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Photographs: Cover: small1’s/Shutterstock, Chapter2: Yongyuan Dai/iStock Interior design: Florencia Micheltorena, Buenos Aires, Argentina. Cambodia Sustaining strong growth for the benefit of all A Systematic Country Diagnostic

Contents

Abbreviations 8

Acknowledgements 10

Executive Summary 12

1. Introduction 22

2. Context: Cambodia’s development trajectory 28 Cambodia, from conflict to success as a highly open export-oriented economy… 28 … with persistent governance challenges… 30 … and a large rural population that still depends on agriculture and remains vulnerable 31

3. What have been the drivers of stellar growth and poverty reduction performance in Cambodia? 36 3.1. Success in poverty reduction thanks to job creation and a windfall from higher agricultural commodity prices 36 Cambodia has been one of the leading countries in poverty reduction and shared prosperity 36 The drivers of poverty reduction have been low-skilled urban job creation and agricultural expansion 40 3.2. Cambodia’s main engines of growth to date: export-led growth linked to basic human and natural resources 43 Cambodia has enjoyed blistering growth in labor-intensive exports of goods and services 43 Workforce expansion has been driving economic growth in Cambodia, while labor productivity gains have been more modest than in other fast-growing countries 45 The levels of capital accumulation and savings have been lower than in other economies experiencing sustained fast growth 47

4. What are the challenges Cambodia faces in sustaining strong growth and improving equity outcomes over the next decade? 52 Going forward, increased human and physical capital are needed for Cambodia to reap the demographic dividend and reach upper middle-income status 52 4.1. Challenges to economic diversification 54 Declining external competitiveness and erosion in preferential treatment challenge exports 56 Informal competition and fees challenge the creation of a vibrant private sector 62 The available skills are unlikely to meet the upcoming needs of firms 68 4.2. Constraints to household economic mobility 72 Beyond extreme poverty, socioeconomic mobility has been limited 72 Limited access to education and land inhibits socioeconomic mobility 73 Persistent malnutrition affects learning outcomes and human capital formation 75 Exposure to health and environmental shocks compounds challenges to achieving socioeconomic mobility 78 Challenges in public service delivery affect human development outcomes 79

5. Is the current development model sustainable? 86 5.1. Risks to the sustainability of macroeconomics and public finances 86 Although public finances remain sustainable, maintaining public investment levels will become more challenging 86 Macro-financial vulnerabilities are rising due to a credit boom 89 5.2. Risks to social sustainability 94 Although a large number of women joined the workforce over the past two decades, significant gender gaps still exist 94 Some groups in Cambodia still experience exclusion and discrimination, heightening their vulnerability 97 While progress has been made, land disputes and displacement remain an issue in Cambodia 99 5.3. Risks and opportunities for environmentally sustainable and resilient development 100 Unsustainable economic activities are associated with a degradation of natural capital, increasingly endangering their contribution to the economy and poverty reduction 100 Climate and disaster risks compound environmental sustainability challenges 102 Poorly planned urban development heightens risks and may constrain growth 104 Sustainable growth is faced with tradeoffs for competing demands on natural capital 106

6. Priority interventions to encourage strong, inclusive, and sustainable development in Cambodia 110 6.1. Determining areas for development and priority interventions 110 Constraints to economic growth 115 Constraints to accumulation of household assets 118 6.2. Pathway 1: Increasing economic competitiveness and diversification to sustain strong growth and create jobs 123 Reducing the costs of firm establishment and operation, including electricity costs and trade transaction costs 123 Boosting public and private investment in infrastructure and machinery acquisition while developing capital markets 125 Strengthening regulation and supervision of the financial sector to mitigate risks from strong credit growth, while building further financial inclusion 127 Fostering agricultural modernization in the aftermath of the commodity price boom 129 6.3. Pathway 2: Building human assets to facilitate economic mobility and shared prosperity 131 Endowing people with skills by boosting attainment and learning outcomes of secondary and higher education 131 Investing in the early years 135 Protecting households from shocks 136 6.4. Pathway 3: Ensuring a sustainable growth pattern by investing in natural capital, climate resilience, and sustainable urban development 138 Maintaining and developing natural capital, while strengthening climate resilience 139 Promoting competitive, sustainable, and inclusive cities through integrated urban planning 142 6.5. Cross-cutting: Public administration and public financial management reforms for improved service delivery 143 6.6. Data constraints and identified knowledge gaps 146

7. References 149

Annexes 1. Benchmarking Cambodia’s Development 160 2. Insights into poverty measurement in Cambodia 165 3. Using Cluster analysis to inform prioritization in Cambodia 168 4. Cambodia SCD engagement with stakeholders 170

List of tables 1. Cambodia SCD team members 11 2. Cambodia SCD pathways and identified priority areas for development 18 3. Cambodia’s scores on LDC graduation criteria 23 4. Nearly all types of households and areas experienced a reduction in poverty in 2007-14 39 5. The agricultural sector has experienced rapid land-use expansion and growth in yields 48 6. Rural land ownership and land sizes have been decreasing in recent years 73 7. Public sector wage bill for selected country groups, latest available year 87 8. Top areas for development from individual questionnaires and meeting discussions 111 9. Cambodia SCD pathways and identified priority areas for development 113 10. Classification of households by endowments, livelihood, and vulnerability (2013) 120 11. Education determines avenues to better prosperity 121 12. Pathway 1: policy options to increasing economic competitiveness and diversification 124 13. Pathway 2: policy options to building human assets 132 14. Pathway 3: policy options to investing in natural capital, climate resilience, and sustainable urban development 140 15. Cross cutting: policy options to improving public service delivery 144 16. Benchmarking Cambodia’s Development in a snapshot 160 17. Cambodia’s progress towards the Millennium Development Goals 163 18. Top areas for development from individual questionnaires and meeting discussions 172 List of figures 1. Cambodia still lags behind on some dimensions of economic competitiveness 14 2. Cambodia rates relatively low on certain governance indicators 31 3. Cambodia stands out in agriculture value-added and rural population 32 4. Cambodia has achieved impressive progress in poverty reduction over the past decade 37 5. Household ownership of assets and housing amenities have improved significantly 37 6. Growth became pro-poor after 2007, in the context of high agricultural commodity prices 38 7. Cambodia still faces challenges in non-monetary dimensions of well-being 39 8. Agricultural commodity prices boomed from 2007 to 2012 40 9. Household income sources have become more diversified in recent years 41 10. Households with income from domestic and international remittances has significantly increased in recent years 42 11. Growth in Cambodia has been driven by garments and services, with more volatile contributions from agriculture (including fisheries) and construction 44 12. Cambodia has experienced blistering growth in garment and tourism exports 45 13. Cambodia’s growth has relied on capital and workforce expansion, while labor productivity gains have been lower than in comparators 46 14. The labor productivity gap between the modern and traditional sectors has narrowed, partly contributing to some slowdown in structural transformation 47 15. Gross capital formation in Cambodia has been lower compared to almost all comparator countries, and the savings-investment gap has been growing 49 16. Cambodia’s share of equipment investment in total investment has not increased significantly, and the return to capital has been falling 49 17. Cambodia’s demographic dividend would need to be accompanied by higher physical and educational investments 53 18. Higher physical and educational investments would be needed for Cambodia to become an upper middle income economy by 2050 53 19. The dramatic shift in sector composition of Cambodia’s merchandise exports resulted in a high concentration in garments 55 20. Cambodia’s garment exports have been concentrated mainly on the EU and U.S. markets 56 21. Stagnation in garment labor productivity may be the result of firms specializing in low-productivity / low capital-intensive areas; foreign firms rely on foreign inputs 57 22. Export sophistication and emerging exports products have started to increase in Cambodia 59 23. Services exports are concentrated in tourism 61 24. The expansion of internet services in Cambodia has been overshadowed by the strong focus on mobile services 62 25. Cambodia lags behind comparators on availability of scientists and engineers and R&D 63 26. Biggest obstacle to firm operation 63 27. Informal practices and bribery incidence are high compared to structural peers 65 28. Cambodia’s transportation infrastructure and charges are competitive, but forwarding charges are overall higher than in competing countries 67 29. While electricity reliability has improved, tariffs remain relatively high compared to those in neighboring countries 68 30. The minimum wage is relatively high, while the education level of the workforce remains a concern to firms 69 31. Growth in the share of economically secure households has been slow, and living conditions lag behind comparator countries 72 32. Lack of secondary schools (left) appears to be highly correlated with the percentage of children ages 13-18 who are out of school (right), 2015 74 33. Proficiency levels in reading and math are generally very low, and progress has been mixed 75 34. Prevalence of stunting is higher among the poor (left), and Cambodia lags behind other countries in access to improved water and sanitation facilities (right) 77 35. Compared to other countries, Cambodia is highly exposed and vulnerable to disasters 79 36. Although access to electricity has improved, Cambodia still ranks second lowest in the region 80 37. Cambodia has achieved impressive progress in revenue collection, at a time when grants are dwindling 87 38. Public capital spending has been declining as a percentage of GDP since its peak in 2011, and expenditure in maintenance may not be sufficient 89 39. Dollarization has driven fast money growth 90 40. Dollarization has resulted in persistent current account deficits 91 41. Cambodia has had one of the fastest capital deepening episodes among its peers, driven by construction and retail 92 42. Fast penetration of MFI lending has taken place across both better-off and poorer provinces 93 43. Among surveyed countries, Cambodia has the largest outstanding MFI loans as a percentage of GDP, as loan sizes have increased 94 44. Gender equality in the enterprise 95 45. Conditional hourly wage and wage gap by education level 96 46. Cambodia’s forest cover decreased by 21 percent between 2006 and 2014 101 47. Cambodia’s environmental health and vitality are low, and its exposure and vulnerability to climate risks are high 103 48. Cambodia’s emissions per capita, including LUCF, are slightly higher than the average for Lower-MICs 104 49. Cambodia has a high urban population density 105 50. Top areas for development in collected postcards 112 51. Asset-based framework for achieving poverty reduction and shared prosperity 116 52. Identification of constraints to economic growth in Cambodia 119 53. Cambodia lags behind other peers in data standards and openness 147 54. Urban households are more likely than rural households to own durables 166 55. Participants in consultations, by gender and stakeholder type 171 56. Top areas for development in collected postcards 172

List of boxes 1. MDG attainment and LDC graduation criteria 23 2. Peer selection criteria 25 3. Asset-based framework for achieving poverty reduction and shared prosperity 116 8 Abbreviations Abbreviations kWh KHR Management IWRM Standards IFRS IDP HR HIV/AIDS HEI HEF GVC GSP G-PSF GNI GMAC GII GDP GCF FTA FOB System FMIS FDI EVFTA EU ELC EIA ECD EBA Everything-but-Arms D&D CSO CSES CR CPP CMT Cut-Make-Trim CDC CCT BSP ASYCUDA ASEAN Kilowatt Hour Cambodian Riel Integrated Water Resources International Financial Reporting Development PolicyIndustrial Human Resource AcquiredSyndrome Deficiency Immune Virus/ Immunodeficiency Human Education Institution Higher FundHealth Equity Chain Global Value Generalized System ofPreferences Government-Private Forum Sector Gross National Income in Cambodia Association Manufacturers Garment Global Innovation Index Gross Product Domestic Gross Capital Formation Free TradeAgreement Free onBoard Financial Information Management Foreign Investment Direct EU-Vietnam Free Trade Agreement European Union Economic LandConcession Environmental Assessments Impact ChildhoodDevelopmentEarly Decentralization andDeconcentration OrganizationCivil Society Survey Cambodia Socio-Economic Cambodian riel Cambodian People’s Party of Cambodia Council for theDevelopment Cash TransferConditional Budget Strategic Plan Automated System for Customs Data Association Asian ofSoutheast Nations WTO VAT USD US UNTAC UN TVET TFP TB Tuberculosis Mathematics STEM SEZ SEA SDG SDG SCD SCADA R&D RGC RBS PPP PPP PPA PIM PFM PES OOP Out-of-Pocket ODA NGO NFP NLC NIS NDC MTEF MPWT MFN MFI MDG LUCF LPI L-MIC LDC World TradeOrganization Value-Added Tax United States Dollar United States in Cambodia United Nations Transitional Authority United Nations and Training Technical and Vocational Education Total Factor Productivity Science, Technology, Engineering, and Special Economic Zone Strategic Environmental Assessment Sustainable Development Goals Grant Delivery Service Systematic Diagnostic Country Control andData Acquisition Supervisory Research andDevelopment Royal Government ofCambodia Risk-Based Supervision Purchasing Power Parity Public-Private Partnership Paris Peace Agreement Public Investment Management Public Financial Management Payment Ecosystem Services DevelopmentOfficial Assistance OrganizationNon-Governmental National Forest Programme National Logistics Council National for Institute Statistics Nationally Contribution Determined Medium-Term Expenditure Framework ofPublic Ministry Works and Transport FavoredMost Nation Institutions Microfinance Development Goal Millennium land Use ChangeandForestry Logistics Performance Index Country Lower Middle-Income Least Developed Country Fiscal Year KHR 4083.30 Currency Unit 27,Exchange RateEffective asofJanuary 2017 Equivalents Currency Task TeamLeader Director Regional Vice PresidentRegional Vice = October to September = October = USD1.00 = KHR(Cambodian Riel) Obert Pimhidzai Obert E. Sanchez Miguel Ulrich Zachau Ulrich Victoria Kwakwa IBRD Sarak Duong Daniel Street Vivek Pathak Nena Stoiljkovic Tsitsiragos;Dimitris IFC Paul Barbour Merli BaroudiMerli (EVP&CEO) Keiko Honda MIGA

9 CAMBODIA: Sustaining strong growth for the benefit of all 10 Acknowledgements Acknowledgements Strategy andOperation), Kyle F. Kelhofer (Senior Vivek Pathak (Director, Xiaoqing IFC), Yu (Director, provided by Zachau(Country Director), Ulrich The team isgrateful for the overall guidance preparation ofCambodia Vision 2050. asinputto the that toprojections isexpected serve authored abackground paperonlong-term growth Lathapipat co- Theepakornand Dilaka Jithitikulchai Baker, were Natsuko Kikutake) prepared. addition, In (Genie Jensen),andurbanization(Judy transport Yang, Schalken), Dinc), tourism Mustafa (Wouter (Une Lee, (Junhe Liepina),statistical Sanda capacity innovation (SmitaKuriakose, Antoine Coste), skills Pahlavooni), (Seda ICT So), (Sokbunthoeun and FDI (Asya governanceperformance Akhlaque), Concept Note, additional background notes on firm from alarge numberofcolleagues). Following the and Dumpert (Maria Tijen withcontributions Arin, andnaturalTheepakorn Jithitikulchai), resources Caldwell, (Erik gender and social sustainability with contributions from numerous colleagues), Pimhidzai inclusion (Obert and Kimsun Tong, and poverty Sánchez), Lathapipat, Miguel Dilaka Arenas,Guillermo Theepakorn Jithitikulchai, of growth andcompetitivenessMatin, (Kazi drawsThe report onthemainbuildingblocks editing. (Consultant) and Dumpert indrafting and Maria Hahn contribution ofMinna Tong (Consultant) benefits fromThe the much-appreciated report as well theconsultations. asleadershipduring andadvice toprovided theteam, closesupport (Cambodia andSarak Duong Manager) IFCHead) (Task Team Leaders). Dobraja (Country Inguna andDanielStreet Eduardo Martín, Miguel Sánchez World Bank Group Pimhidzai, team led by Obert ofwork istheproduct byThis amulti-sector report and Vanarith Chheang.and Vanarith headed by H.E. Vongsey Vissoth, H.E. Hem Vanndy, ofEconomygroup and Finance, at theMinistry working insights ofatechnical counterpart RGC Finally, the team benefited from the guidance and engagement meetingswithstakeholders. during Linna Ky—for support theirextraordinary Lyden Kong, ChinaChhun,Phalla Yin, RavanChieap, Ou, Vanna Pol, Daneth, Kunthea Da Lin, Rom Kea, Administrative team—Narya andClient Support grateful and the entire to Chanchamrong Ly (IT) was provided by Amara Khiev. The team isalso Excellent organizational administrative assistance well asElise Vanormelingen (Consultant). AlexBen Manser, Kongrukgreatiyos, andKanitha as Aquino Gonzales, Saroeun Oeun, Sam Bou, Sophinith of ourcommunications team, consisting ofLeonora organized thanksto involvement theideasandactive Consultations andpostcard were interventions proposed priorities. and thoughts andsuggestionsonthestoryline inthosemeetingsandprovidedparticipated their ManyKratie). thanksto the375stakeholderswho (held inPhnom Penh, SiemReap, Sihanoukville, and findings and messages at nine meetings preliminary The team alsoreceived valuable feedback on (Manager). Guimbert Demombynes (Program Leader) andStephane Peer reviewers were for thereport Gabriel Lars Sondergaard (Program Leader). (Program Leader), Lou (Program Scura Leader), and (ChiefSudhir Shetty Economist), ShabihAli Mohib MFM), Zaidi(Practice Salman Manager, Poverty), Manager, Mathew IFC), Verghis (Practice Manager, Water andSanitation Transport andICT Trade andCompetitiveness Statistical Capacity Social, Rural, Urban, andResilience ProtectionSocial andLabor Poverty Management Macroeconomics andFiscal Jobs andSkills Innovation IFC andPopulationHealth, Nutrition, Governance andLGBTIGender Finance andMarkets Energy andExtractives Education Natural Resources Climate Change, Environment, and Agriculture Practice/TopicGlobal Table 1. CambodiaSCDteammembers Joop Stoutjesdjik, Joop Stoutjesdjik, Virak Chan,Phyrum Kov, Greg Browder Pahlavooni,Seda Jensen, Genie Veasna Bun,NaomiHalewood Akhlaque, Yifan Wei,AsyaDouw Wim Lan Van Nguyen, Arenas, Guillermo Wouter George Clark, Schalken, Junhe Yang, Dinc Mustafa Mika Torhonen, JudyBaker, Brecht Natsuko Henrike Kikutake, Pablo Acosta, ClaudiaZambra Pimhidzai, Kimsun Obert Tong, Carolina Mantilla Ly Sodeth Matin, Kazi Eduardo Martin, Miguel Sanchez Lathapipat, Dilaka UneJ.Theepakorn Jithitikulchai, Lee, Liepina Sanda Smita Kuriakose, Antoine Coste Daniel Street, Sarak Duong Nagpal,Somil Provo, Anne Marie Tomo Morimoto Leah So April, Sokbunthoeun ElizavetaJithitikulchai, Perova, Johnson Hillary CaldwellErik Johnson,Pamornrat Tansanguanwong, Theepakorn Anantavrasilpa,Ratchada Colleen Mascenik Xiaoping Wang, SunilKhosla Simeth Ben, Tsuyoshi Fukao Reid Robert Dumpert, Maria Angel Jorge,Miguel Timothy Bouley, McCormick, Michael Tijen Arin, Steve Jaffee,Mudita Chamroeun Focal Points 11 CAMBODIA: Sustaining strong growth for the benefit of all 12 Executive Summary world Equatorial after Guineaand aheadofstellar a year, second withCambodia inthe ranking tourism), which grew by a blistering 19.6 percent (mainlygarmentsand ofgoodsandservices exports income economy. Growth hasbeendriven by world, and has now become a lower middle- 7.6 percent inthe in1994-2015, ranking sixth Cambodia sustainedanaverage growth rate of helping to reduce income inequality. among thetop ten countries intheworld and on average 2007-14,puttingCambodia during of thepopulation grew by 7.8percent perannum consumption percapitafor thepoorest 40percent domestic andinternational migrants. Overall, and remittances from anincreasing numberof tapping into agrowing rural economy non-farm rural householdshave diversified theirlivelihoods, and agriculture slowed down (2012onwards), workers. to decline As prices started commodity which benefited andagriculture bothfarmers cultivated area andhighinternational food prices poverty, to anexpansion of thanksinlarge part percentage points and3.3millionpeopleescaped declinedby 25the 2007-9period, whenpoverty dramatic duringPoverty was reduction particularly amenities, andhuman development outcomes. living standards suchasassetownership, housing by improvementssupported in other indicators of 47.8 percent in2007to 13.5percent in2014,atrend linefellincidence underthenational from poverty prosperity. estimates show Official that poverty andshared reduction leaders inpoverty Cambodia hasbecome oneoftheworld’s Thanks to rapid andsustainedgrowth, reduction economic growth andpoverty Cambodia hasachieved stellar Over thepasttwo decades, Executive Summary income and support theirfood security,income andsupport and 88 on agriculture and fisheries to supplement their in 2015.More than five millionpeopledepend to 30percent ofgross (GDP) domestic product resources andecosystem contributed services, Agriculture, whichdepends heavily onnatural the livelihoods ofmillionsCambodians. rich anddiverse natural capital, whichsupports Growth driven hasalsobeen by thecountry’s over thepasttwo decades. and0.7millioninagriculture andfisheries services around and 3.6millionnetjobscreated inindustry of agriculture, andservices—with manufacturing, across thethreeeconomic broad activity sectors transformation--—meaning the reallocation of hasbenefited fromThe country alarge structural for youth andwomen inlabor-intensive activities. has sofarbeenextremelysuccessful increating jobs phases of its in the early “demographic dividend” and growing population, Cambodia working-age isstill output (orreal GDP)growth inCambodia. With its ofaggregateaccounted for more thanone-quarter two decades, the increase inraw laborinput alone ridden onemployment creation. thepast Over To alarge extent, Cambodia’s success has among thehighestinworld). inflows (7.9percent ofGDPon average in 2005-15, assistance (ODA) andforeign investment direct (FDI) trade treatment and large official development trade andcapitalflows anddriven by preferential achievements have beenbuiltuponopennessto income economy (Ly, 2016a).Cambodia’s impressive year inwhichCambodia becamealower middle- 300 in1994to anestimated USD1,070in2015,the income (GNI) percapitamore from thantripled USD strong economic growth. As aresult, gross national and real estate have alsobeenmainengines of (15.3). Agriculture and, more recently, construction suchas performers Vietnam (15.5)andBangladesh

and Thailand boom years. during comparator countries andmuchlower than Vietnam of GDPover thepasttwo decades, lower than percentage ofGDP averaged lessthan20percent upgrading.machinery Gross capitalformation asa relatively littleinvestment inequipment and comparator countries, andevidence indicates remains lowerthe garmentindustry thaninmost theboom yearsduring of1986-96.Productivity in the 7.1percent average growth rate in Thailand achieved by Vietnam and thesameperiod during comparedlabor productivity to the4.7percent 2014, Cambodia registered 3.5 percent growth in dueto lowerpartly intensity. capital 1993- During lower thaninotherrapidly growing economies, Notably, gainshave productivity labor been the needfor environmental sustainability. is more limited nowadays, especiallyconsidering Cambodia’s gainsincultivated scope for area further the outlookfor prices isnotpositive, commodity and garments. thecaseofagriculture,and low-end In for unprocessed Cambodia to rice keep exporting aresalaries rising, andit will be increasingly difficult preferential trade treatment. At thesametime, decline indonorfinancingandanerosion of aprogressive willbring (LDC) developed country Cambodia’s eventual graduation from beingaleast- over reduction poverty thepasttwo decades. that droveon thesamefactors strong growth and forward,Going Cambodia may ableto notbe rely to sustainingstrongeconomicgrowth Cambodia isfacingnewchallenges As alower middle-incomeeconomy, sustainability. dependent onnatural resources andenvironmental of economic growth, is also becoming increasingly 37 percent of total protein. Tourism, another engine with fishandotheraquatic resources contributing largest consumers offreshwater fishpercapita, biomass for cooking. Cambodians are alsothe percent ofthepopulation stillrelies ontraditional attainment also poses anincreasing constraint to of income percapita(78.7percent). Low educational in EastAsia andthePacific) andhigh costs in terms abusiness(compared87 days to needed to 25.9 start 180th outof189countries onthisdimension, with the world to register ranks abusiness—Cambodia make Cambodia one ofthemostdifficultplaces in (Figure 1). Burdensome formalization processes economiesother lower intheseareas middle-income progress hasbeenmade, Cambodia stilllagsbehind somevibrant private inCambodia. While sector competitiveness aswell asthecreation ofa a lesserextent, infrastructure constraints hamper ofinstitutional,A number humancapital, and, to be hampered by limited adoptionoftechnologies. remains limited,exports andfuture may prospects 70 percent ofthetotal, diversification inservice within thesector. With tourism accounting for constrainsustainability diversification ofactivities challenges ininfrastructure and environmental U.S. dollarappreciation wages, andrising and regional value chains. Tourism isalsocoping with andwithonlyincipient integrationand parts into assembly, withlittleto ofpieces noproduction located in Cambodia are still mainly labor-intensive in recentbeen observed years, most of the activities and ignitionbicycles, wires) television parts, have nascent (including products higher-value export in 2017,now onparwith Vietnam). While some (from USD80amonth in2013to USD153amonth appreciation andtherapidly minimumwage rising competitivenessexternal inthecontext ofU.S. dollar washing, printing), likely spurred by declining to move toward highervalue addition(embroidery, recent years have started some garment factories price segment oftheU.S. andEUmarkets. Onlyin items are targetedexport to thelow-quality/low- ofCambodia’s Most merchandise exports. garment which comprise more than 70 percent of total growthexport-led has beendriven by garments, become increasingly problematic. Cambodia’s concentration ingarments andtourism will Cambodia’s low-value and heavy production thefaceIn ofdecliningcompetitiveness, 13 CAMBODIA: Sustaining strong growth for the benefit of all 14 Executive Summary to poor nutrition, lack of nurturing care, and nutrition,lackofnurturing to poor limitationsHuman capital early begin inlife due individuals to climbthesocioeconomic ladder. hours compared of to peers—affect theability fewer andinadequately trained teachers andfewer outcomes—whichlearning canbeattributed to ratingproficiency for Khmer.reading in Suchpoor 39 percent ofgrade 6pupilshadabelow basic of student achievement (MoEYS, 2015)found that education, health,andland. Anational assessment by low household endowmentspart interms of consumer) classinCambodia canbeexplained in The slow growth ofaneconomically secure (and of thepopulation livingunderUSD5.50aday PPP. poor oreconomically vulnerable, withtwo-thirds are by international standards eithermoderately mobility. Cambodians Most notinextremepoverty Limited hinderssocioeconomic humancapital households must beovercome affect poorer that particularly to beinclusive, ofconstraints aseries To ensurethatgrowth willcontinue than in Thailand, Myanmar, or Vietnam. consumersindustrial was at least 35 percent higher to countries: neighboring theaverage tariff for large remainsyears, highcompared theprice ofelectricity supply hasimproved significantly inthepastfive infrastructure, althoughCambodia’s power sector demandoftheprivate sector.the skills terms of In enrollment rates) anddoesnotseemto address faces negative perceptions (whichresults inlow and vocational education andtraining (TVET) pointing challenges. to quality Moreover, technical level, are nota signal ofcompetence of workers, education (certificates, degrees), even at the tertiary Entrepreneurs that schoolcredentials report for economies lower (71percent). middle-income percent in 2013) are significantly below the average significantly, lowercompletion rates secondary (43 education increasednet enrollment inprimary economic diversification andupgrading: although dimensions ofeconomiccompetitiv Figure 1. Source: exposure to financialand weather shocks, with is alsohampered mobility bySocioeconomic high problems andaccess inquality to healthcare. in 2015), which points toper 100,000 live births rates intheregionhighest maternal (161 mortality diversity. addition,Cambodia stillhasoneofthe In optimal infant feeding and low practices dietary is amajorcontributor to stunting, alongwithsub- economies (90and52percent, respectively) and below theaverage for lower middle-income population, respectively) remains significantly sanitation facilities(at 75and42percent oftotal 15 academicyear. Access to improved water and childhood educationthe2014- in early during and only 35.9 percent of 3-5 year olds were enrolled of children 6-59months ofagehave late schooling, children under the age of five are stunted.Over half over the past two decades, about33 percent of prevalenceAlthough malnutrition has declined life andotherearly malnutrition deprivations. the lifelong, negative consequences of childhood ofyoung workers likelyexperiencescohort someof ofCambodia’s themajority undernutrition, current and maternal andchild highpoverty ofvery a period absence ofearly stimulation. Having grown upin sophistication T echnological Business readiness GlobalCompetitivenessIndicator Mar Financial mar dev siz ke e Cambodia 2015 Lowe Cambodiastilllagsbehindonsome elopment Inno t vation r- MIC 2015 ke t Labor mar Institutions eff iciency 0 1 2 3 4 5 6 7 ke s, ASEAN-5 2015 Cambodia 2006-07 t

