Samdech, Your Royal Highnesses,
Your Excellencies, Ladies and Gentlemen,
Today I have great pleasure and honor to join you all once again, Samdech, Your Royal Highnesses, Your Excellencies, Ladies and Gentlemen, the Members of the Royal Government and the Representatives of private sector as well as all the distinguished national and international guests, at this government-private sector forum.
As in previous meetings, I would like to declare today forum an open plenary cabinet meeting for us all, the government and private sector, to work together in solving the outstanding issues with the aim to improve investment climate conducive to all the domestic or foreign business people and investors.
Please allow me, on behalf of Samdech Krom Preah Norodom Ranarith, my co-chairman of the CDC, to reiterate our commitment to improving investment climate and ensuring favorable environment for private sector, especially the enhancement of trade facilitation enabling private sector’s role as an engine of growth, which is a matter of “life-and-death” issue for Cambodia.
Thus, the objective of our today meeting is to conduct a joint review of tangible progress and improvement in private sector development, since the formation of the Royal Government of the 3rd legislature and specifically since the 7th government-private sector forum held on 20 August 2004. I am indeed not overly excited and complacent with the positive reports from the seven Government-Private Sector Working Groups and the report from the Steering Committee on Private Sector Development, given the fact that in this globalized world all countries are actively competing to attract foreign investments. This means that while Cambodia has made some progress in improving investment climate, the rest of the world is also proactive.
Therefore, Cambodia must show tremendous improvements in order to become attractive to investors. In this sense, all the comments and feedbacks by our private sector and development partners are very crucial for my colleagues in the government look at themselves while implementing the Rectangular Strategy of the Royal Government which I launched more than a year ago.
Before touching upon specific issues that we must address together, I would like first to share some views and comments with regard to Cambodia position in the regional and world economic and business community. According to the US-based Heritage Foundation, Cambodia is ranked 63 out of 156 in terms of the Index of Economic Freedom for 2005, which studies trade policy, fiscal burden, government intervention, monetary policy, flow of capital and investment, banking and finance, wages and prices, property rights and regulation.
As far as fiscal burden is concerned, Cambodia is ranked among countries with lowest fiscal burden in the region and the world. In general, this ranking reflects the achievements Cambodia has attained in the past decade, especially the steady improvement of the index of economic freedom which is measured within the scale from 5 (worst) to 1 (best). The score has dropped from 3.68 in 1997 to 2.90 in 2004, which means there were improvements.
As reflected in key macroeconomic indicators, Cambodia’s macroeconomic position in 2004 was stable with growth rate of 6%, regardless of negative external impacts of higher oil price, terrorism, SARS and droughts. This robust growth has been driven by expanding tourism sector, garment exports and construction activities. At the same time, prudent fiscal and monetary policies have also played an important role in maintaining macroeconomic stability.
The averaged inflation rate in 2004 was 3.9 percent, reflecting higher oil price and higher food prices especially higher rice price due to drought. Nevertheless, it is within the government’s target to keep inflation rate below 5 percent. The average exchange rate was 4,035 riels per dollar, with the Cambodian riel depreciating by 0.9 percent compared to the beginning of the year. In 2004, domestic revenue reached 10.9 percent of GDP, compared to 10.4 percent of GDP in 2003.
The development in international trade in 2004 shows that exports increased by 23.4 percent, in which garment exports increased by 24.6 percent. Imports also increased by 17.2 percent compared to last year. In 2004, approximately one million tourists visited Cambodia.
I would like to take this opportunity to indicate that, though there are concerns over Cambodia’s garment industry in the aftermath of the Multi-Fiber Agreement expiration at the end of 2004, the figures provided by CDC shows that 27 garment manufacturers are expanding their production base in the past 19 months, which is worth about 40 million US dollars in investments and creates 42.000 more jobs. Moreover, a study by the World Bank also reveals that garment orders from Cambodia have increased in 2005. All these reflect the competitiveness of Cambodia’s garment and textile, and confidence by companies operating in the country. In saying this, it does not mean we are complacent and forget to double our efforts to promote reforms in streamlining procedures and improving trade facilitation.
