Ladies and Gentlemen,
Today, I take great pleasure and honor in participating with Your Excellencies, Ladies and Gentlemen in this Sixth Government-Private Sector Forum. On behalf of the Royal Government of Cambodia, I wish to express my warm greetings to all of you who are here today.
Allow me to take this opportunity to make an overall assessment of the status of our economy and our performance in the management of development in Cambodia since our last forum and up till now. I wish also to comment on the effectivity of this Government-Private sector Forum as a mechanism to share experiences and collaboratively improve our performance.
Overall, during the last sixth months the Royal Government of Cambodia has exerted serious efforts to ensure our country’s take-off toward sustainable economic development. Recognizing the positive developments, the Executive Board of the International Monetary Fund completed on 22 July 2002 the fifth review of Cambodia’s economic performance under the Poverty Reduction and Growth Facility program (PRGF.) This review was encouraging and this achievement has enabled the immediate release of an additional US$ 11.2 million for the support of Cambodia’s balance of payments.The International Monetary Fund noted:
The Cambodian government has continued to make good progress in implementing its economic reform program. Inflation remains low and economic growth is being sustained despite a weaker external environment. Progress in the implementation of structural reforms has also been broadly satisfactory…
Thus, the IMF agrees with us that Cambodia has performed quite well during the first half of 2002. However, the IMF also noted that:
“… but reform efforts need to be strengthened in key areas, particularly revenue administration, public expenditure management, forestry policy and civil service reform.”
Therefore, while we have performed well during the first semester of this year, we should not relax. We should work even harder for accelerated development and the improvement of the welfare of our Cambodian people.We are ensuring that the Royal Government is well prepared for calamities, and is setting out measures to prevent such disasters from constraining our economic growth as well as the livelihood of the people. For example, Cambodia has experienced drought that could badly impact on the agricultural sector. As you know, agriculture contributes about 40 percent of our Gross Domestic Product (GDP), and the production of rice and other crops together contribute about 15 percent of GDP.
In order to achieve our economic growth targets, the Royal Government has been taking actions to reduce the impact of drought and flood. The Government has been mobilizing resources from domestic as well as offshore sources, donor countries as well as international finance institutions. We must stop any declines in rice and crop production while promoting growth in other sectors through further reforms. Together, all these measures are further accelerating the socio-economic development of Cambodia.
This year, Cambodia will host several very important international meetings and conferences. All these meetings will contribute to the improvement of the credibility of Cambodia in the region and in the international arena as a whole. This heightened profile and credibility will further promote the socio-economic development of Cambodia.You all know we hosted in June 2002 the meeting of the Consultative Group (CG) of Donors in Cambodia. This was a historic event since it was held for the first time in Cambodia. At this meeting, the donor community discussed and assessed the progress and setbacks in the performance of the government’s reform programs. Based on their assessment, they pledged a total of US$ 635 million in new assistance to Cambodia – exceeding the US$ 50 million pledged by NGOs.
This pledge far exceeds the government request for only US$ 486 million for the year 2002. It is an important encouragement for the government’s efforts in bringing peace and political stability, strengthening the foundations for democracy and respect for human rights in our society, and especially in promoting sustained economic growth and substantially reducing poverty. Indeed, the success of the CG signifies the approval and support of the international community for the appropriateness and success of the government’s reform policies and program.
In the next few months, Cambodia will be honored to host the summit of the Greater Mekong Subregion (GMS), the ASEAN Heads of State, the ASEAN + 3 and ASEAN + 1, and also the ASEAN-India Summit. In addition, we are preparing for other important events such as the ASEAN Cultural Week for 2002 and the ASEAN Tourism Forum in early 2003. Note that during the ASEAN tourism Forum, the ASEAN Framework Agreement of Tourism (T-ASEAN) is expected to be signed.All of these major meetings will certainly raise our profile in the international sphere and over time provide Cambodia with positive effects leading to further growth of the trade, investment and the tourism sector.
