Kingdom of Cambodia

Nation Religion King

Intervention by

Sr. Minister KEAT CHHON, MP
Minister of Economy and Finance and
Coordinator of Government–Private Sector Forum

At the

10th Government-Private Sector Forum

Government Palace, 21 June 2006

Samdech Prime Minister:
Dear All the Participants
to the Government–Private Sector Forum!

1. Today the Palais du Gouvernement is highly honored again to welcome Samdech Prime Minister Hun Sen to preside over the 10th Government – Private Sector Forum, which is a plenary cabinet meeting opened to the private sector.

2. The Government – Private Sector Forum was established by Samdech Prime Minister Hun Sen, and the 1st Forum was convened on 21 December 1999. This 10th Forum presents an opportunity to take stock of the positive results and to raise some key issues and challenges that need to be addressed.

3. In my capacity as forum coordinator, I am pleased to inform the 10th Government-Private Sector Forum that our meeting today is convened in a favorable context covering the following developments:

• First- The Year 2006 is the eighth year that Cambodian people have benefited from the win-win policy, initiated by Samdech Prime Minister Hun Sen, which had brought about full peace and territorial unity for the entire nation, as well as the political stability and social security which became a mega political umbrella for national development in general and for private sector development in particular.

• Second- In 2005, the GDP growth in Cambodia reached 13.4% in real term. Among traditional factors contributing to this growth are the garment exports and tourism, which were external factor, and the constructions which were domestic factor. However, the key driver of this growth was agriculture. It jumped by 17.3% in growth, while paddy crop production played a key role with the increase of 27%. Total rice exports, both registered and unregistered, amounted to more than 800,000 tons in 2005. In fact, it was for the first time that Cambodia was able to beat its own record in 1968 when it exported a total of 500,000 tons of rice. Good performance in paddy harvest in 2005 was though a result of very favorable weather condition, however, the other key reason of this high growth was the efforts of the Royal Government under the direct leadership of Samdech Prime Minister Hun Sen in developing and constructing irrigation systems as well as in promoting agricultural productivity. In 2005, per capita GDP in Cambodia reached USD448, an increase of 33.9% in real term compared to 2000. The final household consumption improved by 47.3% in real term for the same period. From 1994 to 1998, during the first mandate of the National Assembly, even though with a situation of no war no peace, the averaged real GDP growth had managed to growth at around 6.3% annually. From 1999 to 2003, during the second term of the National Assembly when full peace has stretched across the country, the averaged growth were at 8.7% annually; though in 2003, there were riots, outbreak of pandemic diseases and political uncertainties which led to a situation where the government has been a care-taker government. In 2004 and 2005, during the 3rd mandate of the National Assembly, the averaged real growth rate grew by 11.7% per annum. Since 1999, the Royal Government has generally managed inflation keeping it under control and maintained a broadly stable exchange rate. International reserve has been maintained to cover 3 months of imports. Samdech Prime Minister Hun Sen has managed fundamentals of the macroeconomic policy resulting in macroeconomic stability which provides a solid foundation for development of all sectors and an enabling environment for private sector to flourish.