Wo Goods mar Infr rl d EconomicForu eff astr iciency Macroeconomic Higher education en ucture and pr vironment and tr education eness ke Health t aining imar m. y aspire/. 1 with low education, notablydropping to 7percent gap in2014was ashigh30percent amongthose (CSES)Economic 2014,thegenderearnings Survey men. Morever, according to theCambodia Socio- work isdoneby andsupervision paying quality of themare engagedinassembly, whilethehigher- 85 percent laborforce, ofthegarment sector most businesses. male-owned While women represent profitable, andlesslikely to be registered than owned businesses are generally smaller, less establishments inCambodia. However, female- enterprises comprise more thanhalfofallbusiness the highestinworld, andfemale-owned in Cambodia, at 79percent in2014,isamong shared prosperity. Female laborforce participation achallenge to alsopose achievingquality Persistent gendergapsinearnings and job 1.6 percent. social assistance compared to the world average of Cambodia spendinglessthan0.1percent ofGDPon social protection systems are onlyincipient, with percent, amounting to USD37.6million.Meanwhile, incomes ofthoseaffected dropped more than25 needs assessment found that theaverage monthly United Nation’s World A2013post-flood Index. Risk disaster-prone intheworld in2015by the country spending, with Cambodia ranked as the 8th most Disasters are anothersource ofcatastrophic challenges in design and implementation remain. poor and vulnerable, coverage is still limited, and andlower OOPexpendituresservices amongthe could helpincrease utilization ofpublichealth funds(HEF)While theexpansion ofhealthequity at 60percentservices ofallhealthexpenditure. health spending, withOOPpayments for health top ten (OOP) countries interms ofout-of-pocket expenditures. Cambodia ranks amongtheworld’s and 3.1percent hadto incurdebtto pay for health population hadcatastrophic spendingin2013, manage shocks. Approximately 6.3percent ofthe to limited protection very helphouseholds social ASPIRE database. Accessible at datatopics.worldbank.org/ 1 in 2016)remains by farthe highest amongpeer incidence (affecting63percent firms of reporting While some progress hasbeenmade, bribery delivery, andaccess to assetsandopportunities. firm competitiveness, ofpublicservice thequality thus far,reduction governance challengesaffect While notpreventing strong growth andpoverty contentious issuesinthecountry. and conflict over land remains oneofthemost 30 percent oftheirtraditional landsince 1989, estimated that indigenouscommunities hadlost vulnerable to thelossofland.2007,itwas In rates thantheaverage,poverty theyare highly donothaveethnic minorities significantly higher and schools.discrimination in workplaces Although families, communities, and the media, along with (LGBTI) continue to face stigmatization by their lesbian, gay, bisexual, transgender, and/or intersex people. Peoplethat ofnon-disabled whoare wealth for peoplewithdisabilitiesisabouthalf anincome,disabilities donotearn andhousehold of disability. About 45percent ofadultswith of thepopulation suffers from at leastone form growth. For example, approximately 10percent preventing themfrom of sharingthebenefits exclusion, heightening theirvulnerability and groups still experience marginalization and (CSOs) highlighted that somepopulation Consultations organizations withcivilsociety (Inter-Parliamentary Union,2016). placing Cambodia inthebottom 20percent globally account for only 7 percent of ministerial posts, terms ofpoliticalrepresentation,2015d). In women moved to Phnom Penh Bank, for theirjob(World in thegarmentsector, where 97percent ofworkers since theydominate employment particularly work, also face difficult tradeoffsbetween childcare and and healthshocks. Notably, women inCambodia less likelyto save, andmore vulnerable to natural households are more likelyto rely onremittances, gap. Analysis alsoshows that female-headed of closing the educational attainmentimportance among college graduates, which underscores the 15 CAMBODIA: Sustaining strong growth for the benefit of all 16 Executive Summary private sector. Credit at microfinance institutions around 20percent oftotal outstandingcredit to the to anestimated 13percent ofGDP as of2015,or increased from around 4percent ofGDPin2010 realto construction, estate, and mortgages ofthe2009globalcrisis,in theaftermath credit Following activity declineinconstruction asharp the average for economies. lower middle-income percent in1993to 63percent in2015,already above percentage ofGDPisboomingandjumpedfrom 2 risks, Cambodia’s credit to private asa sector 40 percent ofrevenue. terms ofmacro-financial In since the public payroll already represents around and 2018) may eventually result in fiscal pressures, increase wage (betweenin the public 2013sector of debtdistress (IMF, 2016),aprogrammed fourfold overheating. exposure to microfinance debtandfinancial development path, includingincreasing of risingriskscould potentially affect Cambodia’s Compounding the above challenges, anumber sustainability couldaffect economic degradation resource growth andnatural credit Risks stemmingfromrapid been madeover thepast15years. poor andvulnerable, althoughnotableprogress has displacement have affected disproportionately the in a context of poor rule of law, land disputes and resources, capacity. andlimited civilservice Finally, 2015b), patronage, misallocation ofhuman inpublicfinance managementweaknesses (RGC, This problem is compounded by fundamental persists. delivery on donorsfor publicservice economy,a lower middle-income andoverreliance in 2015,respectively), itremains below average for recent years (at around 1.3and2.1percent ofGDP health andeducation hasincreased significantly in Pacific region. While government spending on worse Korea in the Asia- performing and North Cambodia ranked 150th,withonlyAfghanistan countries. the2015Corruption Perceptions In Index, Although Cambodia presents low risk settlements. percentage ofthepopulation lives poor inurban already higher than in Vietnam or China, andalarge areas in2010)is (8,500peoplepersquare kilometer stages,early average inurban population density Although urbanizationinCambodia isstillinits from urbanizationcould hampereconomic growth. tourism assets. addition, negative In externalities sectors,and fisheries hydropower generation, and oftheagriculturalincluding ontheproductivity been lost. Suchlosseshave impacts, wide-ranging the country’s original, natural wetland area has 2006 and 2014, and approximately 45 percent of forest cover declinedby 21percent between economic According activities. to official estimates, capital isbeingdegraded rapidly by unsustainable risks, Cambodia’sclimate change-associated natural percent 2015a).Compounding in2050(RGC, total GDPby at least1.5percent in2030and3.5 suggest that climate change will reduce Cambodia’s a 2°Ctemperature by rise 2050,initialestimates extreme weather events: basedonthescenario of heighten to thevulnerability natural disasters and in the country. thefuture, In climate change will needed to respondcapacity to thehydro variability Cambodia lackstheinfrastructure andplanning 235 millionperyear (Germanwatch, 2016).Notably, average damagesfrom disasters estimated at USD ofinfrastructure inCambodia, withdestruction caused significant deterioration of livelihoods and futurealso affect growth. Natural disasters have degradation andunplannedurbanization, could Climate change, coupled withnatural resource credit growth. are to expected helpmitigate related risks to fast andcapitalrequirements, liquidity including rising the National BankofCambodia in2016and2017, ofmacroprudentialseries measures introduced by of expansion ofincome percapitain2004-14.A around USD200to USD1,000,doublingthepace decade, average loansizes have increased from MFI loans reached 12 percent a of GDP in 2014. In over 40 percent in recent years, and outstanding (MFI) isalsobooming, growing at annualrates of impact on the twin goalsbutform onthetwin thebuilding impact priority” areas have amoderate immediate direct growth, andraising household income. “High to createability more productive jobs, sustaining goals in terms of boosting firms’ on the twin impact identified as“highest priority” have thelargest interventions. affected, and(iii) complementarity withother (ii) theshare ofpopulationopportunities, households’ inbetter economic participation increatingon (i)theirimpact andenhancing The areas for development were ranked based the publicsector. public finance reforms to strengthen of thecapacity benefit from publicadministration cross-cutting and inCambodia.prosperity These pathways would also and shared reduction goals of poverty the twin three different “pathways” or avenues for achieving identified areas for development contribute to for development (Table inthe 2).Interventions the mostpressing withinthoseten areas priorities to growth andassetaccumulation and to identify methodology was applied to assess the constraints Second, followingaction. consultations, atwo-tier ofteninformed development theselection areas for together withanextensive consultation process, analyticalwork andaliteraturein-depth review, manner inCambodia. and inclusive reduction growthpoverty inasustainable feedback for on the key development achieving opportunities in four different regions ofthe country. provided Participants and theNational Assembly) comprised ninemeetings held civil society, private sector, development academia, partners, 2 involvedinterventions process. a two-step growth goingforward. Identification ofthepriority for ensuringstrong, inclusive, andsustainable (SCD) identified some key areas ofdevelopment consultations, thisSystematic Country Diagnostic analysis on in-depth and extensiveBased has beenidentified areasfor development ten priority In lightofthesechallenges, asetof Extensive engagement with key stakeholders (government, The areas for development 2 First, food andagriculture. an overall coherent approach to ‘brand’ Cambodian andfoodmanaging quality safety andintroducing differentiationof quality by enhancingsystems for collaboration withthe private sector, andstrategies andtechnology adoptionin knowledge irrigation, addition. The could facilitate publicsector expanded through intensification, diversification, and value to foster agradual transformation ofthesector growth Cambodia reduction, willneed andpoverty oftheagriculturalto sector continued importance a financial safety net. At the same time, given the preparedness, crisis supporting andestablishing sector, andoversight, enhancingdata quality inthefinancial introducing Risk-Based Supervision increasing financialinclusion,which would involve mitigate from therisks strong credit growth while to ensure macro-financial important resilience to to foster domesticsavings. willalsobecritically It markets, andcooperating withthefinancialsector incentives, thedevelopment ofcapital supporting and assetmanagement, streamlining existing tax introducing a framework for public investment value additionandeconomic diversification: infrastructure andmechanization to facilitate by of measures a series aimed at boosting costs. These could interventions becomplemented costs and trade transaction bringing down electricity business environment, reducing informal fees, and establishmentfirm andoperation by improving the the mostpressing needisto reduce thecosts of competitiveness due to U.S. dollar appreciation, a time when companies are facing declining to sustainstrong growth andcreate jobs. At competitiveness and economic diversification The firstpathway involves enhancing export also shown in Table 2. optionsineachoftheten areas are policy selected those that have highbutlocalized Some impacts. have consequential implications inthelongterm or yet address themostsignificant constraints but priority” that areas may include those actions not generating ofhouseholds. capacity “Moderate blocks for sustainedgrowth andincreased income- 17 CAMBODIA: Sustaining strong growth for the benefit of all 18 Executive Summary shared prosperity andmobility economic to facilitate human assets ii. Building create jobs growth and sustain strong diversification to and competitiveness economic i. Increasing Pathway Table 2. areas for development CambodiaSCDpathways andidentifiedpriority DRM, socialprotection) from shocks(OOP inhealth, 7. Protecting households education) years pre-primary (nutrition, 6. Investing intheearly education andhigher of secondary outcomesand learning by boostingattainmentskills 5. Endowing peoplewith price boom ofthecommodityaftermath modernization inthe 4. Fostering agricultural financialinclusion further growth, whilebuilding fromrisks strong credit to mitigatefinancial sector ofthe and supervision 3. Strengthening regulation capital markets acquisition whiledeveloping infrastructure andmachinery private investment in publicand2. Boosting costs) trade facilitation, electricity environment, informal fees, operation (includingbusiness establishmentfirm and thecosts1. Reducing of Area for development Moderate High Highest High Moderate High Highest Priority vulnerable groups FundsEquity to other Expand Health Improving Nutrition Track for Map Road theFastImplement Standards EffectivenessSchool Lower Secondary theImplement pluralistic extension) PPPs, incubators, the value chain(via adoption throughout and technology Facilitate knowledge approach Based Supervision Introduce aRisk- procedures manuals and decree anddevelop Pass aPIMSub- informalcurb fees environment and improve business Task force to optionsinthisarea policy Selected transfers conditional cash and establish targeting system the IDPoor Strengthen centerscommunity through and stimulation for learning early to opportunities Expand access and TVET higher education mechanisms in assurancequality accreditation and Improve and risks quality, food safety manage product capacities to and stakeholder Strengthen systems safety net establish afinancial preparedness, Enhance crisis private) sovereign and (includingmarket internal bond Develop an trade facilitation forSingle Window Establish aNational behavior change communication, which could ideally supplementation,could includefortification, and specific interventions to be appliedin Cambodia nutrition- building humancapital. Evidence-based andstunting toof malnutrition willalsobecritical training. Addressing thehighdegree TVET/skills education, highereducation, and in secondary outcomes significantly and foster attainment needs to introduce measures to improve learning by entrepreneurs workers, for skilled Cambodia demographic dividendandmeetincreasing demand education andabove.with secondary To reap the of having awage jobismuchgreater for people the least successful group, and the probability education, compared to just17percent among secure group have at leastlower secondary of household membersin the most economically inCambodia:and vulnerability about76percent is themostvaluable assetfor escapingpoverty prosperity. Analysis shows that humancapital assets to foster economic andshared mobility The second pathway focuses on buildinghuman Source: World Bankstaffanalysis in consultation withstakeholders. iv. Cross-cutting development and urban climate resilience natural capital, by investing in growth pattern a sustainable iii. Ensuring Pathway Table 2. continued delivery reforms for improved service public financialmanagement 10. Public administration and planning urban cities through integrated sustainable, andinclusive 9. Promoting competitive, resilience while strengthening climate developing natural capital, and8. Maintaining Area for development High Moderate High Priority ecosystems environments, and man-made urban between natural resource-based the interlinkages while strengthening climate resilience. Given andsustainableurban development,capital of growth by investing inCambodia’s natural The third pathway aimsto ensure thesustainability current pensionschemes. conditional cashtransfers (CCTs), andconsolidating the IDPoor targeting mechanismandintroducing and reduce theirhealthOOPexpenditure, refining HEFs to increase coverage ofvulnerable groups from fallinginto poverty, suchasexpanding the shield householdincome andprevent households at mitigating shocksandbuilding resilience to help shouldbe complementedmobility withothersaimed for young children. Measures aimedat fostering policies and programs families in caring to support affordability diets, ofnutritious andsocialprotection supply andsanitation, increased availability and education; improvements inhouseholds’ water be combined withpromotion childhood ofearly monitoring performance introduce systems and management human resource Upgrade planning agenda integrated urban anImplement Sap and TonléCardamom management inthe natural resource approach to Adopt anintegrated optionsinthisarea policy Selected service delivery service improve public mechanisms to feedback Enhance citizen solutions waste management and solidliquid sanitation network centralized Develop a and forests protected areas in conservation management and sustainable Improve 19 CAMBODIA: Sustaining strong growth for the benefit of all 20 Executive Summary assessments (EIAs) andstrategic environmental the local level), environmental conducting impact programs to address gapsinfinancing(including at include developing targeted public expenditure national-level reforms, plans, and programs. These to strengthen the implementation ofexisting institutional measures andinvestments are needed of thisintegrated approach, ofadditional aseries poor settlements, areas. andperi-urban support In specified city, covering its central areas, urban urban anddisaster management) risk ina transport, (includingwater, sectors various urban sanitation, term strategy for implementing reforms across For planning, urban this means developing a long- resilience to climate changeandnatural disasters. forests andaquatic ecosystems andstrengthening coordination withmanaging andrestoring degraded hydropower withinaspecifiedlandscape, in expanding sustainabletourism, anddeveloping to agriculture, modernizing improving fisheries, into accountrelated natural challengesand trade-offs approaches. For natural resources, thismeanstaking integrated planning, management, andinvestment addressing thesechallengesrequires spatially citizen feedback mechanisms. monitoring and enhanced performance servant reform) andcomplemented withstrengthened civil reform) andhumanresources (publicadministration public resources (publicfinancialmanagement accompanied by enhanced allocation anduseof of newroles andresponsibilities needsto be and deconcentration reform, andtheredefinition delivery. Cambodia hasinitiated itsdecentralization rests onimproving ofpublicservice thequality Ultimately, thesuccess ofalltheseinterventions for reform implementation delivery. andservice significantly improvingcapacity publicsector optionsidentified on intheSCDdepend policy Finally, alltheareas for development and and upgrading poorsettlements. ofurban targeted investments sanitation, inurban transport, isneededfor institutionalreformsupport and Law, andimproving landuserights. addition, In planning provisions inthecurrent Water Resources corridors, implementing onconservation the policy across different sectors, implementing thenew assessments (SEAs), strengthening co-management

Chapter 1 22 CHAPTER 1: Introduction (MDG) “trailblazers”—has madesubstantial Developmentto one of the Millennium be Goal percent in2004to 8.9percent in2011and6.2percent in2012. living over incidence time, declinedfrom extremepoverty 31.9 linesetin2015to changesinthe reflect daycost of poverty 2004 to 10.1percent in2011. Using thenewUSD1.90per linedeclinedfromliving below 32.8percent thepoverty in line set for of Cambodiansthe MDGs,poverty the proportion 3 Introduction incidence dramatically, additiontoIn reducing absolute poverty garment industry. thanksto theemergencethe world, ofthe partly (79 percent in2014)are alsoamongthehighest in in 2014)andfemale laborforce ratio participation The employment-to-population ratio (82percent the world andhelpingto reduce income inequality. putting Cambodia amongthetop ten countries in percent ofthepopulation was around 7.9percent, mean consumption percapitafor thepoorest 40 estimates. thistime, During theaverage growth of in 2007to 13.5percent in2014,according to official incidenceprices, declinedfrom poverty 47.8percent economic growth andhighagricultural commodity and sharedreduction prosperity. Driven by strong has become oneoftheworld’s leadersinpoverty Thanks to rapid andsustainedgrowth, Cambodia Based ontheUSD1.25perday international extreme 3 Cambodia—considered Aldaz-Carroll, 2014).Gross national income (GNI) per than 7percent ayear for 25years orlonger (Ly and the world that have grown at anaverage rate ofmore “Olympians ofgrowth,” agroup of13economies in almost allothers. Cambodia to isexpected jointhe in theworld in1994-2015,aheadof Vietnam and amongthemostrapidly growingsixth economies join the “Olympians ofgrowth.” Cambodia ranked over thepasttwo decades, Cambodia isready to With anaverage annualgrowth rate of7.6percent status by the2020s.(LDC) as well asgraduating from leastdeveloped country Sustainable Development (SDGs),by Goals 2030, towardlooking setofgoals, attaining thenext the in someareas asdiscussedinBox 1,Cambodia is progressAnnex 1).Although further isstillneeded with national-level MDGtargets met(Table 17in water hasalsoincreaseddrinking substantially, 4 in2015). births rates (from 117.3in1990to 28.7per1,000live AIDS, andreducing childandmaternal mortality education enrollment, combatingprimary HIV/ significant progress hasbeenmadeinincreasing poverty progress on the non-income dimensions of See theAnnexSee 1for more details. (Leo and Barmeier, particular, 2010). In 4 Access to improved sanitation and phasing outitsEverything-but-ArmsAgreement withCambodia. intwo consecutivecriteria reviews, triennial theEuropean Union(EU)willinitiate process athree-year for phasing outofpreferential treatment by donors. For example, Cambodia after meetstheLDCgraduation Cambodia aims to become eligible for LDC graduation by 2024. LDC graduation to is expected imply the income percapitaisstillbelow thethreshold (Table 3). While the threshold has been met for theHumaneconomicAssets remains vulnerability Index, high, and United Nations (UN).At the2015review, Cambodia was found ineligible for graduation from LDCstatus. to the World Bankclassification system according but (LDC) remains aleastdevelopedto the country terms ofdevelopmentIn status, Cambodia hasbecome economy alower according middle-income 2015). Bank, million people(World USD 0.30perday rate would causethenational to poverty increase to 40percent, orapproximately six didsoby onlyasmallmargin. 2012,itwas estimatedescaped poverty In that asmallnegative shockof Moreover, Cambodia’s remain reduction highlyprecarious, gainsinpoverty asmosthouseholdsthat needs to improve theroles ofwomen inemployment andpoliticalparticipation. ordinances hasincreased to ofthetarget 45percent, of100percent. itstillfallsfarshort Cambodia also the pasttwo decades. Similarly, althoughthepercentage ofcontaminated landcleared ofunexploded pace ofdeforestation hasslowed down slightly thanksto recent changes, ithasremained policy highover sustainability, demining, andgenderequality. TB incidence anddeath rates remain high.Although the However, achievements are mixed environmental for anumberofMDGs, includingtuberculosis (TB), enjoy thesamelevel ofownership by thegovernment. national strategic development plans, andtheSustainableDevelopment (SDGs)are Goals to expected to safe water 1for andsanitation (seeAnnex more details).Cambodia mainstreamed theMDGsinto its education, andimproved andsecondary access inprimary achieved0.01 in2013),nearly genderparity progress incombating HIV/AIDS(withtheincidence rate decliningfrom 0.08per100peoplein2001to rate (from 92.1percent in2000to near-universal enrollment of94.7percent in2014),madesignificant education (from enrollment 117per1,000in1990to 28in2015),increased theprimary child mortality in1990to (from 161in2015),reducedmore 1,020per100,000live thanhalved births maternal mortality hasmore (fromThe thanhalved 33percent country extreme poverty in2004to 10percent in2011), Overall, Cambodia hasmadesignificant progressDevelopmentMillennium Goals (MDGs). inachievingthe Box 1:MDGattainmentandLDCgraduationcriteria Literacy rateLiteracy Under-5 mortality Undernourishment Human Assets Index Table 3: Cambodia’s criteria scoresonLDCgraduation GNI percapita Source: United Nations, Development Policy andAnalysis Division(2015). >USD 1,242 Threshold >66 Cambodia USD 1,070 67.2 65.2 83.1 81.5 Exposure index Economic Vulnerability Index Economic Vulnerability Natural shocks Shock index Economic structure Threshold <32 Cambodia 34.3 38.3 63.2 42.2 42.5 Introduction 23 CAMBODIA: Sustaining strong growth for the benefit of all 24 CHAPTER 1: Introduction Policy for 2015-25,together withtheupcoming approval Development in2015ofanewIndustrial is likely toimpact maximized. be its policy The This timewhen SCDcomes at an opportune remaining constraints. on thecountry’s key development challengesand where the WBG iscurrently butrather active focuses analysis presented is not limited to areas or sectors andpromoting sharedpoverty prosperity. The strong growth inasustainablemanner, reducing progress areas forkey priority further insustaining identify andother partners Bank Group (WBG), oftheSCDistoobjective helpCambodia, the World addressing thekey challenges that remain. The aspirations by identifying pathways for to helpCambodia achieve itsdevelopment This Systematic Country (SCD) Diagnostic aims lie ahead. going forward, but significantrisks challengesand sustained economic growth withshared prosperity job creation are seenastheavenues to promoting coupled and withhouseholdeconomic mobility trade treatment diversification are expected. Export in donorfinancingandanerosion ofpreferential status,developed country aprogressive decline and withCambodia’s eventual graduation from least- environmental sustainability. Onthegrowth side, area islimited, especiallyconsidering theneedfor and Cambodia’s gainsincultivated scope for further the outlookfor prices isnotpositive, commodity thusfar.contributors reduction to poverty However, agricultural prices have beenthemostsignificant past two decades. Land expansion and rising strong growth over reduction andpoverty the ableto thatbe rely drove onthesamefactors However, goingforward, Cambodia may not andrealconstruction estate. agriculture,exports, tourism, and, more recently, (Ly, 2016a).Growth hasbeendriven by garment Cambodia economy becamealower middle-income an estimated USD1,070in2015,theyear inwhich capita more from thantripled USD300in1994to and written inputs from World Bankspecialists literature review presented inaseparate document; that were specifically commissioned for this SCD;a gender gaps, andinnovation performance, firm on sources of growth, labor trademarket, outcomes, on analysis to date. The SCDdraws from analyses The SCDtriesto answer thesequestionsbased finances). andgovernmentsectors), effectiveness (public (social delivery assessments), public service impact costs), rule oflaw (landissues, environmental control ofcorruption (inrelation to operating firm of the SCD as relevant, including discussion of governance issuesispresented inthevariousparts For greater andspecificity, clarity discussionof iv. iii. ii. i. questions are: and sustainablegrowth inthefuture. These identifying pathways for ensuringstrong, shared, growth inCambodia and reduction andpoverty that focus onunderstandingthedrivers of The around SCDis structured a seriesof questions for addressing thekeychallenges goingforward. Cambodia definestrategic development priorities development challenges. The to SCDisexpected help to overcomeCambodia (RGC) existing andemerging the commitment oftheRoyal Government of preparation ofCambodia Vision 2050, signal in Cambodia goingforward? strong sustainable growth reduction and poverty and development areas for to attain action Based on the above, what are the key pathways mitigation? Cambodia’s andrequire development trajectory model, andwhat potential threaten risks How sustainable is the current development decadeandbeyond?in thenext economic growth outcomes andenhance equity What needto beinplace factors to sustainstrong past two decades? robust growth over reduction the and poverty What were thedrivers ofCambodia’s fastand from its devastating civil conflict. It thentakesacloser from itsdevastating civil conflict. Cambodia’s andrecovery development trajectory context, describing ofthecountry an overview This SCDisorganized asfollows. begins with It is compared peers(Box to anumberofstructural 2). Annex 1),andthroughout thedocument, Cambodia exercisebenchmarking was (see alsoconducted in different areas (back to Table 1).A country development. also have incommon arecent by pastmarked tragic that affected civilconflict humanand economic (HausmanandHidalgo, 2009),withtheexceptionexports ofthePhilippines. andCambodia Nicaragua oftheseeconomiesMost currently have andrelatively astrong low garmentindustry complexityintheir data availability, to1,980 percapita).Due varying notallthepeersare includedinallthecomparisons. Guatemala (USD3,590),Philippines (USD1,940percapita),and (USD3,540),Nicaragua Vietnam (USD group (USD1,070GNIpercapitain2015according to theAtlas are: Method), Bangladesh(USD1,190), peersforUsing thestructural thesecriteria, Cambodia, whichrecently joinedthelower middle-income Countries that are notclassifiedasislands, smallcountries, orlandlocked. • Countries inwhichtherural population isat least40percent oftotal population; and • exposure High to natural disasters (top quintile); • Economies • Lower countries; middle-income • peersareStructural countries anywhere intheworld that meetfive that criteria alsodefine Cambodia: aspirational purposes. similarcountries (“structuralset ofstructurally for peers”), aswell asotherASEANeconomies (Thailand) This Cambodia SCDbenchmarks vis-à-vis countries classification, a withthesamelower middle-income Box 2:Proposed peerselection criteria for which “natural resource in2006-12” asashare ofexports doesnot exceed 20percent); not highly dependent on exports of natural Cambodia are proposed. strong,ensuring inclusive, andsustainablegrowth in areasand otherstakeholders, for somekeypriority well asinputsfrom consultations withgovernment forward are thendiscussed. Basedonthisanalysis as growth anditsinclusiveness going andsustainability decades. to of challenges and risks A series Cambodia’s over performance thepastcouple reduction poverty look at the drivers ofCambodia’s stellar growth and resources (identified by excluding economies Introduction 25 CAMBODIA: Sustaining strong growth for the benefit of all

Chapter 2 28 CHAPTER 2: Context: Cambodia’s development trajectory demoralized andimpoverished. state,of afunctioning andthepopulation was in1979,Cambodia Rouge hadnosemblanceKhmer little food. When Vietnamese forces toppled the and workloads withheavy agricultural activities population, andforcing themto engageinintense depopulating centers, urban enslaving theentire engineering, massive socio-economic undertook nationalist andutopian Rouge thought, theKhmer execution (Chandler, 1991).Driven by ultra- disease, andoutright overwork, from starvation, 1979), resulted inthelossof1.7millionpeople oppressive regime Democratic Kampuchea (1975- Three decadesof war andinstability, including the was soon involved in the Second Indochina War. 1953, and despite policy, its neutrality Cambodia of independence from French colonial rulein phase ofnation-building. Following itsdeclaration physical decimated capital andrequired a new itsfragile social,left human, institutional, and the country’s devastating civilconflict, which Cambodia’s achievements are impressive given economy… as ahighly openexport-oriented Cambodia, fromconflicttosuccess Context: Cambodia’s development path leaders saw efforts leaders sawto strengthen efforts thepower base political competition between thetwo majorparty 2010; HughesandUn,2011). For muchofthe1990s, geared toward gain(Hall, and Li, Hirsch, short-term natural from resources—particularly logging— unregulated, anduncoordinated exploitation of was characterized by fragmented, unplanned, infrastructure was inapoorstate, andtheeconomy and was marked by insecurity. The physical countries ofotherpost-conflict was typical Cambodia’s state intheearly 1990s capacity checks andbalances. and themechanismsof political andcivilliberties, elections, multi-party suchasperiodic democracy elements forcontained liberal allthenecessary anewconstitutionAssembly which enacted Constitutional Assembly in1993. The Constitutional (UNTAC) for elections a to organize multi-party United Nations Transitional inCambodia Authority Peace Agreement (PPA). The PPA permitted the known asthe the Cambodianin1991, conflict Paris development resulted inthehistoric settlement of 1991, following thedemiseofSoviet Union. This rivalries, theCambodiandragged onuntil conflict tophase ofstate-building. Due geo-political democratic of1993signaledanew elections The 1991Paris Peace Agreement andthe Country Context

through political patronage rather than efforts to States to link favorable access to the U.S. market with build the state around a formal and professionalized labor conditions in Cambodian factories (Slocomb bureaucracy (Le Billon, 2010). Such competition 2010), and the enactment of the European Union’s put the coalition government formed by the two Everything-but-Arms (EBA) agreement in 2001— major parties following the 1993 UNTAC-sponsored contributed to the entry of garment manufacturers election in an uneasy position, leading to an armed operating in Southeast Asia into Cambodia (Bargawi, clash in July 1997. Eventually, the consolidation of 2005; Hill and Menon, 2014). In terms of multilateral power under the current ruling party led to a long initiatives, Cambodia joined the Association of period of stability. Southeast Asian Nations (ASEAN) in 1999 and became a member of the WTO in 2004. Over the past two decades, Cambodia has been able to achieve political stability and economic In addition, Cambodia adopted a series of progress. Cambodia has transformed itself from reforms aimed at becoming a highly open a war-torn country to a peaceful one and from a market-oriented economy and fostering private centrally planned and ineffective economy to a sector development. The most notable reform was regionally and globally linked and rapidly growing the adoption of the 1994 law on investment, which economy. The country embraces a democratic allowed 100 percent foreign-owned investment system of government, with elections being held and provided guarantees against nationalization at regular intervals. Economically, political stability and regulation on price. The creation of the Council and the absence of violence facilitated the surge in for the Development of Cambodia (CDC) as a one- economic activity.5 Despite criticism of widespread stop service office for investors also helped channel corruption, the country has achieved sustained foreign investment. This was accompanied by the economic growth. Socially, the fruits of economic enactment of critical regulations, including land, growth have been felt among the Cambodian banking, bankruptcy, and company laws (Kelsall and public with increased poverty reduction and Heng, 2014). Cambodia has also introduced notable general improvement in human development cross-border trade facilitation improvements in indicators, although numerous challenges remain. recent years, resulting in faster export and import Considerable progress has also been made in procedures (Table 16 in Annex 1). Cambodia ranks adopting several national-level policies and among the top 5 percent of economies in the world development action plans, albeit with varying in terms of merchandise trade (imports plus exports), results across sectors. at 144 percent of gross domestic product (GDP) in 2015. Compared to other Southeast Asian countries, Once stability was regained, Cambodia showed a Cambodia is also recognized as having the least strong commitment to economic openness with trade restrictions in services (ASEAN Secretariat and the signature of free trade agreements (FTAs) and World Bank, 2015). accession to the World Trade Organization (WTO). The United States granted Cambodia most favored To a large extent, the development of nation (MFN) status in 1996, which—together global industries has been coordinated with with the Generalized System of Preferences (GSP) stakeholders. For the garment sector, the Garment in 1997, the signature in 1999 of a bilateral textile Manufacturers Association in Cambodia (GMAC) agreement between Cambodia and the United was created by the first group of investors as a Sustaining strong growth for the benefit of all for Sustaining strong growth vehicle for collectively dialoguing with the RGC. 5 From the viewpoint of some investors, the ability to This body became instrumental to the coordination maintain political stability and reduce violence is a necessary processes of garment production and export, with condition for people to develop entrepreneurial activities

(Kelsall and Heng, 2014, p. 29). an official role in garment exports recognized by the CAMBODIA:

29 30 CHAPTER 2: Context: Cambodia’s development trajectory functions havefunctions beenguaranteed, includingitsability environment that isrelatively open.Basicstate inabusiness relative andcertainty predictability challenges. economic growth despite continued governance Cambodia able to hasbeen attain strong challenges… governance … withpersistent (World Bank, 2015b). Bank, (World to by FDIattraction minimizingexchange rate risks stableprices,and underpins may have contributed provides anominal anchorfor economic agents to withrespect rate theU.S. policy dollar, which to dollarization of the economy. The stable exchange receipts haveand tourism andexport ultimately led 1996 to 5percent in2014.Notably, large aidinflows a percentage of GNIdropping from 12.2 percent in official development assistance (ODA) received as ofsuchaidisonthedecline, withnet importance presence contributing to development. The relative economic development islarge aidflows anddonor Another distinguishingfeature ofCambodia’s 2005-15 (average of7.9percent ofGDPannually). the mostforeign investment direct (FDI)during among thecountries intheworld that attracted exporter,being acommodity Cambodia was by astableexchange rate policy. Despite not fueled byalso been foreign inflows, supported Cambodia’s rapid economic development has Heng, 2014). officialsproblems” tosolve industry (Kelsalland representativesprivate-sector andministerial groups, working cross-cutting bringing together by supported “a specificand system of industry Private Forum Sector (G-PSF) was establishedand For thebroader private sector, theGovernment- minimum wage settingmechanismfor theindustry. demanded by laborunions, resulting inacollective as well negotiations as during on wage increases represents discussions in policy the manufacturers toRGC become membersofGMAC. The GMAC also Growth hasbeenfeasible thanksto perception ofcorruption 2). Cambodia ranks 150thoutof167countries in lower countries (L-MICs) middle-income (Figure relative to theASEAN-5countries andto other rulemaking, control ofcorruption, andrule oflaw Cambodia stillrates low oncitizen engagement in 2009a). Bank, resolved problems through (World collective action with governmentassociation to interface and fromnot enjoy abusiness asimilarlevel ofsupport rice millingandfood processing more generally, did 2009a; Ear, industries, such as thosefor 2011).Other Bank, to getthingsdone(World withitsability sector role andthepublic between garment manufacturers create by playing asenseofsecurity anintermediary and The GMAC to theindustry helpedsustainsupport costs andfacilitatestransaction growth inthesector. andnegotiation, whichlowerscollective action helped create “good enough governance” through the GMAC, acapableprivate organization, sector across thecaseofgarments, sectors. In presence of jeopardize economic withsomevariation activities, exist butare contained at alevel that doesnotfully ofpublicofficials continue activities to Rent-seeking to coordinate and seek cooperation from the citizens. 7 International. 6 in Southeast Asia.in Southeast recent incidence years, stillhasthehighestbribery legislative bodies. Cambodia andjudiciary governance ischallengedby quality weak is basedontheprinciplesofdemocracy, weak Although Cambodia’s current system political ofanincreasinglyexpectations educated citizenry. organizationcivil society (CSO) sector, andtherising to addressthe publicsector thedemandsofavibrant decade hasbeensluggish. of This hamperstheability decentralization reforms pursuedover thepast public administration, legalandjudicial, and and progress inthepublicfinancialmanagement, improved butremains uneven across ministries, Enterprise Surveys, 2016, World Bank Group. Corruption Perceptions 2015, Index Transparency 7 Public Sector capacity has Public capacity Sector 6 and, whiledecliningin Country Context

ranks 112th out of 113 countries in World Justice a lack of focus on systematic and institutionalized Project’s 2016 Rule of Law Index. Weak legislative provision of social services poses risks to shared and judiciary bodies undermine multi-party prosperity. Patron-client relations pervade the pluralism, rule of law, and civil and political liberty formal state administration, making it systematically (Un, 2005). While a number of judicial reforms and less functional, and pose challenges to even access laws and regulations adopted over the past fifteen and quality of public services (e.g., access to justice years have broadened the role and increased the to sort out problems over land or, in some cases, use of the court, there is evidence of the lack of rent-seeking by doctors and teachers). These barriers judicial independence, often in favour of elites (Un, disproportionately affect the poor and vulnerable. 2008). In 2015, an overwhelmingly large number of For these reasons, this SCD discusses challenges Cambodians (91 percent) felt that democracy is the and potential reforms in this area to ultimately best form of government; however, the percentage enhance state effectiveness while enhancing voice of respondents who were satisfied with how and accountability and limiting corruption in service democracy works in Cambodia was only 69 percent, delivery (see section 6.5). down from 82 percent in 2012 (Chu et al., 2016). A series of political crises in 1997, 1998, 2003/4, and … and a large rural population that 2013 highlighted the need to strengthen state institutions further. still depends on agriculture and remains vulnerable Lack of voice and limited access to legal protection due to weak democratic governance contribute Another distinguishing feature of Cambodia is its to the slowdown of institutionalization of public predominantly rural population and, for a MIC, services and could eventually threaten overall the level of continued reliance upon agriculture social stability. While the existing patronage-based for income and employment. In the 1970s, a large distribution of resources has allowed for some trickle- proportion of the population was forced to relocate down to the Cambodian poor and has contributed to to rural areas. The proportion of rural population social stability to some extent (Craig and Pak, 2011), today, at 80 percent, is still higher than it was prior to the Khmer Rouge regime (Figure 3, left panel). Agriculture has played an important role in growth Figure 2. Cambodia rates relatively low on and poverty reduction and still represents a major certain governance indicators portion of the economy. In the short period from 2007 to 2009, 3.3 million people escaped from Voice and Accountability poverty, with most of the 25-percentage-point 1.5 1.0 decline in poverty during that time attributable to 0.5 Political Stability agricultural and agricultural wage income. Around Control of 0.0 Corruption and Absence of -0.5 Violence/Terrorism 4 million Cambodians rely on agriculture and -1.0 fisheries as their primary source of livelihood, while -1.5 an additional 1 million people work in agriculture on a seasonal basis to supplement their income and/ Rule Government of Law Effectiveness or support their food security (FAO, 2014). Although the share of agriculture value-added in total GDP Regulatory Quality declined from 50 percent to 33 percent during the the benefit of all for Sustaining strong growth 1990s, it has averaged 33 percent since 2000—now Cambodia 2014 Cambodia 2005 one of the highest proportions in the world (Figure Lower-MIC 2014 ASEAN-5 2014 3, right panel).

