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Cambodia’s New Era of Reforms

ISSUE 2019
No 4
Release 22 April 2019
By Dr. Chheang Vannarith

Prime Minister Hun Sen introduced a “sharp” new package of reform measures in his remarks, which lasted more than three hours, at the Government-Private Forum last month. It was perhaps the boldest statement on reforms by a Cambodian leader since 1993, with a clear, laudable vision and concrete, practical measures. However, we need to treat the statement with cautious optimism.

This could be regarded as a new era of reforms. It seems bold leadership is taking form at least at the top level. The remarks suggest that tolerance of institutional inefficiency and corruption is decreasing. It could be interpreted as a clear warning for Cambodian politicians and bureaucrats to behave and be prepared to perform professionally and productively.

The forum is regarded as “an enlarged cabinet meeting”, which means that all the forum’s decisions have the same effect as cabinet decisions. This is a unique case in Asia in which the state gives significant power to the private sector in public institutional reforms. This is a positive beginning of promising, robust governance reforms with participation from the private sector; an engine of growth.

Under the mottos “reform internally and make friends externally based on a spirit of independence” and the five approaches of “looking into the mirror, taking a shower, scrubbing away the dirt, treating wounds and conducting surgery”, the government is determined to accelerate governance reforms to reduce production costs, enhance productivity and competitiveness, and foster economic diversification to ensure sustainable, inclusive, and resilient growth.

“Strengthening competitiveness and promoting economic diversification are not only key factors to ensure that Cambodia can achieve its long-term development vision but also an indispensable foundation for creating high-quality jobs, improving revenue, and enhancing the livelihoods of people across the country,” stated Prime Minister Hun Sen.

Now, Cambodia is entering the stage of “institutional surgery”, which means removing infectious or bad elements in the governance system. It is high time for the Prime Minister to reduce red tape and discipline corrupt, underperforming public servants. Corruption and nepotism have significantly affected public trust in state institutions.

Trade-related issues are the priority areas for “institutional surgery”. The government has decided to remove the Cambodia Import-Export Inspection and Fraud Repression Directorate General (CAMCONTROL) and eliminate Kampuchea Shipping Agency & Brokers (KAMSAB). These two agencies have caused significant disruption to trade facilitation.

Other areas of reform include trade facilitation measures under customs, elimination of Certificates of Origin (CO) for countries where they are not required, reduction of logistics costs, reduction of electricity costs, business facilitation measures, development of small and medium-sized enterprises, and development of the agricultural sector. Additionally, public holidays will be reduced from 30 days to 21 days.

The digitalisation of public services will gather steam as the government will accelerate the process of introducing an online system for public service delivery. In addition, the Law on E-Commerce is being discussed and will be adopted sometimes this year to facilitate and properly govern online business transactions. The kingdom envisions becoming a full-fledged digitalised economy in a decade—this is an ambitious goal but possible with the right leadership and policies.

Export market diversification is also urgent on the reform agenda. The Ministry of Commerce has not been effective in expanding export markets. As of yet, Cambodia does not have any bilateral Free Trade Agreements with any major economic partners. This clearly reflects weaknesses and shortcomings on the part of the ministry. Prime Minister Hun Sen has urged the ministry to negotiate bilateral free-trade agreements with Canada, the United Kingdom, China, Japan, The Republic of Korea, and other countries in Africa.

As for multilateral agreements, Cambodia is determined to expedite negotiations on the Regional Comprehensive Economic Partnership (RCEP) and the Eurasia Economic Union (EEU). It is also interested in exploring the opportunity to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), with a condition that all ASEAN member states that have not acceded agree on a common stance to prepare for accession together. This will help promote ASEAN unity in shaping the regional economic architecture.

China, Japan, the Republic of Korea, Thailand, and Vietnam are regarded as the main sources of investment flow to Cambodia as these countries are the key production bases in the region. To attract investments from China, Japan, and the Republic of Korea will be a new government strategy because these three Northeast Asian economies have established their production networks in Southeast Asia, notably Thailand, Malaysia, Indonesia, and Vietnam. Cambodia aims to become a critical part of these regional production chains.

Although there is evidently political will and promising steps being taken to improve the business and investment environment in the kingdom, we should not be complacent and take no action. The private sector and civil society need to continuously deepen their engagement with the government to ensure that the reforms deliver results. Actions matter more than words.

The views expressed are the author’s own and do not reflect the views of the Asian Vision Institute.