AEC in the context of rapid industrialisation

This year, Cambodia joins other Southeast Asian nations to form the region’s first single market, the ASEAN Economic Community (AEC) that has a combined GDP of 2.4 trillion USD, intra-regional trade of 600 billion USD and home to 625 million people, including a rapidly growing middle-class of consumers. In practise, this will entail a strategy to achieve five fundamental regional economic freedoms: enabling the free flow of goods, services, investments, capital and labour. The AEC comes at a crucial juncture in Cambodia’s economic development. Over the past two decades, the economy has rapidly industrialised; the industrial sector accounted for 26 per cent of GDP in 2013. Sustainable growth of the sector is increasingly important for the overall health of the economy and a key aspect of the government’s strategy to keep long-term GDP growth high. This year, the government launches its new Industrial Development Policy, which provides the regulatory tools to power the next stage of the economy’s industrial development.

The AEC presents tremendous opportunities for Cambodia’s industrial sector. Cambodian businesses – both big and small – will gain preferential access to a large and growing ASEAN market, benefit from increased intra-ASEAN investment, integrate into regional production networks and move up the value-added chain, which provides good opportunities for up and down linkages and stimulate a diverse array of secondary industries. The government needs to encourage SMEs to engage in secondary industries that link with the production needs of large, high-tech, multinational businesses. The presence of ever-more multinational companies in Cambodia would necessitate the proliferation of a variety of secondary industries. This would catalyse a cyclical process or industrial development and stimulate increases in technology and productivity that would drive the country’s industrial sector up the value-added chain.

For opportunities to become realities, government must play a facilitator role to the private sector. Policy makers should provide the regulatory and institutional environment to enable Cambodian business to increase their productivity, diversify their production base and, in doing so, thrive in the AEC. For SMEs to fulfil the role as drivers of diversification, they must be supported by government and provided with information about prevailing market conditions and how best to respond to them. In addition, government must develop mechanisms to monitor the performance of SMEs and address the sector’s structural deficiencies with targeted policies.

Diversifying industry requires diversifying the skills of Cambodia’s labour force. Government must address the current skills miss-match and ensure that the country’s education system provides the skills required by the private sector to diversify industrial output. This will require mobilising public and private sector resources to scale-up Technical and Vocational Education and Training (TVET) institutes. More broadly, it is important that the needs of the private sector are represented throughout the curricula. This process starts with greater numeracy at primary level, to the provision of high-quality technical courses, such as engineering degrees, at higher education institutions.

Closing the gap between policy and practice

Despite the fact that there are already trade and investment frameworks in place through which Cambodian companies can gain preferential to access ASEAN and Asian-wide markets, these formal channels are underutilised by the private sector because of constraints on flows of information. Currently there is no dedicated institution to bridge the knowledge-gap between AEC policy frameworks and Cambodia’s business practice. To close the gap, government must provide companies with practical information pertaining to the benefits and procedures of conducting transactions through AEC frameworks.

Increasing awareness of the government’s industrial policy is also important if Cambodia’s industrial strategy is to synergise with AEC integration. It is crucial that government utilises effective platforms to communicate how new industrial policies will affect the private sector in practice, and listen to the concerns of businesses. Such platforms may include the internet and social media. Government must extend this service orientated approach to all sections of the private sector – from big business to SMEs – and provide platforms to access all levels of government. Effective engagement between the government and the private sector will foster a symbiotic relationship, where polices demanded by business are mainstreamed into industrial development strategies.

Positioning Cambodia as a global business destination

If Cambodia’s private sector is to embrace industrial development policy, modernise and excel in the AEC, there must be a paradigm shift in business practice. Government must encourage business that is conducted according to global norms and standards, and not through informal networks and payments of ‘unofficial’ fees. It is only when business has made this transition that Cambodian companies will succeed on the global stage and the country will become a global business hub.

An emerging generation of entrepreneurs are increasingly utilising ‘global standard’ business technologies and management techniques. This group has the potential to invigorate the private sector and bring Cambodian business into the global era. The government must develop mechanisms to ensure that the voices of this nascent business community are well represented in industrial policy.

From a business perspective, promoting the Cambodia brand is important for the country’s international reputation with both consumers and potential investors. The Cambodia brand must be synonymous with products and services of global standard quality.

Policy makers have a crucial role in strengthening the currency attached to the Cambodia brand by enforcing quality standards. A good example of effective government support of the private sector in this way is the resurrection of the Kampot Pepper brand, which was once a global- marker of quality pepper. Recently, in a bid to reinvigorate the brand, the Ministry of Commerce has begun certifying Kampot Pepper that meets its quality criteria. After decades in the wilderness, quality-assured Kampot Pepper is in the process of reclaiming its position as a global premium brand.

The most pressing constraint to Cambodia becoming an international business destination is pervasive corruption. Cambodian companies must be induced by the law to conduct business in a transparent and fair manner with their foreign counterparts otherwise the country’s reputation will become tarnished among international investors. Cambodian businesses would also benefit from the robust, equitable and transparent application of laws pertaining to the protection of property rights and the resolution of disputes. Access to clear information on institutions and laws related to business and trade for foreign companies is also important in attracting foreign business. The Council for the Development of Cambodia (CDC) provides such information, and numerous chambers of commerce represent the interests of companies from around the world. The government must look into how these institutions can be better supported.

SPONSORED BY CDRI