Source: World Governance Indicators, World Bank Group. CAMBODIA:

31 32 CHAPTER 2: Context: Cambodia’s development trajectory Source: Figure 3. Mines andEnergy,Mines 2016. inOctober conducted 9 8 people out of school (Sohnesen etal.,people outofschool(Sohnesen 2016). provinces iscorrelated withthepercentage ofyoung andSouthwestern schools intheNortheastern strong evidence indicates that the lack of secondary addition, healthcenters are scarce inrural areas, and options isalsosignificantly lower intheseareas.In Access to all-weather roads andreliable transport percent areas inurban in2015). water supply(69.1percent inrural areas versus 100 percent areas inurban in2015)andimproved facilities (30.5percent inrural areas versus 88.1 significantly lower access to improved sanitation water havedrinking beenmet, rural areas have MDG targets for access to improved sanitation and andservices. Althoughgoods national-level economic outcomes andinaccess to basicpublic far, rural areas urban lagbehind areas insocio- Despite the remarkable progress achieved thus compared to almosttheentire population. urban half oftherural population hasaccess to electricity to anestimated 60percent in2015;however, only has increased significantly, from 33percent in2012 % of total population According of to SCD-related discussionswiththeMinistry WHO/UNICEF Joint Program. Monitoring 100 40 50 60 70 80 90

Wo

rl 1960 d De Cambodiastandsoutinagr

Cambodi 1964 Rur velopment Indicato 1968 al population, 1972 a 1976 1980 rs. Lower middle-income 1984

1988 %oftotal 8 Access to electricity 1992 1996 2000

2004 iculture value-addedand 2008 2012 9

2015 many Cambodians. and physical safety (from landslidesandflooding)of Natural assetdegradation threatens thelivelihoods cultivation, andoverfishing. due to mono-crop including through illegallogging, soilexhaustion experienced adegradation ofitsnatural resources— drought. thepasttwo decades, Over Cambodia has a lossofmore than25percent inyield due to areaseason paddyrice production experienced of the wet event,the 2015-16 El Nino three-fourths onrural livelihoods.impacts For example, during agriculture, and weather have shocks often severe food-insecure are rural peoplewhoare in active most affected by climate change.Most of Cambodia’s disasters to andisexpected beoneofthecountries Cambodia hasrelatively highexposure to natural ofunsustainablenaturalimpacts resource use. vulnerable to natural hazards and to the adverse Cambodia’s rural population isalsoespecially % of GDP Nicar Cambodi 10 20 30 40 50 60 0 agua

1993 Agr aL

1995 iculture valueadded,

Guatemala 1997 ru ower middle-income 1999 ra l population 2001 2003 Philippines 2005 %ofGDP 2007 2009

Bangladesh Vietnam 2011 2013 2015 Country Context Sustaining strong growth for the benefit of all for Sustaining strong growth CAMBODIA:

33

Chapter 3 36 CHAPTER 3: Drivers of growth and poverty reduction strong performance throughoutstrong 2007-14, with performance line of USD 1.90 (in 2011PPP) a day also show Estimates basedonthe international poverty more than3.3million people escapedpoverty. declined by about25percentage points, and agricultural boom,whenpoverty commodity the2007-9 period,during at thepeakof panel). dramaticThe was reduction particularly percent ofthepopulation in2007(Figure 4,left line,under thenationalcompared poverty to 47.8 2014, only13.5percent ofthepopulation lived itspeers. As ofwith Cambodia outperforming poverty,impressive inmonetary reduction in Cambodia accompanied hasbeen by an Over thelastdecade, higheconomic growth prosperity reduction andshared inpoverty countries Cambodia hasbeenoneoftheleading commodityprices higher agricultural to jobcreationandawindfallfrom reductionthanks 3.1 Successinpoverty inCambodia? performance reduction stellar growth andpoverty of What have beenthedrivers to piped water by 7.3 percentage points (Figure 5). by 34.9percentageelectricity points, andaccess a motorcycle by 28.5percentage points, access to increased by 51.9percentage points, ownership of between 2007and2015,ownership ofcell phones reflected inother indicators oflivingconditions: standards. are reduction The gainsinpoverty ismirroredreduction by improvements in living Cambodia’s poverty inmonetary performance 2016). Bank, Vietnam (World percent compared to itspeergroup, including in meanconsumption amongthebottom 40 Cambodia alsoshowed thehighestrate ofgrowth oftheglobalfinancialcrisis, theaftermath In per year over that(Figure period 4,rightpanel). declined bywhere 1.9percentage poverty points among Cambodia’s peers, behindonly Vietnam per year second onaverage—the highestrate PPP) declinedat arate of1.3percentage points (basedonUSD1.90aday at 2011extreme poverty comparable between 2004and2012, timeperiod World BankGroup target of3percent. a Over now estimatedextreme poverty to bebelow the Figure 4. Source: per Notes: more equitable thanothercountries intheregion (Figure Cambodia 6,rightpanel). Nevertheless, is in 2014indicates hasbegunto that rise inequality although anincrease in the Ginicoefficient to27.4 coefficient fell from 36.5in2007 to24.3in2013, poor ismirrored indeclininginequality. The Gini per annum. The pattern ofgrowth favorable to the the pace of growth hadslowed to about3.3percent higher pace than the top 60 percent 2009, but after for thebottom 40percent continued to grow at a annual growth for thetop 60percent. Consumption year higherthanthe11percent onaverage—much price boom,atcommodity more than19percent per 40 percent was especiallyrapid in2007-09withthe Growth inconsumption percapitafor thebottom top 60percent of4.7percent (Figure panel). 6,left compared to growth inmeanconsumption for the grew at anannualaverage rate of7.8percent, consumption percapitafor thebottom 40percent contributing to adeclineininequality. Since 2007, favorable since for andnear-poor 2007, thepoor Growth in Cambodia particularly has been alternative estimates (seeAnnex 2). have improved, atrend that isconfirmed using These indicators show that overall livingstandards % of total population iods usedincross-countr 10 20 30 40 50 60 70 0 * Officialestimates 2004 Author Cambodiahasachiev Po 2005 ve ities rt 2006 re-estimated y incidence , andCSES(2004-2014) 2007 y compar 2008 the , national line* isons duetodataav 2009 pover ty 2010 ed impressiv line ; 2011 Wo using rl d BankstaffestimatesfromtheGlobalMonito 2012 the ailability 2009 2013 e progressinpo . CSES 2014 inter and small-scale farmers—experienced a sharp decline asharp small-scale farmers—experienced minorities, educated, thepoorly andespecially socioeconomic groups—including ethnic in poverty.the biggestreduction Different The poorest experienced segments ofsociety challenging. welfare ismeasured comparisons makedirect now, although differences in the way aggregate Source: housing amenitiesha Figure 5. Metal sheetroof Annualiz have Annualized change (%) national $1.90per Piped 0.0 0.5 1.0 1.5 2.0 Motorcycle Cell phone

Wo T Electr elevision not 2004-12 Vietnam rl W d Bankstaffestimates fromtheCSES 1.9% produced ve Householdo ate icity and housingamenities, ed reductioninpo Change ino rt r 01 y reductionov Cambodia 2004-12 compar 1.3% 5.8% 7.3% 02 ri ng Report able wner 16.5% Bangladesh ve son perda 2005-10 03 wner estimates 0.5% impro ship ofassets (2015) ve er thepastdecade rt 04 28.5% ship ofassetsand 2007-14 y (basedonthe Nicar 2005-09 . for ve 34.9% 0.3% y po 2004. , 2007-2014. 05 d signif agua ve

** Philippines rt 2003-12 06 y line)** 0.3% Dif icantly fe

rent 57.7% 0

Drivers 37 CAMBODIA: Sustaining strong growth for the benefit of all 38 CHAPTER 3: Drivers of growth and poverty reduction Source: commodity pr Figure 6. high by international standards (Figure panel). 7, left dropped from 1,020 in 1990to 161in2015,itremains per100,000live births Although maternal mortality remain on the human development front. standards by all measures, significant challenges However, despite progress theobserved inliving (seeAnnex 2).poverty the regionalchallenges that profile distort of alternative estimates point to methodological do notprovide aregional profile ofpoverty, but rates oftheKhmer.poverty Recent officialstatistics has increased to rates significantly higherthanthe in otheryears, amongethnicminorities poverty been similarto(e.g., that oftheKhmer in2013),but has amongethnicminorities incidence ofpoverty ingoodyears, andtheKhmer: theethnic minorities drives thedifferences incidence between inpoverty now amongethnicminorities vulnerability High declinedfaster amongethnicminorities.poverty LaoPDRand unlike inneighboring Vietnam, 2007-14.Notably, during point inpoverty reduction percent), who then experienced a 44.5 percentage among thoseheadedby someoneinagriculture (57 in2007was highestthe incidence ofpoverty (Table terms ofeconomic sectors,in poverty 4).In Annualized growth (%) 10% 15% 20% 0% 5%

Wo rl Gro d BankstaffestimatesfromCSES(2007-2014) Gro 19.7 2007-09 Bottom 40percen wth inconsumptionpercapita 11.3 wth becamepro-poorafter2007, ices 2009-14 3.3 t 1.2 To p 60percen 2007-14 7.8 t . 4.0 inthecontextofhighagr poverty reduction has been driven reduction by that factors poverty provision in of general,service it also suggests that outcomes points to challengesintheeffectiveness welfare indicators andhumandevelopment large between the levels disconnect of monetary public sector’s to deliver capacity services. While a generally the and doctors—which undermined of its human capital—including teachers the country Cambodia’s peoplerobbed andskilled semi-skilled human development agenda. The of many killings driven independent by oftheunfinished factors reduction poverty also ofgrowth and monetary and ofconflict outcomes alegacy are partly The lower-than-expected humandevelopment right panel). average economy lower (Figure middle-income 7, peers at 43.6percent in2013,versus 71.2for the are stilllow andamongthelowest compared to its percent), completion rates secondary inCambodia education completion (96.3 been made inprimary stunted in2014.Similarly, whilenotableprogress has as 33.5percent ofchildren underage5remained between 1990and2015,asmany per 1,000births decliningfrom 117 to 29deathsunder-five mortality hasimprovedWhile childsurvival significantly, with 10 15 20 25 30 35 40 0 5 T rends inconsumptioninequality: 2007 36.5 2008 34.3 2009 30.8 2010 30.3 2011 27.0 icultur 2012 26.7 2007-2014 al 2013 24.3 2014 27.4 Source: Figure 7. Dependency ratio Dependency Employment ofhouseholdhead sector Education ofhouseholdhead Ethnicity ofhouseholdhead Ethnicity Source: World Bankstaffestimates from CSES(2007-2014). ofhouseholdhead Gender Household characteristics 2007-14 Table in 4. areductioninpoverty alltypesofhouseholdsandareasexperienced Nearly Lowe Cambodia Bangladesh Guatemala Philippines

Nicar WDI, Mor Mater Vietnam r- Child andmater 2016. MICs agua tality r Cambodiastillfaceschallengesinnon-monetar nal mor 05 Latestav ate , tality r under 0 ailable data atio (per100,000liv -5 (per1,000liv 100 nal mor 150 . tality e birt 200 , 2015 e bir hs), 250 ths), 2015 >2 1-1.5 0.5-1 <0.5 Services Construction Mining andmanufacturing Mining Agriculture Tertiary education Secondary education Secondary Primary education Primary No education Other Khmer Male Female 2015 300 Lowe Cambodia Bangladesh Guatemala Philippines Nicar Vietnam r- MICs agua y dimensionsofw 02 Lower Secondar Pr School completion, imary CompletionRate 04 2007 56.4 59.8 53.0 38.7 30.1 59.8 50.7 57.2 39.6 53.3 52.3 48.4 49.6 43.6 4.7 6.1 y CompletionRate 06 ell-being 2013 2009 39.5 33.2 24.8 17.1 13.6 25.3 21.3 27.5 15.2 26.8 28.6 22.8 23.0 23.2 4.5 7.5 08 0 2014 24.8 17.7 14.4 17.1 11.4 12.7 15.7 20.4 12.5 11.7 17.5 9.6 9.1 0.9 2.0 8.1 100 Drivers 39 CAMBODIA: Sustaining strong growth for the benefit of all 40 CHAPTER 3: Drivers of growth and poverty reduction received remittances in2011(ADB, 2014). percent between 2004and2009,43percent of households 10 for thebottom 40percent andthat remittances significantlyin thegarment sector increased welfare garment sector. Evidence indicates that participation people out of agriculture and into the fast-growing was reduction driven by themovementpoverty of employment inthenon-farmsector. particular, In in Cambodia was growth inlow-skilled wage Prior to 2007,themaindriver reduction ofpoverty expansion agricultural been low-skilled urbanjobcreationand reductionhave ofpoverty The drivers in rural roads gave access farmers to previously 2015).Investmentsand rubber(Eliste andZorya, cropor industrial likecashews, production cassava into and diversify production, into livestock and/ their useofpurchased inputs, fallow bring land prices commodity incentivized to farmers increase rural incomes and made growth pro-poor. Higher high agricultural onprices effect had a cascading from came agriculture, reduction in poverty as After 2007andupthrough 2012,thelargest gains 2013a). Bank, and lessinclusive (World to 2007,thepattern ofgrowth was urban-centered period. This combination meant that, offactors prior better-educated camefrom non-poorfamiliesinthat increased amongthepoor, ofthe themajority andwhileeducational attainment opportunities, better placed to takeadvantage ofthesenewjob and 2008. education wereThose withpost-primary areas compared to 0.9inrural areas between 2004 example, of9.8percentage arise points inurban employment was concentrated areas—for inurban Tesfaye, 2016). The increase non-farm insalaried and investments inagriculture and (Mejía-Mantilla household expenditures on education, health, originating from contributed thesector to greater development agenda. are independent ofthelarge, unfinishedhuman Income from Income remittances andtransfers increased by 25 10

yet thiswas outweighed by thepositive effectof land, rice prices rising affected themas consumers, land andanother24percent whohad insufficient price increases. For the17percent whodidnothave produce andthusbenefited from asurplus directly percent ofrural householdsowned landthat could Based onestimates from the2009CSES,about37 laborers whoexperienced higherreal wages. surplus producers agricultural andland-poor risingprices theboom, both During benefited in remittances from abroad. seem to have alsotemporarily resulted inadecline the endof2012(Figure prices commodity 8).High agricultural raw material prices, whichcontinued to to benefit greatly from theelevated food and surging Many were farmers rice exports. thusable to onthewaveenabled farmers ride of Vietnam’s of large quantities ofun-milledpaddy, which Cambodia was exceptional theexport inpermitting 2016c). Bank, levies, ontrade (World andrestrictions avoided food price controls, associated taxes or other countries at thetime, inCambodia authorities higher-valueperishable commodities. Unlikein were high. This alsoenabledbetter movement of unreachable landjustwhenthereturns from prices boomed from2007to2012 Source: Figure 8.

Remittances, % of GDP T 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 rends inru Rubb

Wo er Pr

rl 2000 d Bankcommodity pr

2001 Agr

ice 2002 bb

2003 icultur 2004 er andr

Rice Pr 2005

2006 al commoditypr ice pr ice ices database 2007 2008

2009 ices,

Remittances, 2010 2011 andremittances . 2012 2013

2014 ices %ofGDP 2015 0 50 100 150 200 250 300 350 400 450 500

Rice (Thai) & Rubber (SGP) price i(2003=100) Source: Figure 9. total rural incomes (Figure 9,rightpanel) andone- of income onlyaccounted for about one-quarter areas (Figure 2014, agricultural panel). By 9,left remittances which sustained income growth in rural tapping bothinto therural economy off-farm and have increasingly diversified theirlivelihoods, GDP inrecent years. However, rural households resulted inaslowdown andstagnation inagricultural coupled with weather events in2013and2015, diversified into crops. industrial Declining prices, collapsed, whohad especiallyaffectingfarmers to decline,rice prices started andrubberprices to experience started aslowdown.sector 2012, In income into non-farmincome, astheagriculture Around diversifying 2012,householdsbegan their andothermachinessinceof tractors thelate 2000s. land expansion, have given to rise an accelerated use initial price increases. wages, Rising together with percent between 2007 and 2008 at the height of the increased by 44percent by andfor 41 harvesting For instance, dailywages for ploughingfor men food price increases, exceeding overall inflation. spikedat theheightagricultural ofthe activities 2013a).Dailywages for Bank, various crops (World areas andonlandsthat haddiversified into other for agricultural laborontheexpanded rice-growing increased agricultural wages andhigherdemand

'000 khmer riels (20131000 1200 prices)1400 1600 200 400 600 800 CSES, 0 2009 NationalInstitutef Householdincomesourcesha T rends inhouseholdincome by 2010 W source2009-2014 age andsala 2011 or Statistics ry 2012 . Agr iculture 2013 2014 ve Non becomemoredi Agr nearly 13percentagenearly points ifcompared with2007. agriculture astheirsolesource ofincome, down by of rural householdsdependedon one quarter sourcesfarm ofincome instead. 2014,lessthan By number ofthesehouseholds diversified into non- entirely transitioned outofthesector. An increasing households engageinagriculture andhave not high, at95percent, nearly indicating that most households engaged in agriculture remained very entirely outofagriculture. Overall, theshare of farm wage employment, rather than transitioning into non-farmhouseholdbusinessesandnon- of non-farmingincome sources by diversifying Rural households have increased the contribution shared inCambodia prosperity inyears to come. a significant and contributor reduction to poverty implies that the rural economy non-farm could be percent of incomes for the bottom 40 percent. This non-wage agriculture income constitute about36 andshared reduction prosperity,to poverty andnow livelihood diversification inrural areas contributed respect, Cambodia issimilarto Vietnam where ofdecliningagriculture growth.the impact this In Thus, non-agricultural sources ofincome cushioned wages), household businesses, and remittances. the rest coming from wages (includingagricultural third ofincome for thebottom 40percent, with ic Selfemplo

Percent of total income 100% 20% 40% 60% 80% 0% Composition ofhouseholdincome Phnom P yment 48 34 15 1 2 ve enh r sif by ied inrecentye Tr source ansf Other urban er s , 40 42 10 4 4 2014 Other ar s Rur 45 24 20 5 6 al Drivers 41 CAMBODIA: Sustaining strong growth for the benefit of all 42 CHAPTER 3: Drivers of growth and poverty reduction registered Cambodian migrants (or6percent in 2014.As of2015,there were anestimated 900,000 rural householdshaving aninternational immigrant migration also increased, with about 7 percent of 2004 to closeto 33 percent in2014.International received domesticremittances, from 11percent in ofruralincrease households who intheproportion increased significantly, inthesubstantial reflected that domesticremittances recipient households slowdown. Estimates from theCSESindicate during the currentin poverty agriculture Migration contributed to the continued reduction ofrural incomes. constitutes one-fifth andremittancessector isthat agriculture now only combination ofincreased income from thenon-farm around 6percent since then. The outcome ofa obtaining income from hashovered thissector occurred to prior 2007 and theshare of households inthehotel andrestaurant in participation sector with this source of income since 2011. The bump with a3percentage point increase inhouseholds has lately rebounded, activities in manufacturing 2007-2011, to about16percent in2014.Participation increasing from anaverage of10percent during share income ofhouseholdsearning from thesector, The highestgrowth withthe was inconstruction, Source: has signif Figure 10. Fractions of households 10% 15% 20% 25% 30% 35% 0% 5% CSES, NationalInstitutef icantly increasedinrecenty Householdswithincomefromdomesticandinter 2004 from domesticremittances Households withincome Rura lU or Statistics 2009 rban . 2014 ear s in both Khmer andEnglish,inadditionto completionin bothKhmer includerelatedcriteria work experience andliteracy USAID, 2016) shows that businesses’ top selection businesses. Evidence (EMCand from survey afirm or professional that are mostindemandby skills therefore technical donotpossess thenecessary orcropwork ineitherconstruction farming, and potential migrants have not completed school and methods and human trafficking. most Furthermore, are required to avoid ofunsafe therisk migration from bothcountries towards formal registration especially to Thailand. Thus, continuous efforts of internationalthat emigrants a majority are illegal, et al.,(Roth 2015).However, this study also indicated headcount ratepoverty by 3-7percentage points and international remittances could reduce their recent studyfindsthat households receiving internal remittances asahouseholdcoping mechanism.A act there isaslumpinagriculture. Thus migration and more and/ormigrants remit more moneywhen (Figure 10),suggestingthat eitherpeoplemigrate when agriculture prices declinedandvice-versa International remittances seemto have increased undocumented migrants (EMDandUSAID, 2016). significant additionalnumbersof butunknown alone, withevidence suggestingthepresence of of thetotal Cambodian population) in Thailand Fractions of households 10% 12% 14% 16% 18% 20% 0% 2% 4% 6% 8% 2004 from inter Rura Households withincome national remittances lU national remittances 2009 rban Rice pr 2014 ice 0 100 200 300 400 500 600

Rice, Thai 5% ($/mt) annually during 1994-2014, andtotalannually during investment grew at anaverage rate ofmore than19percent garments, rice,services—mainly andtourism— transformation.structural of goods and Exports driven andinvestment by exports as well as Cambodia’s exceptional GDPgrowth hasbeen kept at singledigits. crises, those two inflation external during hasbeen an average of7.2percent 2010-2015.Except during crisis, it rapidly rebounded and remained strong at percent in2009thecontext oftheglobalfinancial crisis. Although economic growth decelerated to 0.1 5 percent in1998,theyear oftheEastAsian financial also been resilient, with the economy expanding at average rate of 7.6 percent. Economic growth has world ineconomic growth in1994-2015, withan mentioned earlier, Cambodiain the ranked sixth in Cambodia rapid hasbeen andresilient. As Over thepasttwo decades, economic growth resources basic humanandnatural to date: growth linked to export-led 3.2 Cambodia’s mainenginesofgrowth growth in thecoming inreducing years. poverty assustainingnon-agricultural be justasimportant boom. Thus reinvigorating agriculture growth will growth slowed price down thecommodity after growth was substantially lower whenagriculture noting that consumption is also employment.worth It which and fisheries) represented 47 percent of total jobsin agriculturemillion direct (including livestock 18 percent ofGDP).As of2014,Cambodia had4 average for countries lower (around middle-income higher thaninotherAsian economies, aswell asthe in total GDP(30percent in2015)remains significantly transformation—thestructural share ofagriculture processes during been declining—asistypical of the economy andrural livelihoods. While ithas Nonetheless, agriculture remains of acore part Cambodian migrants dohave. most type ofskills –the skills in certain of acertificate in these sectors becauseofgrowingin thesesectors comparative tourism receipts. Investors were encouraged to invest growth and was driven mostlyby garmentexports with jobsincreasingly located intowns andcities. decades, highlightingtransformation, theurban million inagriculture andfisheries overtwo thepast and0.7 jobs were andservices created inindustry terms ofemployment,In around 3.6millionnew in 2009-10 provoked by the global financial crisis. has proven highlyvolatile, withaprice bubbleburst driver ofgrowth,as thefourth althoughthissector Recently, andreal construction estate have joined in hydrological conditions caused by drought. fell to zero for 2014and2015,likelydueto variation averaged 0.3percent between 1996and2013but contribution to growth from sector thefisheries as discussed abovefactors (Figure 11). Likewise, the and WFP, 2016),lower prices, commodity andother due to adverse weather conditions (seeUNICEF, FAO, stagnatedto 2013,butthesector in2014and2015 livestock averaged around 1percentage point up points. The contribution ofagricultural crops and and garments contributed another1.5percentage points to GDPgrowth onaverage 1995-2015, during (including tourism) contributed 2.4percentage the average 7.6percent economic growth, services of GDPgrowth thistime. during sector, By outof contributed one-seventh (TFP) productivity factor grew at13percent nearly ayear. 12 11 such as Vietnam (15.5) and Bangladesh (15.3). Equatorial Guineaandaheadofstellar performers secondwith Cambodia intheworld ranking after was ablistering 19.6percent, exports and services garment exports. The annual growth rate of goods dramaticand services, withparticularly growth in world’s fastest growth rates ofgoods inexports 1994-2014,Cambodia registeredDuring the services in labor-intensive ofgoodsand exports Cambodia hasenjoyed growth blistering World Development Indicators. World Development Indicators, the World BankGroup. 11 Growth intotal 12 This Drivers 43 CAMBODIA: Sustaining strong growth for the benefit of all 44 CHAPTER 3: Drivers of growth and poverty reduction Source: v Figure 11. that indollarvalue. grewthe volume more andgarmentexports oftextile than 13 than thecombined investment inagriculture (USD approved inCambodia over andmore thisperiod accounting for more thanhalf oftotal investment in foreign investment between 1994and2011, Wat complex, attracted more than USD 19 billion boom, mostly around the world-famous Angkor employment (Figure 12,rightpanel). The tourism source offoreign exchange, investment, and percent tourism an important of GDP and making less than250,000in1995,contributing around 17 received five nearly million in2015,upfromtourists generation, andinvestment attraction. Cambodia enginefor growth,an important employment another success story, becoming withthesector The impressive growth oftourism hasbeen financial crisis in2008. financial crisis two years until they doubledevery in the practice grew at suchahighannualized rate (31percent) that base): between 1993and2014,garment exports was especiallydramatic (albeitfromexports alow the size Growth ofitsdomesticmarket. ingarment notlimited by opportunities advantage andexport

contribution, percentage points olatile contr 12% -3% Given stagnant ordecliningunitvalues over thisperiod, 0% 3% 6% 9% NationalaccountsofCambodia. Agr iculture 1995 Gro 1996 ibutions fromagr wth inCambodiahasbeendr 1997 Gar 13 1998 ment 1999 2000 Other manufactur Sector contr iculture (includingf 2001 2002 2003 ing ibution toGDPgr 2004 iv en by Constr 2005 based intheCSES 2014. definitions andclassifications forbasic statistics, tourism and Tourism Organization’s recommendation on concepts, 14 the EBAarrangement hasensured continued high duty-free access since 2001under for allexports ended in 2004,the European Union’s preferential 2014). Although the U.S.and Menon, quota system AsiaSoutheast into Cambodia (Bargawi, 2005;Hill operating ofgarmentmanufacturers in to theentry 1996 andincreasing 1999contributed quotasafter United States’ granting ofMFN status to Cambodia in civilwar. thelongdestructive infrastructure after The donor inflows helped fund much-needed public More thantwo decades ofsustainedlargeservices. days,early withfew ontrade ingoodsand restrictions Cambodia hasbeenahighlyopeneconomy since its the external environment. As discussedearlier, domestic reforms, highlyfavorable policies, and Strong economic was facilitated performance by people in2014. for 300,000 employmentdirect opportunities in 2013,anditwas estimated to beasource for accounted for about70percent exports of services Development of Cambodia, 2012). Travel (tourism) (USD9.8billion)(Council for2.7 billion)andindustry isher World Bankstaffestimates following theUN World 2006 uction andrealestate gar ies) andconst 2007 ments andser ow th 2008 14 2009 2010 ru vices, ction 2011 Ser vices withmore 2012 2013 GDP gro 2014 2015 wth Source: Figure 12. increase inraw laborinputaloneaccounted for more hours (Figure panel).From 13,left 1993to 2014,the a lesserextent, by TFP, labor quality, andworking percentage points) and employment (1.7) and, to 2014 was driven by thecontributions ofcapital(4.2 than Vietnam.growth Cambodia’s growth in1993- and capital, withCambodia enjoying faster TFP Growth driven hasbeen mainlyby inputs labor than inotherfast-growing countries productivity gainshave beenmoremodest economic growth inCambodia, whilelabor Workforce expansionhasbeendriving telecommunications sectors. in thelegal, accounting, and banking, transport, and foreign companies ableto invest andoperate most open,withan ‘open skies’ civilaviation policy entry. Cambodia’s isalsooneofthe sector service andprohibitions restrictions to few FDI policy very the mostopeninvestment regimes, maintaining tariffs substantially. Cambodia offers dejure oneof and ASEAN has alreadyWTO reduced applicable the onlyprotective tool, althoughaccession to the footwear andfragrant tariffs are milledrice. Import of growth aswell asexports ingarmentexports 10000 12000 14000 16000 2000 4000 6000 8000 Cambodia merchandiseexpor 0

Wo rl d BankstaffestimatesusingdatafromCOMTRADE(mir 1994 Cambodiahasexper

To 1996 ta

l 1998

2000

Apparel andtextiles 2002

2004

2006 ts (USDmillion)

2008 ienced b

2010

2012 lister 2014 ror data), ing gro 1000 1500 2000 2500 3000 3500 significantly lower than in Vietnam and Thailand, to Cambodia’s average growth productivity rate— deepening contributed only 2.1 percentage points years of1986-96(Figure 13,rightpanel).Capital average growth rate in Thailand theboom during andto thesameperiod the7.1percentduring compared to the4.7percent achieved by Vietnam registered 3.5 percent growth in labor productivity lessimpressive.looks 1993-2014,Cambodia In Cambodia’s productivity onlabor performance in Thailand or Vietnam theboomyears. during capital accumulation isstillsignificantly lower than capital deepening, althoughthecontribution of Cambodia issustaining economic growth through stronger thanin Vietnam. To compensate for this, decelerated in2010-2014,althoughitremains the TFP contribution was strong in1993-2007but decelerated of the crisis. in the aftermath Similarly, theboomyearsduring of1999-2007,butthen of employment substantial inCambodia was very women in labor-intensive activities. The contribution extremely successful increating jobsfor youth and of its “demographic dividend” andhassofarbeen population, Cambodia phases isstillintheearly growth inCambodia. With itsgrowing working-age ofaggregate output(orreal GDP) than one-quarter 500 0

WDI. wth ingar 1995 US$ million(leftaxis) 1996 1997 1998 Inter 1999 national tour 2000 ment andtour 2001 2002 2003 2004 2005

2006 ism recipts

% GDP(r 2007

2008 ism expor 2009 2010

ight axis 2011 2012 2013 ts ) 2014 2015 0 2 4 6 8 10 12 14 16 18 Drivers 45 CAMBODIA: Sustaining strong growth for the benefit of all 46 CHAPTER 3: Drivers of growth and poverty reduction Source: productivity gainsha Figure 13. narrowing the difference to just3times(Figure 14, 2014, agriculture was catching productivity up, 4 times, respectively, that inagriculture, but by inthemid-1990swas around sectors 5and service and The intheindustry level oflaborproductivity not increasing significantly.and wages inindustry prices, andcommodity agricultural productivity the second halfofthe2000s, inthecontext ofrising some slowdown transformation instructural during decomposition shows analysis oflaborproductivity growth.to labor productivity Nonetheless, a panel) andenabledasignificant left contribution 1990s toin theearly 47percent by 2014(Figure 14, agriculture’s share ofemployment from 79percent past two decades. The transfer oflaborreduced significantly to economic growth over the contributed andservices), (such asindustry activities as agriculture) to higher-productivity from (suchlabor lower-productivity activities Structural transformation, orthemovement of 1990s (Figure panel). 14,left seem to besignificantly higherthanit was inthe doesnot explain why inindustry laborproductivity upgrading technology. itsproduction This may help which suggeststhat Cambodia hasfallenbehindin 1993-2014 Labor quality Cambodia 1993-2014 1986-1996

Thailand Vietnam Wo rl d BankstaffcalculationsusingNational Cambodia’ -1% 0% A Gro vg hour 1% wth accounting 2% s ve s gro 3% beenlowerthanincompar Emplo 4% wth hasreliedoncapitaland 5% yment 6% 7% Accounts and Capital 8% 9% 10% WDI. TFP

agriculture and growth. productivity be away for Cambodia to significantly increase productivity. Thus, diversifying beyond rice would other crops (coffee, pepper, fruits)have higher of unprocessed rice, while there isevidence that that Cambodia isspecialized intheproduction in Cambodia are, likelyto dowiththefact inpart, low levelsobserved ofagriculture productivity mentioningNonetheless, that the itisalsoworth jobs inacontext prices. ofdecliningcommodity employment inagriculture decreased by 0.4million jobs were while andservices, created inindustry 2009-2015,1.3million during fact, 2012a).In Bank, growthlabor productivity inCambodia (World of workforce) would remain themaindriver of transformationstructural (inter-sectoral reallocation would sectors stillpersist, and and services to gapwithrespect themanufacturing productivity higher agriculture level, productivity whilealarge is overestimated by 30percent would implya an assumptionthat laborforce inagriculture other countries. Alternative calculations under dueto itshighseasonality,sector in asobserved underestimate of the agriculture the productivity estimationstandard techniques may productivity highlighting thecaveat isworth thatright panel).It -2% 0% 2% 4% 6% 8% ato rs Labor productivitydecomposition 1993-2014 wo Cambodia Capital intensity rk force expansion 1993-2014 Vietnam Labor quality , while labor 1986-1996 Thailand TFP Source: has nar Figure 14. (Eliste and Zorya, 2015),althoughthere(Eliste andZorya, isevidence in somelocations, improved access to irrigation seed, better access to and, mechanized services, included increasedfactors useofhigh-quality 2002 to in2011.Contributing 213,000hectares quadrupled from in just under 56,000hectares sugarcane Rubberplantings production. nearly for rice, 9.1 percent for maize, and6.3percent for growth inyieldswas animpressive 5.0percent 2002and2012, theaverageBetween annual of favorable prices and improved access. market by 50percent between 2002and2012asaresult (Table 5).Landundercereal increased production of rubber, cashews, pepper, andother tree crops added crops includingthrough increased plantings crop yields, anddiversification into higher value- from smallholderland-useexpansion, gainsin stemmed agricultural laborproductivity Rising the gapbetween agricultural wages. andnon-farm reducing andservices, grew faster thaninindustry significantly. werewhen wages inmanufacturing not rising workmigration at andgarment atime factory the reduced (relative) attractiveness ofout- and highcommodity prices contributed to At thesametime, strong agriculture performance 10% 20% 30% 40% 50% 60% 70% 80% 90% 0%

Wo rl rowe

d Bankstaffcalculationusingnationalaccount 1993 Agri

Emplo The laborproductivitygapbetw

culture 1995 d, Labor productivity inagricultureLabor productivity

1997 par yment share 1999 tly contr 2001 Industry 2003 , by 2005 ibuting tosomeslo sector 2007

Serv 2009 ices

s. 2011

2013 2015 een themoder wdow and Ros, 2012). been as productive (Wokker, asexpected Santos, that investments in Cambodia in irrigation have not sustained strong growth basedonsuccessful countries. investment rates of at least 25 percent of GDP or more for recommendedCommission report that countries maintain percent ofGDP, etal., respectively (Kim 2014). The Growth as late as 1980-2010 averaged rates of 34, 31, 38, 28, and 40 maintained high investment rates since the 1970s, and even like Thailand, Malaysia, Korea, andChinahave Indonesia, 15 and othersustained-growth countries. rates remain lower thanfor itscomparators for more thantwo decades, although investment Cambodia achieved strong growth in investment growth sustainedfast economies experiencing savings have beenlower thaninother The levels ofcapitalaccumulation and preliminary evidence suggests that growthpreliminary incapital capital intensity forrising theeconomy. However, faster than annualgrowth inemployment, implying 13 percentnearly annually in 1994-2014—much capital formation (GCF) grew by anaverage of 1000 1500 2000 2500 500 Countries that have grown at highrates for many decades 0 n instru Labor productivity-constant2005USD Agri 1993 cultureI

