Facts and Figures

Capital

Phnom Penh

Land area

181,035 sq. km

Population

11.5 Million (1998)

Population growth rate

3.0 %

Adult labour force

2.5 million to 3 million with 47%/53% (Male/Female)

Gross domestic product

US$ 2,848 million (1998) and US$ 3,289 million (1999)

GDP growth rate

4% (1999)

Per-capita income

US$ 286 (1999) (nominal)

Major industries

Garments and footwear

Major exports

Garments and footwear

Major imports

Gasoline,industrial machinery

Inflation

12.0% (1998)

Total FDI inflow

US$450 Million (1998)

Tax rates

See details in subsection.

Fiscal year

calendar year

Data sources Ministry of Economy and Finance

Exchange rates:
riels (CR) per US$1

3,772.0 (January 1999), 3,744.4 (1998), 2,946.3 (1997), 2,624.1 (1996), 2,450.8 (1995), 2,545.3 (1994)

GDP

composition by sector:

agriculture: 51%
industry: 15%
services: 34% (1997 est.)

Industries

rice milling, fishing, wood and wood products, rubber, cement, gem mining, textiles

Electricity - production

195 million kWh (1996)

 

 

production by source:
fossil fuel: 61.54%
hydro: 38.46%
nuclear: 0%
other: 0% (1996)

Electricity - consumption

195 million kWh (1996)

Agriculture - products

rice, rubber, corn, vegetables

Exports

$736 million (f.o.b., 1997 est.)

Exports - commodities

timber, garments, rubber, soybeans, sesame

Exports - partners

Singapore, Japan, Thailand, Hong Kong, Indonesia, Malaysia, US

Imports

$1.1 billion (f.o.b., 1997 est.)

Imports - commodities

construction materials, petroleum products, machinery, motor vehicles

Imports - partners

Singapore, Vietnam, Japan, Australia, Hong Kong, Indonesia, Thailand

Economic Development

MACRO-ECONOMIC DEVELOPMENT

 

Growth, Poverty, Reform Priorities

The development challenge facing Cambodia is to sustain growth, reduce poverty, and accelerate the completion of the reform agenda. To accomplish these medium term goals will require effective economic management and considerable inflows of external assistance in order to support the implementation of public investment priorities and raise the pace and consistency of structural reform. Moreover, mechanisms to reduce poverty and protect vulnerable groups from accelerated transformation must be put in place. The development needs of Cambodia have shifted from survival mode to a medium term strategic framework for rapid adjustment and growth supported by sound macro and sectorial policies, and complementary public investment and technical assistance programs.

Adjustment and growth, such are the objectives pursued by the MEF. It is important to strengthen the macroeconomic balances in order to allow for the healthy, sustainable growth of the economy. On this basis, sector-driven strategies tended to increase and diversify production, parallel with the budget strategy of reducing financial dependence and encouraging social progress.

The path covered in five years (1994-98), albeit one that shows deficiencies to be corrected and delays to be resolved, seems satisfactory, overall. Progress has been noteworthy and the results indicators positive mainly due to a good concurrence of external factors affecting economic development, and also to the clear direction given by national policies.

 

Results Indicators - Positive Development

The outcomes of the results indicators appears to be positive, according to the information in Table below:

I. A real average annual growth rate of 5.2% for the period. Had it not been for the downturn in 1997 which will continue to make be felt to a lesser extent in 1998, the average annual growth rate could have reached 6.0%. In this regard, 1995 and 1996 have clearly very high scores, which were lining Cambodia up among the Asian dragons until the recent crisis occurred;

2. A per capita GDP on a constant growth curve, from US$241 in 1994 to US$303 in 1996, with a slight decline in 1997 ($290.9);

3. A CPI that broke free from the soaring increases of the previous years to stabilize from 1996 onwards at a about 9%;

4. A deficit in t he current balance excluding transfers, which is sustained at 14-15% of GDP, despite the. increase in imports due to investments;

5. Foreign exchange reserves that reached over two months of goods and services imports;

6. Foreign contributions that covered the gross deficit of the current balance on an annual average for 1994-97, in the amount of 134%, with the surplus helping to improve the gross foreign exchange reserves.