• Third- another favorable condition was the institutional arrangements put in place to introduce and implement measures for promoting private sector development. After the Government–Private Sector Forum and its seven working groups established, Samdech Prime Minister Hun Sen has created a Steering Committee on Private Sector Development with the aim to improve investment climate and business environment, private sector participation in infrastructure development, trade facilitation, and SMEs development. This steering committee and all its three sub-committees have been closely working together within the Government and with all the seven working groups of the forum, including development partners from private sectors as well. At the same time, the steering committee and all the three sub-committees have worked on private sector development with development partners of bilateral and multilateral cooperation and international organizations. Generally speaking, we have worked in a triangular manner of Government – Private Sector – Cooperation Communities. This cross cutting working process required huge amount of time. However, in producing the outputs, the government seems to enjoy a free lunch as the inputs from private counterparts such as from law firms, accounting firms, concessionaires and others in drafting laws, rules and regulations to address the many problems were provided to the government free of charges. In addition, IFC, which is a private branch of the World Bank Group and through the efforts made by Mr. James P. Brew, has played a facilitating role for private sector with support provided by the Australian Government. The outcomes and outputs coming out of all the 10 forums are of strategic an operational values, including the reduction of under-table payments, the amendments of Law on Investment, amendments of Law on Taxation, Law on Concession to attract private sector participation in building infrastructure, and the Law on Corporate Accounting and Auditing, Law on Government Bonds, Sub-decree on Establishment and Management of Special Economic Zone, Sub-decree on Trade Facilitation through Risk Management and the Single Administrative Document, Policy on Small and Medium Enterprises, delegation of works of the Cambodia Investment Committee to provincial and municipal authorities, etc.

4. During a meeting of the Steering Committee on Private Sector Development on the 14th June 2006, all colleagues showed a very close relationship between the Royal Government and the private sector because many problems were already solved. The private sector was further encouraged by the cabinet meeting on the 16th June 2006, when the Prime Minister decided to continue to extend preferential tax treatment for garment export companies. Excluding custom duty exemption of approximately 935 billion Riel annually, this decision would allow around 167 enterprises to receive domestic tax exemption while the government will not collect the internal tax up to at least 121 billion Riel per annum (based on calculated self declared figures of 145 companies). Thus, as I have already mentioned during the early meeting that this type of enterprises will have the chance to manage to increase their competitiveness. However, Samdech Prime Minister Hun Sen is well aware of their immediate challenge. That is the functioning of labor market in this garment sub-sector, and during the 16 June 2006 cabinet meeting, the Prime Minister has recommended solutions to problems through legal proceedings and enforcement. Now, the government is subsidizing this sub-sector of approximately 850 USD per annum to generate employment or to keep a job for one worker. Therefore, I urge the four key players, namely the Royal Government, entrepreneurs, trade unions, and cooperation community, who are the implementers in this sub-sector, to focus and address this issue of employment. With this preferential treatment, and if the companies are still not able to supply clothing to markets timely, the immediate victims will be the workers who receive intensive care from the government. Therefore, all workers must keep high vigilance to this type of incidence.

5. Beside labor market which is a common concern, the Royal Government must address many other challenging issues such as:

• First- Financing Small and Medium Enterprises. This case can be solved mostly through a draft law on leasing agreement which is due to be finalized by the end of June.

• Second- Impact on the economy and physical safety of business people in implementing the Chapter 46 of the transitioned Criminal Law on Violation of Trust. An ad hoc working group was established since January 2006. They issue and provide comprehensive recommendations. In order to address this problem, the Royal Government will push for quick adoption of the Criminal Law in the framework of its legal and judicial system reform.

• Third- The establishment of the “Single Window” in which Custom and Excise Department has to take the lead. The Prime Minister has issued a strict order that prohibit any government official to negotiate on the selling of Cambodian sovereignty. On behalf of the Royal Government, the Custom and Excise Department signed the agreement with UNCTAD for the operation of ASYCUDA on the 18th April, 2006. The remaining works related to the establishment of this “Single Window” will be continued.

6. Finally, I would like to take this opportunity, with the permission of the Prime Minister, to thank all the key players including those in the Royal Government, private sector, bilateral, multilateral and international cooperation communities, especially H.E. Sok Chanda, in his capacity as Secretary for the Royal Government-Private Sector Forum. All of you have provided valuable and consistent inputs to achieving the recent good performance in implementing one of the components of the Samdech Hun Sen’s Rectangular Strategy, namely the development of private sector and employment generation.

Samdech Prime Minister,

7. In such an auspicious and serene gathering, where all participants assume full of high responsibility, I would like to invite Samdech Prime Minister to provide guidance and recommendations for our discussions in this 10th Forum.

Thank you !