1995 n andtr

1997 ctur

1999 al tr aditional sector ndustr

2001 ansfor

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2005 mation Serv 2007 ices

2009 s

15 2011 Gross To

ta 2013 l 2015 Drivers 47 CAMBODIA: Sustaining strong growth for the benefit of all 48 CHAPTER 3: Drivers of growth and poverty reduction to have become lessefficient, as manifested in years, the allocation of this investment appears While formation capital hasincreased inrecent government domesticsavings. percent ofGDPwould have beenfinanced by non- low by international standards, andtherest upto 22 etal., 2016),whichis GDP in2015(Sánchez-Martín investment accounted for amodest2-2.5percent of was financed by donors.Government-financed was financed by FDI,andaround 6percent ofGDP 10 percent ofGDPinterms ofcapitalformation isestimated that in2015,about right panel).It 10 percentage points ofGDPin2015(Figure 15, andwas ofthe2009crisis abovein theaftermath most ofthepastdecade, itincreased significantly capital formation was under 2 percent of GDP for years. While thegapbetween national savings and savings have low been andfalling in recent inflows and foreign investors nationalbecause oftheinvestmentMost was financed by donor Guatemala (Figure panel). 15,left lower thanfor allofCambodia’s comparators except than 20percent ofGDPindifferent sub-periods, percentage ofGDPhastraditionally averaged less it didin Vietnam or Thailand. Capital formation asa stock perunitoflaborhasnotgrown asrapidly as Source: World Bankstaffcalculation usingnational accounts. Table 5. land-useexpansionandgrowth inyields rapid sectorhasexperienced The agricultural Sugarcane Soybean Vegetables Cassava Rice Crop Maize Production 3,822,509 173,105 163,175 122,014 148,897 38,661 (ton) Cultivated 1,994,645 Area (ha) 2002 34,433 19,563 33,438 80,470 9,581 (ton/ha) 18.068 4.739 6.237 1.916 1.156 Yield 1.85 Production 1,220,255 7,613,697 9,290,940 411,435 950,909 120,165 (ton) to invest activities. inhigher-productivity consideration levels, oftheirproductivity withlittleincentive capital becauseinvestments went without into activities rate ofinvestment, butitresulted of inlow productivity 16 by exports of goods andservices, withgrowth ofgoods by exports summary,In growth in Cambodia led has been or Vietnam. Thailand although itremains significantly higherthan in (Figure 16). The return to capitalisindeedfalling, and commercial buildingswithlower rates ofreturn butrather in residentialequipment andmachinery in recent years, it has not done so significantly in While total investment inCambodia hasbeenrising higher growth (SummersandDeLong, 1991,1992). and countries with high equipment investment had generate more growth thanbuildinginvestment, efficiently. Equipment investment is found to well astheincentive for allocating that investment of capital) is the incentive investment for making as accumulation into output(i.e. for higherproductivity for theeffectiveimportant translation ofcapital such investment varieswidely. and Kourtellos, Tan, of 2008),althoughtheimpact growth (Fernandez, Ley, andSteel, 2004;Durlauf, capital investment isarobust determinant of the fallingrate ofreturn oninvestment. Physical high The in thatSoviet case is instructive it had a very Cultivated 2,980,297 Area (ha) 337,800 215,442 2012 36,722 54,155 70,972 (ton/ha) 33.230 22.539 7.597 4.414 3.117 1.693 Yield Annual Average Growth Rate (%) Production 16 21.6% 20.4% 12.0% 51.2% 9.7% 9.3% (ton) What iscritically Cultivated Area (ha) 14.4% 10.3% 33.0% 7.8% 4.6% 4.1% (ton/ha) 13.7% Yield 6.3% 3.9% 4.8% 9.1% 5.0% Source: compar Figure 15. Source: signif Figure 16. sustained growth ledby the garment andtourism Cambodia hasbeenableto attain strong and andprices inagriculture.productivity While in rural areas attributed be can to higher creation, reduction whilemostofthepoverty job inputsandsubstantialin labor unskilled Percent of GDP Percent of GDP 10% 15% 20% 25% 30% 10% 15% 20% 25% 30% 35% 0% 5% 0% 5% Av

NationalaccountsofCambodia, Cambodia Wo icantl er rl Equipment andconstr age grosscapitalfo d De 2000 ator countr Grosscapitalfo Cambodia’ y,

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2010 a vings-inv

Thailand. 2011 2012 Vietnam 2013 2014 estment gaphasbeengro 2015/p v estment intotal during theyearsduring oftheboom. to have beenlower thanin Vietnam and Thailand anddurable equipment seems terms ofmachinery growth addition,capital accumulation periods. In in more slowly thaninothercountries fast during hasgrown inindustry sectors, laborproductivity Percent of GDP 10% 15% 20% 25% 30% 35% 40% 45% 10% 15% 20% 25% 0% 5% 0% 5% g Gross nationalsa 1993 1993 Cambodia's sa ower comparedtoalmostall

1996 1995 Rate ofretur CA 1997 M 1999 v vingsG

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2008 2007 THA 2009 2011

rm 2011 ation

2014 2013 2015 Drivers 49 CAMBODIA: Sustaining strong growth for the benefit of all

Chapter 4 52 CHAPTER 4: Challenges to growth diversification (Figure 17). Hence, ofCambodia’s thegradual entry to increase thereafteruntil 2044, and then start ratio is projected todependency improve gradually to contract around theyearstart 2047. The total workforce will notbeuniform, andthepoolwill over 35years. thenext The increase in thepotential by more than135,000 personsperyear onaverage the poolofpotential workers to isexpected expand percent. Taking population dynamics into account, old) isprojected to beslightly higherat around 1.12 population (between 15toworking-age 64years year from 2015to 2050,whilethegrowth rate ofthe at anaverage compounded rate of1.06percent per that Cambodia’s population willcontinue to grow decades. The UNpopulation indicate projections a demographic dividendover three thenext to enjoy Cambodia stillhastheopportunity income status dividend andreachuppermiddle- Cambodia toreapthedemographic and physical capitalareneededfor Going forward, increasedhuman equity outcomesover thenextdecade? in sustainingstronggrowth andimproving What arethechallengesCambodiafaces the benefits ofthedividendas the benefits well asprepare the investments that will allow itto capitalize on The challengeisto ensure that makes thecountry beyond garments. low-end may beinsufficient if Cambodianeeds to “leapfrog” 23 and49percent between 2016and2050, only declinefrom 33and52percent, respectively, to education are projected to no schoolingandprimary Moreoever,skills. of the population with the fractions to beless productive, at leastinterms ofcognitive ofthefuture workforceimplies that one-third islikely at about33.5percent in2014asdiscussedearlier. This at given risk therelatively highlevel ofchildstunting, the lasttwo decades. The demographic dividendis assubstantialwill notbe asthat during observed However, itisclearthat thecontribution to growth the foreseeable future. continue asanatural toengine serve for growth in youthful population into will thelabormarket projection of educationalprojection attainment basedoncurrent trends. 17 These numbers were calculated using a linear probability 17 which Source: wo Figure 17. higher ph middle-income status by 2058. middle-income The optimistic attainment scenario, Cambodia would attain upper 2050. Under this baseline workforce educational fall to 3.2percent and3.6percent, respectively, by and GDP growthproductivity rates would gradually gross investment rate of 24 percent of GDP, labor scenario). Underthebaseline, andassumingayearly and educational attainment scenario (optimistic scenario) andunderahigherphysical capital basedonhistorical trendsprojections (baseline Cambodia Vision 2050,features long-term growth SCD, aimedat contributing to thepreparation ofthe economy before 2050.Acompanion paperto this Cambodia to become middle-income an upper in educational attainmentshift are for necessary increased investment capital andasignificant Long-term growth suggestthat projections processes andproducts. to move as they intotry higher value-added generations to meettherequirements ofemployers are neededforeducation new opportunities with old age dependency. addition, better In and to foster savings to avoid future fiscalproblems promote growth productivity (capitaldeepening) forward, to itwillbecome increasingly important for theeventual agingofthepopulation. Going Population under 14 and over 65/

working age population uld needtobeaccompanied 0.2 0.4 0.6 0.8 1.0 1.2 UnitedNations 0 1990 Cambodia’ ysical andeducationalin 2000 Dependency r Wo rl 2010 d Po pulation Prospects:2015Re s demog 2020 atio ra 2030 phic dividend by v estments

2040 vision. 2050

Source: upper secondar expected toexpected return to thelevels that prevailed inthe coming years, agricultural prices are commodity not these hadthrough the thedemandfor In services. and agricultural laborincome andthemultipliers through reduction increases direct in poverty farmer agricultureand rising prices contributed the most to gains productivity discussed intheprevious section, past decade, including highagricultural prices. As that drovefactors over reduction poverty the Cambodia may ableto not be rely onthesame trends andinto concrete goingforward, sectors, beyondLooking basedonhistorical projections 2049 (Figure 18). status byCambodia reaching uppermiddle-income decline gradually to around 5percent by 2050,with forecast horizon, whilereal GDPgrowth would rate would hover above 4percent throughout the optimistic scenario, growth thelaborproductivity gross investment rate of 27 percent of GDP. Under the 2050 (compared to 17percent inthebaseline),anda education, totaling 38percentpost-secondary by and shares ofthepopulation withuppersecondary scenario assumes significant improvements in the econom to becomeanuppermiddle-income in Figure 18. 10% 12% 14% % GDP growth v 0% 2% 4% 6% 8% estments Baseline: Optimistic

Wo

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GDP grow 2001 wo 2005 2050

2009 uld beneededforCambodi

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Baseline: Optimistic 2025 2029 2033 Usec&Col(RHS)

: 2037 Usec &Col(RHS) 2041 2045

2049 0% 5% 10% 15% 20% 25% 30% 35% 40% fe rs to

% population age 15+ with upper a secondary education & above Growth 53 CAMBODIA: Sustaining strong growth for the benefit of all 54 CHAPTER 4: Challenges to growth diversification manufactured product diversification. product manufactured Excessive greater investments upgrading and in export non-agricultural employment willdependupon growth inthecoming decades. The for prospects for strongand challengetheprospects economic development are model becoming more apparent Moreover, weaknesses intheeconomic agricultural risks. institutionsto(public andmarket) managefood and private value chaininvestment, andstrengthening system for agricultural innovation, facilitating amore vibrant multi-actor land uses),supporting land tenuresecuring rights to (and farmer choose Gaining More fromGaining Less. Vietnam Development Report. 20 the agro-food system. downstream (i.e. food processing; dimensionsof food service) of peopleinvolved inupstream and (i.e. mechanicalservices) andlivestock andincreasing production, horticultural numbers regularly employed in rice farming, more peopleengagedin 19 ‘agricultural’ workers. household membersare justcategorized typically as involveof thelatter activities informal rather thanformal work, trading,including micro-enterprises, etc. construction, As most plus devote considerable amounts oftimeto otheractivities, useacombinationtypically ofhouseholdandhired workers rice andmaize required lessthan32days/ha. Farm families season rice to involve season 48persondays/ha while bothdry or seasonal labor effort. For example,found a 2013 survey wet especiallycropactivities, require and/ production, part-time in 2014. This islikelyto beanover-estimate. Many farm accounted and fisheries forestry) for 47percent ofemployment 18 in Vietnam As beingwitnessedintheregion—and notably fewer people, spillovers,and non-farm employing whiledirectly higher levels offarmer, fisher, and consumer welfare need to generate ‘more from less’—that is, realize forward,past. Going Cambodia’s agriculture would expansion ismuchmore limited now thaninthe protected areas, thescope for agricultural landuse late 2000sto 2010s. early asideforested Setting and intensification, diversification, and valueaddition. wouldof thesector involve processes of footprint. To achieve this, agradual transformation efficiency, and reducingits overall environmental World Bank(2016) Transforming Vietnamese Agriculture: forward, Going we would to see far fewer expect people agriculture statistics (plus indicate thatprimary Official 20 —these processes canbeenabledby 18 improving its natural resource use 19

into economic security. transition from the non-poorbut vulnerable stratum to aswell escapefrom asto poverty opportunities constraints to householdeconomic mobility, i.e. both challenges to economic diversification and dependent onforeign savings. discusses This section and as Cambodiarising becomes increasingly difficult, asdomestic savings are notsufficiently makes strong growth ininvestment increasingly addition,thewideninginvestment-savingsIn gap (ADB, 2014;UNDP, andMenon, 2014;Hill 2014a). high costs interms ofinformal fees andelectricity wages,rising limited human capital, and relatively economic diversification may be constrained by future growthhurt (ADB, 2014). The potential for aslowdownrisk ingrowth and oftotal exports with weakening competitiveness, external could concentration ongarments, along oftotal exports of Cambodia’s inSingapore andHongKong. exports Thailand (mainlyofagricultural andtransshipment products) found to inotherdata dueto unofficial exports Vietnamand use ofmirror data seemsto minimize themajorinconsistencies value andcomposition of Cambodia’s However, exports. the differences exist between different data sources onthe exact on mirror data from COMTRADE noted. Some unlessotherwise 21 percent (Figure oftotal goodsexports 19). expanded to representwhile garmentsquickly 80 in1995to lessthan10percentexports by 1999, and rubberfell from 80percent ofmerchandise The share likewood products ofresource-based andmarkethigh degree ofproduct concentration. relatively oftime, period hasresulted short ina transformed thecountry’s basket export ina The rapid growth ofthegarment sector, which diversification 4.1 Challengestoeconomic manufacturing has been observed inCambodia hasbeenobserved manufacturing diversification appliances into and other electrical and its openess to capital flows. Some export its comparative advantage inlow-wage assembly, nature ofthefirstFTAs signed by Cambodia and concentration ingarments isexplained by the is based inthis section performance The analysis ofexport 21 Rapid Rapid

Source: Figure 19. resulted inahighconcentr equal to the weighted average U.S. price of import price oftheCambodian item one impliestheimport haveexports, unitvalues ofless thanone(where items, accountingexport for half of all garment garments. Seven garment ofthetop eight 8-digit the U.S. market, withlittlediversification within targeted to thelow-quality/low-price segment of ofCambodia’sMost items are garment export for the industry imported from China(74percent imported for in2015). theindustry Cambodia isnotaproducer offabric, withmostoftheinputs free access intheEU. potentialThis constrained since export to qualifyforCambodian duty-free, garment exports quota- to and fabric fabric garments conversion’) was required for 22 the EBAfrom 2012onwards (Figure 20). of “single transformation” to qualify for access under simplification onrulesoforigin andtheintroduction top destination in2014,withfastgrowth since the mainly to theU.S., although theEUbecame Cambodia’s have been directed garment exports in levels observed Vietnam (60percent oftotal). in2014,buttheyare farfromof total the exports in recent years, representing around 5percent 100% 20% 40% 60% 80% T Mach/Elec 0% extiles Between 2001-2011, doubletransformation Between (i.e. to‘yarn

Wo rl d BankstaffestimatesusingdatafromCOMTRADE. 1994

The dr Cambodia (%totalexpor Footw W ood amatic shiftinsectorcompositionofCambodia’ ear 1999 Plastic Ve getab ation ingar 2007 le ts) 22 Other Tr

anspor 2014 ments tation all garment exports since 2000. all garmentexports same 20items of have accounted for three-quarters 25 peryear to only10inrecent years—in the fact, the rate fallingfrom ofadditionnewproducts havenew garmentproducts beenintroduced, with may nolongerbethere. that were of economic growth supportive in the past over decade. thenext Therefore, someofthefactors treatment and a decline in concessional financing experience aprogressive erosion inpreferential trade economy,middle-income Cambodia willlikely continue creating As alower job opportunities. marketsnew export would to necessary be garments, attracting more FDI,andexploiting forward,Going diversifying withinandbeyond target thissegment. supplierslikeBangladeshand low-cost Vietnam also ischallenging market since large export low-quality and USITC. 24 above theaverage unitvalue intheU.S. market. hasconsistently registeredfabric”) unitvalues that are well 23 that same item from all countries). 100% 20% 40% 60% 80% 0% World Bankstaff estimates usingdata from COMTRADE Oneitem (i.e. HS61103030 “other sweaters, man-made Mach/Elec T extiles 1994 Vietnam (%oftotalexpor Miner Footw s merchandiseexpor als 1999 ear Animal Ve getab 24 Competition inthe 2007 23 le In addition, few In ts) Other Tr anspor 2014 ts tation Growth 55 CAMBODIA: Sustaining strong growth for the benefit of all 56 CHAPTER 4: Challenges to growth diversification Note: Source: business environment. around cluster development withinthenational questionsfor Cambodia publicpolicy up important jobs—would likely be created. This, opens in turn, where most of Cambodia’s jobs—and better-quality equipment. are sectors The andservices industrial including consumer andproduction products products, into withhighvalue-added newmarkets breaking aswellnew industries asmanufacturing will come from Cambodia’s industrialization, with of jobcreation andlong-term economic growth growth.industries However, source themostcritical andaccelerate exports, agro- of highvalue-added of agro-processing industries, increase the amount orcorporationsfarms to ensure thedevelopment agricultural small landholdersandlarge-scale to foster between makes itimportant linkages Cambodia’s agricultural workforce large-scale generating new sources ofjobcreation. Cambodia in standsat juncture acritical ha and U Figure 20. USD million 1000 1500 2000 2500 3000 ve 500 RoW=restofthewor

Wo beenconcentr 0 EU .S. rl d BankstaffestimatesfromCOMTRADE(mir

1993 mar Gar Cambodia’ 1995 ment expor kets USA 1997 1999 ld. ated mainlyontheEU

2001 s gar ts by CA

N 2003 ment expor destination 2005

JP 2007 NR 2009

ror data). 2011 ts

oW 2013 2015 2016). free onboard (ILO, (FOB)production package-service been agradual movement toward offactories full- andonlyinrecent production, years hasthere (CMT) inCambodia arefactories involved incut-make-trim due to the high degree of foreign ownership. Most islikely garment production higher value-added The slow movement toward more complex and (Yamagata, 2006). they can work with higher-technology machines of training by firms to improve workers’ so skills gap. oftheobserved part There issomeevidence education andinvestment climate might alsoexplain Differences production. low-productivity in worker platformCambodia for mainly as an export low-cost, that investors use the fact inthegarment industry relatedmay to bepartly low capitalintensity and countries intheregion—to thebest-performing relatively low leastcompared laborproductivity—at panel). 21, left The results suggestthat Cambodia’s isthesecondfirm lowestMyanmar (Figure after and Vietnam), for productivity themediangarments most comparator countries (except for thePhilippines in firm Cambodia isbetter thanin manufacturing peers. forWhile laborproductivity themedian isstilllowersector thaninmoststructural inCambodia’saddition, productivity garment Despite recent toward efforts higher value- exports erosion inpreferential treatment challenge competitiveness and Declining external 2006) to 60percent 2014). in2013 (Kane, fellproduction from 87percent ofthetotal in2006(Yamagata, 26 workers moved whenthey found better jobs. more thanthree months, althoughanumber oftheirtrained training to theirlocalpersonnel, ranging from oneweek to 25 involving that gobeyond competencies andskills finance, procure, anddevelop samples for approval, on thesamples. These tasksrequire to thecapacity wash andprint, as well asnegotiate withbuyers purchase inputsontheirown, makesamples, maybe Preliminary evidence shows that theCMT share of The samestudyfound provided firms that allsurveyed 26 Unlike CMT, must source FOB factories and 25

Source: Figure 21. in lo investment occurs inthegarment andconstruction (4.7 percent), andtheEU(4.6percent). Chinese Most Korea (16.1percent), Taiwan (6.2percent), Japan in China, followed by ASEAN (18.3 percent), South average of48.2percent oftotal FDIinflows originated of 8.5 percent 2012-2014, an of GDP in 2010-2015. In average thanany otherpeercountries, at anaverage Cambodia hasattracted larger netFDIinflows on inputs. Sincerely the global crisis, onimported Foreign-owned and firmsare export-oriented reduces cost. from to parent Cambodiaactivities headquarters upgrade value-adding inCambodia, unlessshifting companies have lessincentive and to buildcapacity made in those headquarters (Natsuda etal., 2009). made inthoseheadquarters and management decisionsfor inCambodia factories export, (China), Korea, Malaysia, and mainland China, with production, producers in headquartered Taiwan (China), HongKong from theEUandUnited States source from transnational inwhichglobalbuyers networks manufacturing triangular 27 are whollyforeign-owned.factories that almost95percentdue to thefact ofgarment added. The slower movement toward FOBislikely that are likelyto generate higherdomestic value- cutting and sewing. areThese alsotheones factories Fir Cambodia Bangladesh Guatemala Philippines Nicar Myanma are integrated ofthesefactories The vast majority into m-lev Thailand Vietnam Enterpr w-productivity /lo Median productivity(man Capital intensity agua el productivityandcapitalintensity r ise Sur Stagnationingar 0 veys 3000 , Wo rl d BankGroup. Median productivity(gar ufactur w capital-intensiv 6000 ment laborproductivityma ing) 9000 27 The parent The , 2016 12000 ments) e areas; Philippines 2014-16 foreign export-oriented low-cost platform low-cost anddonothaveexport-oriented especially ingarments, seeCambodia mainlyasan firms. These findingssuggestthat foreign investors, innovation thanmanufacturing activities undertake are in moreand firms retail andother services likely to anddomestic firms, thannon-exporters activities found innovation to bemore likelyto undertake Similarly,products. inCambodia are exporters not more propensity to innovate or introduce new in Cambodia notseemto associated does be with other countries, the use of foreign technologies to licensing foreign technologies, butcontrary to Firms relying onforeign inputsare alsomore prone among peercountries (Figure 21,right panel). in Cambodia, at 95percent, isby farthelargest by established foreign-owned firms manufacturing inputsforshare process theproduction ofimported to Cambodia. According to enterprise surveys, the potential for transferring capitalandknowledge withlimited activities production low-productivity platform forusing Cambodia asanexport low-cost, areforeign-owned firms mostly manufacturing data 2016suggeststhat from theEnterprise Survey Vietnamese invest mostly in agriculture. Preliminary sectors, whileKoreans invest and inconstruction, Thailand 2015-16 Cambodia 2013 Bangladesh 2013 Guatemala 2010 Cambodia 2016 Nicar Vietnam 2015 agua 2010 y betheresultoffi fi Foreign fi Domestic fi r ms relyonforeigninputs 0% Inputs offoreignor rm rm 20% 40% r ms specializing igin 60% 80% 100% Growth 57 CAMBODIA: Sustaining strong growth for the benefit of all 58 CHAPTER 4: Challenges to growth diversification approvals in the garment sector, annual closings and openings examination of2010-16 data onFDIapplications and closuresfirm thanopeningof new onesin2015. Further 28 Menon, 2014;ILOMenon, andIFC,2016). other garmentoperations unprofitableand (Hill garment producers/exporters and/or render many likely to reduce profit margins for higher-value atdoes not rise that rate, these higher wages are not come down substantially orlaborproductivity andlogistics,(electricity, management) transport do othercosts If section. as discussedinthenext competitor countries like Bangladesh and Vietnam, 2016, significantly faster than wage increases in more than23percent annuallybetween 2012and The minimumwageat hasrisen anaverage rate of to rapid escalation in legislated minimum wages. competitivenessgarment sector hasweakened due and water supplyat competitive cost. More recently, on infrastructure like reliablefactories electricity water, andsomustrely muchmore thangarment and consume muchmorefactories electricity becausesuch raw materials. may alsobeinpart It and require adequate scaleandavailability of more capital-intensive thanthosefor garments for arefactories fabrics producing much knitted because may bein part of activities (assembly) types in firms Cambodia have specialized inmaquila with private representatives, sector that thefact business environment. According to interviews garment sector, probably dueto thecostly madeinbackwardbeen integration ofthe owned firms, nosignificant investment has Despite theeaseofestablishingwhollyforeign- (lower scope for backward linkages). inputs useimported primarily and exporters firms related to FDIwould besmallerwhenforeign-owned than others, althoughthepotential spillover benefits would bebetter-integrated into globalsupplychains inputs general,modest. In that firms useimported the difference with to other countries ismorerespect inputs(28percent), usingsignificant imported report diversification. While domestic also Cambodian firms plans for long-termupgrading production and GMAC suggestagreater reports numberof garment 28

parts, electric motors (including for smartphones), motors (including for electric smartphones), parts, such asbicycles, ignition wires, opticalappliance mix (Figure 22). A number of these products— few emerging appeared products intheexport since the mid-1990s and until recently, when a garments,by hasremained low flat value-added taking place. sophistication, taking Export garments, footwear, andagriculture seemsto be toward asidefrom products higher-value export thiscontext,In somenascent diversification among otherleastdeveloped countries. by theUnited States whichwould benefit Cambodia, expansion ofduty-free access to sometravel goods industry, themostpromising sign istherecent inputs from anywhere intheworld. For thegarment andother fabrics transformation andcanimport under the EBA, is only required single to undertake locally, ofsomefabrics production whileCambodia, EU, whichwillrequire backward integration and double transformation to enter duty-free inthe to willbesubject Vietnamese garment exports period. notingthat Nonetheless, most itisworth Vietnamese inthe EUover products aseven-year FTA (EVFTA) willeliminate alltariffs nearly for growth 2014). andMenon, (Hill The EU-Vietnam export willposechallengestomarkets further Myanmar, andpreference erosion inmainexport the emergence of newlow-wage competitors like medium term. As mentioned earlier, higherwages, competitive pressure for Cambodia’s inthe exports environmentA changing external more will bring are to expected eroded be inthemediumterm. Cambodia’s over exports the last two decades— pillars that allowed theimpressive growth of Low wages andpreferential market access—two implied by their export baskets. implied by theirexport ‘become’ by converging what theyexport to theincome level higher future growth rates, theideathat countries supporting (2006)show thatRodrik high-EXPY countries tend to have ofdeveloped economies.exports Hausmann,Hwang, and init(denotedproducts as ‘PRODY’) and isbasedonthe as derives‘EXPY’) from thesophistication oftheindividual 29 are affected. pipelines may provide more evidence onhow garment firms of garmentfirms, andchangesingarment-buyers order The sophistication of acountry’s basket(denoted export 29 dominated introducing processes otherthanassembling. to expand employment to 20,000,forits factory thefirsttime employing 6,500people, andhas begunamajorexpansion of Penh processing zone. export isthemostadvanced, Minebea among thecompanies that have already invested inthePhnom 30 in China and Thailand and are ledby Japanese firms, andtransport the regional value chainsinmachinery remains modest. andparcel are of part These exports growth theircontribution toexports, total export account of all non-garment for more than one-fifth rapidly inrecentvery years. Although together they and headphones—havetelevision parts, grown detail in the next subsection), provide subsection), incentivesdetail inthenext for to maintain competitiveness (asdiscussedinmore in otherglobalvalue chains. The challengewillbe coming decade, whileCambodia pursuesintegration growthstrong export andemployment inthe for remains sustaining important garment exports ought Upgrading to nurtured. be andexpanding diversification thatto higher-value products This to isagreatmerchandise export start mainly assembly. placeprocesses inCambodia encompass taking although itshouldbenoted that theproduction to increaseinCambodia Source: Figure 22.

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2014 rice. transition At hasbegunwith home, adietary branded of high-quality while scaling up its exports cashews, pepper, mango, and otherproducts, in thelucrative andgrowing for markets organic Formarket. example, Cambodia could positionitself andsustainablyproducedquality segments ofthe inthehigh- andfinishedproduct exports primary cost bulk supplier. willneed to positionbothits It Cambodia will have competing as a difficulty low- the finishedproduct regionally andbeyond, but to investment attract inagro-processing andsell takes place. several In oftheseareas, there isscope to countries neighboring where value addition cassava, in-shellcashews, raw rubber)transported have beenraw materials (e.g., paddy, dried dried to theEU,exports Cambodia’s agricultural exports fragrant exception rice ofhigh-quality the primary to return to a higher growth trajectory. With inorderresponse to high-value food imports anddevelopreposition itsexports acompetitive For agriculture, Cambodia would needto diversification (UNDP, 2014a). order to FDIandachieve keepattracting economic development in skill education andindustry-specific upgrading andbackward integration, andstrengthen

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2012 seat par 2013 . pa ts rt 2014 s Growth 59 CAMBODIA: Sustaining strong growth for the benefit of all 60 CHAPTER 4: Challenges to growth diversification based intheCSES 2014. definitions andclassifications forbasic statistics, tourism and Tourism Organization’s recommendation on concepts, 31 300,000 peoplein2014, employment was estimated inthetourism sector at regional hubsin Thailand, Vietnam, andChina.Direct exhibit astablepatternarrivals oftravel through tourism and adventure activities. These tourist Angkor Wat, religious andcultural sites, andnature includethe Key attractions World Site Heritage of sliding toward a ‘low-value, high-volume’ model. unique assetsfor tourism development butrisks With regard Cambodia exports, to has services nutrient foods. economic access ofthepoorandnear-poor to high- country’s deficit—to nutritional ensure physical and class, the more butperhaps importantly—given consumer(yet still quite small) middle-income Cambodia’sThis isnotsimplyto serve growing substitutionfor arange oftheseproducts.import yetdemand is imported, there is ample scope for and processed foods. ofcurrent Alarge proportion increased demandfor animal products, vegetables, Unlike Thailand, where 80percent oftourists prefer to restore strong growth in tourism arrivals. the Angkor Wat complex may necessary be Diversification of tourist sitesbeyondattraction key assetsat theAngkor temples. are signs of overcrowding and degradation of the stays with limited repeat are visits, short and there per day. Low-end businesseshave mushroomed, international overnight is about USD 120 markets stay for 7days. Average dailyspendingacross all an average 4.6days, whileindependent travelers tour stay in Cambodia ofapackage for visit aspart that of one-third Vietnam. International tourists who than the average for but just Lao PDR or Myanmar from USD585in2005to USD630in2015—higher per tourist hasnotchangedmuchinthepastdecade, central pillarofaninclusive economy. Value captured threaten the chances for developing tourism as a taken by women. However, somechallenges could World Bankstaffestimates following theUN World 31 ofwhichmore ofhalfare

15), Cambodia hasexperienced a significant decline Myanmar.ASEAN after Third, in recent years (2013- gross enrollment ratestertiary are thelowest in enrollment isjust 2.3percent,of secondary and enrollment asa percentage and training (TVET) competitiveness. Technical andvocational education and to improving quality barriers tourism service and lackofwell-trained workers isoneofthemain need for humanresources quality supply, faroutstrips that the Penh. stakeholdersreport Second, industry the imbalanced growth around andPhnom SiemReap venturing off the beaten which keeps driving track, private investment. This discourages visitors from destinations areas many unableto secondary attract back sustainableandmore inclusive tourism growth, infrastructure andpoorenvironmental hold services (118th). sustainability The insufficient transport health andhygiene (112th),andenvironmental competitiveness (113thoutof141countries in2015), behind Asia–Pacific benchmarks for infrastructure and Tourism Competitiveness Index,Cambodia lags First, according to the World Economic Forum’s Travel availability, anddecliningprice competitiveness. tourism enclaves, limited humancapital insufficient infrastructure beyond themain diversifying and increasing value in tourism: Cambodia faces three mainchallengesto environmental degradation. income source, andwould alsohelpto mitigate providing householdswithacomplementary inrural areas,employment opportunities potentially Development could helpcreate ofeco-tourism telecommunications, andhospitality. transport, suchastravel sector services, in theservices base,market encouraging additionalinvestments for broaden thedomestic Thailand—and further about 16percent compared to over 50percent tourist currently return rate—which stands at diversification would helpimprove Cambodia’s cultural, and natural destinations. Tourist destination isendowedthe country withnumerous historical, focused around theAngkor Wat complex, although Cambodia’s remains tourism sector narrowly destinations,sea-sun-sand andnature-based

Communications 3% low level educational attainment at thesecondary asset industries,forcritical the expansion of services Cambodia’s largely young population isapotentially 2014a). Bank, (World While of high-value services and to promote theexpansion anddiversification inorder toto foreign attract betackled investment issuesandinformalalthough transparency fees need (ASEAN Secretariat and in services World 2015), Bank, of themostopenASEANeconomies interms oftrade for Cambodia is thatpotential itisone opportunity suchascomputer-based animation.services A arefirms already someniche tentatively exporting role inCambodia inthefuture.important Cambodian related to expected play services—are a more Asian countries—including information technology- to otherEast (Figure exports services 23),modern inCambodia 70 percent exports oftotal service aconstraint.be While travel receipts represent diversificationcapital may inservices, human in terms ofregulation helps increase Cambodia’s Beyond tourism, whileahighdegree ofopenness brand strategy.country (37th),itstilllacksa authorities by country services doing well overall oftourism interms ofprioritization remains challenging (129th),andwhileCambodia is U.S. dollarappreciation). The businessenvironment prices andexchange rate “leakages” (inthecontext of in competitiveness for with rising tourism services, concentr Figure 23. Source: Other business ser UNCT vices 9% Financial 2% Tr Ser AD Stats ated intour Ser anspor 12% vices expor Rest 4% vices expor . t ism ts by sector ts are , 2013 Tr 70% av el hundred, its peers. broadband Mobile subscriptions, at 10per cellular perhundred subscriptions peopleamong At 133in2015,Cambodia holdsthelargest mobile have services completely the market. overwhelmed with digital technology. Notsurprisingly, mobile itstelecommunications infrastructure starting launched into alternative technologies, jump- rebuilding thefixed-line andquickly market the civil conflict, after Cambodia bypassed readiness. With little infrastructure remaining very constrained by still-limited technological However, diversification may in services be (9.5 percent). into GVCslike Thailand (10.2percent) and Vietnam other countries that have successfully integrated but itisstilloneofthelowest intheregion andlags in Cambodia (6.3percent)exports has improved, GVCs. forThe contribution manufacturing ofservices for upgrading isamainpriority sector in services value chains, enhancingthecompetitiveness ofthe ofvaluewhere addediscaptured themajority within like design, marketing, and retailing are segments a country’s competitiveness. areas Since services isessential market toenhance an efficient services and are exports, inputsfor critical manufacturing telecommunications, andlogistics and transport suchasfinance, insurance, services Modern ofglobalvaluemode chain(GVC) participation. labor-intensive, (assembly) low value-added awaybe for Cambodia to move onfrom itscurrent couldStrengthening sector services themodern are discussedinmore subsection. detailinthenext could constraint. poseaserious oftheseissues Some mobile-phone-subcribers/. Accessed onDecember 30,2016. mobile-phone-subcribers/. Phone Subscribers.” Available at http://www.trc.gov.kh/ 32 on mobile services. Internet take-up rates remained take-up Internet on mobileservices. has beenlargely overshadowed by thestrong focus 24). inCambodiaThe expansion ofinternet services economiesin other lower (Figure middle-income percent) and Vietnam (10percent) buthigherthan Telecommunication Regulator of Cambodia “Mobile 32 are below the shares of Guatemala (18 Growth 61 CAMBODIA: Sustaining strong growth for the benefit of all 62 CHAPTER 4: Challenges to growth diversification Source: the strongfocusonmobileser Figure 24. processes. and consist more of adaptation of existing technology and andwherequality innovation islikelyto bemore incremental such asCambodia, where there are issuesofdata availability/ capture thescope ofinnovationit may notperfectly inLDCs org). point forWhile itconstitutes theanalysis, agoodstarting and methodology, see: https://www.globalinnovationindex. data sources oninnovation inputs andoutputs(for details Cornell University, andINSEAD, ofdifferent usingavariety by the World Organization Property (WIPO), Intellectual 33 just 3years ago(110thin2013). in 2016,asignificant improvement compared to (GII),Index Cambodia ranked 95thoutof128countries value addition.According to theGlobalInnovation for economic prospects diversificationhurt and research anddevelopment (R&D) could spending Finally, low innovation andpublicprivate from theASEAN-5. averagemiddle-income in2015-2016, butisstillfar behind in2005-2006to beingcloseto thelower technological readiness, from lagging significantly Cambodia hassignificantly improved in of terms Overall, according to the World Economic Forum, penetration rates intheregion (0.6percent in2016). claiming oneofthelowest fixed internet broadband low fordisconcertingly many years, withthecountry Cambodia isahead of BangladeshandNicaragua

