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Interview with Prime Minister Samdech Hun Sen

Can Cambodia maintain economic growth and social development against the backdrop of the global economic recession?

The global recession has taken us by surprise, but it seems to be a good test of our economic fundamentals. Cambodia’s economy is running some risk of slowing down amid the current crisis and as part of the business cycle. Real GDP growth is expected to be around 6.5 per cent for 2009, a bit lower than the growth rate for 2008. Key sectors like garments, tourism, construction and agriculture have been affected. The garment sector has been threatened by the sharp drop in demand in the US and EU; tourist arrivals declined significantly during late-2008 and early 2009; the construction sector has been slow; and the price of Cambodia’s main agricultural products, such as rice and rubber, has also dropped. Whilst we cannot eliminate the impact entirely, we can, however, lessen the magnitude of the impact on our economic and social development.

What actions are you taking to lessen the impact?

We have put in place a response mechanism, adopting a two-pronged approach – short term and long term actions. The first response is through a policy mix, i.e. stimulus fiscal and accommodative monetary policies, which have been instrumental in maintaining macroeconomic stability, in particular in ensuring the soundness of the banking system.

The second order response involves addressing long term issues through improved competitiveness. In order to build resiliency against the current global economic downturn and to sustain economic growth, Cambodia needs to look at ways to improve its competitiveness in the regional and international arena through diversifying existing growth and stabilising burgeoning sectors. This requires Cambodia to explore new economic frontiers while nurturing existing and emerging sectors such as telecommunications and ICT (Information Communication Technology), light manufacturing, financial and securities market; and potential sectors such as alternative energy sources, oil exploration, mining; and processing technology to sustain productivity and competitiveness.

How do you envisage investment in Cambodia developing over the next 5 years?

Firstly, let me emphasise that the foundation of our economy remains strong, that will help us to overcome the negative impacts of this global financial and economic crisis. Much untapped potential remains and it is our real economy that is the target for investment while the global financial sector suffers.

We have worked hard to secure peace, political stability, security and social order, while maintaining macro-economic stability and international integration. The series of reforms that the government has undertaken is to improve the business climate and good governance. On behalf of the Royal Government of Cambodia, I can assure everyone of our commitment to ensure long term stability and improve the business climate. Cambodia is open equally to all investors, local and international. We welcome investments in all sectors, including banking, insurance, and telecommunications. Investors can own 100 per cent of their business here, in most countries 100 per cent foreign ownership is not allowed.

Our labour force also provides a competitive advantage in terms of salary and productivity. Cambodia’s low labour costs are very attractive to investors. Although minimum wage rates have increased over the past year, they still average out at only $45-$50 per month. Cambodia has a strong dynamic labour force in comparison to other countries within the region and that helps to encourage more investments.

The global financial crisis tends to impose more risks to all sectors of economy, and therefore investors are more interested in the real economy. The trend of economic growth in Cambodia is still high due to the fact that this country is in the development stage and therefore investors can see many opportunities to fulfil their business goals.

Which sectors offer the most potential to foreign investors?

I would say that any investments have strong potential in a developing country like Cambodia because of the country’s stability, market potential and growth.

Potential in agriculture is high. The sector contributes 31.8 per cent of GDP. Most of the population are farmers yet there are no large scale investments in this sector. There is still much room for improvement. Our yields are low in comparison to those achieved in neighbouring countries. Increased productivity can only be achieved through investment in physical infrastructure, such as irrigation systems, and by promoting agricultural diversification.

Cambodia also needs to develop a processing and packaging industry for its agricultural products in order to become more competitive in the region. The agricultural sector in Cambodia today is unexploited and offers tremendous potential, but without investment our cultivated land remains largely unproductive and idle.

Light industry and manufacturing also offer great potential. Our low cost labour force is ready and waiting. As a nation we have already shown what can be achieved, as our experience in developing a highly successful garment industry clearly proves.

Garments are the Kingdom’s largest export and account for around three-quarters of export earnings, but this sector alone cannot guarantee sustainable growth because of increasing competitors in the region.

The Royal Government needs more investors in light industry and manufacturing, and we also want to see more investment not only in the garment sector but also in textile factories. Our labour costs are still low in comparison to labour costs in the region.

Other potential investment sectors include infrastructure. Investment opportunities in the medium term include the following sectors: telecommunications and ICT, banking and finance, mineral exploration (including oil and gas), road construction and energy supplies. All of which will help to boost the economy, make the country more attractive to tourists, and improve the standard of living of the population.

Could Cambodia be doing more to promote itself internationally?

Cambodia is doing more everyday to promote itself internationally in terms of political, economic and trade reform. For instance, the government’s domestic policy strictly respects and adheres to all principles of a liberal multi-party democracy and market economy.

Cambodia’s integration into the region and the world and linking trade to labour standards has created a favourable environment for the development of agriculture, tourism, and industry – especially the garment industry – and has facilitated Cambodian farmers to export their products to the regional and world markets. Also, Cambodia’s membership of the World Trade Organisation (WTO) has accelerated internal reforms, attracted both domestic and foreign investments, and strengthened the foundation for socio-economic development.

