Samdech, Your Royal Highnesses,
Your Excellencies, Ladies and Gentlemen,
Today I have the 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 the 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 to all the domestic or foreign business people, and investors.
Thus, the objective of our today meeting is to conduct a joint review of tangible progress and improvement in private sector development since the 8th government-private sector forum held on 14 March 2005, and to evaluate at what extent the issues to be will be addressed today have been so far solved. We will also consider new issues that investors are facing.
Before touching upon specific issues that we must address together, I would like to share some views and comments with regard to Cambodia position in the regional and world economic and business community.
As reflected in the key macroeconomic indicators and the forecasts for the year 2005, Cambodia’s macroeconomic situation is stable with a growth rate of 6.3%, regardless of the negative external impacts of higher oil price, and terrorism. In this robust growth, the tourism sector, garment exports and construction activities still play an important role in improving the higher growth of 2005.
This growth will be achieved thanks to the growth of the agriculture sector of 2.4% in which rice production will increase by 3.3% after the drop down of 13% in the year 2004. The industry sector will increase by 10.7% due to a garment manufacturing export increase of 13%, the construction sector by 13%, the service sector by 4.5% due to the increase of the hotel services of 15%, and the number of tourists visiting Cambodia will increase by 30-35%. Actually, the numbers of tourists in the first 8 months of the year 2005 have increased by 36.43% compared to the same period of 2004.
On the other hand, thanks to the concerted efforts of the government, of the development partners, and of the communities in expending and strengthening the irrigation networks, our farmers are able undertake their tasks normally.
Indeed, we have noticed that the increase of oil price on the international market has put pressure on the goods and main services prices in Cambodia which have increased as well. Oil prices have increased by 84% from US$ 33.7/gallon in early January 2005 to US$ 62/gallon in early October 2005. In the mean time, the Royal Government has supported indirectly by limiting the tax base at only US$ 320/ton while the price on the market has reached US$ 500/ton. The increase of the oil price has had negative impacts on the economic growth, the inflation and the exchange rate. According to our forecasts the average inflation rate in 2005 will be around 5%. From the beginning of the year to October, the exchange rate has increased from 4,035 Riels/USD to 4,230 Riels/USD. The Riels value has dropped down about 4.8% during that period. The Royal Government has strived to maintain the macroeconomic stability.
Revenue collections are expected to reach 11.3% of the GDP. In the first semester of year 2005, due to the governance and reform measures, revenues have increased, especially, the tax department and the customs and excise department have collected 1,044 million riels or the equivalent of 60% of the amount budgeted in the 2005 financial management law. The tax revenues have increased by 28% compared to the first semester of 2004 which amount to 812 million riels. The customs and excises department has endeavored to implement the measures to curb illegal activities by cracking down 406 cases of large smuggling and other 1,025 smaller cases. Thus, in comparison to the first semester of 2004, there is an increase of 70% of such interventions.
It is clear that the increase of revenues reflects the result of the reforms of the public finance management, which will enable the smooth implementation of the 2005 budget. Moreover, through those reforms we have been able to reduce our debts queuing at the National Treasury, at a lower level as compared to last year, and have increased expenditures on priority projects of the Royal Government, in particular on irrigation projects.
As I have raised in the 8th Government-Private Sector Forum the major Cambodian issue is the strengthening of good governance and institutional capacity in the development management. I wish to inform the private sector representativesand development partners attending this forum on the results of the implementation of my recommendations in the 8th forum:
First, Improvement of Trade Facilitation and Investment: following the recommendations of the 8th forum, the Ministry of Economy and Finance has issued the prakas number 298 dated 17 June 2005 on the implementation of VAT for supporting industry or subcontractors who are supplying goods or services for garment export, textile, and shoes industries.
As provided in that prakas, for supporting industry, the duty on inputs for the calculation of VAT on the import of production inputs and equipments used for the direct supplies to the garments, the textile and the shoes industries should be born by the government. The VAT on products and services used for export is at the 0% rate.
As for the entreprises under the real regime of taxation, supplying directly 80% of its production or services to exporters of the garments, textiles and shoes industries, the VAT on their production outputs is at 0% rate.
Second, Promoting of Market Infrastructures and Deregulation:
During the first semester of 2005, in the framework of the steering committee for private sector development, the Ministry of Economy and Finance, the Ministry of Commerce, the Ministry of Industry, the Ministry of Tourism, the Ministry of Public Works and transportation, have cooperated with other ministries and institutions for the consultations with the private sector, in order to discuss important draft of laws and regulations. Some of those drafts have been adopted by the Council of Ministers while others will be submitted soon
First, the draft of the concession law: this law will set up the framework for private participation in the provision of infrastructures.
Second, the sub-decree on the establishment of provincial-municipal sub-committee on investment, the sub-decree on the implementation of the law on the amendment to the investment law.
Third, the SME development framework.
Fourth, the sub-decree on the establishment and management of special Economic zone.
Fifth, the establishment of a joint customs and Camcontrol office for the inspection of documents and goods, and the production of a joint report on the nature of exported garments products, this will streamline the administrative procedures for import and export as compared to previous practices. Moreover, the Royal Government will continue to emphasize on trade facilitation through the establishment of the single window whereby the Customs and Excise Department will fulfill its tasks accordingly the Kyoto Convention.