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both domesticandforeign entrepreneurs, informal 7 to 87.5percent According inthesame period). to public contract isnow muchhigherthanbefore (from that declared to to beexpected give to gifts secure a percent). However, thepercentage surveyed offirms licenses50.3 percent) (from 87.7to 63.4 andimport for gettingoperating licenses (decliningfrom 100to significant were efforts made informal tocurb fees and water (48percent). connection 2013-2016, In (61.6percent),percent), connection electrical officials (58.7 percent), (86.8 permits construction percent of total respondents), meetingswith tax (according inpublictransactions expected to 59.4 right panel).As orinformal of2016,gifts fees were incidence among comparators by far (Figure 27, briberies, Cambodiaat stillhas thehighest actual org/cpi2015 37 worse intheAsia Pacific region). Korea(with onlyAfghanistan performing andNorth Perceptions Cambodia Index, stillranked 150th economic competitors. the2015Corruptions In Source: Figure 27. 100% 20% 40% 60% 805 0%

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m s Growth 65 CAMBODIA: Sustaining strong growth for the benefit of all 66 CHAPTER 4: Challenges to growth diversification infrastructure issimilarto that countries ofpeer The overall oftransportation quality by road.to beserved requirementstransportation ofCambodia continue (mainly oilandcargo) are alsoused, butmostofthe a role. Waterways from Phnom Penh to Vietnam passengers andless than2percent for cargo. in 2015comprised 11percent oftotal movements by airfor annum andairfreight 17percent traffic perannum.Domestic from 2011-2015,airpassenger traffic grew 13.5percent per Asia. inSoutheast Accordingmarket to Cambodia Airports, initiative, whichaims to liberalize thecommercial aviation 38 (tourism andgarments), issues. While aviation growth hasbeenstrong and Vietnamese borders, but they are facing funding andthere are twoport, railways plannedto the Thai (slower) alternative to Cambodia’s seasideandmain Penh-Sihanoukville railway in2016appearsto bea 2015). The rehabilitation andopeningofthePhnom road traffic toastand-still(seeSlayton Muniroth, and containers itnow uses. Suchanincrease would bring containers, thusabout28timesthenumberof of rice, Cambodia would needabout350,00020ft Port. Sihanoukville To tons 7millionmetric export processed incontainers through rice isexported improvement Currently, services. ofextension most 4.3 millionin2012),thanksto better and irrigation tons (upfrom7 millionmetric ofpaddysurplus sector. Cambodia to isexpected produce about infrastructure needsare alsoillustrated by therice already amajorproblem inPhnom Penh. The growing themost(22percent). Congestion is registered vehicles in2013andwithmotorcycles was 14percent, reaching approximately 2.5million annual growth inthenumber ofregistered vehicles growth. 2008-2013,theaverage theperiod During network is not keeping pace with rapid economic A mainconcern isthat Cambodia’s transportation extensive rural network. constraintsfunding andcapacity inmanaging its andrural roads and faces is incharge oftertiary roads.secondary ofRural Development The Ministry Cambodia is a member of the ASEAN Open Skies Cambodia isamember oftheASEANOpenSkies 38 othermodesplay lessof while transportation prices are notsignificantlywhile transportation 2014b). However, despite these improvements, and operations countries with neighboring (RGC, at theborder, and the simplification oftransit inspection system), theintroduction ofsingle-stop following international standards (ASYCUDA at customs, theimplementation ofautomation law, decade, includingtheadoptionofaCustoms ofreformsa series implemented over thepast low-income economies10 performing thanksto panel). amongthetop ranks fourth The country score improving from 2.3 to 2.8 (Figure 28, left a lowly 129in2010,ajumpof56places, withits Performance (LPI),surging Index to ranking 73after onthe in itsranking World Bank’s Logistics Cambodia hasmadeconsistent improvements still significantly higherthaninother countries. in recent years, but charges are to exporting improvements in trade facilitation and logistics Cambodia hasintroduced substantial economic competitiveness. for theprovision ofpublicinfrastructure to ensure Le (Minh etal.,capacity 2017). This poseschallenges are delegated often to thedonorsdueto lackof (roads,infrastructure projects rural roads, canals) or minimumimplementation standards, andlarge feasibility studyrequirements for selection project that donothave mostlineministries established funded publicinvestment management reveals stageinCambodia.early An assessment ofstate- Systematic road assetmanagement isstillat an modest fundingandlimited subnational capacity. built byoften donors, is seldom adequate, with (UNDP, addition,maintenance 2014b). In ofassets, at ofthenetwork risk with asubstantial part is highlyvulnerable to extremeweather events, First, Cambodia’s infrastructure transportation (Figure panel), may be due 28, toleft several factors. index, from 3.1outof7in2010to 2.9in2016 infrastructure quality decrease in the transport observed but slightly declinedsince 2010. The 39 39 Law NS/RKM/0707/017 ofJuly2007. the adoption of a risk management theadoptionofarisk strategy

(Ministry of Mines and Energy, of Mines 2015; Electricity (Ministry in the same period, from 2,564 GWh to 4,489 GWh expanded and energy generation almost doubled to 60percent, transmission linesalsosignificantly rateelectrification increased from below 30percent by private investments. sector The household insize, tripling 2011 and2015,nearly largely driven power system expanded significantly between supply for thecurrent power demand. Cambodia’s Cambodia hasbecome nearly self-sufficient in availability hasimproved significantly, and rapid stridesinproviding access to electricity, supply, termsIn ofelectrical Cambodia has made (Figure 28,rightpanel). between Cambodia and export Vietnam or Thailand approximately thedifference in average cost to 2014c),whichis Bank, around USD200(World processing fee (USD15)would amount to forwarding charges beyond theofficialcustoms withprivateto stakeholders, interviews sector at weighbridges According andcheckpoints. that informal payments are routinely collected fees heighten total costs. Trucking firms report countries,higher thaninneighboring informal Source: Business Indicator but forwardingchar Figure 28. LPI (1-5) and transport infr. quality (1-7) LPI 2016 LogisticP Myanma 0 1 2 3 4 5 6 Tr anspor Guatemalar Cambodia’ erfor s (the Tr tation infr anspor mance Inde Nicar

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Thailand t 2010 astr ansport ucture andchar ation infr hydropower andcoal plants, andthe displacement from itshighestpoint by theintroduction ofnew Cambodia hasmanaged to reduce thetariff and distribution(Figure panel).Although 29,right generation, andfragmentation intransmission due to thelackofcompetitive biddinginenergy high compared to countries, neighboring and is However, remains relatively theprice ofelectricity continues to beaconcern. reliability andaffordability—of services—including peers (Figure panel).However, 29,left thequality one ofthelowest amongCambodia’s structural inCambodia connection is to setupanelectrical Authority ofCambodia,Authority 2016). period. generators declined from 22.9 percent to 9 percent in the same from diesel oftheirelectricity that theproportion reporting diesel-fueled generators, enterprises withthesurveyed meant that firms relied less on expensivereliability ofelectricity decreased from 1.8 to 1.3 hours. These improvements inthe in 2013 to 1.4 in 2016, and the duration if an outage occurred 41 and LaoPDR. 40 less outages, Cambodia Bangladesh Guatemala Philippines Nicar Myanma Power outagesinCambodia declinedfrom 6permonth 401MWwere in 2015from imported Vietnam, Thailand, Thailand Vietnam astru agua Cost toexpor cture qualityinde r 0 41 andthenumberofdays (7.9)required ges arecompetitiv 300 x (W t (USDpercontainer) ies 600 or 595 610 ld EconomicFor 620 40 755 Enterprises reported Enterprises reported 795 900 e, 1200 um),

1140 andDoing 1281 1355 1500 Growth 67 CAMBODIA: Sustaining strong growth for the benefit of all 68 CHAPTER 4: Challenges to growth diversification Commission, Ministr Sources: licensed service providers,licensed service and the rest were by EDC. served 58percentsector; ofthecustomers were by 336 served percent ofHVlines were builtandoperated by theprivate 42 Power Producers (IPPs) in2015. coming fromgenerated Independent electricity transmission, with85percent anddistribution, of pursued private investments sector ingeneration, and enhance energy security, Cambodia has add to the costs. To counteract power shortages providers andretailof smalldistribution service system planninganddispatch, andalarge number capacity, smalleconomies ofscale, inefficient under-utilization ofgeneration andtransmission investments intransmission anddistribution, high degree ofuncoordinated private sector in hydro generation (deFerranti etal., 2016),the the world (Derbyshire, fluctuations 2015).Seasonal (EAC, 2016),itstillhasoneofthehighesttariffs in of expensive, small-sized fueloil-basedgeneration none ofthegeneration andtransmission public- FDI, predominantly from Korea, ChinaandSouth has managedto mobilize arelatively large sumof to thoseinneighbor Figure 29. % electricity from a generator Bangladesh 10% 20% 30% 40% 50% 0% 44percent ofHigh substations and52 Voltage (HV) y

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y among thetop three concerns ofentrepreneurs, 2016,aninadequatelyIn educated workforce was in thecontext costs. ofrising inorder to beable final export, to keep competing printing, that addvalue to andotheractivities the to offercompanies are washing, trying embroidery, (Ly, 2016b;Figure panel). As aresult, 30,left most which enjoys ahigherlevel oflaborproductivity andcloseto that of (garment exporters) Vietnam, significantly higherthanin andBangladesh Pakistan have notkeptpace. The minimumwage isalready improvementsmonth in2017,butproductivity about USD80amonth in2013to USD153a doubled from nearly wage inthegarmentsector 2014, whichhadnegative oninvestors’ impacts confidence. labor unrestrelations occurred large-scale in after 2013 and wage negotiations, helping to maintain good industrial Committee has beenestablishedto handleannualminimum associations, andtrade unionsundertheLaborAdvisory ofLaborand Vocationalthe Ministry Training, employer 43 mechanism, effective wage-setting Source: Figure 30. remains aconcer 100 150 200 250 300 A tripartite bodyconsisting of representatives Atripartite from 50 Enterpr Thailand 0

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ies ofLaborthediff Banglades r ve ly high h , from theprivate indicates sector that thosehired to provide suchtraining. Anecdotal evidence onlylarge firms havemost part, capacity the The training needsare extensive, but for the upgrading andhighervalue addition. to avoid mismatch andfacilitate askills business being properly prepared for the workforce inorder are at thehigheststandards andthat students are the needto schoolcurricula ensure that secondary 30, rightpanel).Consulted businessleadersargue for higher thaninothercountries intheregion (Figure constraint declinedcompared to 2013,itisstill an inadequately educated workforce asamajor workforce. While thepercentage offirms reporting that entrepreneurs are demandingamore skilled the total in2013to 20percent in2016,showing dramatically decreased from about50percent of workers firms insurveyed ofunskilled proportion to thelatest World BankEnterprise Surveys, the chain anddiversify beyond garments. According asCambodiacritical triesto move upthevalue to isexpected increasingly be and humancapital while theeducationlev as amajorconstr % offi % ofunskilledwo 10% 20% 30% 40% 50% erent countri

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wo Thailand rk rk rk er force s) Vietnam force Growth 69 CAMBODIA: Sustaining strong growth for the benefit of all 70 CHAPTER 4: Challenges to growth diversification a scaleenvisioned around the SEZsandindustrial forfactor thefuture at expansion ofnewindustries willbealimiting services housing andtransportation general, In costs andavailability of transportation. withintheSEZ, cafeterias,housing/dormitories and provide non-financial incentives to suchas workers To help retain workers, located some firms in SEZs andsafetyhome to issues). farms, transportation peak agricultural season withworkers heading wages are higher)andnon-jobissues(e.g., holidays, to othercountries suchasKorea andMalaysia where better jobandwagework, offers, andlabormigration turnover appearsto berelated to job(e.g., night shift their top concern intheEnterprise Surveys. High 22percentskills, highturnover offirms as reported investment inworker training. from low Apart disincentive for firms to make any significant Relatively highturnover rates alsocreate a challenging for SMEs. given isparticularly workers that findingskilled to smaller-scale attract FDIinemerging sectors, limit bothSMEdevelopment aswell astheability 2015). Menon, These systemic deficiencieswill and (Warr have andlacksupport low capacity investor that park willprovide inthe industrial training. SEZ),thetraining centerPPSEZ andSihanoukville isanother investors (e.g., Kerry Worldbridge SEZ),whileinotherSEZs(e.g., 44 (SEZs). can be found in some special economic zones underdeveloped, andjustafew pioneerexamples ecosystem alsoseemsto intermediary be the skills operations. Despite interest from theprivate sector, development investment to start necessary economies ofscaleto makethemassive workforce in house, withonlylarge able firms to achieve policies.firm provideFirms training, predominantly specifications andto train workers to meet factory new hires—from a week to a month in most cases— Cambodia. foreign Most provide firms training to to accommodate thelow levels in ofliteracy their training programs andeven processes training, basicskills adjusting withvery to start gate haveat limitedFirms thefactory skills. need Some SEZs see training as one of the services for all SEZsseetraining asoneoftheservices Some 44 In general, In intermediaries inCambodia language, and manual dexterity (Brunietal.,language, 2013). andmanualdexterity tasks, oral communication, ofaforeign knowledge job-specific considered to four benecessary: skills level. More than20percent oftheestablishments that at employees therequired didnotperform percent establishments of the interviewed reported 2012b). Around Bank, 55 have (World therightskills also noted that vocational training graduates donot andmoreright skills, than62percent ofemployers Cambodia’s university graduates donot have the indicate that 73percent ofemployers feel that from a2011ILO of78employers survey inCambodia signal ofcompetence ofworkers. orskills Results credentialsSchool (certificates, degrees) are nota limited andineffective. At present, are intermediation labormarket services recruits, and thelocal National Employment Agency. with universities and toTVETs identify potential announcements innewspapers andradios, working channels includetheinternet (websites), job held by international workers.recruitment Other literacy, while management positionsare generally minimum requirements ofbasiclanguageandmath Factories have findingworkers withthe difficulty only requiring basiclanguageandmath literacy. for recruits, educational credentials from theirfactory with theprivate indicate sector thatdonotask firms the provinces outsideofPhnom Penh. Interviews example, through family members or neighbors in door, with recruitment doneby word ofmouth—for recruits islargely doneat thefactory skilled/unskilled private firms revealed sector thatoflow- hiring (Bruni, Luch, andKuoch, 2013).Consultations with considered hard to fillinalmost75percent ofcases were occupationsfor (unskilled) also elementary operators, managers, workers. andcraft Vacancies fill were those workers, skilled machine requiring regions. The vacancies judgedmore difficult to in Cambodia levels, across skill allsectors, and Filling vacancies remains achallengefor firms agglomerations. inthesenew to address housingandbasicservices parks, willneedto andauthorities consider policies skilled workforce—is shrinking dueto lower workforce—is shrinking demand.skilled for Cambodia’s current approach to developing a programs—critical ofexclusion.risk Uppersecondary or householdsinpoverty based courses to support of The majority community- focusTVETs onshort, guidance onemployment graduation. optionsafter accommodation and meals, and receive little career financial challengeswithpaying for transport, AsiaSoutheast (CDRI, 2013). Youth alsoexperience across andtertiary, TVETs, bothuppersecondary the lowest relative numberofstudents enrolled in up work in order to attend training. Cambodia has attending university, andothersdonotwant to give asa TVET ‘second rate’ education compared with as Cambodians have anegative perception of isanother challenge,Attracting students to TVET level certificate entercourses (CQF 2andabove).TVET rates, ofyoung peopleare amajority noteligible to a result dropout ofhighlower anduppersecondary problem solving, communications andteamwork; as foundational inreading, skills writing, mathematics, limitedfaces apoolofpotential withvery learners and operational challenges.with, TVET Tobegin numerous reputational, financial, regulatory the result ofweak TVET, whichcontinues to face are inthecountry also shortages skills Reported make theirlivingby teaching. for themanagement; most HEIlecturers or nosupport holders are committed to R&Dontheirown withlittle business/fee basis. At thepublic HEIs, onlysomePhD especially inprivate universities that runona is limited andthere are littleincentives to research, (HEIs),funding EducationR&D at Institutions Higher private) to 121in2016(73private). With regards to universities increased from just14in2000(6ofthem development.and financialsector The numberof degrees have mushroomed alongwitheconomic percent for ITand3percent for engineering. Business business administration degrees, compared to just 8 students registered inmajors2012were pursuing ofEducation, Ministry Youth, halfofthe andSports, and invest littleinresearch. very According to the towards offering programs relating to business, oftheuniversitiesMost ontuitionfees, depend tend private sector. TVETs demandofthe are notmeetingtheskills less than0.1%ofvacancies (ADB, 2016). currently provides anannualsupplyofsuitablegraduates of systemvacancies demand, asaproxy the for industry TVET produce around 2,500qualified graduates per year. Using job required amongapplicants. skills institutions The 325 TVET vacancies, athird attributed unfilled vacancies to alackofthe had hard-to-fillOfthe vacancies.companies withhard-to-fill accommodation). The results showed 72.6%ofrespondents andinsurance; and financialservices plastic; construction; beverage; garment, apparel, and footwear; rubber and more (food than500establishments in sixsectors and 45 be needed. training andthemaineducation system would also and needs. Better coordination between vocational have demand beenestablishedto understandskills with theprivate sector, nochannelsfor collaboration 2016). Even for thatTVETs have agoodreputation development willberequired (ADB &ILO, 2015;ADB, andinvestingcurriculum inteachers’ professional in theirexisting facilities. However, upgrading the could enroll many more students usingtheteachers institutions are notcurrently beingfullyutilized; they greater infrastructure. The 325existing TVET however, would notcurrently require significantly and low-paying jobs. offerings, Increasing curriculum workers among young peopleasonlyfor blue-collar also contribute to thenegative perception of TVET training.electrician Suchlimited course offerings automotive engineering, civilengineering and dominated occupations—air conditioning repair, for CQF levels 2–5focused ontraditionally male- (CQF 2)ortheDiploma level (CQF 5),withcurriculum exists for curriculum 1 theCertificate most TVET can raise revenue from theseprograms. Currently, degree programs inresponse to demandsothey their two-year diplomaandfour-year bachelor are notsufficiently diverse. TVETs are expanding development programs, offerings and curriculum is weak across withskills various lineministries systems are limited, governance and coordination needs. Financialmeet industry resources for TVET several institutionalchallengesinexpanding to Cambodia’sskills, programs existing face TVET apoolofstudentsattracting withstrong foundational The National Employment in 2013 surveyed Agency 45 In addition to the challenge of In Growth 71 CAMBODIA: Sustaining strong growth for the benefit of all 72 CHAPTER 4: Constraints to household economic mobility an emerging consumer class, whileanestimated 58 and joined the attainedranks economic of security small segment oftheCambodian population has between USD3.10-5.50perday. Since 2009,onlya 46percentbelow USD3.10(in2011 PPP)andthenext per capitaconsumption ofthepoorest 20percent 2011. Class:USD15-50PPP Secure: USD5.50-15 PPP2011;Middle 3.10 PPP2011;Economically Insecure:3.10-5.50;Economically Poor:Extreme

Wo rl d 2004 31.7 15.7 Economic mobillityinCambodia Bank vey (VHLS)2014. Gro staff Moder wth intheshareofeconomicall 2007 estimates 32.5 19.0 ately poor from 2009 41.6 30.4 CSES Middle class Economically vulner 2004-2013; 2011 48.5 27.8

Lao 2012 46.2 32.6 46 ator countr Expenditure with ab le y securehouseholdshasbeenslo and physical assets(land). Second, households in terms ofbothhumancapital(education andhealth) model. inthecurrentreflect weaknesses development tracedin Cambodia be can to which three factors The slow growth of an emerging consumer class society. shared to extends alarger prosperity segment of third quintiles, whichmeansthat theagendafor implies large between the second similarities and The concentration inCambodia of thedistribution by onlyasmallmargin.escaped extremepoverty pattern broadly that reflects mosthouseholdshave refrigerator, compared to 62percent in Vietnam. This in Vietnam. Just7percent ofhouseholdsown a compared to 40percent inLaoPDRand83percent concrete,live inhousesbuiltwithbrick, orstone, 31, rightpanel).Only18percent ofhouseholds countrieslower intheregion middle-income (Figure terms oflivingconditions) lagsbehindthat inother Cambodia isreflected inhow thelevel (in of comfort in the share of economically secure households in emerging consumer class as of 2015. Slow growth percent ofthe Vietnamese population hadjoinedthe concrete Connectedto electr and Exter Owns arefr Consumption Owns acomputer ies Cambodia: Wa Has pipedwater nal wallmadeof Air conditioner , br shing machine First, householdendowments are low in Has notoilet ick orston Living conditions/o iger 2013 Sur ator icity vey e 0% (LECS) Lao PDR: 20% Share ofthepopulation 2012/13; 2012 40% wner

Vi etnam ship 60% w, Vietnam: Househo

80% 2014 ld 100% Living

Inclusion

Cambodia have high exposure to shocks. Third, land size trend will likely continue, as land is seen as limited economic diversification has meant slower an important source of security and parents divide growth of economic opportunities outside the and parcel out land to their children. Many older garment sector. This combination of factors has people will be left with little land as a result, adding shaped the livelihoods and opportunities for to those among this generation who did not acquire Cambodians, which in turn determines their ability land after the conflict. Thus, closing the productivity to grow into an emerging consumer class and attain gap in agriculture between Cambodia and other economic security. These factors are discussed in countries (e.g., Vietnam and Thailand) will become greater detail below, and are generally underlined by increasingly important. poor public sector service provision in part driven by weak governance systems. Despite progress thus far, education outcomes are still poor for many households in Cambodia. Limited access to education and land While net enrollment in primary education and inhibits socioeconomic mobility completion rates are high at 97 and 90 percent, respectively, attainment of secondary education Although land is one of the key assets owned or above is low. The average share of working-age by households in Cambodia, it is unequally people with a secondary education is 21 percent. distributed, and many households own only With low enrollment in lower secondary school (38 a modest amount. The average amount of land percent) and upper secondary school (18 percent), owned by a rural household is 1.3 hectares, which at this situation is only changing slowly. It is also made current yields is enough to generate market surplus worse by high dropout rates: only 41 percent of those for a family of five people but is not enough to propel enrolled in secondary education and only 27 percent households into economic security or the middle of those enrolled in upper secondary education class. Moreover, 23 percent of rural households did complete the necessary grades. Drop-outs have not own land in 2014, and another 15 percent owned actually risen, resulting in a decline in the completion less than 0.5 hectares (Table 6) and relied mainly rate of lower secondary education from 49 percent in on agriculture wage labor. The median land size 2008 to the current levels. Consequently, Cambodia has been declining since 2007, indicating that new has the lowest share of adults with lower secondary land areas are no longer significantly gained from education among ASEAN economies (CDRI, 2013) conflict areas, minefields, or forests. This decreasing and its peers.

Table 6. Rural land ownership and land sizes have been decreasing in recent years

Land ownership category (shares) Land owned (ha)

No land Less than 0.5 ha 0.5 – 1 ha 1 – 2 ha More than 2 ha Mean Median

2004 19.7 19.9 27.6 19.6 13.2 1.3 0.68

2007 16.2 19.5 25.5 23.5 15.3 1.4 0.80

2009 17.3 19.0 26.7 20.0 16.9 1.5 0.75 Sustaining strong growth for the benefit of all for Sustaining strong growth 2011 16.2 19.1 28.8 20.3 15.6 1.2 0.73

2014 22.7 15.3 29.6 17.5 15.0 1.3 0.70

Source: World Bank staff estimates from the CSES, 2004-2013. CAMBODIA:

73 74 CHAPTER 4: Constraints to household economic mobility another 8percent cited householdchores. Focus as the main reason for dropping outof school, and poor ortheneedto contribute to householdincome school in 2015 were more likely to cite being too of 15-18year oldswhodropped outofsecondary completion inrecent years. About 67 percent limited behind gradebecome the mainfactors Households face demandconstraints that have population density. to areas delivery withlow of effective service thechallenges reflect of-school children there partly and Eastern areas and thehigherpercentage ofout- lower concentration ofschoolsintheNortheastern schools are higher.and availability of secondary The surrounding Phnom Penh, where population density are sparselypopulated compared to theprovinces schools (Figureupper secondary 32). These areas whichcombined havethe Northeast, 43lower and Treng, provinces Kiri andMondul in Kiri, Ratanak children 13-18 years of age is highest in Stung etal.,(Sohnesen 2016). The share ofout-of-school to provinces schools remains an issue in certain for education, lack of enrollment access in secondary obstaclesisthemostprominent reason monetary areas. incertain ofschools scarcity While completion limited hasbeen bySecondary of secondar Figure 32. Source: Average distance from villages to upper secondary school (m) GPSlocationofvillages andsecondar 10000 15000 20000 25000 30000 5000 0 10% Spar y schoolduetodistance sely populatedpro Phonom 20% Kampong Chhnang Distance toschoolandnon-enrollment, Pe nh y schools 30% vinces intheNor Kampo , andoutofschoolpopulation fromCSES2014. Svay t Share ofchildrennotinschool Rieng Kanda 40% Koh Kong lT and 76percent were rated below basiconwriting belowrating basicproficiency for Khmer,reading in 2015) found that 39percent ofgrade 6pupilshada ofEducation, achievement (Ministry Youth andSport, mixed.been Anational assessment ofstudent toward improving learningoutcomes has education,outcomes andprogress inprimary education are undermined by learning poor The gainsfrom achieving universal primary the poor. cost for investingopportunity ineducation among reasons for older children an increasing thus reflects years old. The higherdrop outdueto income related dropping out of school by children between 6 and 14 schools (12 percent) are the most cited reasons for lack ofinterest (23percent) andunavailability of the issueoftraveling distance. Ontheotherhand, dropping out, althoughcost could alsobereflecting 15) cited longdistance to schoolastheirreason for 20 percent (but31percent amongthoseunderage as themainreasons for dropping outofschool. Only household chores (31percent), orcost (14percent) to moneyfor earn thefamily(35percent), too many children over age 15 were more likelyto cite the need (Save theChildren andDANIDA, 2014),findingthat group discussionswithyouth revealed similarresults akeo Preah theast ha 50% Vihear by prov ve morechildrenout ince Mondul Kiri 60% Otdar Meanchey Ratanak Ki ri Stung 70% T reng 80% Source: Reading Figure 33. has beenmix This problem iscompounded by double shifting, for period miss out on the prime child brain growth. do not enroll childhood education in early and thus ofpupilswho especially considering themajority 6 to 8 hours. This impairs cognitive development, 20 minutes) thantheinternational of benchmark school pupils spend fewer hours in class (3 hours for andsecondary eachpupil(CDRI, 2014).Primary for which a teacher can provide learning quality exceeds theupperlimit(of40pupilsperteacher) the average ratio pupil-to-teacher inCambodia 2015a). At 46pupilsperteacher, Bank, (World to low education early enrollment childhood delayed engagement of children due in schools compared to peers, fewer learning hours, and combination of fewer teachers and poor-quality Poor learningoutcomes attributed be can to a skills. reading andnumeracy employers’ concerns about recruits who have poor panel). These outcomes poorlearning are echoedin mostly improved areas inurban (Figure 33,right small rural areas, stagnated inlarge rural areas, and Compared to 2007,test scores have declinedin on math, withanaverage test score of43.4percent. (Figure poorly panel).Pupils 33,left alsoperformed Wr Ov er iting all EQADgr Belo 0% w Basic Gr Prof for readingandwr ade sixassessments ade 6Khmerprof 20% 38.9 ed 49 iciency lev Basic 75.6 40% 10.9 , 2007, Prof els inreadingandmatharegener 17.5 iciency lev iting, 60% 20.3 icient 2013. 2013 27.36 80% els 17.86 Advanced 29.9 100% .3 0.6 the bottom 40 percent (Ministry ofEducation, the bottom 40percent (Ministry academic year, withenrolment especiallylow among childhoodeducation the2014-2015 early during 35.9 percent of3-5 year oldswere enrolled in Cambodia, education. only In in pre-primary andlowmalnutrition access to andenrollment of Cambodian children isimpaired by life early performance academic, andsocio-emotional physical,consequences ofundernutrition.The the earliest years and highlights the long-term New research traces achievement school gapsto outcomes andhumancapitalformation affectsPersistent malnutrition learning Education, Youth 2015). andSport, of monitoring onschoolprogram budgets(Ministry as mostprovincial officers ofeducation focustheir them. Poor monitoring exacerbates thesituation, classroom walls, teachers have never understood standard, posters are andwhilecurriculum on orcurriculum thenational curriculum not know mostgrade 6teachers isalsolow: do of instruction etal., (Sohnesen 2016). the countryside The quality schools, many ofthembeingreluctant to teach in caused byoften misallocation of teachers across Equated score 420 440 460 480 500 520 540 560 580 Small ru Math gr ally ra l ade 6testscores, ve Lar 2007 ry ge ru lo w, ra l andprogress Small urban 2013 2007-13 Lar ge urban Inclusion 75 CAMBODIA: Sustaining strong growth for the benefit of all 76 CHAPTER 4: Constraints to household economic mobility Growth (2016). andMalnutrition 47 right panel),andaccess ismuchlower amongthe (Figureits peersinprovision oftheseservices 34, ofstunting.is amajorcause Cambodia lagsbehind ofaccessLack to improved water andsanitation etal., 2016). (Walters alone costs Cambodia 0.08percent ofGNIannually research estimated that inadequate breastfeeding in thetop quintile (Figure panel).Recent 34,left were stunted, compared to 18.5percent ofchildren percent ofchildren underage5inthepoorest quintile much higher than among the better-off. About 42 stunting amongthepoorest Cambodian children is countries, contributes to and poverty malnutrition, and pregnant women are anemic. As inmany other and more thanhalfofchildren 6-59months ofage age 5experience acute (orwasting), malnutrition Furthermore, 10percent nearly ofchildren under than comparator countries suchas Vietnam). WHO threshold for ‘high’ stunting (andishigher in 3 children under age 5 is stunted, exceeding the amongthepoor.Cambodia, particularly About 1 Maternal andchildmalnutritioniswidespread in Food Programme, 2013). infection andlowering pupils’ to (World learn ability health andeducation by increasing to susceptibility capital accumulation, investments undermining in productivity. contributes Malnutrition to low human lifelong oneducational attainment and impacts delays (Qian, Wang, and Watkins, 2005),whichhave been exposed associated to factors withcognitive life early havechildren undernutrition whosurvive by globalliteratureare supported showing that who were stunted. These findingsofimpaired ability inscoresreductions of30-50percent for children in any school;however, this benefit was offset by allimprovedskills whenchildren were enrolled numeracy, cognitive, non-cognitive, and motor children findsthat children’s scores for literacy, a World evaluation of2-4year Bankimpact old Youth 2015). andSports, The 2016baselinefor World HealthOrganization, GlobalDatabase onChild 47

in 1992to 63percent in2011, percent oftotal available calories perpersonday availableof calories from rice hasdeclinedfrom 78 energy sources. dietary time, Over theproportion Cambodians relyrice mainlyonfishand for theirdaily also contributes to highlevels ofstunting. factors— related andsocio-cultural food insecurity Poor diversity—due to income- both dietary (Humphrey, 2009). affects achild’s andutilizeto absorb ability nutrients astropical/environmentalknown enteropathy which subclinical condition disorder ofthesmallintestine exposure to fecal matter is associated with a andUNICEF,open defecation (WHO 2015).High bottom 40percent ofhouseholdsin2012practicing poor andinrural areas, with82-90percent ofthe 49 Available from: http://faostat.fao.org (accessed 5June2015). (FAO). 2015.FAOSTAT: Food andAgricultural Price Statistics. 48 not consume diverse diets(compared to 77percent of diversity,adequate dietary 56percent ofchildren did infants and young children: in households level doesnotnecessarily yieldimproved dietsfor diversity and food at a household security dietary infants and young children. Achieving adequate of a nutritionallyadequate diet for Cambodian that limittheprovision factors also socio-cultural Evidence suggeststhat itisnotonlyincome but income countries (21percent). in 2014-2016,isabove theaverage for lower middle- inCambodia at anaverageadequacy of23percent 4.8 percent intherichest. The prevalence offood diversity comparedinadequate to dietary only households inthepoorest wealth quintile experience elsewhere inthecountry. Nationally, 22percent of forlimiting factor than achievingoptimumnutrition andfood remainwhere more insecurity poverty ofa more limited. trueintheNortheast, This isparticularly and othernon-seafood animal source foods hasbeen whereas increases inthesupplyofvegetables, fruits, arecalories available from fish, sugars, oils, and pulses, have beenintroduced into thefood system. Additional FAOSTAT, 2017. Food andAgriculture Organization oftheUnited Nations 48 49 asmore diverse foods

with

of women, especiallyinthegarment industry, for theirfamilies. The high laborforce participation tradeoffs between childcareto provide and working Cambodia. Young women in Cambodia face difficult contributorsas important to childmalnutritionin migration, timeuse, andchildcare are emerging New dynamicsrelated to employment andlabor are neededto achieve thesehealthoutcomes. practices,encourage changesto traditional dietary strong socialandbehavior changemessagesto source andformulated foods, complementary and improve access market to nutrient-rich animal- micronutrient interventions, to interventions achieve optimumdietsfor young children. Additional incomes andbehaviors would beinsufficient to this context, to interventions In improve household to achieve recommended intakes for keynutrients. median consumption. Even so, this diet’‘best failed ofrice belowconsumption anddecreasing servings above products fruits, themedian and bakery of animal-source foods,servings vegetables, 6-8 months and9-11months required increasing demonstrated that the diet’‘best for children ages of current infant and young child diets in Cambodia children in food-insecure households). A 2013 study Source: other countr Figure 34. Bangladesh Guatemala UNICEF; Philippines Cambodia Vietnam (2014) (2014) (2014) (2013) (2010) Prevalence ofstunting, Prevalenceofstuntingishigheramongthepoor

WHO/UNICEF JointMonito 0% To (% ofchildrenunder5) p quintile ies inaccesstoimpro 10% 20% 30% Bottom quintile 40% heightforage ri ng Progra 50% 60% ve m.