 

External Factors and the Funding or Deficits

Factors external to the evolution of the economy are related to official transfers such as donations, capital transfers in the form of loans from international organizations and, lastly, to foreign direct investments (FDI). The aggregate of such external contributions covered, on a annual average from 1994-97, the gross deficit of the current balance in the amount of 134% (the surplus contributed to the improvement of the gross foreign exchange reserves to cover 2.7 months of imports in 1997). However, although official transfers and capital transfers are being maintained from one year to the next, about 8-

1 1 % and from 2-3 % respectively of GDP, these did drop in 1997 by about 8 % with relation to the initial forecasts and by 20% compared to 1996. On the other hand ' FDI that had grown at a very sustained pace since 1093, dropped by 21% in 1997 with relation to the forecasts. There is reason to fear that, in view of the Asian financial cataclysm, such investments will not rapidly pick up the dynamic growth that they experienced up till now.

 

National Policies and Economic Development - Budget and Monetary Policies.

Expansion of the monetary supply was strong during the years 1994-97, with an annual average rate of 35.7%, and for an average 5.2% of GDP. However, no monetary financing of the Treasury was undertaken with -the National Bank of Cambodia until late 1997. In reality, the foreign currency deposit component explains this growth; liquidity in Riels has grown at an annual average rate of 13.7%. Still, this development is especially due to the exceptional year in 1997 (+33.4%). Nevertheless, the Riel-US Dollar parity has remained very stable during the period, i.e. at the end of the period 2,593 in 1994; 2,560 in 1995; and 2,720 in 1996. It was only during the second half of 1997 that, suffering the effects of the Asian monetary cataclysm, the Riel went up to 3,500 for US$I; since that time, it has basically maintained itself at this level.

 

However, a good macroeconomic performance was obvious in the – liberalization of the rate of exchange, the stabilization of inflation to a tolerable level, and the revamping of the commercial framework (removal of restrictions on imports and obstacles to exports).

 

Taxation-an up-to-date tax system, but still yielding inadequate results

The Government undertook the renovation and reinforcement of a taxation and duty system that was still in infancy. The country was slowing getting away from a command economy. The option was made for a modern, performing tax system, but by means of a progressive approach that would allow for reasonable time for the new economic structures to adapt and for State employees to be trained. With the year 1998-after the Taxation Code of February 1997, pending enforcement of the VAT on large commercial enterprises in 1999, and with the Customs Code yet to come out-the Cambodian approach will be five years old.

 

The current nomenclature of é taxes and duties is a good reflection of the tax structure as it is found in most countries in the world. An analysis of the relationship between tax revenue and the components of GDP that are the basis thereof gives rise to the following observations:

 

What is called the tax ratio and which means the actual levy made on GDP, experienced a rapid increase between 1993 (4.32%) and 1994 (5.95%), when the initial tax measures kicked in. Since that time, the tax ratio continues to be around 6% -- with a peak of 6.46% reached in 1997 -- the lowest rate in the world, even compared to the Least Developed Countries (LDCs). In the Southeast Asian region, the tax ratio rate was already 9.53% in 1984 in the Philippines; 14.34% in Thailand; 1 26.93% in Indonesia; 21.53% in Malaysia. the Philippines is the only country where the rates appear relatively low-, although the rate quickly increased to 15.5 1 % in 1992. That is about the same rate as in Vietnam (I 5.4% in 1993 for a GDP per capita that is lower than that of Cambodia), while Laos was at 7.4% in 1991.