The Royal Government will make further strides on the path of trade liberalisation aimed at the free movement of goods and services within the country and between Cambodia and her trading partners; creating access for Cambodian products, without barriers and obstacles, to extensive regional and world markets. This will create opportunity to avail of economies of scales and bring other benefits to the Cambodian economy in terms of an increase in investment, jobs, income and economic growth as a whole. All these are critical to reduce poverty among our people.

The Royal Government will pay particular attention to the further integration of Cambodia into the region and the international community by pursuing membership of Asia-Pacific Economic Cooperation (APEC) forum and participating in the building of the Asean Community. All ministries/agencies are expected to fulfil the duties of Cambodia’s membership of the WTO by adopting laws and regulations and ensure their effective enforcement to meet the requirements of the WTO.

The Royal Government will promote the implementation of new measures including: establishing a National Productivity Centre in order to improve productivity and reduce production costs; establishing a National Standards Institute to ensure that product quality conforms with regional and international standards; establishing national testing laboratories for physics, chemistry, micro-biology and mechanics in order to evaluate quality and set prerequisite criteria for products; strengthening an industrial property rights protection mechanism in order to promote innovation, adoption of new techniques and new technology; imparting training to improve skills; and, strengthening the relevant legal framework.

What affect do you think the introduction of an Anti-Corruption Law will have on foreign investment?

The Royal Government’s main priority in improving good governance is to increase capacity and efficiency of the public sector, including combating corruption. The government clearly understands that an Anti-Corruption Law can improve the perception and confidence of the business environment.

Moreover, an Anti-Corruption Law would help to prevent leakage, favouring efficient producers, promote fairer and equitable distribution of scarce public resources, and minimise the leakage of revenue from government coffers to private hands.

Cambodia’s ‘one-stop service’ or a ‘single window service’ would reduce transaction costs and add measures of predictability to investment decisions, making the country inherently more attractive.

Our achievements in drafting and adopting many fundamental laws such as the civil code and penal code, and our efforts to strengthen the court and build human resources have indicated noticeable progress in the Royal Government’s effort.

Having said this, I insist that the law must go through its due process – to be consistent with the organic and other existing laws and to follow the adoption of the Criminal Code – to ensure it will work effectively in curbing corruption as we intended.

How will Cambodia use and benefit from the recently-pledged $951 million of foreign aid?

For 2009, the Royal Government of Cambodia mobilised approximately $ 1 billion in Overseas Development Aid (ODA), which was the highest in the last 10 years. In fact, ODA is instrumental for Cambodia during this difficult time of global economic crisis and downturn.

Thus our commitment to make full use of the pledged funds will be important. Therefore, the government recently put in place a mechanism to speed up the process of disbursement and implementation.

Our priority in using ODA is to build capacity and institutions, invest in infrastructure and pillars of growth especially agriculture and in human development such as health and education. These are important for long term economic growth.

In the context of the crisis, the increased support from ODA gives us a big relief – a fiscal space to intervene in and stimulate the economy in the areas where it is needed. In related aspect, the crisis has given us a sense of urgency thus prompting the joint efforts of government and development partners to take action. This is a good opportunity for both sides (government and donors) to speed up reforms and make things happen quickly.

Are the Millennium Development Goals achievable for Cambodia by 2015?

It is our commitment to make this happen. Cambodia has made substantial investment in key sectors such as agriculture, rural development, health and education, all of which have a direct impact on achieving the MDG targets. The poverty rate declined from an estimated 45–50 per cent in 1993 to 30 per cent in 2007. This is good progress and I expect we will meet the target by 2015. The maternal mortality rate was 437 per 100,000 deliveries while the child mortality rate declined to 66 per 1000 in 2005. This is a challenge as the indicator remains too high compared to CMDGs. Thus we need to do more in the health sector.

Education is on track, the number of new schools, training centres and universities has increased significantly. Our challenge is to channel more resources into rural education to ensure that more children can go to school. In summary, I believe that we are in good standing to make further strides to realise most CMDGs targets. Nevertheless, I could not rule out the possibility of a failure, given the circumstances beyond our control like the current global and financial crisis which keep on distracting our efforts.

How do you expect Cambodia to look in 20 years time in terms of economic success, infrastructure, and lifestyle?

In the next 20 years, I expect Cambodia will be one of the world’s best performers in terms of improved income and living standards, better infrastructure and a lifestyle on par with middle income countries.

Cambodia will become a competitive economy in terms of human capital, openness and trade, and in the quality of its institutions and regulations within a broader regional and world context. My efforts to promote growth through improved competitiveness by investing heavily in infrastructure and education as well as social development will help bring the country to that level.

I envisage the advance in agriculture, growing tourism; expanding light and medium industries, a well-managed mining industry (including oil and gas) and ITC to be the key drivers of our future growth. Cambodia will succeed in growth diversification and trade, resulting in a rapid growth of income and welfare.

Agricultural productivity will be significantly improved and will play a key role as food and energy issues become more severe globally. Improvements in infrastructure will focus on improved and modernised roads, maritime and air transport links regionally and internationally, large scale irrigation, public health and education systems.

Lifestyle will change rapidly, reflecting across-the-board improvements in human indicators and the speed of regional and world integration.
 

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