 

I. Achievements which underpin opportunity, confidence and hope

During the last ten years Cambodia has gone through a sweeping change not only in political and security, but also in economic and social landscape. Probably some of you are not aware of the fact that more than two decades ago, after the fall of the Khmer Rouge regime, there were only 70 people living and working in Phnom Penh. Now more than one million Cambodians from all walks of life live in this city, once considered as the gem of South-east Asia during the 1960s, before the war broke out.

Peaceful settlement of the Cambodian problem has opened up a window of opportunities for social and economic development. Again Cambodia has become just 6 years ago an oasis of peace. The threat of Khmer Rouge eroded and disappeared following the “win-win” policy that I initiated in 1996-98, leading to the dismantling of their military and political organization.

The long-term political alliance between the CPP and FUNCIPEC represents the anchor of the peace for Cambodia. Our experience shows that peace can be achieved through perseverance, compromise,  accommodation and mutual understanding. The election of His Majesty Preah Bat Preah Boromneath Norodom Sihamoni as our King was another landmark in the Cambodian history for ensuring long-term stability for the Nation. Now we know and value the prevailing and improved security and political stability as Cambodia and Cambodians have come to enjoy and appreciate peace unknown for many decades. This allows the government to pursue bold reforms to liberalize and facilitate trade, strengthen free-market institutions and train human resources, open up the society and democratize our institutions.

The Overseas Development Assistance has provided the foundation for equitable social and economic development.Overall, the assistance of the international community to Cambodia these past 10 years has been very valuable and well spent. Official development assistance has reinforced ongoing national efforts to develop social, economic and physical infrastructures. It has strengthened Cambodia’s unceasing efforts to lift the country to a higher destiny, to a new plateau of sustainable development.

 

Trade has been the main source of economic growth in Cambodia. Normalization of relationship with the US and the EU countries resulted in the signing of trade agreements that has been widely hailed as a success, with Cambodia gaining jobs and investment along with better working conditions. Our factories here gained access to the U.S. market in exchange for submitting to inspections from the International Labor Organization (ILO). Garment exports increased exponentially from a US$20 million in 1996 to US$1.6 billion in 2004. Employment in garment and textile has been a major stabilizing force for the population and the economy in recent years, 280,000 skilled and semi-skilled, especially female workers.

Moreover, Cambodia has made sensational strides in integrating Cambodia into international community.  Cambodia’s membership in ASEAN and the WTO, as well as cooperation within the framework of the Greater Mekong Sub-Region (GMS), the Ayeyawade-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS) and other Triangular Developments at sub-regional level provide great opportunity 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, implementing reform programs and initiating the modernization of structure and management system of the national economy and upgrade its competitiveness to the regional and international standards.

Cambodia has achieved remarkable macroeconomic stability and poverty reduction. During the last five years, the Cambodian economy grew by 6.8 percent per year on average. Inflation was less than 3 percent, compared to 150 percent in 1993. Poverty was brought down from 49 percent in late 1980s to 36 percent in late 1990s. The exchange rate has been broadly stable. Domestic revenue collection increased from 6 to 11 percent of GDP, though remaining low by regional standards. The country’s international reserves have grown from nothing to a level that be able to cover 3 months of imports, reflecting strong export performance and sustained tourist arrivals. Thus, we can see clearly that Cambodia has open a new chapter of history and emerging into a new dawn of its future with a vibrant peace, ample national reconciliation,  strengthened democracy and human rights and dignity.

II. Challenges and Our Strategy

 

However, we are living in a tough and challenging time. The contours of the regional and world configuration have dramatically changed since the Asian financial crisis. The change of economic aspects in East Asia, the increasing uncertainty caused by terrorist acts across the globe, turmoil, wars, epidemic diseases and frequent natural calamities in the world, the expiration of the quota system under the Multi-Fiber Agreement (MFA), and the increase in oil prices pose a new challenge for Cambodia. Moreover, although we have achieved robust economic growth, the growth base is still narrow, which would make Cambodia’s economy vulnerable to external shocks. And the fruits of growth have not yet been distributed equitably to all social strata in the rural areas to meet the government’s aspirations. Although Cambodia’s trade regime is much more liberal than that of the region, Cambodia has committed to undertake many other reforms in order reap the benefits and maximize prosperity for the Nation.

Faced with this situation, we recognize that Cambodia’s future sustainable growth primarily depends on the Royal Government’s ability to broaden economic opportunities and growth base. In this sense, the challenge for Cambodia in the next ten years is the strengthening of good governance, so that we can attract more investment and ensure our competitiveness with neighboring countries in order to gain benefit from our potentials in agriculture, agro-industry, labor-intensive and processing industry, tourism, manufacturing and the services sectors. Based on this, the Royal Government in the third legislature of the National Assembly is committed to promote private sector development as a key sector in its political platform.