The Royal Government is conscious about this issue, and has set and promoted the implementation of specific measures, aimed at removing the constraints and barriers to economic growth, and adopting the institutional building measures to ensure Cambodia’s capacity and ability to compete with our neighbors in attracting investments. These include: (i) substantially reduce costs especially those informal ones, (ii) reduce policy related constraints to ensure effective transactions especially in facilitating trade and other business activities, (iii) rationalize role and responsibility of government institutions involved in import and export inspection by establishing one stop service checkpoints with flat fee, (iv) implement improvement program of customs and other concerned agencies at international border check-points especially the introduction of a single window arrangement, (v) reduce the barriers to market entry for new businesses such as unnecessary license requirement and high cost in registering businesses, (vi) implement development programs for SMEs, (vii) crackdown on smuggling, (viii) promote vocational and skill trainings.
I have already elaborated all these measures, especially during the 7th Government-Private Sector Forum and in the International Conference on Seizing the Global Opportunity: A Growth Strategy in an Era of Free Trade which was held in last February. Thus, it is an appropriate time now for us all to review our performance together. In general, the 7 joint working groups have been working hard and actively, and have achieved some encouraging outcomes. Individual groups have raised follow up actions as H.E. Keat Chhon, Vice Chairman of CDC, has reported to the forum. Moreover, shortly the co-chairmen of the 7 joint working groups will further report to the forum on the works we have implemented together, and on the strengths and weaknesses of our forum and process so that we can learn from experience and make improvements. Nevertheless, at this moment, allow me to take stock of the key decisions that the Royal Government has taken over the past 6 months, as follows:
First, Agriculture and Agro-industry: the Royal Government has promoted and encouraged investments for processing using domestic raw materials and inputs in order to diversify the economy, encourage farmers to grow industrial or cash crops such as ecliptic acacia through simplifying legal framework and facilitating transport from farm sites to factories and drafting sub-decree on economic concessions that will ensure effective land use.
Second, Tourism: the Royal Government has drafted a law on tourism management and implemented measures to strengthen the capacity of tourist police to provide security for tourists. The Royal Government has cooperated with private sector to establish a professional association in order to strengthen the quality of services, encourage the attraction of direct international flights to Seam Reap, and continue expanding and improving infrastructure, sanitation and healthcare for tourists. The Royal Government is preparing a master plan for tourism development and diversifying tourist destinations into other cities such as Sihanoukville.
Third, Manufacturing Sector and Small and Medium Enterprises: the government has drafted “the Small and Medium Enterprises Development Framework” to address all the problems and to meet the requests from the SMEs, as well as provide incentives to them through implementing reduced customs duties on imported raw materials. At the same time, the Royal Government is speeding up the adoption of Law on Factory Management, Law on Invention Patent and Law on Model Patent and is taking steps to create an industrial zone in Poipet, and to promote the creation of the wholesale market in a number of places in Cambodia. In this sense, the Royal Government will speed up the adoption of Law on Industrial Zones as soon as possible and to provide prerogative rights to investors to own land in the industrial zones.
Fourth, Law, Taxation, Good Governance, Investment Climate and Private Participation in Infrastructure: the Royal Government has discussed with private sector to draft the Law on Concession related to the Private Sector Participation in Infrastructure (PPI), the preparation of a sub-decree on the implementation of the Law on Investment, the preparation of sub-decree on the preparation and process of fiscal facilitation commission and the preparation of sub-decree on the Creation of Provincial Investment Sub-committees in all 24 provinces and municipalities and the reduction of custom duties on a number of products to promote domestic manufacturing. Recently, I launched a tough reform campaign in the legal and judicial sector, which I expect that it will help to regain and strengthen investors’ confidence as well as the confidence of Cambodian people from all walks of life in the judicial system in Cambodia.
