Cambodia must become more competitive in attracting Foreign Direct Investment (FDI)

if it wants to avoid turning into an economic wasteland, participants at a UN conference

in Phnom Penh were told. The country needed to realize that the 49 least developed

countries were those that could not attract foreign direct investment.

"As we seek to carve out an economic niche for Cambodia in ASEAN, we must compete

with regional economies that have better and less expensive infrastructure, work

forces and, in some cases, natural resources. In order to attract FDI, we must maintain

our investment incentives," said Bretton G Sciaroni, chairman of the American

Cambodian Business Council and vice-chairman of the International Business Club.

The conference was held October 19 to disseminate the "World Investment Report

2001: Promoting Linkages". Participants were told FDI is an essential link between

national economies and would make local businesses more competitive. It would also

reduce dependence on donor countries.

The report, issued by the UN Conference on Trade and Development (UNCTAD) in September,

was discussed by the Ministry of Commerce (MoC), the United Nations Development Program

and the private sector to draw lessons for Cambodia's economic growth. The report

maps FDI inflows and outflows across the world and measures their impact.

Sciaroni also referred to government's proposed review of investment law and said

any attempt to reduce or eliminate incentives for the private sector could hurt FDI.

"One important component of attracting FDI to Cambodia is the possibility of

investment incentives. Without these we will be at a serious disadvantage compared

to our regional competitors," he said.

Sok Siphana, secretary of state at the MoC, acknowledged FDI's significance for social

and economic upliftment, but said incentives alone were not enough. He agreed with

the report's stress on creating 'linkages' - upgrading the capacity of domestic suppliers

to produce value-added goods. He added that the capability of local firms was the

most important determinant of success.

"But a recent pilot project studying Cambodia's integration and competitiveness,

undertaken by international agencies, revealed that the bottleneck lies in supply

capacity rather than market access," Siphana said. The lack of linkages meant

the Kingdom's economy was losing out on the benefits foreign companies typically

brought to domestic suppliers.

Efficient linkages, however, would improve efficiency, productivity and market diversification.

Sourcing products locally would help the balance of payments and create a more vibrant

enterprise sector.

Dominique Ait Ouyahia-McAdams, UN resident coordinator, endorsed that and stressed

the importance of technology transfer and local research and development. Links between

universities and industry would help stimulate technological innovation and encourage

foreign and domestic enterprises to invest in worker training programs.

IMF team to check progress

A team of International Monetary Fund experts will arrive in Cambodia November

5 to assess progress in meeting conditions of its $81.6 million loan package.

Announcing this October 19, IMF country representative Mario de Zamaroczy, said the

special mission would conduct the fourth review as part of IMF's poverty reduction

program.

The IMF loan for 1999-2002 is disbursed in instalments, based on the country's progress

in meeting conditions like civil service reforms, demobilization and increasing government

revenue through a better tax regime. The previous review saw $10.8 million agreed.

The team will present its report to IMF headquarters after it leaves November 20.