70% d waterandsanitationfacilities 80% of iron-folic acidsupplementation pregnancy, during pregnant women received therecommended dose have achieved onlylimited scale:only57percent of at scale. The RGC’s interventions nutrition priority into financingandimplementation ofprograms attention to has nottranslatedpolicy nutrition been general improvements delivery, inhealthservice reducing child malnutrition.Although there have are through barrierstoservices thehealth sector The low availability andcoverage ofnutrition major challengefor thesehouseholds. other caregivers canprovide adequate childcare isa the tradeoffs that and ensuring spouses, relatives, or Program,Nutrition UNICEF, andHKI,2017).Managing constraints to leave takefull maternity (National these children (ILO, 2016),andwomen face often employeesgarment sector withchildren live with factors. A2016studyfound that only65percent of formally employed, whichcould bedueto several be stunted thanthosewhosemotherswere not formally employed mothers were more likelyto for education andeconomic status, children of family members, andcaretakers. After controlling their children invillageswithgrandparents, other leads women to relocate to areas, urban leaving Cambodia Bangladesh Guatemala Philippines Nicar Vietnam L-MICs to impro P agua Impro ercentage ofpeoplewithaccess 0% , and Cambodialagsbehind ve d sanitation ve 20% d waterandsanitation 40% Impro 60% ve d wate 80% r 100% Inclusion 77 CAMBODIA: Sustaining strong growth for the benefit of all 78 CHAPTER 4: Constraints to household economic mobility (CARD, 2014). information nutrition of awell-functioning system volunteers andhealthcenter staff, andtheabsence management, poor motivation of village health procurement suppliesandsupply-chain ofnutrition include: low humanresource capacity, constraints in through aproject-based approach. Bottlenecks provided isoften sector by development partners Organization. 52 Statistics. 51 HKI 2017). formula milkinhospitals(NationalProgram, Nutrition UNICEF, 50 week before period theywere in2014. interviewed havingpopulation stillreported beenillinthefour- of illnesshasdeclined, about15percent ofthe among themostsignificant. While theincidence exposure to shocks, are ofwhichhealthshocks level ofhouseholdvulnerability dueto high Compounding low assetownership isthehigh socioeconomic mobility shocks compoundschallengestoachieving Exposure tohealthandenvironmental in theworld, at 60percent ofallhealthexpenditure. inCambodia are amongthehighest health services spending, respectively. Indeed, OOP payments for 8.6 percent and13.4percent incur catastrophic greater for anddisabled, theelderly amongwhom to pay for health expenditures. isevenThe impact spending in2013,and3.1percent hadto incurdebt 6.3 percent ofthepopulation hadcatastrophic (OOP) expenditures.out-of-pocket Approximately in Phnom Penh) seekmedicalcare andface high Many of them (83 percent in rural areas and 92 percent immunization contacts. offereduniversal opportunities by antenatal and advice to patients despite theregular andnearly provide littleand/or inappropriate nutrition are atrusted source ofinformation, theycurrently aremalnutrition treated. Although healthworkers and only9percent ofchildren withsevere acute GlobalHealthExpenditure Database, World Health Cambodia Economic Socio Survey, Nationalfor Institute are found Doctors to routinely encourage theuseof 50 Current support to Current thesub- support 52 51

2.7 millionloss inwater and sanitation infrastructure caused by flooding.In addition to theestimated USD of sanitation andsewerageand theoverflow systems consequences from water contaminated drinking Finally, thesedisasters have health alsohad indirect the floodasa 2014a). coping mechanism (RGC, took of householdsinterviewed outaloanafter through alternative livelihoods, about71percent to maintain theiraverage monthly incomes didso 2014a).Although(RGC, someofthosewhomanaged food the experiencing most severe consequences households reliant onagriculture for income and amounting to USD37.6million,with(mostlyrural) of thoseaffected dropped more than25percent, flood needsassessment, average monthly incomes escape poverty. For instance, basedona2013post- more challenging for poorhouseholdsto eventually it andmaking non-poor householdsinto poverty a major source of catastrophic spending, pushing World (Figure Index Risk 35).Frequent disasters are in theworldprone by theUnited country Nation’s Cambodia was ranked theeighth mostdisaster- forof shock Cambodian 2015, households. In weatherExtreme events are anothersource public healthcare delivery. HEFs aswell of asconcerns aboutthepoor quality challenges inthedesign andimplementation ofthe simply notaware oftheHEFbenefits. This indicates HEF cards at somepublicfacilities),butothers were andnon-acceptanceor cost oftransportation of doing sowere ofcare quality andaccess (distance HEF cards for theseservices. The mainreasons for not usedtheir actually who sought inpatient services andabouthalfofthose sought outpatient services who ofHEFbeneficiaries found that onlyone-third toHowever, use public services. the same study treatment beneficiaries driving was the main factor compared to thenear-poor, andreceipt offree were aslikelyto twice utilize publichealthfacilities An evaluation of the HEF shows that beneficiaries challenges indesignandimplementation remain. and lowerhealth services OOP expenditures, (HEF) could help increase utilization of public While theexpansion funds ofhealthequity However, current systemic issuesalsoincludepoor provision sinceof humancapitalandservice then. initial conditions have shapedthedevelopment gap withothercountries intheregion. These low meant Cambodia hadamuchlarger catch-up conflict— oftheKhmer-Rouge some extent alegacy and below-averageof key services quality—to raisinginadequacy householdendowments. The forStrengthening critical willbe publicservices human development outcomes affect delivery Challenges inpublic service accidents, natural disasters, andsoon. death ofrelatives, unemployment, car sickness, protect themselves oflossassets, againsttherisks constraint to helpingthepopulation andthepoor underdevelopment isa oftheinsurance industry per capita (WSP, World 2008). Overall, the Bank, estimated at USD 448 million per year, or USD 32 economic lossofpoorsanitation inCambodia is caused by the2013flood, the total average annual Source: P to disaster Cambodia ishighl Figure 35. Br apua NewGuinea unei Daru Solomon Islands Guinea-Bissau UnitedNationsUniver Timor Cambodia Bangladesh El Salvador Guatemala Costa Rica Philippines Nicar Maur Vietnam Va Gambia Jamaica ssala -Leste To nuatu Japan Comparedtoothercountr agua itius s nga Fiji Wo m 05 rl d RiskIndex, y exposedandvulner sity (2015). 10 15 To 20 p 20 25 30 ies, 35 ab

le 40 competency-based training (Sohnesen etal., trainingcompetency-based (Sohnesen 2016). training improvements andin-service or pre-service but onlyasmallshare of publicspendinggoesto and competencies of its healthworkforce,the skills rising. Cambodia alsofaces amajorchallengein development (ECD), even thoughenrollment is of thebudgetisallocated for childhood early childhood education, onlyanestimated 0.7percent Plan (ESP)2014-2018places anemphasisonearly andwages.salaries While theEducation Strategic of GDP. However, 80percent ofthebudgetgoesto budgeted expenditure to in2017hasrisen 3percent the country’s needs. theeducation sector, In total or provision of otherinputshaslaggedbehind infrastructure so development ofsocialservices budget mainlygoestoward andwages, salaries with prioritiesidentified insectoralplans. The the allocation of resources and the alignment increasing, improve there isroom to further hasbeen While sectors insocial publicspending etal., 2016). (Sánchez-Martín contributes to theirvulnerability, asdiscussedabove which isasignificant burden onhouseholdsand constitutes 80 percent of total health spending, income economies. Consequently, private spending an average of1.6percent ofGDPinlower middle- to 1.4percent ofGDPin2010-2014,compared to health expenditure inCambodia hasaveraged close percent ofGDPin2010).Government-funded public the average for economies lower (4.3 middle-income in recent years, whileremaining significantly below donor financing, amounting to 0.6percent ofGDP of GDPin2015;thishasbeencomplemented by years, from 1.6percent ofGDPin2012to 2.1percent traditionally low, hassignificantly increased in recent Government-funded education expenditure, leading to persistent provision. gapsinservice been suboptimal, has conflict Cambodia Public investment inpost- services insocial discussed ingreater detailbelow. side constraints inaccess to services. These issuesare patronage, and inadequate attention to demand- effectively, to deliverinstitutional capacity services Inclusion 79 CAMBODIA: Sustaining strong growth for the benefit of all 80 CHAPTER 4: Constraints to household economic mobility water pumpstations intheagricultural sector. USD 0.12/kWh for consumption below 10kWh/month andfor 51-200 kWh/month. For rural is consumers, tariff thelife-line 50 kWh/month, andUSD0.17/kWh for consumption between in2016isUSD0.15/kWhtariff for urban consumers for lessthan 53 less than50kWh per month, tariffs householdswho consumefor grid-connected haveauthorities introduced subsidized life-line affordability, for thepoor. particularly Although Funds, 2016).Moreover, access doesnotensure 100 percent areas inurban (Climate Investment sources orgrid-supplies, compared to nearly fromhas access alternative to electricity off-grid rural areas where only about half of the population countries intheregion (Figure for 36),particularly significantly, it remains low relative to other electricity. hasimprovedWhile access to electricity of Cambodia’s population stillhasnoaccess to illustrated that by more thefact than40percent and education hasgenerally low, been as Investment beyond delivery inservice health compared to theworld average of1.6percent of less than0.1percent ofGDPinsocialassistance, some oftheseconstraints, yet Cambodia invests poor. protection programs Social canhelpaddress contributes intake amongthe to inadequate dietary andlackofresourcescan leadto schooldrop-outs, welfare improvements, the need/desire to work Catastrophic healthexpenditures are adrag on development outcomes inCambodia are numerous. equitable access or attainment of human to services minimize vulnerability. side constraints Demand to demand-side constraints to access and to services in the world, despite the potential to address isamongthelowest spending protection Social agriculture) fish. andmigratory endangers the flow of soil nutrients (vital for in particular, astheexpansion ofhydropower onthebottomhad significant 40percent, impacts also come withnegative that have externalities disposable income. access Improved has electricity represent asmuch30percent ofhousehold consumption expenditures category, electricity For EDCcustomers to connected thenational grid, the 53 inthelowest GDP. org/aspire/. 54 positive feature in social protection istheexistence Fund), thoughbenefitsare modest. Onenoteworthy private workers Security (National sector Social (National Fundthe military for Veterans), andformal Fund Security Social membersof for Civil Servants), benefitsmainly cover (National security civilservants of social or subsidized access to pensions as social the unemployed donotcurrently receive any form beginning in2017. The poor, informal workers, and Protectionnew Social Policy Framework (SPPF) changing with implementation ofthe to start remain limited, although the situation is expected on donorfinancing.Social assistance schemesthus pilots orfeature coverage partial andmostlydepend works, food assistance, socialpensions),theyare exist andhave beentested successfully (CCTs, public Although afew socialassistance programs already 2 percent ofthepoorest quintile ofthepopulation. and subsidized healthinsurance) covers lessthan Sources: Cambodia Univer Outlook Prospectus; Stra has impro Figure 36. lowest intheregion Access to electricity (% of population) 100% tegic 10% 20% 30% 40% 50% 60% 70% 80% 90% ASPIRE database. Accessible at datatopics.worldbank. 0% 54 sal ; Wo Social assistance Social (excluding scholarships Wo A Electr

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to areas urban where there are more opportunities private consultation at thesametime)andto move as employees ofpublichealthfacilitiesandoffering tohealth workers (i.e. dual practice to resort working management for providers frontline cause service 2014b). Inadequateincentives andperformance [wrong diagnoses andtreatment]” Bank, (World of allpatients would potentially bemismanaged 2014 studysuggested that approximately “74 percent Cambodian citizens have access ofcare. to quality A health care centers have notyet guaranteed that in thehealthsector, theincrease inhospitalsand contributed services. For to poor-quality instance, andhave delivery publicservice hamper Wrong incentives also andlimited capacity Cambodian people. upgrading to satisfy thechanging needsofthe deliver which requires public services, significant This ofstate speaksto thecapacity institutions to relations or informal to payments. primary to resort givenpublic services, that in many casesthey need in a high costpractice for the citizens to benefit from inthehybrid politicalsystemof services results in client relationships. The lackofinstitutionalization arrangement andapersonalized ofpatron- network characterized by thecoexistence ofarational legal 2011). The was product ahybrid polity, whichis on off-budget resources (Un,2005;HughesandUn formal to bureaucracy provide crucial power based personal favors alongsidethe andwas nurtured unequal) relationship that involves exchanges of patron-client relationship is a reciprocal (although around elite patronage networks. This century-old far lesseffectthan)the consolidation ofauthority developedbureaucracy inparallel to (butwith earlier, a rationalto legal theefforts construct still uneven andnon-systematic. As mentioned developed,has been is delivery publicservice Although thefoundation ofan effective state ofPlanning. Ministry poor across Cambodia and is fullymanaged by the continues to bethemaintool for registering the of acentral targeting mechanism, ID-Poor, which local elections through thedecentralizationlocal elections and level remains limited. The introduction of the grassroots level, progress at thenational andcitizen delivery engagementservice at 2002 hasledto someimprovement in public ofdecentralizationWhile the start reforms in challenges persist. progress inthethree areas to date, daunting 2012). Although Cambodia hasmadesubstantial 2003;Blum, Manning, and Srivastava, Bank, (World offiscaland institutionalsustainability and support economic behavior, adoptionofsoundpolicies, other publicinvestment, regulations onsocialand through goodmanagement ofinfrastructure and for citizensservices andfacilitates businesses leading to awell-managed that delivers publicsector challengesin these three dimensions,help tackle anddecentralizationcivil service, reforms would Successfulservices. publicfinancialmanagement, of public or poorquality leads tooften non-delivery to highlycentralized management publicservice voice are intheway delivered publicservices due incentivized civil servants. Third, lack of citizens’ delivered dueto lackofattention by inadequately facilities may notalways guaranteeare that services Second, services. thepresence ofpublicservice of providers result often service innon-delivery For example, longdelays infundsflow to frontline may notallow theefficient useofpublic resources. is available, theexisting institutionalarrangements inadequate dueto lackofbudget, andwhenbudget a numberofreasons. First, may beoutright services reforms. fail poorpeoplefor Public services sector management, civilservice, anddecentralization access, quantity, publicfinancial andquality: to improving interms delivery of service Three key andinterrelated reforms are central ofservice. quality toexpected improve patient access as well as overall facilitiesthatevaluation is mechanismto district Grants (SDGs)introduced Delivery aperformance behind. response, In theintroduction ofpilotService for private intheprocess, practices; rural areas are left Inclusion 81 CAMBODIA: Sustaining strong growth for the benefit of all 82 CHAPTER 4: Constraints to household economic mobility progress hasbeen slow andhighly uneven across assignments tofunctional thesubnational level, is devoted to staff costs.In oftransferringterms levelmunicipality where 71percent ofthefunding development investments are financed at thedistrict/ are funded, andalmostno commune/sangkat only a few proposed development in each projects largely by administrative expenses. As aresult, amount offundingremains smallandisconsumed levels have generally improved over theyears, the respectively. While allocations to thesubnational percent share of2016national current expenditure, below theprovince) represent a 1 percent and2.8 levels (two levels ofsubnational administration andcommune/sangkat for thedistrict/municipality isuneven. Annualsupport unconditional transfers for fulfillingnew andnational functions, ministry needs, isinadequate oflocal capacity well short but finances for development investment fall progressively transferred to subnational levels, Resources andresponsibilities are being Asia andthePacific except Myanmar.for (down from 15in2013)—thelowest score inEast low, “scant ornone,” withascore of 8outof100 national budget openness was assessed to be very limited. According to the2015OpenBudgetIndex, around budget information—islevel—particularly Councils. contrast, In engagement at thenational schools,health centers, andCommune primary budgets, expenditures, delivered and services at on ofreporting level, roll-out withthedistrict isgrowing ofpublicservices at thelocaldelivery Citizen engagement around thefinancingand councilorsto (Rusten theirelected etal., 2005). thereby demands by people generating further (NGOs), resulting and inimproved delivery service government and non-governmental organizations has increased collaboration between local Rusten etal., addition, decentralization 2005). In 2005; collaboration and Hank, (Ninh inter-party practices” at the local level, mainly an increase in Decentralization hasproduced “new attitudes and engagement inlocalpolitics. for multiple-party deconcentration reforms hashelpedopenupspace for 2017. National Committee for Subnational Democratic Development level, withanambitious target setby of14ministries the education have beentransferred to thedistrict/municipality education, and non-formal childhood education, primary 55 plans andrequests for budgeting, lackofintegration strategic insector between priorities disconnects outcomes, anumberofchallengesremain, including toexpected helpimprove expenditure allocation and introduction ofprogram-based budgetingin2015is managers to utilize budget at their disposal. While the accounted for, andinadequate discretion for budget how revenues andexpenditures are recorded and due to the way inwhich thecashismanaged, delayed because cash is not immediately available most reasonable cost. Payments are sometimes effectiveness oftheseprograms at the andservices and, importantly, to demonstrate itsability the basedonstated national priorities and services public sector’s to deliver ability core publicprograms Nonetheless, ahostofissuesstillconstrains the of payments infinancial and accuracy reporting. all provincial thetimeliness treasuries—to support ofEconomy andFinanceMinistry (MEF) including implementation—currently operational at the InformationManagement System (FMIS) isunder success ofdecentralization reform. AFinancial implementation key willbe to ensure the towards efforts programwhile further budgeting the overall improvement systems, incountry Management (PFM) Reform Program hasledto The of a Public introduction Financial theirnew roles.staff to perform procedural guidance to fullyequipthesubnational steps to provide thefinancial resources, training, and transfers takeplace, have lineministries takenlimited level.to Even thedistrict/municipality assuch have so far identified and transferred some functions needs oftheircitizens. However, onlytwo ministries administrations to bemore responsive to thespecific providers,closer to theservice allowing subnational delivery responsibility for ofservice shift thequality ministries. Management of solid wasteManagement and sewerage, early 55 Functional transfers are intended to evaluation. The National Program for Public incentivized to monitoring and andalsosubject endowment ofhumanresources that are well to the subnational level, as well as by an adequate funding for transferred competencies andservices would need efforts to beaccompanied by sufficient monitoring. performance actual professionals into thecivilservice, aswell asin in providing incentives to attract skilled increases but challengesremain salary Thus far, reform civilservice hasintroduced 2015b). (RGC, deliver publicservices quality of the recentlyability created budget entities to timely in-year budgetdisbursements, affectingthe standards. Lengthy processes continue to hamper slow adoption and implementation of international financial information, weakoversight, external and andnon-availabilitylack oftransparency credible lengthy payment processes, weak internal controls, procurement systems andmanagement capacity, programs. Another setoflimitations includesweak influencingthedefinitionof institutional inertia of donorfundinginto program budgeting, and Decentralization public service delivery to materialize. delivery public service for improvements of actual andquality inefficiency Cambodia are weak and need to be strengthened monitoring andcitizen feedback mechanismsin increases oradditional incentives, performance professionals were to beattracted through thesalary 12 exam” (Prateek, andFukao, 2015).Even ifbetter trainees scored intheE, D, andCranges onthegrade are notattracted to teaching” andthat “most teacher example, a2014studyfindsthat“the beststudents setsremains amajorchallenge.various keyskill For to retain, attract, andmotivate professionals of non-material benefitsare sufficiently competitive by 2018.However, pay and that ensuring civilservice 160 amonthto in2015andisexpected reach USD250 from approximately USD80amonth in2013to USD increased inthepublicsector The minimumsalary thresholds. beyond certain for tax deductions salary systemthrough andautomatic theuseofbanking remote payment postings),andensured timelysalary (including location-based allowances to encourage incentives for teachers andhealthcare workers minimum wage across thepublicsector, improved Administration Reform (2015-2018) has increased the Inclusion 83 CAMBODIA: Sustaining strong growth for the benefit of all

Chapter 5 86 CHAPTER 5: Is the current Development model sustainable? Is the current development model sustainable?Is thecurrent rates. There isanemerging literature ongrowth collapses. take alongertimeto trend return growth to theirpre-shock vulnerable to large shocksbutalsoto internal andexternal 56 as apercentage oftotal revenue inrecent years. on aid, althoughthegrant component declined Cambodia hastraditionally hadahighreliance become morechallenging maintaining public investment levels will Although public financesremainsustainable, macroeconomics andpublic finances 5.1 Riskstothesustainabilityof 2006;Hausmannetal., andMinoiu, Reddy 2006). 1999;Cerra andSaxena,substantially (Rodrik, 2005; and development agendafor decade thenext with slow recoveries that could affectthe growth unanticipated external andinternal shocks, like Cambodia remain vulnerable to large is addressed effectively, developing countries Even ifalarge share oftheemerging agenda economic mobility goingforward.economic mobility which could constrain growth andhousehold to social, environmental, andeconomic sustainability discussestherealThis andongoingthreats section Developing countries are found notonlyto bemore 56

37, rightpanel). average for economies lower (Figure middle-income allowed Cambodia to catch the up with and surpass 2010 to an estimated 13.8 percent in 2014. This has tax revenuelift from around 10 percent of GDP in coupled withfast economic growth, have helped on taxauditsandtaxpayer services. These efforts, and enhancement in tax compliance with a focus tariffs, anti-smugglingarrears efforts, collection, including improved implementation of import emphasis onstrengthening thetaxadministration, StrategyMobilization launched in 2014, with tax revenue through implementation of theRevenue countries. above theaverage for lower middle-income overcollection thepastfive years andisnow has achieved outstandingimprovements intax To compensate for thedeclineingrants, Cambodia income status. graduatedthe year inwhichthecountry from low- 5 percent ofGDPin2010to 2percent ofGDPin2015, grants received by Cambodia declined from around of theglobalcrisis, grants have beendwindling:aid However, following increase asharp intheaftermath economies (Figuremiddle-income panel). 37,left is significantly higherthanthe average for lower The ratio ofgrants to total revenue inCambodia Cambodia hasincreasedto boost efforts could eventually pose budgetary pressures,could eventually posebudgetary since low-income economies (7.0 percent; Table 7). This GDP in 2016) is already on par with the average for wage billinCambodia (estimated at 7.2percent of below thelevel countries, ofneighboring therising to USD80permonth in2013). While traditionally amounting to closeto 9percent ofGDP(compared minimum wage willreach USD250permonth by 2018, announced theRGC thepublicsector election, result pressures. in fiscal Following the2013 wageincrease may inthepublicsector eventually theexpenditureOn side, aprogrammed fourfold when gr Source: Figure 37. Source: Cambodia’s 2016budgetandIMF. Public sector payrollPublic sector Table 7. groups, Public sectorwagebillfor selectedcountry latestavailable year High-income European Union Middle-income Low-income Asia andPacific Cambodia Percentage of total revenue 10% 20% 30% 40% 50% 0% Nicar Cambodi

Wo rl aguaP d De 2001 ants aredwindling Cambodiahasachiev a 2002 velopment Indicato

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2010 ed impressiv 2011 Bangladesh % ofgovernment expenditures 2012 2013 2014 e progressinrev financing. At low levels inthe2000s, public funding, currently indecline, for infrastructure Cambodia hastraditionally relied ondonor etal., 2016). Martín is already amongthehighestinworld (Sánchez- administration wage relative to GDPpercapita(3.1) and EastAsia andthePacific (4.4),the ratio ofpublic below the averages for low-income economies (4.0) (2.9percentcivil servants oftotal population) iswell percent of revenue. Notably, while the number of the publicpayroll already represents around 40 25.4 31.8 25.8 27.5 32.5 28.0 10% 15% 20% 0% 5% Lower middle-income Cambodia 2001 Ta

2002 x rev 2003 enue aspercentageofGDP enue collection 2004 2005 % ofgovernment revenues 2006 2007 Nicar Guatemala 2008 agua

2009 , 25.3 28.2 26.8 22.9 41.0 25.9 at atime 2010 2011 Philippines Bangladesh 2012 2013 2014 Sustainability 87 CAMBODIA: Sustaining strong growth for the benefit of all 88 CHAPTER 5: Is the current Development model sustainable? Single Account. However, ofprocurement aseries elimination and consolidation under a Treasury of improvements have beenmadeinarrear payment oversight budgetimplementation. during Aseries help enhance transparency, predictability, and InformationManagement System (FMIS) that would launched in2008,focused onestablishingaFinancial public spending. The second phaseofPFM reform, of theeffectivenesshamper andefficiency challengesinPFMsustainability reform may At thesametime, and aseriesofcapacity infrastructure. capital expenditure translates into good quality budgets are neededto guarantee that large public adequateensuring operations andmaintenance management for domestically financed projects, and strengtheningto publicinvestment selection, project donor coordination, avoiding apiecemeal approach (Chanborethreporting and Hach, 2015). Enhancing large share of theirtime on meeting missions and of investment andresults spendinga inauthorities fragmentation hampersthequality inaidefforts financedmention infrastructure. externally High capital spending(Figure 38,rightpanel),notto expansion asthat ofdomesticallyfinanced budget hasnotkeptthesamepace ofnominal Development Plans (NSDP),butthemaintenance expenditure goalssetintheNational Strategic Cambodia hasbeenableto meetthecapital andmaintenance. itssustainability about is highby regional standards, there are concerns Although in Cambodia spending public capital mainly to smaller-scale road andhydraulic projects. in recent years andhastraditionally beenallocated expenditure hashovered around 2percent ofGDP panel).Meanwhile,38, left locallyfinanced capital to anestimated 5.3percent ofGDPin2015(Figure percent ofGDPin2011,thenprogressively declined increased from 4.6percent ofGDPin2008to 8.2 financed publiccapital expenditureExternally a significant increase indonor-financed capital. thanks to of the global crisis,the aftermath partly capital expenditure inCambodia was boosted in statements. identify programs, and annualprogram budgets and outturn system are rolling athree-year budget, strategic plans that 2018 budget. The mainelements oftheprogram budget with thefinalthree ministries to beincludedin2017 for the 57 Moreover, strategic planningremains sector realism androbust linkages. input-output/outcome andbudget strategiccapital projects; planslack from program budgeting, includingstaff costs and majorelements ofthe budgetare missinglacking; a systematic approach to program evaluation is Current limitations ofprogram budgetinginclude: budgeting and BSPs can be considered fully effective. improvementsfurther are neededbefore program output targets, butprogress remains uneven, and improve costing and setmore realistic outcome and havebudget. Efforts beenmade to gradually term expenditure framework (MTEF) andannual Planto themedium- priorities andsector-specific better linktheNational Strategic Development up budgetstrategic plans(BSPs) that attempt to rollinga three-year timeframe basedonbottom- in 2016. and willberolled outto provincial departments to extended budgetentitiesMinistries, in2015, budgeting hasbeenextensively piloted inten prioritiesandthebudget. Program term policy strengthening thelinkbetween medium- to step thenext budgeting appears be in Effective implementation ofprogram-based change management whenrequired. streamlining processes, andintroducing proactive greater confidence in and encourage usage of FMIS, providing building to promote additional capacity to ensureefforts thesuccess ofthe reform include the continued useofparallel systems. Further provincial whichencourages finance departments, detailed budgetbreakdowns provided by the provincial treasuries related to the lack of timely provincial treasury, some difficulties remain at other of record at boththecenter andthe Phnom Penh December 2013. While theFMIS isnow thesystem issues delayed contracting for actual theFMIS until Fifteen more are lineministries to beaddedin2016, 57 Fiscal aggregates are now prepared for been rising overbeen rising time. although bilateral debt(especially from China)has of theoutstandingdebthas concessional terms, GDP at 32.5percent asofend2015(IMF, 2016). Most Analysis remains low, withtheratio ofpublic debtto rating inthe latest Sustainability WB/IMF Debt business-as-usual scenario. Cambodia’s debtdistress to stabilize around 3percent ofGDP, assuminga coming years, thedeficitafter grants is expected widen slightly to 1.2percent the ofGDPin2016. In the overall fiscaldeficit(after grants) is to expected in 2016,mainlydriven by thepublicwage bill, and resumed fiscalpolicy consolidation, expansionary to remain sustainable. After several years offiscal recent years, andpublicfinances are expected to implement countercyclical in policy fiscal oneofthefewbeen developing countries able These risksnotwithstanding, Cambodia has capital spending. not yet been integrated, including both current and financed budgetshavedomestically andexternally yet addition,inmostministries, 2015b). (RGC, In andtheMTEFweak, hasnotbeenfullydeveloped Source: preliminar in 2011, Figure 38. Percentage of GDP 10% 15% 20% 25% 0% 5% Prov Extern

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y ofEconomyandFinance).Note:“e”denotesthatfiguresfor2015are 2012 2013 l rent 2014 2015e y notbesuff macroeconomic stability, althoughthe poor have of growth supportive sofarbeen and The highlevels ofdollarization inCambodia two decades. deposits hasremained above 90percent for thepast percent, andtheshare ofU.S. dollar depositsto total currencies inbroad moneyhovers around 80 peers (Figure 39). These days, theshare offoreign fastest broad moneygrowth rate among observed years. hasalsoledto Dollarization thesecond- injustafew currency (KHR)as the primary riel large inflows of U.S. dollars,Khmer displacingthe opening upto foreign aidandinvestors resulted in currencies. The ofUNCTAD arrival in1992andthe and encouraged theuseofothersubstitution deficits,public sector which resulted inhighinflation Cambodia relied on domestic banks to finance its the latedollarization. 1990s, In 1980sandearly underpinned by fastbroad money growth under Strong economic growth inCambodia hasbeen to acreditboom rising due are Macro-financial vulnerabilities Domestically f

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vestmen 2010

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t 2012 2013 2014 2015 e Sustainability 89 CAMBODIA: Sustaining strong growth for the benefit of all 90 CHAPTER 5: Is the current Development model sustainable? Source: and 4,100perU.S. dollarsince 2011. 58 eliminating exchange rate hasbeenhighly risk and exchangemonetary rate policies. While ofauthoritiestoability make effective useof At thesametime, dollarization the hampers 1998 Asian financialcrisis. experienced by Thailand andMalaysia the during depreciationa majorcurrency such asthat preventedDollarization Cambodia from suffering 2015b). and moneyprintinginexcess Bank, (World to from domesticfinancing public sector resorting alsodiscourages stableprices.and underpins the It provides anominalanchorfor economic agents riel is de facto softly peggedto theU.S. softly isdefacto riel dollar, andKotani,2010), althoughtheKhmer (Lay, Kakinaka degree ofexposure to exchange rate fluctuations (Siregar andChan,2014). The poorhave ahigher higher foreign areas holdingsinurban currency higher likelihoodofforeign income explain currency 2011). Better access to financialinstitutionsand economy has lagged behind to some extent (Duma, areas,mostly urban rural while theriel-based andtourist receiptsFDI, garment exports, benefiting phenomenon, with is mainly an urban Dollarization are more exposed to apotential crisis. currency money gro Figure 39. % growth, year-on-year 10% 15% 20% 25% 30% 0% between KHR4,000 hasbeen fluctuating The currency 5%

Av Wo Philippines er rl d De age broadmoneygr Dollar velopment Indicato wth Guatemala ization hasdr Bangladesh rs.

ow th, Cambodia iv 1993-2015 en fast Vietnam 58 which growth (Figure in thesameperiod panel). 41,left Only Vietnam hassustainedafaster rate ofcredit the average for economies. lower middle-income percent in1993to 63percent in2015,already above private as a percentage sector of GDP jumping from 2 episodes in the region, with Cambodia’s credit to This hasfueledone of thefastest capitaldeepening percent growth year on year 2010-2015). during depositgrowthcurrency (averaging close to 25 inCambodiamarkets have ledto fastforeign receipts coupled withthelackofdeveloped capital large foreign inflows, currency andlarge tourism currentheadquarters, account deficitsleading to foreign financialinstitutions to access fundsfrom growth. Capital account openness and ease for have credit of booming supportive been Large inflows in and deposits foreign currency asabuffer shock. incaseofan serve external IV Consultationthe latest and would IMF Article mid-2016 are considered adequate according to asof of USD6.4billion(or5.4months ofimports) Nonetheless, Cambodia’s foreign reserves currency oftheCentralability Bankaslenderoflastresort. 2015b), andhampersthe Bank, (World currency seigniorage gainsfrom printingmoneyinlocal the effective useofinterest rate policy, restrains gap.this external addition,dollarizationprevents In in recent years, andforeign aidinflows to finance depends onlarge FDI,at around 10percent ofGDP land,construction, andreal estate. Cambodia including investment innon-tradable goodssuch ofconsumptionby goods, demandfor import deficits (Figure 40)which tend to bemotivated this hasalsoledto persistent current account tourists. to Contrary othereconomies intheregion, to Cambodia more expensive for non-American trips oftradableproduction goodsandmaking competitiveness,external dis-incentivizing the Euro and othercurrencies has eroded Cambodia’s partner. Recent U.S. dollarappreciation vis-à-vis the European Unionbecoming themaintrading havedollarization become apparent withthe intensely to theUnited States, thelimitations of beneficial for aneconomy that was exporting Source: to inefficiencies. credit Outstanding granted by to finance, thewideinterest rate spreadpoints economicsystem growth supports andaccess Although therapidly expanding banking (Ahmed et al., 2014;IMF, 2016). isassociated macrosectors withrising risks financial driven boom inthereal estate andconstruction credit growth withincreasing exposure to thesupply- in tradable goodsunderU.S. dollarappreciation. Fast competitivenessexternal anddisincentives to invest explained by the abovementioned decline in percent (Figure 41,right panel). This isprobably growth hasstayed inmanufacturing at around 7 personal lendinghasbeenabove 30percent, while real estate, andinretail trade and andmortgages and 2015,nominalcredit growth inconstruction, 2013, remaining around 5percent ofGDP. 2014 In have sector flattenedthe manufacturing since credit to theprivate sector. contrast, In loansto of 2015,oraround 20percent oftotal outstanding GDP in2010to anestimated 13percent ofGDPas increased frommortgages around 4percent of global crisis, credit real to construction, estate, and ofthe2009 intheaftermath activity in construction real estate isincreasing. Following decline asharp althoughtheshareactivities, and ofconstruction creditOutstanding isdominated by trade Figure 40. -15% -10%

% of GDP 10% 15% 20% -5% 0% 5%

Wo 1993 rl d De 1994 Dollar velopment Indicato 1995 Cambodi ization hasresultedinper 1996 a 1997 rs.