As you are already aware, due to our political history, our institutions were developed under specific circumstances to protect Cambodia from being abused by unscrupulous businesses who have sought to take advantage of our emerging institutions in the post-war period. These institutions took the form of multiple-layered control systems, which lack coordination among relevant agencies. This was relevant to the circumstances of that time. However, at present when the country’s exports have jumped to nearly US$2 billion, our vision for pro-poor trade strategy requires us to review the functions and structures of our institutions in response to new developments. Our objective is to encourage the private sector to export while introducing modern technology, streamlining procedures, and use risk management techniques to ensure inspections. Therefore, we have laid out some concrete measures as follows:

 

1. Trade facilitation, by:

 

1. Rationalizing Government’s agencies that impose high costs and delays on private sector, such as those units under the responsibility of the Ministry of Economy and Finance, particularly the Custom and Excise Department, and the Tax Department, the Ministry of Interior, particularly the Economic Police, the Ministry of Commerce especially CAMCONTROL, the Ministry of Public Works and Transport, the Ministry of Industry Mines and Energy, the Ministry of Health, the Ministry of Agriculture Forestry and Fishery as well as the Ministry of Social Affairs and Labor;
2. Reducing transaction costs on the import and export of goods while increasing Government’s revenue;
3. Reducing unnecessary and overlapping transaction costs in trade transactions;
4. Reducing time of import and export process;
5. Increasing predictability of time and costs of export and import process; and
6. Maintaining the compliance vis-à-vis the trade facilitation guiding principles of the World Trade Organization (WTO) and World Customs Organization (WCO).

The specific result we seek in this area is to (a) minimize paperwork required for exportation through a single administrative document, and operationalize the “single window” for export-import; (b) reduce the time required to process export-related forms to one day; and (c) reduce and eradicate unofficial costs.

 

2. Promotion of market infrastructure and deregulation, by:

1. Reducing time and costs imposed by different types of inspection;
2. Establishing an information system to facilitate firms to have access to bank credits and to help commercial banks evaluate investment proposals;
3. Institutionalizing the labor market through the development of a registry of required skill profile, training needs and availability of human resources for the private sector;
4. Improving infrastructure, expanding the coverage of electricity, telephone and communications network, water supply and sewerage system, increasing the efficiency of ports, reducing the costs of electricity, port handling, transportation and communications;
5. Discouraging monopolistic trading arrangement through the relaxation of licensing and inspection requirements;
6. Increasing the participation of firms in the formal economy by reducing the regulatory burden on firms including:

(a)    Lower the cost of commercial registration. We have therefore lowered this cost by US$400;

(b)    Eliminate unnecessary and multiple licenses. We have abolished the Economic Police permit. We have eliminated the Export License, since there is no longer required as the Multi-Fiber Agreement (MFA) expired. We have eliminated the need to issue Certificates of Origin (CO) before the shipment is cleared. We will now issue certificates of origin on a post-shipment basis in order to safe time.

(c)    Lower the minimum capital requirement for registration. We have therefore lowered from $5,000 to $1,000 dollars; and

(d)    Reform inspection regime. The Ministry of Industry, Mines and Energy’s role in inspections of individual consignments has been confined to a “post-shipment inspection” with less encumbrances to the exporters. We are actively conducting a possibility to review and streamline procedures and the needs for inspections.

(vii) Introducing a law governing all forms of private participation in infrastructure;

(viii) Revisiting the generous provisions on overtime, nightshifts, and holidays, while upholding the core labor standards with the view to make Cambodia’s garment industry competitive.

3. Enhancing market access and access to information, by:

1. Strengthening trade promotion and market information activities;
2. Developing a directory of enterprises, to be combined with the computerized registration system;
3. Developing website to promote local products;
4. Strengthening capacity of Customs and Excise Department to prevent smuggling;
5. Developing export promotion potential through the establishment of industrial zones for exporters.

 

4. Institution Building and the Enhanced Rule of Law includes the following measures:

 

1. Promoting legal and judicial reform to ensure contract enforcement and provide fair judgments of cases;
2. Adopting commercial code and establishing commercial court;
3. Establishing system of Arbitration and Mediation for settling trade disputes;
4. Facilitating business registration by using automated registration and establishing computer database for enterprise registration;
5. Promoting adoption of customs law and issuing sub-decree and regulations to ensure effective law enforcement;
6. Finalizing and adopting implementing regulations to the Amended Law on Investment of the Kingdom of Cambodia as soon as possible. In this regard, to decentralize decision-making on investment projects, the Royal Government decided to delegate to the provincial authorities to approve investment projects of up to US$2 million;
7. Reducing barrier access to market and promoting the level of playing field for competition;
8. Improving “tax regime” by increasing number of companies including more companies into the categories of medium- and large taxpayers and reforming “assessment regime of taxation”;
9. Encouraging establishment and empowerment of business association;
10. Rationalizing quality control institutions for goods by setting up a single body to inspect quality, measurement and technical standards;
11. Enhancing consultative government-private sector forum, aimed at ensuring transparency in decision-making;
12. Promoting development of leasing business.

