06 JANUARY 2010 JET ODRERIR
The following pages trace the highs and lows of their expectations, which are tinged with more than a little optimism that the country’s leaders have recognised the problems facing the kingdom and are intent on dealing with them.The economy
Asked whether government or private businesses will drive future development in Cambodia, In Channy, CEO of the Acleda Bank, thinks a shared approach is the best solution. “It can’t be done by the government alone or the private sector alone, they should work together to make sure that the next 10 year vision will be achieved,” he says.
Veronique Salze-Lozac’h, regional director of the Asia Foundation’s economic programmes is sceptical about the chances of diverse individuals coming to any consensus in Cambodia. “There are a lot of business associations, but they are not effective,” she says. “In 2004, we went to the provinces and talked to small enterprises about having more collective action similar to a business association. They didn’t even have any informal business groups.“In fact there was a lot of mistrust of this type of association as some of the language was similar to the propaganda of the Khmer Rouge era. The private sector needs to set up standards and training centres, since they know what they need and can do this within the industry group with much less bureaucracy.”
According to a International Finance Corporation (IFC) survey, about 90% of the enterprises listed at the provincial level, which is more than 60,000 businesses, have an average of four employees. If they can develop and provide one more job each, it would be a huge improvement.
With agriculture the country’s biggest employer, agribusiness should be driving the economy, but there are few signs of it moving. Currently, 99% of the companies in the sector cater to the domestic market. According to Chan Sophal, an economist at the Cambodian Development Research Institute (CDRI): “Cambodia has good natural resources but needs a more predictable legal environment and a more competitive investment climate in order to make the best use of them.
“In 2020 there will be more farms and more processing capacity for export of final products. However, the benefits will not be broadly shared as this will be mostly brought about by [foreign] land concession companies.”
Tourism will remain important for the economy. Hotel capacity has grown hand-in-hand with the rise in foreign visitors, but there’s still a long way to go as far as providing high-level service. Eco-tourism has made rapid steps in recent years and been earmarked by the government as an industry with a positive knock-on effect for local communities.
“In 10 years I’m optimistic about how things will be. We will see the growth of the middle class, which is a good indication of where the economy is going,” says Salze Lozac’h. “Nobody has done a survey of this yet, but you can see it everywhere already – people with more cash.”
The banking system is certainly earning people’s trust, especially those whose salaries are paid directly into accounts. People are also saving more. Banks are opening up to offer money for homes and lend seed money for the development of enterprises. At the moment, people mainly rely on savings or loans from family members to start a business.In the future, bankers will need to be skilled in evaluating small businesses in order to assess risk factors and be able to judge when a business plan looks good enough to warrant a loan. They will need to be able to recognise innovators and entrepreneurs who promise a return on start-up investment, instead of concentrating on established businesses, which make up a very small part of the Cambodian economy.
This should help to encourage the diversity that is the hallmark of a successfully functioning economy. “The next 10 years will be a work in progress. I think it can still go one way or the other. The country isn’t diversified enough. It’s still very fragile,” says Salze-Lozac’h.
With little evidence of any other party offering a realistic challenge to the current CPP government, the political scene is likely to remain fundamentally the same.
Very likely the CPP will consolidate its governance of the country by introducing younger, more cosmopolitan politicians to match the aspirations of the next voting generation. Increased empowerment of the electorate through broader education and technological access is almost inevitable, which should keep Prime Minister Hun Sen and his inner circle on their toes. .
Thun Sary, president of the Cambodian Human Rights and Development Association, believes that the government is reluctant to revise the legal system as this would undermine its control of power. “That is the fear among the leaders here,” he says. Even though, as Thun Sary himself points out: “I think all of the judges are members of the ruling party.”
In the next 10 years China will be the most prominent foreign influence in Cambodia, with the government already building strong economic and political ties. The relationship is not without risk, but it’s a natural choice because of China’s size and proximity. After that, Thailand and Vietnam will be the next most important countries. As recent events testify, there are likely to be ups and downs as far as political relations go, but they will be tremendous trade partners.
If there is one thing that everyone agrees on it’s the fact that the legal system in Cambodia is a mess. It is adversely affecting every facet of society from foreign investment to family savings plans. How did we get here and how can things be improved?