* 43% to 46% of GDP is not subject to taxation due to the rightful exemption of agricultural production;

* When only the potentially taxable GDP is considered, the average tax rate of national production barely reaches,8% (from 7.63-7.95% depending on the year);

* Internal taxation, aside from customs duties, remains weak, if not negligible; income- profit taxes carried over to the potentially taxable GDP is less than 1% (0.36 - 0.77%, except for 1998 which is forecast for 1.23 ˜%). At the same time, the ratio between domestic indirect taxes and potentially taxable GDP is barely above 1% (0.59 - 1.36% depending on the year);

 * The average rate of tax on imports remains at a very reasonable level (IO - 13 % on total imports);

 * Private consumption that supports both the domestic indirect and import taxes is only a very small contributor to taxation, between 7 - 8% -- whereas in all the countries of the world this is the main source of tax receipts.

 

BRIEF FACT ON THE INDUSTRIAL SECTOR

 

Growth and Transformation during the Transition

The objectives of policy will be to support the emergence of internationally competitive industries and complete the structural reform process. Major reforms affecting the industrial sector have been undertaken and others remain to be completed. The Government is committed to their completion through efficient sequencing so that competitive private industry can fully emerge from the transition.

As a result of structural reform and improved economic performance the GDP share of trade and industry has risen from 1 1.5 percent in 1990 to 17 percent in 1996. This growth has been driven largely by the construction sector as industry and manufacturing have not expanded at the same rate due to the slower emergence of private enterprises and reduced activities of state owned enterprises. However, manufacturing is developing rapidly with a growth rate of 7.4 percent in 1995 and 7.8 percent in 1996. This sustained growth is being largely driven by the recently established export oriented garments industry. Manufacturing establishments are small in scale with only 6 percent employing more than 20 persons. Larger scale establishments are concentrated in and around Phnom Penh with limited manufacturing activities in rural and provincial areas . The services share of GDP has increased from 38 percent in 1990 to 41.1 percent in 1996. The banking, insurance and real estate sub-sectors largely non-operational before 1991 have also experienced significant growth. Trade has grown approximately 7 percent per year since 1991 and the tourism and hotel industry continues to expand rapidly with a growth rate of 16.9 percent and 25.3 percent for 1995 and 1996 respectively. As a result of the better availability of infrastructure in the urban areas of Phnom Penh and Sihanoukville the growth of industry, commerce and services has occurred largely in those areas. This has contributed to the widening of the income gap between the 'urban centers and the rural areas where 85 percent of the country's population resides. Of significance is the prevalence of the informal sector, small enterprise trade and services, which not only employs a large labor force, but their family business orientation provides easier access for wider participation by women.

 

Foreign Investment

Foreign investment trends are encouraging. Joint ventures and foreign direct investment totaled over $2.2 billion in commitments from mid-1994 to mid-1996 with a projected employment potential of 60,000. Main areas of investment include the textile and garment industry, construction and tourism. More than 60 per cent of foreign direct investment has been in light industry and services during the period. These estimates while indicative show that the emphasis of foreign investment is on light industry and services which indicates that industry policy needs to be focused to the needs of the fastest growing sectors. More investments in manufacturing activities are now taking advantage of special trading rights under Most Favored Nation and the Generalized System of Preferences now extended to Cambodia by many industrialized countries.

 

Oil and Gas

Cambodia i s dependent on imports for all its oil supplies, which will continue in the foreseeable future. Initial results from private sector exploration which restarted in 1991 offer promise of vast untapped off-shore oil and gas reserves in the economic zone of the country. Oil and gas exploration rights are currently negotiated on a case by case basis. The Government will end this ad hoc approach and with external assistance implement an open tender system based on a moaei contract agreement. Expanded licensing of blocks of off-shore exploration areas using transparent bidding processes is being undertaken based on surveys commissioned to assess the availability of in-land fossil fuel deposits in the Mekong basin and the Tonle Sap. Agreements have been designed to provide incentives and protection to the investor, while ensuring that the national benefits of potential oil and gas operations is captured for use in the funding of Government development programs. A model petroleum agreement and a new Mineral Law have been prepared with a proper legislative framework being developed to achieve a fair policy governing exploration and exploitation of petroleum and mineral resources along international standards.