 

5. Promoting Small and Medium Enterprises, by:

1. Encouraging the development of SMEs, especially through the provision of medium and long term finance;
2. Suppressing smuggling of all kinds;
3. Reducing registration procedures and start-up processes for companies;
4. Facilitating export-import activities by simplifying procedures such as licensing and other authorization,
5. Supporting some infant industries during an appropriate period;
6. Promoting linkages between SMEs and large enterprises;
7. Establishing a national center for productivity to assist SMEs, enhancing their productivity and reducing production costs;
8. Establishing a national standards institution to help ensure the quality of domestic products to meet regional and international standards;
9. Establishing national laboratories for physics, chemistry, micro-biology, mechanics and tests for quality and criteria of products;
10. Strengthening mechanisms for the protection of industrial intellectual property rights, to prevent illegal copying, re-creation and illegal use of new techniques and technology;
11. Promoting vocational/skills training, both domestic and overseas;
12. Promoting the “one village, one product” program; and
13. Strengthening the legal framework by creating laws related to: factories, industrial zones, patents and inventions, measurements and industrial safety etc.

III. Focusing on the effectiveness

 

Our Actions have been driven by our confidence in economic liberalization, multilateral trading system and sound government institutions to manage the reform process. We envision that public institutions should provide a regulatory framework to ensure fair competition, avoid monopoly and maintain equal treatment. We have collaborated with a number of donors to promote implementation of the above mentioned measures in order to attain concrete outcome as we expect. In this spirit, I urge private sector partner to actively work with the government counterparts to ensure effectiveness and consistency in the implementation of those measures in a new environment.

 

At the same time, we are also well aware that the above concrete measures can not be achieved as planned if there is no comprehensive reform programs in other key sectors, especially legal and judicial reform; public financial management and banking sector reform; land, natural resources and state property management reform; construction and maintenance of physical infrastructure, and more importantly institutional building.

 

Indeed, strong institutions depend ultimately on the people. We will, therefore, accompany this program of reform in tandem with public administration reform and other reform programs. This reform includes (a) the rationalization of civil service wages to attract and retain skilled staff; (b) strengthened civil administration to ensure that human resources are wisely deployed in high priority sectors; (c) promoting a performance-based civil service system, and the institutional reforms to move Cambodia to a new plateau of development. Our core philosophy in this sector is to move toward an effective, merit-based public service, which provides all kinds of incentive to officials.

IV. Corporate Citizenship

While the Royal Government is making every effort to promote institutional reform and improve public governance, business community  should also uphold their ethics and accountability. I would like to take this opportunity to appeal to all businessmen, both national and international, to strengthen their corporate governance. What we have achieved in the garment sector must be made standards for all of Cambodia.   We should strive to promote our reputation as an ethical producer in all sectors, not just textiles and apparel.  In addition, improving management standards, respect for laws, professional code of conducts and social morale is good social deed in itself and also good for business people and corporations, as international buyers and consumers increasingly demand more responsible behavior from the companies with whom they are dealing. That is why the Royal Government has initiated the annual Corporate Citizenship Awards.  We want to show the Cambodian public that good corporate behavior, good morale, labor standards, community citizenship, environmental stewardship and good governance, especially transparency and accountability can lead to better conditions for the whole society.

 

V. Our Hope

In recent decades, Cambodians have lived through many difficulties and some of the most profound challenges any nation has faced. Having overcome all these, our Hope is simple.  It is to give our people the opportunity to think about and take care of their own future by themselves.  For this reason, we have embarked on a wide rage of reforms. We know that every reform is an investment in our future and the future of our next generation. We hope that our young people will grow in a Cambodia that is known as a place where you can “do good” and “do well”; a place where good governance, corporate social responsibility and profitability go hand in hand.

We hope that Cambodia becomes known as a country that recognizes its problems and bravely took the needed concrete actions to solve them.  Our hope is that the private sector sees Cambodia, although young but dynamic and vibrant place that has a long and rich history with great energy and potentials, which embed in our natural resources, history, civilization, culture and our youth.

We are grateful for the help of the international community in these efforts, and we are committed to engagement in the weeks, months and years to come.  We look forward to working with all development partners including donor community, private sector, and civil society, as we together seize the global opportunity.

In conclusion, may I wish successful deliberations during the conference and wish you all to have a memorable stay in Cambodia.

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