The legal framework was taken from the French model and even now law students in Cambodia are taught in French. As often happens in former colonial countries, instead of integrating the laws of the Kingdom into the French judiciary style, the entire system was imported, with some new laws added to benefit the powerful and their business interests.
“If you are poor you are powerless. You can’t win a case in a courtroom, especially against the rich,” claims Thun Saray. “There is a problem of morality. If we don’t focus on the moral aspect, we only provide technical capacity building, which is not enough.”
Against that background, how are foreign investors to be enticed to a country where they have no legal footing? Director of the opposition Sam Rainsy party Thach Setha believes that Cambodia will only get investors looking for a quick turnover. They won’t want to invest in fixed capital and assets. Hence, no real industry develops.
The Asia Foundation asked medium- and small-business owners what they would do when a client defaulted on a payment. Handle it themselves? Go to a friend? Go to the village chief? Take it to court?
According to Salze-Lozac’h less than 1% of business owners said they would go to court to resolve a dispute, because it was too expensive and they were convinced they wouldn’t get a fair trial.
“There needs to be a reliable court system to develop business. People will only sign a contract with someone they know. That means you’re restricted to your province for a market and, in fact, 90% of small enterprises work within their own province,” says Salze-Lozac’h. “With a contract that could be relied on, people could expand their boundaries, which would have a great effect on improving accessibility to products as well as customers. It would help small enterprises that may not have enough of a market in their province.
“These changes will have to be implemented by the government. Real training, more lawyers and an ethical code. It can’t happen overnight. Changes in habits, controls and political will are needed. More understanding about markets and fair competition. These are basic economic concepts but they aren’t here yet. It’s actually alien to many judges who don’t understand real market competition, protecting intellectual rights or playing by rules.”Education
“There’s always room for improvement in education and capacity building,” says In Channy. “It starts from low elementary level up to the post-graduate level, and of course the whole of society is ultimately affected. So far we’ve seen that we have improved the quantity of education, however, we need to do more about its quality. We need to make sure graduates can qualify for employment both in the local and international labour market.”
One big problem, according to Dr Luise Ahrens from the Royal University of Phnom Penh, is the lack of qualified teachers that can oversee Masters and Doctoral programmes: “There are people who have gone abroad and received their Phds but they still need to establish themselves, they need more experience before they can qualify as instructors.”
With both local and international initiatives in place, Cambodia’s literacy rate will doubtless improve. This will lead to demands for an improvement in how things are taught, and in what is taught. There is a pressing need for educational institutions, particularly at the tertiary level, to co-operate with the commercial world to prepare students for a working life by advising them on what courses to follow .
The teaching of culture is also still occupying a back seat. “I’ve tried to get the ministries of education and finance to work together to try and have the arts taught in school”, says Hang Rithyravuth of the Royal University of Fine Arts (RUFA). “A big problem is that there are not enough teachers and money to educate the children in the provinces. Many students are forced to leave school in order to help the family, either by working for them or starting a business of their own.
“RUFA reopened in 1980 and at that time the only people we could find to teach had maybe two to four years of piano lessons. They knew very little, but they were the teachers. Everyone was keen, but at that time we knew we had to save our culture, which had almost died. If that went, what would we have?”
Much of the recovery of that culture has been facilitated by international NGOs. But as the country heads towards greater political, legal and societal maturity, are those omnipotent, all-knowing entities needed anymore? “In the beginning we needed NGOs and foreign expertise because there were no experienced people here. This haschanged, but NGO’s will still be important in the next 10 years in developing civil society and to take care of sectors of society for which the government has low priorities.” says Salze Lozac’h.
Cambodia’s journey over the past decade has taken it from the barrenness of ground zero – of civil strife, poverty and lawlessness – to the relative stability and growth of today. It is easy for critics to overlook or even patronise the tremendous strides made by its people and the willpower of those strong enough to govern them. It will need similar single-mindedness to ensure that the seeds of recovery are correctly nurtured over the next 10 years and allowed to blossom.
As Salze Lozac’h says: “If you’re ambitious from the beginning, we can push through some changes. The lack of changes are not from a lack of capacity. With a strong political will and leadership from the top levels of society, a lot can be achieved in 10 years. But the will must be there.”