You all know that in recent years, the Royal Government has been quite successful in maintaining macroeconomic stability. We have maintained the annual average growth rate of 7% during the last three years, from 1991-2001. In fact, although Cambodia suffered some difficulties in 2002, we were still able to achieve our forecasted rate of growth of 5-5.5%! Furthermore, inflation rates of the last three subsequent years were close to zero and the exchange rate has remained firm.However, despite such stability in our macroeconomy, the Royal Government is very much worried to see only a slight increase in approvals of new investments by the Council for the Development of Cambodia (CDC). Investment approvals for the first half of 2002 increased by only 7 percent or US$ 60 million compared to the same period last year. While these investments will create jobs for more than twenty thousand Cambodians, still we want to see more employment.
In the second half of this year 2002, we expect to approve the proposed investment in Build-Operate-Transfer (BOT) contracts. These include the construction of Route 68, Route 10 and Route 72 for a total investment of US$ 42 million. Moreover, we expect to see investment of US$ 46 million in mobile phones by S Telecom Ltd.The key sources of our economic growth continue to be tourism and the garments industry. Thus the Royal Government has taken major steps to build and strengthen the foundations and prerequisites for the accelerated growth and competitiveness of the tourism and garment sectors. These include programs to rehabilitate and develop roads and bridges, airports, ports and related facilities such as water and power supplies and telecommunications. We need this entire infrastructure to transform Cambodia’s tremendous tourism and garments potentials and comparative advantages into economic reality, sustained through the medium and even long term.
Therefore, so far in 2002, there have been some improvements in investments compared to 2001. However, we are not satisfied even with such a positive result, since we believe we can and should do much better. Our philosophy is to make and enable private investment play a more pivotal role in spurring greater economic growth. With such a goal in mind, the Royal Government has focused on major policy actions to intensify legal and judicial reforms that will ensure an enabling environment for business and improve Cambodia’s competitiveness as an investment destination.Indeed, a basic thrust of our economic development policy is on reducing the costs of doing business and streaming the regulatory environment. With this conception, the Cambodian Government is also taking systematic actions to encourage and facilitate investment in the country. Certainly, we expect that the satisfactory amendment of the Law on Investment, with broad participation from all stakeholders specially from the private sector, should build greater confidence among investors and make Cambodia attractive for investment, trade and business.
I am pleased to report that after the extensive consultations, the Royal Government finalized the amendments to the Law on Investment in the middle of 2000. The amended version is now being reviewed and debated at the National Assembly.An important point of our conception in amending the Law on Investment is to facilitate investments by streamlining procedures and paperwork in the processing of investment applications and approvals. Streamlining will also cover imports and exports of goods and equipment covered under the framework of the investment project. The main objective is to simplify and reduce paperwork and promote transparency and predictability in the process of approval, monitoring and implementation of investment projects.In connection with the systematic approach of revising the Law on Investment, we have also arranged for the amendments of the Law on Taxation, which will be reviewed by the Cabinet soon. The same process of consultation with private sector and broad participation from stakeholders has been applied to the amendments of this law. I learned that, during the process, the private sector has raised some concerns. At this point, I assure you that the Cabinet will review the provisions of this Law very carefully, taking into account all the arguments raised.
The Cabinet is now working on the new Customs Code since it was submitted by the Ministry of Economy and Finance to the Council of Ministers on 31 July 2002. There is another important step forward which should be recognized, since it deals with another area of business-related legal reform – the Law on Corporate Accounting and Audit, which entered into force on 8 July 2002.Indeed, there is much that has been done, but admittedly much more work that needs to be done! But we must say that all the progress so far achieved reflects strong commitment and decisive efforts of the Royal Government in the legal and economic reforms necessary to build an enabling environment for investment and business in Cambodia.Furthermore, the Royal Government is actively implementing structural reforms aimed at improving and streamlining the procedures in investment approval and monitoring. As a result, we have now been succeeding in reducing the time required for review and approval of investment projects by the CDC Executive Committee to only seven working days.
Moreover, the approval of projects subject to the “one-stop-shop” mechanism is now a maximum of fourteen working days. It is encouraging that many positive changes have taken place. To this end, we will continue to work on a broad range of policies aimed at reducing transaction costs and removing impediments to effective competition.We are conscious that the introduction of tolls for route 4 and the container scan result are additional costs for business in Cambodia. However you must realize that the collection of tolls would improve our capacity to maintain the roads and thereby help keep transport costs low in the long run.