1998 Bangladesh 1999 2000 Cur 2001 rent accountbalance 2002 Mala ysia 2003 sistent cur 2004 50 MFIs and eight micro-deposit-taking institutions 50 MFIsandeight micro-deposit-taking at rates of more than40and50percent ayear. The both assetsandcredit at MFIshave been growing economy.cash Since theglobalfinancialcrisis, although Cambodia remains apredominantly rely onunregulated private money lenders, the population that have would otherwise to providing access to finance for a segment of (MFIs) even hasbeen more remarkable, The expansion inmicrofinance institutions for othereconomic agents. financial institutions at the expense ofhigher costs withheightenedfinancial market, profitability for of February 2016)indicates inefficiencies inthe between deposit and lending rates (7 percent as year in2015.However, thewideinterest rate spread 22.4 percent peryear in2010to 11.6percent per average lendingrates dropping of short-term from have beenreduced substantially, withtheweighted infrastructure.the financial sector Borrowing costs assets, developsector andthere isaneedto further banks accounting for more thanhalfofallbanking system remains concentrated, withthefive major 2016b). borrowers Bank, in2010(World The banking to 27percent million ofGDPandjustover aquarter 2.3millionborrowers,2015 andserved compared system reachedthe banking 54percent ofGDPin 2005 Philippines rent accountdef 2006 2007 2008 Thailand 2009 2010 icits 2011 Vietnam 2012 2013 2014 2015 Sustainability 91 CAMBODIA: Sustaining strong growth for the benefit of all 92 CHAPTER 5: Is the current Development model sustainable? may outcomes hamper andheighten risks. While eased asaconstraint, butlow financialliteracy At thehousehold level, access to finance has unable to save. ofthepopulation stillbeingbut withthemajority economy, withpeopleaccessing loans from MFIs 1). Thus, Cambodia remains apredominantly cash percentages intheworld (see Table 16inAnnex account ofthe lowest thepastyear—one during and just 44.3 percent withdrew money from an 15 andabove saved at a financialinstitution, However, only3.6percent ofthepopulation ages thepastyearinstitution during (27.7percent). of peoplewhoborrowed moneyfrom afinancial top developing countries interms ofpercentage lending. This hasplaced Cambodia amongthe percent ofMFIsstillaccount for 90percent oftotal competition andlendinggrowth, although10 for microfinance institutions)has resulted intighter The (22 percent high return on equity on average 2016b).borrowers Bank, at theendof2010(World compared withonlyUSD426millionand0.9 loans in2015that reached 2millionborrowers, lent arecord highofUSD2.9billion inoutstanding Source: dr Figure 41.

% of GDP 100% 120% iv 20% 40% 60% 80% Nicar Cambodi 0% en by

Wo agua rl

d De 1993 aL constru Cambodiahashadoneofthefastestcapitaldeepeningepisodesamongitspeer

velopment Indicato 1995 Credit topr

Guatemala 1997 ower middle-income

1999 ction andretai 2001 ivate sector rs,

NationalBankofCambodia. 2003 Philippines 2005 2007 l 2009

Bangladesh Vietnam 2011 2013

2015 decision-making. decision-making. in improving consumers’ for capacity good financial in 2015,whichrepresents step forward animportant through the “Let’s Talk Money” campaign launched awareness abouttheirrightsandresponsibilities progressmaking inimproving financial consumers’ Notably, theNational BankofCambodia isalready at thislevelcapacity ofdevelopment 2016). (Mimosa, is alreadymarket highlysaturated, given estimated their exposure to risks, andthere are signs that the households may beover-borrowing andincreasing their economic vulnerability. Onthecontrary, many make appropriate investments that would reduce access to credit does not always lead households to same time, dueto lackoffinancialliteracy, enhanced (Figure ofthecountry 42).Atand otherparts the lagging behind in terms of human development borrowers per100adultsbetween thoseprovinces seem to be a significant difference in the number of 2015). Bank, to 3.6million(World There doesnot households in rural areas jumped from KHR 1.5 (fromperiod KHR3.3to 6.6million),andcredit to credit to areas otherurban doubledinthesame KHR 7.2millionin2010to KHR6.8millionin2014, MFI outstandingcredit inPhnom Penh fell from 100% Retail tr Constr

-50% % growth, year-on-year 50% 0% Nominal creditgro uction andrealestate ade andper 2009

2010 sonal lending

2011 wth r

Manufactur 2012 ates, Other ser 2013 by ing sector

2014 vices Agr iculture 2015 s,

pooled income ofseveral household members. larger loansare by inmany the casesserved to 32percent. Evidence indicates that theincreasing declined between 2012and2014,from 36percent the percentage ofindebted householdsslightly to 21percent between 2004and2014.Nonetheless, yearly per capitaincome growing from 12percent 1,000 (Figure 43,rightpanel),withloansto adjusted sizes have increased from around USD200to USD adecade, 2016).In years average ago(Mimosa, loan median annual income, up from 45percent just two clients inCambodia now stands at 70percent of average loan size of MFIs that focus on the poorest 2015) remains at reasonable levels. However, the or more loans (4.5 percent of total as of November in 2014. 59 (Figure 43). a percentage ofGDP(12.1percent), followed by Peru Cambodia has the largest outstanding MFI loans as expanding loan sizes. countries, Among surveyed ofparallela case ofrapidly lendingbutacase at thehouseholdlevel seems to not so much be Cambodia’s potential indebtedness problem Source: poorer pro has tak Figure 42. Borrowers per 100 adults The IMFFinancial Access comprised 21countries Survey 10 15 20 25 30 35 MimosaProjectandIMFFinancial 0 5 0.3 T Stung en placeacrossbothbetter reng Ratana Kiri 59 Fastpenetr The percentage of borrowers with three vinces MFI bor k Mondul Kiri 0.4 Human dev rowe Meanchey Otda ation ofMFIlending rs elopment index r 0.5 peradult Access Sur Kampong Speu 0.6 vey -off and . Phnom Pe nh 0.7 performance. to honortheirloansinacontext ofpooragricultural increasing difficulties for thepoorandvulnerable ofsocialloans, whichlikelysignalsthe category growth inthePAR30 indicator was registered in the indicator remains below 1percent. The fastest more) increasing by 80percent in2015,although MFIs (representing loansoverdue by 30days or recently,observed withtheindicator PAR30 for A suddendeterioration hasbeen inassetquality Ly, ChiefExecutive Officer, onJuly11,2016. Credit Bureau of Cambodia. Presentation delivered by Pascal 60 expedite ofprivate debtis restructuring sector corporate framework insolvency to facilitate and frameworkinsolvency isobsolete. The overall not have adepositprotection fund, andtheexisting and interest rates, andcollateral. Cambodia does information onincome, guarantees, loanstructure including through theinclusionofmore anddeeper much room for improvement incredit information, monitoring and planning. addition, there In is still results inlimited reliable financialdata for financial accounting infrastructure which the sub-optimal duetoboth publicandprivate enterprises, partly concern isweak corporate governance in practices associated withfastcredit growth. Onearea of needed to mitigate risks themacro-financial a positive development, are additionalactions Overall, whiletheintroduced measures constitute 2016, year-on-year. percent 2015to during 17percent asofOctober ease thepace ofcredit growth, from around 27 coverage ratio. These measures seemto have helped foreign borrowing and an increase in the liquidity institutions aswell requirements asnewreserve for minimum capitalrequirements for financialsector National BankofCambodia recently introduced new improve theresilience ofthefinancialsector. The a seriesofmacro-prudential measures to Cambodian authoritieshave recently introduced thecontextIn offastcredit growth, the “Recent Trends ofCredit inCambodia Financial Sector.” 60

Sustainability 93 CAMBODIA: Sustaining strong growth for the benefit of all 94 CHAPTER 5: Is the current Development model sustainable? of women. ratioThe for population-to-employment Cambodia standsoutineconomic participation significant gendergapsstill exist overthe workforce thepasttwo decades, number ofwomenAlthough alarge joined being butalsofor economic growth andsocialstability. isdesirable notonlyfor individualwell-participation Attainment ofsocialinclusionandeconomic a risk to the future inclusiveness of growth. overcome development challenges, whichposes exclusion andare constrained to intheirability widespread, many remain people vulnerable to While ofeconomic thebenefits growth havebeen 5.2 Riskstosocialsustainability trigger systemictrigger problems inthefinancialsystem. distressed financialinstitutions, asituation that might orresolvingback depositsbutalsoinrestructuring Cambodia would face problems notonlyinpaying bankfailures If occur inthefuture,in thejudiciary). expensive andcumbersome(withalengthy process Source: a percentageofGDP Figure 43. Bangladesh 2014 % of GDP 10% 12% 14% 0% 2% 4% 6% 8% IMFFinancial

Burkina Faso 2013 Outstanding loanswithallMFIs

Among surv

Access Sur Cambodia 2011

vey and Cambodia 2014 , as loansiz ey ed countr Wo

rl Myanmar 2014 d BankstaffcalculationsfromCSES2004-2014. es ha ies, Peru ve 2014 Cambodiahasthela increased 1000 1200

of lower houseand16percent ofupper-house representation, women account for 20percent work terms ofpolitical isdoneby men.In while the higher-paying and supervision quality instance, mostwomen are engagedinassembly, women (see Figure thegarment sector, 44). In for 18.8 percent jobsare ofnon-production doneby and representation inleadershippositions. Only seen inearnings, ofjobs, thequality andvoice However,becan significant genderdisparities according to thelatest Enterprise Survey. percentage witha offirms female in top management 57 percent, Cambodia alsostandsoutinterms ofthe for 85percent ofwage employees inthesector. At inCambodiasector ishigh,withwomen accounting 2016).Participation inthegarment example (WDI, and 34.5 percentage points in Guatemala in 2014for in Bangladeshto 30percentage points inNicaragua high, ranging from more than14percentage points Cambodia’s peerswhere structural thegapremains been closedamong15-24year olds, incontrast to it is significantly higher than its peers. This gap has points lower than for men, but at 79 percent in 2014, women aged15years orolderisabout8percentage USD 200 400 600 800 0 2004 % ofindebtedhouseholds&loansiz % indebtedhouseholds 2007 rg 2008

est outstandingMFIloansas 2009 2010 2011 loan perhousehold 2012 2013 e 2014 0% 10% 20% 30% 40% 50%

occupational category. percent offemale and malewage workers are inthis and Associate Professionals, butonly3.4and5.4 such asManager, Professionals, and Technicians percent more occupations thanmalefor high-skill 2014 data suggestsfemale wage workers gain4 requiring more education. Analysis oftheCSES have occupations anadvantage inhighskilled businesses(ADB, 2014). male-owned Yet, women profitable, andlesslikely to be registered than (NIS, 2011),buttheyare generally smaller, less 61 percent ofmicroenterprises are female-owned lower-paid positions. For example, approximately sector, female workers have ahighershare in discrimination, butrather that, withinthesame (Figure 45). wageThere isnoevidence ofsame-job and drops to 7percent amongcollege graduates as 30percent amongthosewithlow education The gapin2014was genderearnings ashigh education. and tertiary secondary of upper the earningsgapnarrows withtheattainment Women earnsubstantially lessthanmen,but globally (Inter-Parliamentary Union,2016). posts, placingCambodia inthebottom 20percent ranked globally), but only 7 percent of ministerial seats (inthetop halfofcountries,parliamentary Source: Figure 44. 10% 20% 30% 40% 50% 60% 70% 0% Enterpr Bangladesh Propor P ercent offi ise Sur Genderequalityintheenter tion ofper veys r ms withaf , Wo Guatemala rl manent full-timenon-productionwo d BankGroup. emale topmanage Cambodia Latestav ailable data r Myanma pr Propor ise .

rk r tion ofper er earnings potentialearnings ofwomen. achievement gapcould eliminate constraints onthe profits are eliminated. Thus closingtheeducation additional year, until thegendergapsinrevenue and revenue andprofit by about8percent for each education. Adding years ofeducation could increase household businessesdecrease whencontrolling for businesses, gendergapsinrevenues andprofits of shows that amonghouseholdwithnon-agricultural percentage points, respectively. The analysis also of females having a full-time wage job by 14 and 48 and highereducation could increase theprobabilities education the CSES2014found that upper secondary an avenue to attaining better paid jobs. Analysis using female workers having afull-timewage job, thusitis and 2014.Education increases theprobability of equallyforrising bothgirls andboys between 2008 smaller, at 3percentage points in2014,withenrollment in 2014). schoolenrolment The is gapin secondary education thanmales(12percent versus 20percent orhigher chances ofcompleting uppersecondary females (e.g., ages25-34)buttheystillhave lower in education access for thenewgeneration ofyoung hasachievedThe significant country improvement perpetuate thegenderearningsgapinCambodia. education, and tertiary secondary of upper Persistent disparitiesinattainment, especially s thataref Nicar manent full-timeproductionwo agua emale (%) Philippines Thailand rk er s thataref Vietnam emale (%)

Sustainability 95 CAMBODIA: Sustaining strong growth for the benefit of all 96 CHAPTER 5: Is the current Development model sustainable? employment where inthegarmentsector 97percent livingconditions.and poor dominate Women vulnerability ofwomen to exploitation labor garment sector, inparticular, have increased the Rural-urban migration for employment in the they are available to work ontheirfarm. responsibilities reduce often theamount oftime households. addition,women’s In domesticandcare of theaverage landsize owned by male-headed householdshavefemale-headed only59percent among householdsheadedby crop growers, the are alsoevident withintheagricultural sector— and theinformal nature Disparities oftheirwork. finance due to limited collateral, low education, 2015)—women stillstruggleto access longer-term customers inCambodia Strategic (Mekong Partners, microfinance—representing 81percent ofMFI Moreover, in spite ofwomen’s greater access to (IFC, 2008; UNDP,or assertiveness 2014; ILO, 2013). unofficial knowledge and/ feesdue totheirlackof and government officials;and greater charges for interact withmaleemployees, businessowners, and training; onhow socialnorms women should limited access to information onbusinessregulations additional constraints for example. These include market. place women at adisadvantage inthelabor constraints,Other low besides education, also Source: Figure 45. Real hourly earning (2005 USD) 0.0 0.2 0.4 0.6 0.8 1.0 CambodiaSocioeconomicSur Women entrepreneurs continue to face No educatio Conditionalhour n Belo vey 2014, w pr imar ly wageandgapbyeducationlevel y NIS. Male Pr imary Female Lowe more than 9in10women receive antenatal care from to Funds. mechanismssuchasHealthEquity Today, aswell asimprovedservices financialaccess due driven by improved geographical access to health deliveries—has rapidly increased inrecent years, such as receipt of antenatal care and institutional Consumption ofkeymaternal healthservices— that of Vietnam in2015). (54per100,000live births in 2015—almost triple at 161per 100,000 live births rates in the regionthe highestmaternal mortality over thepasttwo decades, Cambodia hasoneof Despite the substantial improvements achieved women’s ineconomic growth. fullparticipation perpetuates inequities, gendergapsandprevents The healthandnutritionalstatus poor ofmothers number ofgarmentsproduced) (ILO andIFC,2015). wage (withincomepiece-rate dependent onthe wage orachangefrom reductions amonthly to a to may overtime besubject unwilling to perform pressure onworkers, andthosewhoare unableor addition, forcedIn orexcessive places overtime conditions to save moneyto transfer to their families. to live inpoor-quality, inadequate, orunsafe living torisks theirsafety andwell-being. Many women opt to familiesacross thecountry, itexposes women to this employment provides avitalflow of transfers 2015d). Bank, While theincome generated from of workers moved to Phnom Penh for theirjob(World W r secondar age gap(r y ight axis) Upper secondar y Bachelor orhigher 5% 10% 15% 20% 25% 30% 35%

Male-to-female wage gap disrupted. Moreover, itisextremely challenging for those essential for maternal andchildhealth,are also distances to acquire including them.Healthservices, and fuelwood for their families, must travel longer responsibletypically for procuring food, water, when natural disasters strike, women, who are climate changeandnatural disasters. For instance, experience a greater burden of from the impacts access to andcontrol over resources, women often inhouseholdsandcommunities aswell as making to thegender divisionoflaboranddecision- Due disasters, andenvironmental degradation. regard of climate to change, the impacts natural Women andmenalsoface differences with medical emergency, ornatural disaster. hits,calamity whetherthedeath ofafamilymember, their familyfrom whena fallinginto extremepoverty funds,of emergency whichcanprevent themand of them(23percent) donothave access to a source to have savings thanmen,andmore thanone-fifth women aged15orolderinCambodia are lesslikely financial security. The Global Findex 2014shows that financially vulnerable in ofsavingsterms levels and conditions.working Furthermore, women are more by health and safety standards or regulations on areand their workplaces less likely to beregulated pension plansandothersocialinsurance programs, are lesslikelythanwage workers to contribute to half offemale workers are own-account workers who accessparticularly to insurance. social More than gives riseto protection, agendergapinsocial The highershare ofvulnerable employment unhealthy sanitation. have inadequate access to cleanwater, andhave percent, are headedby anilliterate householdhead, is higherinhouseholdsthat are inthepoorest 40 According to theCDHS2014,maternal mortality and alsobroader socialdeterminants ofhealth. to of health services, the availability and quality withrespect continued challengesto betackled indicatepersistent highrates ofmaternal mortality at leastfour antenatal care visits. However, the provider,a skilled withmost(76percent) attending institutional capacity andknowledge. institutional capacity and initiatives, alongwiththestrengthening of piloting ofgender-based climate changeprojects Plan 2014-2018whichcallsfor thedevelopment and has developed andClimate aGender ChangeAction of challenges,Women’s theMinistry Affairs (MoWA) To begin to address these to capitalandcredit. access in small, informal enterprises andhave little ofwomen work majority as mentioned above, the women to recover economically from disasters— their vulnerability exclusion anddiscrimination, heightening Some groupsinCambodiastillexperience and urban households.and urban in 2004to 81percent in2014, withsimilarincreases across rural of safety from andviolence crime increased from 61.2percent The also found Cambodia Economic Socio that Survey feelings Drugs andCrime’s International HomicideStatistics database). in 2011(thelastyear for whichdata isavailable) on (UNOffice in 1997, the homicide rate has been declining steadily to 1.84 61 women, children, and LGBTI people. domestic violence remains aseriousthreat for Although overall crimeandviolence have receded, relative, member(UNICEF, orcommunity 2014). Salas toprior age18by anintimate partner, parent oradult children experienced someform ofphysical violence revealed that more thanhalfofallCambodian 2000, 2005,and2014). The findingsofa2013survey 50.4 percent in2014(National ofStatistics, Institute one (outof6)reasons, andthisfigure climbedup to is justifiedinhittingorbeating hiswife for at least 2010, 45.7percent ofwomen agreed that ahusband the rate increased in2014(29percent); similarly, in women from 2000(25percent) to 2005(22percent), some improvement intherate ofspousalabuse deficits and reduced cognitive functioning. After for cognitive development, includinglanguage Exposure canalsohave negative consequences disorder, anxiety, depression, andsuicidalbehavior. post-traumaticpoor academicperformance, stress including aggression, delinquency, substance use, with anumberofemotionaland behavioral problems at ayoungviolence, age, isassociated particularly From ahighpoint of6.76homicidesper100,000people 61 Domestic Domestic Sustainability 97 CAMBODIA: Sustaining strong growth for the benefit of all 98 CHAPTER 5: Is the current Development model sustainable? registration ofanLGBTI organization in2014— relations andthefirstofficial ofsame-sex support bymarked theformer King’s 2004statement in by CSOshave increased over thelastdecade— of theLGBTIvisibility and activity community visitation, and other family rights issues. Although andrelatedto marriage tax, inheritance, hospital largely silent onLGBTI issues, suchas those related legislation. Cambodia alsohasnoLGBTI anti-discrimination has nohomophobicreligious traditions, While homosexuality isnotillegalandCambodia 2014c). increased awareness ofwomen’s rights(UNDP, to beacceptable,violent acts demonstrating an and 2009,fewer respondents perceived to asurvey aware oftheDomestic Violence Law. 2005 Between and moreimpacts, than 90 percent of adults are 2018) andothermeasures, have hadpositive Plan to Prevent Violence Against Women (2014- including implementation of the National Action organizations,society anddevelopment partners, Continuous by government efforts institutions, civil endorsed ahusband’s useofphysical violence. more thanoneinthree males, ages18-24,also circumstances. Two infive malesages, 13-17,and husband to hitorbeat hiswife underoneormore ages 18-24,believed that itisacceptable for a five females, ages13-17, and oneinthree females, women. foundThe that two in 2013survey nearly cases isusedasjustification for violence against theirhusbandorpartner,respect whichinsome to bepolite and quietly spoken,andto obeyand Traditional women socialandcultural expect norms cultural attitudes that are difficult tochange. violence are and insocial deeplyembedded address violence againstwomen, theroots of frameworkAlthough a policy is in place to aunts, uncles, grandparents, andpartners. range offamilymembersincludingparents, siblings, females domesticviolence, reported includingby a lesbian respondents and 66 percent of transgender and Srorn (2013)found that 57percent ofgay and In addition,severalIn otherlaws are

above (National ofStatistics, Institute 2014). persons ages35-59,to 44percent amongthoseage60and 2 percent among children age5-14,to 13percent among 62 Institute ofStatistics,Institute 2014). suffers from at leastone(National ofdisability form 2014, approximately 10percent ofthepopulation inconducted Demographic and Health Survey discrimination. According to Cambodia’s latest suffer from duelargelypoverty extreme to population ofthe and portion significant withdisabilities,is people whocomprise a Another highly vulnerable group in Cambodia (UNDP, USAID, 2014). someoneoftheoppositeforcing sex themto marry attempting to partners, of same-sex ‘cure’ them,and of familiesLGBTI peopleforcing theseparation discrimination inCambodia, withfrequent reports traditional familyvalues play amajorrole inLGBTI between “one husband and one wife.” Furthermore, since the Constitution stipulates is that marriage marriage of are official certificates rarely issued though wedding ceremonies are permitted, often andschools.with discriminationinworkplaces Even their families, communities, andthemedia,along LGBTI peoplecontinue to face stigmatization by opportunities (Ibid). opportunities persons withdisabilitiesfrom work andeducational 1-7 percent oftheirGDPdueto theexclusion of people (ILO, 2009).Globally, countries losearound with disabilitieswas abouthalfthat ofnon-disabled (Bailey, 2014),andhousehold wealth for people anincomeadults withdisabilitiesdonotearn to the2011 Commune Database, 45percent of era.consequence Rouge According oftheKhmer 0.4 percent 2012). (McLaughlin, This isprobably a syndrome, compared withtheglobalaverage of 14-33 percent suffering from post-traumatic stress high rates ofmental disorders, includingabout studies have found that Cambodians suffer from person becoming disabled(ILO, addition, 2009).In reasonsdisease andoldage, for are a theprimary and traffic accidents (more recently), togetherwith The prevalence increases of disability withage, from 62 Mines (inthepast) Mines Rouge from the main parts ofCambodia, introducing from Rouge themainparts Vietnamese forces helpedoverthrow theKhmer and land registration records were 1979, all lost. In projects.irrigation The infrastructure was destroyed, live incommunes to work onmassive agriculture and banned, citiesemptied, andpeoplewere forced to power,taking individualownership oflandwas themid-seventies, 1975. In Rouge withtheKhmer deterioratingsystem thewar during in1970- started included landrecords andcadastral maps, butthe rule, thelandadministration system inthe1960s in, lend, theseassets. orprotect Following French ofpeasants andcommunitiesthe ability to invest and loss of land records, which is constraining Cambodia’s civilconflict resulted indisplacement in thecountry. most contentious—and sometimesviolent—issues of indigenous andother land, and this is one of the individuals have become confrontational in defense (UNDP, poverty rising groups 2007).Civil society and traditional landsince 1989,whichhasresulted in indigenous communities had lost 30 percent of their development. 2007,itwas estimated In that highly vulnerable to thelossoflandfrom forestry to traditional/communal landandassuchare a strong social, cultural, andeconomic connection Peoples (IFAD, have minorities 2012). Indigenous asHighlands Islam),alsoknown or Chams/Khmer (asdistinguishedfromminorities foreign residents andare considered to of Ratanakiri beindigenous than half(approximately 80,000) live intheprovince of an estimatedOut 140,000+ ethnic minorities, more 51.6 percent in Vietnam and23.5 percent in Lao PDR. higher thanamongtheethnicmajority, compared to incidence is only 2.5 percent among ethnic minorities areas) also face risks. poverty significant Poverty thoseinmountainous (particularly peoples as notedthe ethnic majority earlier, indigenous minorities is not significantly higher than among Although incidence poverty amongethnic in Cambodia disputes anddisplacementremainanissue While progresshasbeenmade, land property transfer taxesproperty is acommon incentive for not is inefficient and lacks transparency, and avoiding taxation system valuation andproperty property and non-registered rights. landandproperty The remaintransactions common bothfor registered is also a concern,Sustainability as informal land peoples’ communities have notreceived titles. tradeable land rights,of indigenous and the majority cover allareas, leaving many poorwithout secure Legal registration ofland rights stilldoesnot administration, substantial challengesremain. Despite the remarkable progress in land titles asofSeptember2014. ILO, thefirst8indigenous communities received communities hasbeenslow, butaccording to the registration ofcollective landtitlesto indigenous progress withthe2001LandLaw provision to allow improperly handedoutto agri-business firms. The from Economic Land Concessions that had been that360,000 hectares have beentakenback to provide for thetitlesfor poorpeople, including ofstatemillion hectares landhave beenreclassified on conflicts registered landare rare.More thanone resolves on conflicts registered land, andcurrent mediate conflicts over unregistered land. The court the Cadastral commissions, whichwere setupto fees. Landdispute resolution hasbeenassisted by registration transaction retained from the property registration process continues today withfinancing systematic land registration process. The systematic been registered through primarily aparticipatory (of theestimated had total of7millionproperties) 2015,3.8million landtitles Law January in2001.By accelerated theadoptionofnew Land after Progress with landadministration restoration Land Law introduced a free economy market for land. possession rights for agricultural 1992,the land. In recognize ownership rights for residential landand State ofCambodia’s Constitution was amendedto to occupystarted their “own” parcels. 1989,the In cultivated groups, in solidarity but people slowly People’s ofKampuchea. Republic The land was a more of communism traditional under the type Sustainability 99 CAMBODIA: Sustaining strong growth for the benefit of all 100 CHAPTER 5: Is the current Development model sustainable? which contributes significantly to theGDPand Cambodia hasrichanddiverse natural capital, reduction to theeconomy andpoverty theircontribution increasingly endangering capital, ofnatural ciated withadegradation Unsustainable economicactivitiesareasso resilient development environmentally sustainable and for 5.3 Risksandopportunities Cambodia. basis ofthefuture governance electronic system in infrastructure, andthesetogether canbecome the be accompanied withcorresponding geospatial Success withlandrecords section. the next could and alsoaffectingtheenvironment, asdiscussedin cost ofenergy, contributing to constraints ongrowth logistic andthe roads performance, andtransport, This negatively affectsinfrastructure investments in to thelocation andsize problems withconcessions. ofgeospatial tool type inCambodiaMap contributes National Spatial(NSDI)orOne Data Infrastructure had to address. The lackofacomplete andconsistent concession rightsand localpeople, has whichtheRGC numerous between the companies conflicts receiving landuseontheground.of theactual This hasledto or size information andwithinadequate consideration concessions have beenmadewithoutproper location symptom ofthisproblem isthat landandmineral transparentcore decisionsonstate assetsuse. The Registration, whichallows inefficient andnon- comprehensive State Designation Land and A related area ofconcern isthelackof buildingrequirements,and capacity hasnotstarted. standards), valuation data management services, for valuation infrastructure (profession, institutions, Policy for Land Valuation (NPLV), whichsetsabase revenues. of the 2014 Implementation National lead to taxation inefficienciesthat constrain local valuation inaccuracies andlackoftransparency transactions.registering land and property Taxation - large landsuitablefor areas offertile agriculture. and a fastgrowing tourism resource-based industry; reefs found coast supporting alongits440-kilometer mangrovesproductive pristine fisheries; and coral andCardamomthe Mekong withhighly Mountains land area; significant water resources flowing from extensive forests accounting for abouthalfofits economic Cambodia activities. isendowed with and ecosystem that services sustain other livelihoods through of the poor products both which theriver flows. fordevelopment thesixcountries through opportunities of thelarger RiverBasin,alandscapethat supports Mekong water birds (IUCN,2016). These diverse ecosystems are part tiger, Irrawaddy dolphin,giant catfish, and numerous large including endangered species suchastheAsian elephant, species—around 2,550native speciesofflora andfauna, ecosystems provide habitats for diverse plant andwildlife 63 investments inthesustainablemanagement of uninformed decision-making, andlimited degraded significantly practices, due poor to ecosystems and natural have capital been However, inpursuitofgrowth, Cambodia’s for more than300speciesoffishandcrustaceans. and flooded forests as breeding that serve grounds sectors,fisheries includingitsfreshwater mangroves ofCambodia’srole intheproductivity agriculture and flooding fromMekong, the important plays a very Lake, insize driven withitsfluctuation by seasonal particular,populations 2013). In (IFReDI, the Tonle Sap for poor, importance of particular malnourished sources of protein and vital micronutrients that are 0.3 millionCambodians andalsoprovide important employment providefisheries for more primary than to shieldcroplands inlower areas. Meanwhile, slowing thesedimentation andhelping ofreservoirs and lossofsoilfertility, andprevent flooding, thereby sinks,carbon protect watersheds, reduce soilerosion which provide timberandfuelwood, as alsoserve average for countries. lower Forests, middle-income percent in2015)issignificantly higherthanthe 2014), andtheshare ofagriculture intotal GDP(30 on forests andagriculture for theirlivelihoods (CIFOR, Overall, around 80percent oftherural poordepend Altogether, Cambodia’s forests, riverine, andcoastal 63

serves asaproxy 2015). forserves Bank, landdegradation (World difference vegetation index between 1982and 2006,which 65 64 of 58percent. regional country average traditional biomassfor higherthanthe cooking—far relying on with 88percent ofthepopulation still each year by households and SMEs (GERES, 2015), approximately 5.5milliontons offuelwood are used addition, In unsustainable fuelwood extraction. has beendegraded dueto logging selective and remaining offorest 9millionhectares cover, much reached 45percent the by 2016).Of 2003(MRC, have led to loss of wetlands, which had already at 14percent (Forest Trends, 2015). Similarfactors protected areas due to land concessions estimated rubber plantations, withthelossofforest landsin land concessions (ELCs) into large agriculture and to theconversion offorest areas withineconomic in 2014 (Figure 2016). 46) (MoE, This is mainly due 60percentnearly in2006to lessthan47percent estimates indicate that forest cover declinedfrom 2015).Official of forests Bank, andwetlands (World come at theexpense 2002 and2012,butithaspartly land for crops increasing by 50 percent between inagriculturala majorfactor growth, withcultivated these productive assets. Landexpansion hasbeen largest share oflanddegradation hotspots, floods. Cambodia is among the countries with the productivity, aswell as reduced resilience to resulting inlower agricultural andfisheries also increasing landdegradation anderosion, Deforestation andagricultural expansion are Work, 2009). 43 percent of total energy (Better used by factories percent usewoodfuels, offactories amounting to is alsousedextensively sector—71 intheindustrial instead ofreplenish soilnutrients, rainfall. andheavy unsustainable agricultural that practices mine factors, landclearance, includingslash-and-burn due to acombination ofhuman-induced andnatural degraded inrecent hasbeenfurther years fertility 2015).Cambodia’s Bank, areas (World already low soil about 60percent ofitspopulation residing insuch Using globalinformation onthechangesin thenormalized IEA, World Energy 2016. Outlook 64 Wood fuel Wood 65 with Sources: by Figure 46. this, have authorities recently divided the lake into and economic benefitsofthe resource.Recognizing challenging and diminished the long-term social managementit hasalsomadefisheries much more income run, benefits for therural poorin theshort While thislikely generated and nutritional access. operations andinstead gave rural communities open Tonle to Sap asmallnumberofcommercial fishing reforms endedtheleasingoflarge “fishing lots” inthe as feed (FAO, production 2012,fisheries 2014). In generates employment inrelated businessessuch percent in2014,also oftotal production fisheries people. Aquaculture, whichaccounted for around 16 forcritical income the direct they provide to 0.3 million energy sources. As noted above, are fisheries also relyingrice mainlyonfishand for theirdailydietary largest consumers offreshwater fishpercapita, around the Tonle Sap. Cambodians are theworld’s threat to rural communities, those particularly perspective, andoverfishing represents afurther Fisheries are essential from afood security and extremeflooding. in increased soilerosion, deteriorating water quality, buffers to natural disasters, results theirdestruction 2015). Whereas forests asecological could serve areas usedfor Bank, cassava (World production Degradation hasbeenespeciallyhighintheupland 40% 45% 50% 55% 60% 65% 21percentbetw Ministr Forest co 2005/2006 Cambodia’ y ofEnvironment(MoE), 59.6% ve r, % oftotalcount een 2006and2014 s forestco 57.6% 2010 2016. ry v er decreased area 2014 46.9%