 

BRIEF FACT ON THE AGRICULTURAL SECTOR

 

The agriculture sector contributes about 45 percent of GDP and provides direct employment to nearly 80 percent of the labor force. As 85 percent of the population live in rural communities and 75 percent of the poor are farmer headed households the key to sustained economic growth, poverty alleviation and development of the rural economy is agriculture.

 

In recent years the sector has undergone a number of reforms reflecting the move from state responsibility for production to market based agriculture. The introduction of economic reform resulted in the formal abandonment of collectivized agriculture and the redistribution of land based on private holdings with farmers given permanent rights to land use and inheritance. The 1992 Land Law advanced this process by prescribing types of land tenure: private property for housing plots, possession for agricultural land under 5 ha. permitting inheritance, but not sale; and, concession for larger agricultural plots with no legal right to inheritance, lease and sale. Accompanying land reform has been price liberalization and the adoption of legislation to permit joint ventures between the state and foreign investors.

 

Rice production

Production of rice contributes 15 percent of  GDP and accounts for nearly 90 percent of the available cultivated land area. Yields remain low, however, at about 1.64 metric tones per hectare (Mt./ha.), which compares unfavorably with Thailand (2.1 Mt/ha.), Philippines (2.7 Mt/ha.) and Vietnam (3.2 Mt/ha.). The target is for an average yield of 2.0 Mt./ha. by the end of the decade. Government efforts to increase rice production is producing beneficial results in that production for 1995 was 2,057 million Mt. or an increase of 30 percent on the average of the last 5 years. Total rice production for 1996 was more than 3.6 million Mt. The introduction of new seeds and production techniques contributed to the increase in output. However, rice yields in Cambodia will always be subject to variation due to the greater reliance of production systems on a seasonal monsoon weather regime in contrast to rice production based on irrigation' As such, the Government will maintain open access for rice exports and disseminate proven technology to improve crop practices and management of soil and water resources.

 

Rubber

The most important opportunity for developing commercial crop production lies in the rubber industry. The 1995 level of production and export of rubber of 40,000 Mt. is only just over a quarter of the volume in 1967. There is scope for increasing the cultivated area from the current area of 61,000 ha. to about 330,000 ha. without reducing the planting area for other crops, resulting in anticipated yields of about 500,000 Mt. of dry rubber per annum. In the short term, the rehabilitation of existing plantations will increase overall yields. Privatization of the six state owned plantations is being currently prepared, with valuation of assets underway, which will raise private investment and expertise necessary to increase coverage and modernize production. Small holder and farmer owned and managed private plantations will also be encouraged around nucleus plantations. Moreover, rubber production is a labor-intensive crop and the industry has the potential to perform a significant poverty alleviation role through rural employment creation.

 

Fisheries

The fisheries sub-sector accounts for 3.4 percent of GDP relative to livestock and has the potential to increase its contribution to economic growth. The priorities in the fisheries sector are to maintain per capita consumption and to increase incomes through greater value added activities, such as commercial shrimp fanning for export, while preserving habitat and maintaining the absorptive and regenerative capacities of the marine environment. Due to resource limitations and the need to avoid over-exploitation anticipated yields by 2000 would rise to only 153 Mt. (68,000 inland, 35,000 marine, 13,000 aquaculture) from the current level of about 1 42,000 Mt.

 

Forestry Management

Forests constitute a major national asset with 60 percent of the land being estimated as forested. In the last twenty years, high value evergreen forest has been reduced by about 30 percent and replaced by re-growth or secondary forest. Forestry management problems arise because of an inability to accurately analyze applications for concessions, poor security and lack of effective enforcement. The Government is currently introducing measures for more effective control over illegal logging activities and for full market pricing in logging concessions. At present investors pay a very low price for logging concessions in Cambodia compared to the international standard. Revenues derived from auctions and normal forest management (taxes and royalties collection) will continue to flow to the budget. No n tax revenues to the national budget from logging operations amounted to $21.6 million in 1995 $27.5 million in 1996 with a minimum of $26 million anticipated for 1997. In addition, a system for improved monitoring of logging practices and the strict enforcement of more sustainable harvesting practices is being implemented to bring uncontrolled and illegal logging into a coherent policy and institutional framework.