We should accept the reality that Cambodia would always request aid for road repair. In addition, we cannot leave our roads in damaged condition. Without repair, bad road leads to high transport costs, damage to vehicles, slow traffic and even more dangerous travel. In the end, poor maintenance will take us back to where we started 15 years ago. Let me ask you: which is better and more sensible – build the road, or buy a car? Just like the problem of the chicken or egg, when we have good roads then our car will last longer. But when the roads are poorly built, the service life of the road is much shorter. We should take into account economic efficiency, time and accident implications of road design and building. Under such circumstances, we are formulating mechanism to ensure sustainability. This is to ensure good roads and the shift in our approach from aid dependency to managing road maintenance by ourselves.
As for the CT scanner, if properly managed, it will help improve the efficiency and effectiveness of the Customs in performing their job with regard to goods and commodities control as well as the fights against illegal acts especially the tax evasion. The CT scan will also be an effective measure for risk management, which will help improve trade by greatly improving safety and risk-management measures against criminal acts.We should discuss these and related issues carefully to find a mutually satisfactory solution, particularly in the setting of a transparent and rational price setting formula. I ask the working group on Law, Taxation and Governance to discuss possible solutions with all the stakeholders as soon as possible.
There is another important, related matter that I want to inform all of you here today. We have found through careful review and consultation with many companies that the high transaction costs in Cambodia is mainly caused by illegal charges. According to the recently established Government Commission to oversee the matter, the illegal charges are collected at 27 different points in the Sihanoukville port, which involve some authorities, and dramatically increases transaction costs.Specifically, we found that for a tax-exempted 20-foot container, the illegal charges amount to US$ 113. For a 40-foot tax-exempt container the charges total US$ 130. For a container subjected to taxation, the illegal charges amount to US$ 138 for a 20-foot container and US$ 155 for a 40-foot container.
The situation of the collection of high and illegal charges cannot be allowed to continue. I have taken a personal interest in this matter and have given instructions to the heads of all the concerned authorities, especially the CamControl, the Customs, the CamSab, and the Immegration Police and the Port authorities to take immediate actions to wipe out such illegal practices. I request for further follow-up of the progress on this matter at the level of the working groups concerned.Over the past six months, the Royal Government has established and supported an inter-ministerial task force to fight against tax evasion. The task force, comprising of officials at central and provincial levels, the armed forces, the national military police, the police and local authorities, works closely with the Department of Customs and Excise in combating and cracking down on tax evasion activities. I think it is time to assess the progress and the performance of this measure! I welcome comments and recommendations by all of you regarding this matter.
Ensuring the availability of a skilled, flexible, and reliable workforce is another priority of the Royal Government. Reform of the education and training system is required to build such a labor force. Such reforms leading to improved quality of education are being pursued through the following key initiatives:
- increased focus on professional and language skills, especially in English language skills for students;
- greater utilization of information technology as a learning tool; and
Therefore, the Royal Government has strongly encouraged companies to give priority to the training of their employees. Companies are also encouraged to set up on-the-job training facilities so that they are assured of labor that meets their specific requirements. The Royal Government has also taken a liberal policy with regard to private sector training and education so that many private schools and institutes have emerged to respond to the demand for labor and the deep hunger among our people for skills for personal employability, growth and advancement.
Complementing these policies and programs in support of competitiveness is more intensive attention to the promotion of tourism opportunities. In this regard, we shall work closely with the private sector to develop tourist destinations. As you know, we have given much attention to the improvement of sanitation and health services in Siemreap, to ensure the sustainability and continuing beauty of the monuments and the City.
The Royal Government has also devoted more attention to the development of the tourism potentials of areas other than Siem Reap. We should promote attractions that enable greater tourist traffic in under-served areas, as well as longer stay and increased spending by tourists. Thus, the Royal Government encourages the development of access to eco-tourism destinations such as Mondulkiri and Ratanakiri, beach tourism in our sea access areas to the South, the upgrading of Kang Keng airport in Sihanoukville and the promotion of initiatives such as the night market. We should push for all of these initiatives as we prepare to serve as hosts for the ASEAN Tourism Forum in 2003.