In order to support to the development of financial market infrastructure, the Ministry of Economy and Finance is implementing efficiently and smoothly related regulations, including:
- Accounting standard and International auditing
- Sub-decree on the establishment of the national accounting council whose function is to control the standard and regulations of the accounting profession.
- Sub-decree on the establishment of the National Accountants and Auditors Institute aiming at promoting the profession of accountants and auditors, and at monitoring the compliance of practionners with the rules and the code of ethics. The Institute will also provide training to the next generation of accountants and auditors.
- Sub-Decree on the creation of the code of ethics to be implemented by the Cambodian Institute of accountants, and auditors.
Cambodia has also developed other key legal infrastructure to sustain the development of financial sector such as the “Law on Commercial Companies”. This Law can be implemented without further sub-decree. The Draft Law on Government Securities, the Draft Law on Issuance and Trading of Public Securities, and the Draft Law on Bankruptcy will be soon submitted to the Cabinet, the Draft Law on the Secured Transactions has been already adopted by the Cabinet. Meanwhile, the Ministry of Economy and Finance and the National Bank of Cambodia are preparing the Draft Law on Leasing.
3. Institutions Building and Strengthening of the Banking Sector
To sustain the well-being of the entire banking system, the National Bank of Cambodia has strengthened its monitoring capacity through the issuance of new regulations aiming at more transparency, by creating the unified charts of accounts and by preparing the Draft Law on Anti Money Laundering. In order to improve its operations and management, the National Bank of Cambodia has modernized the Central Bank by introducing information technologies. Such move has improved the confidence of the public vis a vis the banking system. In this regard, in 2004 the foreign currencies deposits have increased by 34% as compared to those of 2003. Similarly, in the first semester of 2005, those deposits have increased by 10% as compared to those of the first semester of 2004. The indicator of velocity of the Riel is at 4.3, decreasing from previous years, due to the larger amount of national currency injected in the banking system reflecting the good condition of the economy.
As H.E Keat Chhon, senior Minister, Minister of Economy and Finance and First Vice Chairmen of the CDC has just reported to the Forum, the Royal Government has strengthened the 7 Sectoral Working Groups and the 3 Sub-Steering Committees mechanism thus providing investors the opportunities to raise their concerns and issues. I have noted that this mechanism allows us to endorse some measures to facilitate trade and improve the investment climate. It also allows us to exchange experiences and realize the transfer of knowledge through this dialogue.
However, we have to acknowledge that we are living in difficult circumstances full of challenges. The regional and global landscapes have changed significantly since the Asian Financial Crisis. The changes of the economic situation in East Asia, the growing uncertainty caused by terrorism, troubles, wars, diseases and natural disasters around the world, and the ending of the Quota system under the Multi Fiber Agreement and the recent increase of oil price represent the new challenges for Cambodia. In this context, to reduce the negative impacts of the instability and the oil price increase’s threats, the Royal Government endeavors to diversify the production and supply of energy by promoting investment projects in hydropower in Kam Chay and in other regions of Cambodia. Moreover, despite the achievement of a remarkable economic growth, the base of this growth being relatively narrow, makes Cambodia’s economy vulnerable to the adverse external factors. On the other hand, although Cambodia’s trade regime is very liberal by the regional standard, Cambodia has the obligation to continue implementing other reforms in order to get the benefit and to bring prosperity to its people.
In that context, we acknowledge that the sustainable economic growth of Cambodia in the future must rest primarily on the capacity of the Royal Government to strengthen its economy and expand the base of its growth. The challenges for Cambodia in the future is to improve governance in order to attract more private investments and insure the competitiveness of enterprises in Cambodia in order to benefit from our potential in agriculture, agro-industry, labor intensive industry, processing industry, tourism, manufacturing, and other services.
I would like to take this opportunity to sincerely thank the Government of Japan for sending experts, in recent months, to study and push for the creation of the Special Economic Zone in SihanoukVille. We strongly believe that the mechanism which will be implemented in those Special Economic Zones will help streamlining the administrative procedures and reduce considerably the inspection activities, as would wish investors. I would like to inform the Forum that the Royal Government has approved the request of the Societe Concessionaire de l’Aeroport (S.C.A) to expand its activities in Cambodia by investing in SihanoukVille. With this new airport, we will be able to diversify our tourism products by implementing our triangular tourism strategy based on the connexion of the 3 main poles of Cambodia ie Siem reap, Phnom Penh and ShihanoukVille. It must also be noted that during the past year, we have received applications for mining activities and cement plants.
All in all, we note that all the tasks that I have pointed out above require a Participatory Approach, promoting discussions, consultations and dialogues between all partners. Therefore, I would like to appeal to all the members of the Working Groups from the Government side as well as from the private sector side, foreigners as well as Cambodians to actively involve in such dialogues.
I think it is now time for me to give the floor to the co-chairmen of the Working Groups from the private sector to frankly and constructively speak and raise concerns, requests and make recommendations. We have first to identify the problems in order to understand and solve them. These problems can be solved if we determine to work together, by jointly seeking for ways and means, for the benefits of our people and for the future generation.
Thank you for your attention.