 

 

BRIEF FACT ON THE TELECOMMUNICATIONS SECTOR

 

Reliable and efficient communications and regular dissemination of information is essential for the working of competitive markets and to keep the nation informed to the fullest extent about domestic, regional and international events. Cambodia has a great need to maintain and expand communications and in formation services if it is to achieve its economic growth targets.

 

The sectoral goal for telecommunications is to establish an efficient commercial low cost telecommunications network of adequate capacity and coverage in line with the Master Plan together with an efficient public postal service and public broadcast network.

 

The medium term objectives are to:

- Provide telecommunications network capacity to cover Phnom Penh, Sihanoukville and Siem Reap and to expand services to the urban cores of provincial towns

- Establish national standards for the design, construction and operation of all telecommunications services

- Strengthen postal organizational structure and institutional capacity to improve service delivery

- Expand the television and radio network.

Communication

Telephones: 7,000 (1981 est.)

Telephone system: adequate landline and/or cellular service in Phnom Penh and other provincial cities; rural areas have little telephone service
domestic: NA
international: adequate but expensive landline and cellular service available to all countries from Phnom Penh and major provincial cities; satellite earth station—1 Intersputnik (Indian Ocean Region)

Radio broadcast stations: AM 7, FM 3, shortwave 3 (1998)

Radios: NA

Television broadcast stations: 1 government-operated station and four commercial stations broadcasting to Phnom Penh and major provincial cities via relay (1998)

Televisions: 800,000 (1996 est.)

Transport

Railways:
total: 603 km
narrow gauge: 603 km 1.000-m gauge

Highways:
total: 35,769 km
paved: 4,165 km
unpaved: 31,604 km (1997 est.)

Waterways: 3,700 km navigable all year to craft drawing 0.6 m; 282 km navigable to craft drawing 1.8 m

Ports and harbors: Kampong Saom (Sihanoukville), Kampot, Krong Kaoh Kong, Phnom Penh

Merchant marine:
total: 141 ships (1,000 GRT or over) totaling 598,867 GRT/841,240 DWT
ships by type: barge carrier 1, bulk 16, cargo 108, container 4, livestock carrier 2, multifunctional large-load carrier 1, oil tankers 1, refrigerated cargo 4, roll-on/roll-off cargo 4
note: a flag of convenience registry; includes ships of 8 countries: Aruba 1, Cyprus 7, Egypt 1, South Korea 1, Malta 1, Panama 1, Russia 5, Singapore 1 (1998 est.)

Airports: 20 (1998 est.)

Airports—with paved runways:
total: 7
2,438 to 3,047 m: 2
1,524 to 2,437 m: 2
914 to 1,523 m: 3 (1998 est.)

Airports—with unpaved runways:
total: 13
1,524 to 2,437 m: 3
914 to 1,523 m: 10 (1998 est.)

Heliports: 3 (1998 est.)

Investment - Policies Towards FDI 

1. GOVERNMENT ATTITUDES

As one of the poorest countries in the region, international assistance remains a vital component in overcoming the challenges faced in Cambodia's development. Nonetheless, private sector investment will become increasingly important for the country as the private sector assumes its position as the main engine for economic growth in Cambodia. To this end, the Royal Government of Cambodia sees private sector investment as integral to the development of a fully democratic and prosperous Cambodia in the years ahead.

