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Employees produce garments at a factory in Phnom Penh last year. Yesterday, Hun Sen described how the garment industry had reached its highest potential for growth and now the Kingdom should diversify into more complex manufacturing. Vireak Mai

Gov't eyes industrial expansion

In search of Cambodia’s next economic growth driver, the government yesterday laid out the Cambodia Industrial Development Policy 2015-2025, which aims to expand the Kingdom’s narrow industrial base beyond garments and rice.

The new policy, launched by Prime Minister Hun Sen at the Peace Palace in Phnom Penh, will look to beef up the gross domestic product share of the industrial sector to 30 per cent by 2025, from the 24.1 per cent recorded in 2013.

Additionally, it will increase agriculture processing in Cambodia and aims to formally register the small and medium enterprises sector, while addressing high electricity costs and logistical and skilled labour shortages.

“The key drivers of economic growth, such as rice, garment and tourism sector, have reached their highest potential of growth,” Hun Sen said.

“Therefore, we have to further diversify the current economic frontiers into other areas and also to explore new drivers of economic growth.”

The new policy will see a restructure of the government’s investment approval body, the Council for Development of Cambodia (CDC), making it the central agency for implementation of the IDP.

“There might be a question why the task is given to CDC when the policy is about industry development?” questioned Sok Chenda Sophea, secretary general of the CDC.

“There is participation [in industrial development] from many ministries, apart from Ministry of Industry. This requires having another institution to work as a coordinator, and that is our institution.”

To achieve growth in more sophisticated industries, the policy aims to create an attractive environment for foreign investors, through reducing red tape, finding a balanced tax regime and improving infrastructure. But the specifics will likely play out through ministerial action plans and the passage of key laws.

The CDC currently is in the process of drafting the Law on Special Economic Zones, which is 70 per cent complete, as well as a new Law on Investment that will be submitted to the Council of Ministers for approval by October's end, a presentation from the CDC detailed yesterday.

The restructured body will have the additional mandate of fulfilling four key tasks by 2018: reducing electricity tariffs, developing a plan for transportation and logistics, strengthening labor and skills training, and developing Sihanoukville to become a multi-purpose special economic zone.

Further implementation will be facilitated by individual line ministries submitting action plans, which will then be used to create a joint master plan.

“From now on, by giving the new mandate, CDC will have a role to participate in raising new policy or request changes to existing policies,” Chenda said.

Another key aspect of the policy is formalisation of the small- and medium-size enterprises [SMEs], with an aim to “officially register 80 to 95 per cent of SMEs, out of which 50 to 70 per cent will have accurate accounts and balance sheets”.

Currently, the report states, 97 per cent of firms are micro-sized, but only employ 30 per cent of the workforce and account for 12 per cent of sales.

In contrast, large enterprises comprise only 0.6 per cent of all businesses, accounting for 63 per cent of employment and 76 per cent of sales.

Given Cambodia’s “robust agriculture sector”, Bretton Sciaroni, senior partner at Sciaroni & Associates, said it was important to use the policy to invest in food processing, in order to keep “the value at home”.

“We also got to get the price of electricity down to get manufacturing to come here,” he added.

He said that the two new laws being drafted – Investment and SEZ law – were needed to attract investors to the country and take advantage of the available economic climate.

While drafting its first industrial policy was commendable, David Van, managing director of business advisory firm Bower Group Asia, said implementation was critical, given the government’s experience with the 2010 Rice Policy, which lacked accountability and consistent enforcement.

“The implementation was very chaotic and inconsistent till today, as many key stakeholders were not accountable in terms of performance and timeline and dragged their feet to deliver their part in the recommendations made in the policy,” he said.

He added that the key issue was to create a “fine-tuned strategic vision” that would facilitate an appropriate investment strategy.

“Cambodia’s FDI strategy seems to continue to be based on costs and competing on low price, without setting any sight of moving beyond,” Van said.

“The real truth and paradox is that we think Cambodia is a low cost country, which we are not. We are a high cost with low productivity in a dollarised economy as a factual reality.”

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heantl@hotmail.com's picture

Most important is to use local currency cambodia riel to become competitive. Agriculture output need to diversify, increase and modernise to bring cost of living low. Cash crops need to be introduce. Workers pay cannot be too high to encourage investment. Timber industry need to reforest and start waste to energy industry. Then hope to get more foreign investment.

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