Just last week, on 29 July 2002, the Royal Government launched the Second Socio-Economic Development Plan (SEDP-II) for 2001-2005. The overall thrust of poverty is the accelerated creation of employment, so that each and every Cambodian will have a dignified, human livelihood. Therefore, it is a key aspect of the industrial policy of the Royal Government to give priority to the development of other labor-intensive industries such as toy-making, footwear, and the assembly of electrical and electronic appliances.
Furthermore, the development of micro and small-scale enterprises is at the heart of our plan to promote industrial development. This strategy we will apply particularly in the areas at the outskirts of Phnom Penh, and in Sihanouksille, Banteay Meanchey, and Koh Kong. In these areas, the Royal Government will enable the provision of micro-finance and marketing services, streamline procedures, provide some training on production techniques, management and the liberal supply of crucial information.
Cambodia still has vast untapped and potentials in agriculture and livestock, particularly in high-value products and processed foods. We should all cooperate to develop these potentials in a sustainable manner. Our agricultural sector can provide jobs for so many of our labor force if we develop the rural sector in a rational and substantial manner. To achieve this momentum, the resolution of land issues and the establishment of roads and irrigation systems are the priorities of the Government in the next several years.
Moreover, the Royal Government will focus on the proposed industrial and export processing zones in order to attract private investment. In these zones, priority attention will be focused on completing the road network, systems for power and water supply, ensure waste management and environmental protection, provide education and vocational training, upgrade health services, the establishment of warehouse and reduction of customs procedures, and so forth.
Indeed, the improvement of Cambodia’s international competitiveness is crucially dependent on success in the upgrading of basic physical infrastructure – including water, power, telecommunications and information. However, we cannot supply all these public goods all at once and in all parts of the country as we are under tough budget constraint. We only have limited resources, and so we have to prioritize and carefully manage and allocate these resources for investment in those projects and areas with the highest economic reforms.
Therefore, the establishment of industrial corridors or centers concentrated in the key areas in the right solution for Cambodia. I strongly believe that the private sector – who is the potentially heaviest users of the entire system of infrastructure — is in a good position to share with the government their visions and recommendations, advice and guidance, in the management and allocation of these scarce public resources for investment in the common interest.
I am appreciative of the working group mechanism within which the Government and private sector communicates and cooperates. The working group has become a very effective mechanism for addressing the concerns of investors and in reducing the difficulties in the situations that they encounter in business. Of course, regular participation in the working group demands time and effort – an expensive proposition for all of you as executives.
However, let me assure you that your valuable time and efforts are not wasted, and the results achieved thus far confirm that it worth these efforts. This mechanism has brought the Government-private sector partnership to a new openness and mutual gain, which are all crucial for the development and poverty reduction in Cambodia. I greatly appreciate all of you who have participated in the regular meetings of the working groups to address the concerns of the private sector. I understand that some of the working groups are convened as frequently as once a month, such as the working group on Law, Taxation and Governance. Of course, between the meeting dates issues can be resolved through the secretariat.I have received regular reports from HE Keat Chhon who is coordinator of the seven working groups of this forum.
I support the proposal for transferring the “Distribution” component from working group “C” to working group “G,” and the component on small and medium-scale enterprises from working group “D” to working group “C.” Therefore, later on, working group “D” will be the working group on Law, Taxation and Governance, while working group “G” will be called the working group on Export Processing and Trade Facilitation.
I also welcome the establishment of a core group representing the private sector to discuss important issues with the Prime Minister during the period in between the forums, when those issues are of high priority requiring immediate solution, but could not be resolved at the working group level.At this point, I should give way so that all of you can also take the floor. I wish that you could all express, in a frank and candid but constructive manner, your concerns, suggestions and recommendations. I encourage all my colleagues in the government who are present here and the representatives of the private sector to continue our good tradition of close partnership and together explore ways to establish favorable conditions for profitable enterprise and to attract investments to Cambodia.
Finally, I encourage all of us to take a problem-solving attitude in our dialogue. We cannot just find fault nor blame one another for problems. We should see the problems of Cambodia as our own. The problems of Cambodia are not the problems of the Royal Government alone. The problems of Cambodia are OUR problems, you and I, and all of us together. These mutual problems can only be resolved if we work together on solutions which is the end will yield better lives for our children and for all of our people…