Fifth, Financial and Banking: the Royal Government responded to the proposal from the private sector positively, reducing the solvency ratio from 20% to 15% and the liquidity ratio from 80% to 15%. We have conducted a consultation on the draft of Law on Money Laundering and Terrorism Financing.
Sixth, Energy and Infrastructure: we have finalized the draft Law on Inland Road and draft Law on Navigation, and are now promoting the rehabilitation and development of railways. The Royal Government is also in the negotiation with AZ Company to reduce the toll fee on National Road 4 by 5% to 10% of the proposed rate.
Seventh, Trade Facilitation and Processing Production for Export: the Royal Government has achieved a number of preliminary results and continued to streamline administrative procedures and reduce time and expenses by investors. In order to guarantee the effectiveness of this result, the Royal Government has closely cooperated with the World Bank to set up an information technology network to connect to a number of important agencies involving in managing trade and public finances to establish the implementation of Single Window mechanism for import-export by the end of this year.
At the same time, I have received the inspection report from the Ministry of National Assembly and Senate Relations and Inspection, conducted upon my advice during the 7th government-private sector forum. In response to this report, I would like to provide a number of practical recommendations as follows:
- all relevant ministries and agencies must set a transparent service fees and assign permanent representatives to the Council for Development of Cambodia in order to facilitate investors in processing forms and to reducing the unofficial fee as well as promoting the effectiveness of Single Window process;
- all relevant ministries and agencies have to create a Single Window in all cases related to investments in order to facilitate investors in applying for forms and to clearly determine a place and time for the returned forms;
- all relevant ministries and agencies have to impose discipline and take strict sanctions on those officials who solicit or impose unofficial fees on the private sector.
Overall, we can come up with the conclusion that we have reach a number of important achievements in 2004, even though many problems remain unsolved. Therefore, we should further discuss the details today on the concerns and worries of our business community, focusing on other cross-cutting factors that impact on the general climate for private investment and business such as legal and institutional frameworks, and infrastructure (including water, electricity, road and telecommunications), human resources, domestic and foreign markets. Especially, we shall further exert our effort to reduce unofficial fees, streamline bureaucratic procedures, processing time and smuggling. All these works need our steady efforts and will become the government’s regular practice to work for better and favorable environment.
We have also witnessed that all works that I have indicated above require thorough discussions, consultations and constructive participation from all development partners. Therefore, I would like to appeal to each member of the working groups, government and private sector, Cambodian and foreigners, to actively participate in this consultation. I hope that every discussion will be conducted in a positive and constructive manner and with mutual
understanding. As I mentioned in the 7th forum, if the work cannot be solved by the working groups, all of you are welcomed to see me in person in a restricted meeting.
I would like to take this opportunity to appeal to all domestic and foreign businessmen to actively participate in strengthening corporate governance while the government is promoting reforms to enhance public governance.
I think that it is time for me to handover this forum to you all to provide comments. I would encourage all of you to express your worries, proposals and recommendations in a frank and constructive manner, while ensuring mutual understanding. I would like also to encourage my colleagues in the government, who are present here, and the representatives from private sector to continue the close partnership in an effort to find a joint solution that enables the creation of a favorable climate to ensure profitable business and attract a lot of investments to Cambodia. We do not want to pin point or blame each other for the mistakes or the problems. However, we should consider the Cambodian problems as our own problems. Problems in Cambodia are not solely attributable to the government. These problems are our common problems, including for those of the private sector who are our economic driving force and “good citizen” companies. These problems can be solved if we determine to work together, by jointly seeking for ways and means, and together implement them with honesty for the benefits of people of this generation and our children and grandchildren in the next generations to come.
I don’t want to take much more of your time and I would like to turn this forum to the Master of ceremony for proceeding with the next item of the agenda.