Cambodia: Good enough governance for sectoral growth?

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Cambodia Good enough governance for sectoral
growth?

• Presented by Kai Kaiser, Senior Economist, Public
  Sector Group, World Bank
• (Stephane Guimbert, Sophal Ear, Verena Fritz)
• Applied Inclusive Growth AnalysisJoint Vienna
  Institute
• Day 4, July 2, 2009

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Growth Paradox?

• Rapid Growth
• Garments Success Story
• Growth Sustainability Concerns
• International Competition
• Challenge of Diversification
• Weak Governance
• Weak Aggregate Indicators
• Self-reported by firms
• consolidation of ruling party/stability after
  1998
• first LDC to join WTO (2004)

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growing with four fragile engines
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Contribution to growth ()?
Tourism rapid growth. Initially mainly to Siem
Reap and Angkor gradually to Phnom Penh and
Sihanoukville, with further potential
Real estate / construction very rapid growth,
especially in Phnom Penh talks of a bubble
Garments main (only?) export mainly to US
market slow growth in 2007 with competition from
Vietnam further competition (inc. China) in the
future?
Crops rain-fed mainly rice
Legacies of extractive forestry dis-saving in
1990s
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reaching new heights?
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weak governance
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corruption governance
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Major obstacles to business, as reported by firms
established in Cambodia
Sources Investment climate surveys in Cambodia
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Growth Analysis Approach

• CEM
• Range of background papers
• Complementary governance political-economy
  analysis
• Unbundle paradox?
• Government-donor roundtable 2/2009
• What were drivers to growth?
• What are challenges to sustainability?
• What are binding constraints and policy options?

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what is really binding?
2
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Governance Political-Economy Analysis Approach

• Focus on selection of promising sectors
• National plans, development partner efforts
• Understand sectoral governance growth
• Nature of state-elite business relationships
• Drivers of growth?
• Strategies to manage business environment across
  value chain
• Drawn on country specialist (Sophal Ear)
• Process of discovery?

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Sectoral governance for growth?
2
Successful
Garments
Emerging?
Rice
Stunted?
Livestock
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Garments

• International Drivers
• Quotas for labor standards (US brokered, until
  2004 for garments ILO monitoring still ongoing)?
• Strong international presence in 300
  establishments (95 )
• Domestic Collective Action
• Garment Manufacturers Association (GMAC)
• Relationship w/ Ministry of Commerce, Labor
  Intensive Profile of Sector
• International Chambers of Commerce
• Open Issues
• Sustainability concerns w/ international
  competition
• Squeezing the golden goose?
• Value chain limited to assembly

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Rice

• International Drivers
• Increase in food prices
• Future Everything but Arms (EU Zero Tariffs for
  LDCs)
• Only Sanitary Phytosanitary
• Domestic Collective Action
• Fragmented, Limited Collective Voice
• Green Trade (state body) National Cambodian
  Rice Millers now have export waver (100 tons)
• Status
• Mainly domestic padi production, processed
  reflows from neighboring countries
• Very limited finance into rice processing
• Concerns about ability of Cambodian supply chain
  to deliver quality

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Livestock

• International Drivers
• Increase in food prices
• Malaysian investment (failed)
• Domestic Collective Action
• Very Fragmented, Limited Collective Voice
• Some entry attempt by okhna
• Status
• Failure of previous venture (Mong Retth,
  Malaysians)
• Procdution localized, dominate by cattle
  rustling, high transactions costs across value
  chain to Vietnam/Thailnd

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A Strategy for Policy Actions in the Cambodia
Setting

• Potential Sector Profits/Rents Insufficient
• Sum of poor governance manifests itself on
  various links of the value chain
• Export opportunities/prices
• Promote Demand Side/Collective Action
• Business Organizations (Mandatory/Sectoral
  Monopoly)
• External Drivers
• Internal National Regimes
• Pressure for domestic compliance

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Open issues

• Integrity of governance growth narrative
• Limited selection of sectors (successful
  unsuccessful)
• Replicability of garments wrt to different
  sectoral value chains
• Multi-sectoral state growth champions?
• Focal point acts to enforce credible business
  environment (pending systematic change)
• Captured/Self-serving institutions
• Capacity/incentives for this type of institutions
• Potential discovery of oil gas
• Impacts on drivers of growth
• Concentrated rents incentives for state

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Conclusions

• Binding constraints lens provides useful
  disciplining device in weak-institutional setting
  like Cambodia where everything can be perceived
  constraint
• Limited binding constraints may be politically
  counterintuitive
• Temporal, Need to be forward looking, Balance
  path, perception of all eggs in one basket
• Value of looking at sector constraints
• Timing
• Impacts of Global Economic Crisis

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Q A

• Selected References
• World Bank, (2009), Sustaining Rapid Growth in a
  Challenging Environment, www.worldbank.org/kh/gro
  wth
• Ear, Sophal, (2009), Sowing and Sewing Growth
  The Political Economy of Rice and Garments in
  Cambodia, Palo Alto, CA Stanford Center for
  International Development Working Paper, No. 384
• Guimbert, Stephane, 2009, Cambodia 1998-2008 An
  Episode of Rapid Growth, Working Paper (draft)