The government is fully aware that if the country is to achieve its developmental goals, it cannot rely on foreign aid and assistance indefinitely, and that real economic growth and development lie in the private sector. Consequently, a programme of reform is now being undertaken by the government in order to create a conducive environment for private sector investment. In 1994, the Law on Investment of the Kingdom of Cambodia was passed with the aim of streamlining the foreign investment regime and providing generous and competitive concessions for direct private sector investment. The Law on Investment also created the Council for the Development of Cambodia (CDC), a one-stop service Organisation for investment in Cambodia. The CDC, through the executive arm of the Cambodian Investment Board (CIB), is now responsible for the processing of applications for investment projects and is required to give a decision within 45 days of submission. As such, the government is fully committed to the speeding-up of new investment-project approvals by making the CDC a truly effective and well-disposed one-stop service.

2. SUMMARY OF FOREIGN INVESTMENT POLICY

In order to attract FDI, the government has strengthened the country's legal framework, bolstered its institutions and liberalised the relevant regulations, in ways that are conducive to private sector investment and business activities in Cambodia. The 1994 Law on Investment provides similar treatment to foreign and domestic investors alike, with the exception of the issue of land ownership, as set forth in Cambodia's constitution. Even in this area, the regulations are generous, with foreign investors able to lease land for a period of up to 70 years, with the possibility of renewal thereafter.

The government provides investors with a guarantee neither to nationalise foreign-owned assets, nor to establish price controls on goods produced and services rendered by investors, and to grant them the right to freely repatriate capital, interest and other financial obligations.

Investors can set up 100% foreign-owned investment projects and employ skilled workers from overseas, in cases where these workers cannot be found in the domestic labourforce.

In addition, the Law on Investment and its related Sub-Decree grant generous incentives to investors, especially those concerned in investment projects geared towards exports.

Attention is also accorded to private investment in Build-Operate-Transfer (BOT) projects, and private investment in infrastructure, including public utilities such as electricity, water supply and telecommunications.

In order to facilitate investors in their applications for investment approval, the government has established an institution to oversee investment policy and strategy called the Council for the Development of Cambodia (CDC) . The CDC, being the highest decision-making level of the government on private (CIB) and public (CRDB) investments, is chaired by the prime minister and composed of senior ministers from related government ministries.

The Cambodian Investment Board (CIB), the operational arm of the CDC, has been designated as the etat major and one-stop service of the government, responsible for the evaluation of investment proposals and projects from all investors, both individual and corporate.

Cambodia has obtained "Generalized System of Preferences (GSP)" and "Most Favored Nation (MFN)" status from its major trading partners, including the European Union, the USA, Japan, Canada and Australia.

Apart from facilitation and support at the national level, attention is also being given by the government to opening up access to international sources of finance for private sector investment. Cambodia is already a member of the IFC and MIGA, and is currently applying for membership to the ICSID (International Center for Settlement of Investment Disputes). It has also signed agreements with the ADB, providing private sector investors with the opportunity to obtain funding for their investment projects from this international financing institution.

Labour Policies

Labour Force

Cambodia's low labour costs are attractive to foreign investors. About 45% of Cambodia's population of 11.7 million is of working age, while over 60% of the workforce comprises women. The minimum wage rate for unskilled workers is currently around US$45 per month .

 

1. ALIEN EMPLOYEES

Investors has permitted to bring into Cambodia foreign nationals who are:

- Qualified managerial personnel

- Technical personnel

- Skilled workers

A Law on Immigration was passed by the National Assembly on 26 August 1994. According to Article 28 of the Law, foreigners who have already received a "letter of investment approval" from the CDC, will be allowed to stay in Cambodia, together with their families, for a period stated in the letters of investment approval.

 

2. RELEVANT LABOUR LAW

A Labour Law was adopted on 10 January 1997 by the National Assembly. This Law, which contains 396 articles. lays down general working conditions and other related matters, such as:

- Wages

- Hours of work, both daily and weekly

- Night work

- Weekly time off

- Paid holidays

- Paid annual leave

- Special leave

- Child labor, women labour

- Trade union freedoms and workers representation in the enterprise

- Settlement of labour disputes


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