Sustainability 101 CAMBODIA: Sustaining strong growth for the benefit of all 102 CHAPTER 5: Is the current Development model sustainable? also increases its weaknesses, exposure and The degradation ofCambodia’s natural capital environmental sustainabilitychallenges compound Climate anddisasterrisks integrated water resources management (IWRM). lack ofmonitoring systems andinfrastructure for challenge, whichisexacerbated by thecountry’s their potential isbecoming anincreasingly difficult natural resources developing aswell asfurther managing Cambodia’s water andassociated Development Institute, 2013). Overall, sustainably by 6to 34percent Fisheries (Inland Research and 2014) aswell asreduce theavailability ofinlandfish the nourish Tonle andreplenish Sap thedelta(IUCN, agricultural sediment andnutrientflows needed to is alsoanticipated to trap around 50percent of the Mekong, andlarge hydropower development affected ofplanneddamsalong by the construction levels andwater are to quality expected befurther wastesand industrial (Chea etal., water 2016).Both of agricultural pesticidesandfertilizers, anddomestic poor pollutioncontrol ortreatment practices, runoff flows,and modifyrun-off as wellas topollution from deforestation anderosion that increase turbidity problem, dueto upstream withdeclining quality for water (FAO 2011). Water isalsoagrowing quality cultivation relies mainly on rain and surface-runoff the country, especiallygiven that 86percent ofrice throughouta detrimentaleffectonsmallfarmers inwaterlack ofpredictability availability ishaving and crop losses(UNICEF, FAO, and WFP, 2016.). This drought-related reporting country water shortages record lows (IRIN,2016),withhouseholdsacross the the water seasonreached level at theendofdry exhibited highlyvariableflows, andinsomeareas quantity andquality. river 2016,theMekong In Cambodia also faces water challenges with both effective implementation andenforcement over time. in the Tonle to Sap sustainable levels willrequire success ofthisapproach inreplenishing fishstocks mixed withnewlydesignated areas. conservation The fisheries,hundreds co-managed ofcommunity World Index Risk disaster-prone intheworld by theUN’s country risks. Overall, Cambodia was ranked asthe8thmost of infrastructure intheface ofincreasing climate toward response emergency andreconstruction awayregularly diverted from development activities onthenational budget, which is a majorimpact 235 millionperyear (Germanwatch, 2016). This has average damages from disasters estimated at USD ofinfrastructure,of livelihoods anddestruction with Cambodia haswitnessedsignificant deterioration degradation.contributing As to aresult, further intensity ofnatural disasters andachanging climate, occurred withincreased incidence inconcert and planneddevelopmentpoorly inlow-lying areas has human-induced natural resource degradation and and protectIn fisheries. recent years, however, to prevent soilerosion, reduce extremeflooding ecological buffers andsocial resiliency—helping and forestlands have as both traditionally served regular occurrence in theregion, its mangroves natural hydrological are andtyphoons a cycles exposed ofits to floods and droughts as part disasters. isregularly Although thecountry and to preventing andresponding to natural vulnerability to adaptingto achangingclimate, on health impacts, airquality,on healthimpacts, andwater andsanitation. climate andenergy. Environmental healthconsiders indicators agriculture, forests, fisheries, biodiversity and habitats, and 67 susceptibility, coping capacity, andadaptive capacity. total population. Vulnerability isbased on acountry’s threatened by drought and/orsealevel rise, andthecountry’s and/orflooding, cyclones numberofpeople earthquakes, 66 mean annualtemperature across Cambodia has leading to aslowdown ineconomic growth. The growing of slow onset events, impacts likely extreme weather events aswell asto thefast damage from natural disasters associated with exacerbatefurther the vulnerability to and thefuture,In climate to changeisexpected (Figure 47). its low levels of environmental health and vitality the 2016Environmental Performance dueto Index, Ecosystem considers indicators vitality onwater resources, Exposure considers thenumberofpeopleexposed to 66 and146thoutof180countries on 67

range from ofpredictions variousclimate models. seasonin2060-2080,but withawide thedry during rainy seasonandadecrease ofupto 58percent increase in rainfall of up to 40 percent the during rainfall willbecome more variable, withaprojected capacity. Estimates also suggest that Cambodia’s 2015), resulting ina16-percent inlabor reduction from 273in2015to 323in2045(Maplecroft Verisk, heat stress days and 1.4-4.3°Cby the2090s(IFAD, 2010).Likewise, projected to by rise another0.7-2.7°Cby the2060s 70 and nauseaeven death inextremecases. stress. Beyond thislevel heat stress cancause dizziness, fatigue exceeds 25degrees Celsius, signifying unsafe levels ofheat andtemperature) dependent onhumidity (which isprimarily year onaverage onwhichthewet bulbglobetemperature 69 Climatic Research Unit(CRU) ofUniversity ofEastAnglia (UEA). 68 Celsius since 1960 (from 26.8 to 28.0°C), already increased by approximately 1.2degrees by insealevel theprojected rise ofbetween 0.18m Cambodia’s coastal communities willalsobeaffected Inde for Sources: and vitalityarelo vulner Figure 47. Environment x (2016). 10 20 30 40 50 60 70 80 World BankClimate Portal. Heat Stress Days are definedasthenumber ofdays per World BankClimate Portal: The dataset isproduced by the 0

Wo En P ability toclimater erfor vironmental rl Health d

Cambodia Ya Cambodia’ Risk Compar le CenterforEnvironmentalLawand mance Index& and Inde 69 peryear are forecasted to increase Human x Ecosystem (2015) w, ison, Vitality anditsexposure Secur En s en Lowe . United vironmental Wo ity isks arehigh r- vironmental health . MICs Exposure Environmental Nations rl d RiskInde Univer Po Vu Wo 68 licy lner and it is Pe sity rl . x rfor d , abilit Institute mance y 70

supply, Delta. intheMekong particularly are increasingly affecting domesticfreshwater intrusion andflooding al., addition, salinity 2009).In vulnerable to theeffectsofclimate change (Allison et andCambodia’sat risk, fishersare classifiedashighly and Mekong Tonle lakeandfloodplain,are Sap also are closely tied to the natural dynamics of the Cambodia’s andaquatic fisheries resources, which 2010).Meanwhile,12 percent Bank, by 2050(World toexpected leadto adeclineinrice yieldsby 6to intrusioncaused by andflooding, salinity whichare climate withchangesinfreshwater impacts, supply isamongthemostvulnerableDelta regions to these 2015). wet Bank, seasoncrop area (World The Mekong percent rain-fed andmakesup70percent ofthetotal for ricein Cambodia, production given that it is 83 concern arepatterns andvariability ofparticular growing season(IFAD, 2010).Changesinrainfall 1°C increase inminimumtemperature the during reducing yieldsby about10percent for every temperatures have negativecycles, effectsoncrop region. Several studieshave shown that rising and incomes, in theMekong especially Delta threateningfisheries sectors, rural livelihoods felt severely across Cambodia’s agriculture and particular,In willbe climate changeimpacts and 3.5percent 2015a). in2050(RGC, Cambodia’s total GDPby at least1.5percent in2030 estimates suggestthat climate change willreduce scenario ofa2°Ctemperature by rise 2050,initial slowdown ineconomic growth. Basedonthe and productive aswell purposes asasignificant intheavailability ofwater foruncertainty domestic Collectively, willresult inincreased theseimpacts up to ofcoastal 25,000hectares area (IFAD, 2010). coastline vulnerable andpermanentlyinundating and 0.56mby ofthe 2100,leaving 435kilometers 2015a). and flooddamage infrastructure (0.3%ofGDP)(RGC, to urban roads, and rural irrigation, water supply (0.7 percent of GDP); of GDP); more rapid degradation of infrastructure, including diseases(0.9percent andotherclimate-sensitive of diarrhea floods inagriculture (1.4percent ofGDP);increased burden 71 The main sources ofthisdamageare from drought and 71

Sustainability 103 CAMBODIA: Sustaining strong growth for the benefit of all 104 CHAPTER 5: Is the current Development model sustainable? high-level government continued to log. large- Nevertheless, Cambodian subcontractors forces linkedto security and protection forests were designated by 2004. Even so, some had beencancelled for ofreasons, avariety and additional Law was passedin2002,andby 2003, many concessions international in1999.AnewForestry development partners reformof theforestry process initiated by and its theRGC the timberconcession system around 2004,anintegral part 2005 and2006whichroughly corresponded withtheendof 73 storedcarbon inbiomassandsoils(Forest Trends, 2015). clearance associated withlandconcessions, thereby releasing emissions from theforest have sector come mainlyfrom land by soilsandmanure management (GSSD, 2015).Carbon represent thelargest contributions to emissions, followed 72 still come from LUCF (Forest Trends, 2015), addition, 47 percentIn of Cambodia’s total emissions than doublingofenergy2012). emissions(WRI-CAIT, emissions from the agriculture sector percent, owing largely to a46percent increase in since 1990,itstotal emissionshave increased by 16 per capitaemissionshave declinedby 30percent forestry (LUCF) (Figure 48).Although Cambodia’s coming from agriculture andlandusechange increasing, withitslargest share ofemissions change, although relatively low globally, is Meanwhile, Cambodia’s contribution to climate the av Sources: Figure 48. Emissions Per Capita (tCO2e) Wo Lowe Cambodia, This iseven despite 26-percent asharp decrease between theagricultural sector, In rice cultivation andlivestock 0 1 2 3 4 5 6 7 8 CA rl er d, r- includingLUCF IT ClimateDataExplorer Mics, 1990 age forL Emissions P Cambodia’ includingLUCF

includingLUCF 1992 1994

1996 owe er Capita(tCO2e) 1998 s emissionspercapita, r- MICs . Wo 2000 Lowe Cambodia, Wo rl

d ResourcesInstitute(2012) 2002 rl d, r- excludingLUCF Mics, 2004 excludingLUCF excludingLUCF 72 2006 and more 73

pushing 2008 2010

2012 includingLUCF . protected areas. this ends, is that the risk future wood-fuels will come from forest-to-agriculture landconversion (GERES, 2015).Once annually inCambodia are notsustainable, astheycome from 74 management plansandcontinued illegallogging. moratorium due totransportation theabsence of acceptable cameto ahaltwithlogging andlog scale timberharvesting population density. The population urban in2014 process butalready hasarelatively highurban Cambodia isintheearly stagesofitsurbanization growth andmay constrain heightens risks Poorly plannedurbandevelopment pressure onnatural forests. and thereby humanhealth,aswell asputtingstrong affecting Cambodia’s indoorandoutdoor airquality contributing to climate change, theseemissionsare biomass andsoils(Forest Trends, additionto 2015).In concessions, thereby releasing stored carbon in mainly from landclearance associated withland emissionsfromcarbon theforest have sector come for countries. lower Recently, middle-income the country’s total emissionsabove theaverage Agr 39.5% Approximately 22percent ofwood-fuels consumed iculture, Emissions Sources(MtCO2e) , are slightlyhigherthan LUCF , 46.6% 74 Electr icity, Industri 1.7% Constr Manufactur Tr Wa anspor Other, al,1.0 ste,

uction, 0.7% % t, 5.4% ing 4.0% 1.2% Source: population density Figure 49. treatment, andsolidwaste have collection been degradation. growth, resulting ingreater environmental hasnotkeptpublic services pace withurban However, theprovision ofinfrastructure and (UN, 2015; World 2015c). Bank, from 1.7millionin2015to 2.6millionin2030 nearly population inPhnom Penh to expected increase Phnom Penh anditsimmediate vicinity, withthe by growth 2050.Urban willremain concentrated in in 36 percent of the population areas living in urban 2.8 percent peryear over 35years, thenext resulting populationurban isforecasted to increase by 2.3to the region (Figure panel),andCambodia’s 49,left areasurban inCambodia isamongthehighestin Meanwhile, the average in population density in mostcountries at asimilarstageofurbanization. 2.2 percent over 2004-14, has alsobeen lower than constant annualurbanizationgrowth rate, at around to rural regime. areasRouge undertheKhmer The to themassive reallocation ofpeoplefrom urban lower due thanothercountries intheregion, inpart in Vietnam. percent 49percent inIndonesia, in Thailand, and33percent 75 was 21percent (UN,2015). Cambodia Philippines Urbanizationrates countries inneighboring are 53 Indonesia Myanma

Wo Thailand Vietnam China rl d De Av Cambodiahasahighurban r er 0 velopment Indicato age Urban Roads, drainage, sewage, wastewater 2010 (per 2000 4000 Po sons/sq. rs. pulation Density, 6000 75 This isconsiderably km) 8000 10000 12000 0.8 percent ofGDP. pollution inCambodia isestimated asequivalent to Overall, matter theannualdamagefrom particulate is limited, resulting in alackof options for commuters. the development systems offormal publictransport increase andlimited road development. Meanwhile, (2012)due to vehiclehour (2001) to 14.6km/hour Phnom center Phen city decreased from 22.9km/ increase ofaround 1.3times. The travel speedin 2014),compared toand 2012(JICA, apopulation Phnom Penh increased 3.2timesjustbetween 2001 air pollution. The number of registered vehicles in systems and resulted in more traffic congestion and motor traffic hasput pressureurban on existing road in spite ofsignificant donorassistance. Increased networks hasnotkept pace witheconomic growth Likewise, thedevelopment of transportation floods and contributing to poor hygiene conditions. increasingdrain of andseverity blockages, therisk management has become a major cause of urban (WaterAid, 2015).Moreover, insufficient solid waste its wastewater into lagoons,rivers which affects wastewater treatment andisdischarging facility addition, Phnom PenhIn stilldoesnothave a 13 percent population oftheurban withsewerage. drainage systems that frequently andonly overflow wastewater treatment inCambodia are minimal, with improved sanitation. However, sewerage urban and percent for improved water andover 80percent for and sanitation, withaccess areas inurban at 100 and international water donorsinbothurban supply oflocalauthorities been madethrough theefforts Sahmakum Teang Tnaut, progress 2014).Good has inlow-income areas urban (ADB,particularly 2012; identified asareas provision where islimited, service 76 the needsofgrowing population. urban In informal theonlysolutionto housing isoften meet ofaffordable housingoptions shortage available, a access With risk. and highflood to services are affected, disproportionately given their low Cambodians settlements livinginurban poor World Development Indicators. 76 Sustainability 105 CAMBODIA: Sustaining strong growth for the benefit of all 106 CHAPTER 5: Is the current Development model sustainable? are completed. EIAs and environmental management plans(EMPs) investment projects, proceed which often before in theenvironmental for management capacity attributable to weaknesses This isat leastpartly and coastalsalt pan production, aquaculture. suchassandmining,well asunsustainableactivities come underthreat from coastal development as ofnatural disasters,minimizing theimpacts have which are vitalfor preventing coastal erosion and country’s remaining ofmangroves, 78,000hectares tourism andcoastal protection. For instance, the natural habitats that provide food resources, is also contributing of Cambodia’s to the destruction and its tributaries, urbanization and industrialization their location inflood-prone areasMekong alongthe growth. addition to cities’ In dueto vulnerability change, whichmay aconstraint pose to economic ofnaturalto theimpacts disasters andclimate development alsoheightens its vulnerability Cambodia’s planned and managed urban poorly locatedalso often inflood-prone areas. hazardous waste, and the informal settlements are throughhealth risks contaminated water supplyand someneighborhoods, residentsIn are exposed to sewage, and social services. collection, garbage low access to reliable particularly basicservices, Households in informal have settlements typically linesinandoutofthecity.and transportation settlement sites are alongmajorinfrastructure Frankel, 2015). toin legislation, weaknesses it is difficult to enforce. (Baird and for effective EIA implementation. Also,adequate capacity due Decree. Provincial ofenvironment departments donothave existing Sub- completeof projects theEIAprocess under the Onlyasmall number Cambodia isconsidered to below. in 78 77 areas poorsettlements. islivinginurban Cambodia more thanhalfofthepopulation inurban to asmall segment ofthepopulation andhave no “satellite cities” accommodation that provide luxury around Phnom Penh have seenthegrowth of in fragmented expansion. Peri-urban urban areas hasresultedplanning andmanagement capacity The overall effectiveness of EIAimplementation UNHabitat. 78 Overall, Cambodia’s weak urban 77 Common respectively, matrix, representing 50percent and40percent, generation are projected to dominate thegeneration coal-fired by 2030.Indigenous capacity and hydro Plan aquadruplingofinstalled 2016-2030projecting 2016), withCambodia’s Power Development Sector percent peryear through 2030(World Wildlife Fund, isprojected to grow forDemand electricity by 12 natural capital, includingfood, water, andenergy. strained dueto greater further be demandfor stressed environment andnatural resources will As Cambodia continues to grow, itsalready capital for competingdemandsonnatural Sustainable growth isfacedwithtradeoffs pollution. economic disparities, andincreases congestion and This makescitieslessefficient, widensspatial and with surrounding areas.infrastructure linkages Kshatriya, 2009). and therefore atfrom risk hydropower development (Halls& to 40 percent of total catch, by weight, are highly migratory aquaculture (Baran and Gallego, 2015), approximately 30 in fisheries Cambodia, compared withjust15percent from 81 equivalent to anadditionalUSD0.18/kWh. (namely, have itshealthimpacts) beenestimated asbeing 80 2016. October PV-based generation of10MW was pilotproject tendered in does notforesee any share ofsustainableenergy, thefirstsolar 79 human health. have negative for impacts theenvironment and increases GHGemissionsandPM2.5 levels, which 2013b). Coal-fired Bank, power(World generation and coal raise projects thequestionofsustainability potential environmental ofhydro andsocialimpacts coastal erosion ofsaltwater andtherisk intrusion. sediment flow to thedelta,thereby increasing breeding, fueladditionaldeforestation, andreduce nutrients for agriculture, fish migratory obstruct of thousands of people, the deposit of dams restrict millions ofCambodians. additionto displacingtens In onthelivelihoods andfood of impacts security energylow-emission alternative, it has significant Of the85percent Of offishproduction comes from capture theUnited States, In costs ofcoal-fired theexternal power Although thecurrent power development sector plan 79 but inadequate assessment of 80 Although hydropower isarelatively 81

and environmental andcoordination services, significantly increased investments innatural capital processes,making greater capacity, publicsector planning across sectors, better informed decision- will require improved to longer-term short- and environmental goals. sustainability This development needswithitslong-term economic decisions onhow to balance itsimmediate forward,Looking Cambodia faces several critical productivity. along withimprovements inagricultural forests, watersheds, andothernatural ecosystems, require the sustainable management of Cambodia’s 2015)—will Bank, between 2009and2030(World for food—estimated to increase by 12percent Meanwhile, meetingCambodia’s growing demand Agreement. became bindingwhenCambodia ratified the Paris Cambodia’s post-2020 national climate and priorities whichidentifies ContributionDetermined (NDC), and mitigation commitments inits Nationally Strategy alongwithitsclimate adaptation intheRectangular objectives reduction and poverty strengthen Cambodia’s to achieve ability itsgrowth demands for resources. This willalsosubstantially well as the amount of pressure placed on competing investment required for cleanupand rehabilitation as economic benefits, while reducing thelevel of its natural capital, Cambodia canincrease socio- by investing in the sustainable management of organizations, andCambodian citizens. Ultimately, the government, private sector, civilsociety among abroad range ofstakeholders, including abilities to ofclimate cope andadapt to change. theimpacts to 1.5°. The Agreement also aims to strengthen countries’ levels, and to to limit this increase pursue efforts even further temperature to below 2°Cabove thiscentury pre-industrial to climate changeby holding theincrease inglobalaverage the agreement which aims to strengthen the global response 2016 and, asofFebruary 24,2017,132 countries have ratified 82 The Paris Agreement entered into force onNovember 4, 82 Sustainability 107 CAMBODIA: Sustaining strong growth for the benefit of all

Chapter 6 110 CHAPTER 6: Priority interventions to encourage sustainable development partners, and civil society were andcivilsociety partners, in critical government, private sector, development The extensive stakeholder consultations with ten development areas. accumulation andto withinthose identify priorities applied to assess the constraints to growth and asset development; second, methodologywas atwo-tier process, oftheten informed areas theselection for and literature review, together withtheconsultation process:this SCDutilized atwo-step first, theanalysis areas for interventions, development andpriority andshared reduction prosperity.poverty To identify would have oneconomic growth, thesame impact acrossinterventions various sectors, notallmeasures While arguments canbemadefor awiderange of shared prosperityinCambodia goingforward. strong, inclusive, and sustainable growth and pinpoint afew areas critical for ensuring with stakeholders were conducted to help In-depth World analysis Bank andconsultation interventions and priority areasfor development 6.1 Determining Cambodia inclusive, andsustainable development in strong, toencourage interventions Priority for thecountry’s development. inhelpingto identify priorities enlist localexperts were theseconsultation usedduring meetingsto a sustainablemannerinCambodia. Different tools andinclusive reduction growthachieving poverty in feedback for on the key development opportunities the country, meetings were held in four different regions of to influence directly theSCD.opportunities Nine these consultations, whichgave keystakeholders for development hasbeenheavily informed by and literature review, theidentification ofareas addition to drawing from comprehensive analysis identifying theareas for development. In 322 participants. Second, participants were Second,322 participants. participants asked to provide moreprosperity widely. The questionnaire was completed by development areas for andshare Cambodia to endpoverty whichaskedthemto identifyand Khmer) thetop three crucial 84 proposed development areas andpolicies. SCD to discussandvalidate findings, themainstoryline, and Finance were heldat different stagesofthepreparation of this ofEconomy grouptechnical and working ledby theMinistry stakeholderconsultations,to three plenary meetingswitha oneinSiemReap,Sihanoukville, andoneinKratie. addition In 2016, six meetingswere heldin Phnom Penh, one was heldin 83 First, were allparticipants given a questionnaire (inEnglish particular, In between November 23andDecember 14, 83 with 375 participants providing with375participants 84 Agriculture 190 peoplein21groups inthisexercise. participated identify their top three areas for development—approximately meetings, were groups of8-10participants asked, asagroup, to feedback themeetingsthemselves. during four In ofthenine agriculture, healthcare androads. from themeetingdiscussions, namelyeducation, point to that some ofthesametop emerged priorities 50. Overall, theresults from thepostcards collected and have been analyzed and summarized in Figure Postcards were filledout by around 1,100individuals with andinvitedthe country themto fillinpostcards in universities andotherpublicspaces around period, the World Bankteam reached outto people for development. the SCD consultation During outreach interventions signaledsimilarareas More than 1,000 postcards collected from citizen being mostrelevant. questionnaires alsopoint to asimilarsetofareas as discussions (Table from 8).Results 322individual the meetingswithstakeholders, includinggroup three areas for development in at least three of ofthetopbusiness andtrading emerged aspart delivery,and publicservice andthecost ofdoing governancemodernization, education andskills, Source: obtainedfrom Results consultation meetings. Natural resource management &disaster management risk Financial &access sector to finance Health care Resilient infrastructure andimproved connectivity Cost ofdoingbusinessandtrade facilitation Institutions, governance, delivery andpublicservice Education andskills Agriculture modernization Priority listed astop 3in… discussions Table 8. Top areasfor development fromindividualquestionnairesandmeeting their dream ten years for Cambodia in the next . maintaining strong and sustainable economic ofthree pathwayseach otheraspart aimedat The areas priority identified mutually reinforce options.proposed policy were aimedat validating findings, thestoryline, and Economy andFinance; theseadditionalmeetings groupworking for thisSCD, of ledby theMinistry consultation meetingswiththedesignated technical for development oneofthethree during additional interventions. Urbanizationemerged asanotherarea would require andtargeted cross-sectoral efforts needed humancapitalformation. Tackling thisissue cognitive development and, ultimately, much- age 5inCambodia, which islikelyto hampertheir stunting affects32percent ofthechildren under affectthevulnerable. Also,shocks particularly to natural disasters andclimate change—these expenditures intheworld andisespeciallyexposed healthcarethe highestshares ofout-of-pocket households from shocks, asCambodia hasoneof earlier, needto shield there isanimportant inCambodia. As discussed deemed important research, points to otherareas for development consultations, the analysis, as well as recent additiontoIn thoseareas identified duringthe discussions Meeting 17% 22% 22% 28% 33% 33% 56% 67% Questionnaires Individual 26% 28% 41% 33% 28% 23% 36% 41% Policy Priorities 111 CAMBODIA: Sustaining strong growth for the benefit of all 112 CHAPTER 6: Priority interventions to encourage sustainable development reforms (see Table 9). to implement capacity otherproposedpublic sector andenhancing delivery improving service quality management andpublicadministration reform to for development would focus onpublicfinancial area addition,across-cutting planning agenda.In inclusive citiesby implementing anintegrated urban the development ofcompetitive, sustainable, and strengthening climate resilience, aswell asensuring by adoptinganspatially integrated approach and the maintenance and development ofnatural capital protecting themfrom shocks;and(iii)investing in andhighereducation, outcomes insecondary development, boosting attainment andlearning yearsearly to ensure adequate andbrain nutrition to facilitate by economic investing mobility inthe building the assets of the poor and the bottom 40 (ii) modernization oftheagriculture sector; andensure resilience, itsefficiency andfacilitating to ofthefinancialsector regulation andsupervision in infrastructure andmachinery, strengthening operation, boostingpublicandprivate investment jobs by reducing thecosts to establishment firm and diversification to sustainstrong growth andcreate (i) increasing economic competitiveness and growth shared andboosting prosperity: Source: Figure 50. 10% 15% 20% 0% 5% Resultsobtainedfrompostcardcollection. Education 18.7% To p themes, To

Growth p areasfordev 8.6% collected postcards

Agriculture by 7.6% percentageoftotal

Roads 7.3% elopment incollectedpostcard

Health 7.2% No cor

ruption 6.8% infrastructure, (iii)private development sector the agricultural sector, (ii)development ofphysical with four “strategic rectangles”—(i) promotion of governance andanenablingenvironment, along that includes overarching for good support a broad development agenda,withaframework attention. The RGC’s Strategy Rectangular lays out view of the areas that require greater policy Strategy Phase III but represent a more focused Rectangular ambitious and wide-ranging strategic areas identified in the authorities’ These pathways are also consistent with the tailorthemto theneedsofCambodia. to further optionshasbeenincorporatedof theproposed policy and feedback received the meeting on some during on therelevance oftheten proposed areas for action, and keydevelopment partners. There was agreement convening representatives from allthelineministries ofEconomy andFinance,meeting at theMinistry and SCD were presented consultation in a final plenary development, andconcrete optionsinthis policy February 21,2017,thepathways, areas for priority with government counterparts anddonors. On during anadditionalround ofconsultations and proposed pathways endorsed has been The relevance areas for oftheselected action s areas, thepathways proposed here focus onthekey implementation. thancovering Rather allofthese ofits national are authorities aligned in support ofallministries,and projects agenciesandsub- Strategy,Rectangular and ensures that the programs asaroadmap forserves theimplementation ofthe Strategic Development Plan (NSDP),2014-2018, human resources development. The RGC’s National and employment, building and and(iv) capacity iv. Cross-cutting developmenturban and sustainable climate resilience, in natural capital, pattern by investing sustainable growth aiii. Ensuring prosperity and shared economic mobility assets to facilitate ii. Buildinghuman jobs growth andcreate to sustainstrong and diversification competitiveness economic i. Increasing Source: World Bankstaffanalysis in consultation withstakeholders. Table 9. areas for development CambodiaSCDpathways andidentifiedpriority reform for improved delivery service 10. Public administration andpublicfinancialmanagement through integrated planning urban 9. Promoting competitive, sustainable, andinclusive cities strengthening climate resilience anddeveloping8. Maintaining natural capital, while social protection) 7. Protecting householdsfrom shocks(OOP inhealth,DRM, education) 6. Investing years intheearly pre-primary (nutrition, andhighereducation outcomeslearning ofsecondary by boostingattainment5. Endowing and peoplewithskills price boom the commodity 4. Fostering agricultural of modernizationintheaftermath financialinclusion building further to mitigatesector from risks strong credit growth, while 3. Strengthening ofthefinancial regulation andsupervision acquisition whiledeveloping capitalmarkets and machinery publicandprivate2. Boosting investment ininfrastructure costs) facilitation, electricity (including businessenvironment, informal fees, trade thecosts establishment1. Reducing offirm andoperation Areas for development approach. The framework outlinedinBussolo and growth diagnosticsframework andanasset-based areas for development, thisSCDcombines a To prioritize interventions amongtheten identified shared prosperity. and sustainablegrowth and reduction withpoverty challengestothe mostcritical maintaining strong areas where more attention is needed to address High Moderate High Moderate High Highest High Moderate High Highest growth goals &twin Key constraint to Policy Priorities 113 CAMBODIA: Sustaining strong growth for the benefit of all 114 CHAPTER 6: Priority interventions to encourage sustainable development firms in andthemost firms Cambodia are complementary outcomes,learning andreducing costs for andskills assets shows that raising educational attainment, constraints to growth and accumulation of household and onraising householdincome. The analysis of more productive jobs, onsustaining growth, onfirms’based ontheirimpact ability to create priority” have goals, onthetwin thelargest impact The areas for development identified as“highest future. oraremobility likelyto become aconstraint inthe constraint to growth andhouseholdeconomic whether theidentified challengesposeanimmediate with other interventions. The analysis alsoconsidered share of population affected, and complementarity the inbetter economic opportunities, participation in terms ofcreating andenhancinghouseholds’ sustainable growth goals, andachievingthetwin wouldinterventions have onmaintaining strong and development have beenranked basedontheimpact 6.2,6.3,and6.4,respectively.sections The areas for in eachofthethree pathways are presented in of thetwo frameworks. Concrete interventions policy areas for development resulting from theapplication goindepththrough of theprioritization subsections are presented in Table 9(seeabove). The following purposes. The results from exercise theprioritization lenses of these two frameworks for prioritization already 4 and5 through identified the in sections shocks. filtersrisks This challengesand subsection of constraints andresilience to sustainability to to householdassetsaccumulation andadiscussion Velasco (2005),followed ofconstraints by asummary framework and proposed by Hausmann,Rodrik, constraints to growth using the growth diagnostics shared withtheidentification prosperity. of starts It foridentify priorities and boosting reducing poverty oftheSCDsummarizes theseconstraintssection to assets, andresilience ofhouseholds(seeBox 3). This economic growth, accumulation ofhousehold requires identifying constraints to sustained andshared reduction prosperity) goals (poverty forchallenges andpriorities achievement ofthetwin Lopez Calva (2014)suggeststhat identifying critical population orwhosegoals can beachieved by focusingimpacts, ofthe onsmallersub-segments long-term, orthosethat have highbutlocalized but have consequential implications inthe not yet address themostsignificant constraints “moderate priority” comprise reforms that may The areas for development identified as inotherareasinterventions for development. reforms isakeyenablerfor successful policy administration andpublicfinancialmanagement through public delivery ofpublicservice the quality to sector. non-farm sector the farm Finally, improving asafoundationfor thepoorandwillserve for linking agriculture hashighpotential for boostingincomes inbetter jobs. Modernizing household participation which is needed both for creating and enhancing higher education to builda productive workforce, and improving ofsecondary attainment andquality also critical. Investing years inearly for iscritical capital whilestrengthening capitalresilience is agriculture, for which buildingnatural resource the costs ofoperations for andmodernizing firms to bothreducinginfrastructure iscomplementary publicandprivate investmentsBoosting sector in These have factors highcomplementarities. investments ininfrastructure are inthiscategory. years,early andbostingpublicprivate sector while strengthening capitalresilience, investing in andbuildingnaturalMaintaining resource capital ofhouseholds. capacity income-generating forblocks sustained growth and increasing the goalsbutform onthetwin thebuilding impact priority” have amoderate immediate direct The areas for development identified as“high ontheachievement goals.their impact ofthetwin challenges have economy-wide effectsthat amplify to itspeersinthesedimensions. Addressing these outcomes), relative poorly yet Cambodia performs economic transformation andlabor inproduction competitiveness andmoving phaseof to thenext Cambodia’s phaseofgrowth next (by maintaining household incomes. These are prerequisites for forcritical bothcreating better jobsandincreasing Hausmann, Rodrik, and Hausmann, Rodrik, Velasco (2005) was applied the growth diagnostics framework proposed by status thissetting, by 2050.In upper middle-income physical and humancapitalsignificantly to reach suggest that Cambodia would need to increase its seems to be limited.sector Growth projections and localentrepreneurship inthemanufacturing China,and fast-growth (Vietnam, periods Thailand), to have beenslower thaninothercountries during economy. The pace ofcapitalaccumulation seems challengesasaloweris facingrising middle-income (from alowand productivity base).Now Cambodia by increases inlaborforcebeen sustainedinpart decades, anditsrapid economic growth thusfarhas growing countries intheworld for more thantwo earlier, Cambodia hasbeenamongthe fastest- economic growth goingforward. As discussed to identify constraints critical to Cambodia’s A growth was diagnosticsmethodology used toeconomicgrowth Constraints accumulation, ispresented subsection. inthenext identification of constraints to growth andasset categorization ofpriorities, includingonthe prioritization frameworks leadingto this More detail on the application of the two long run. strong, sustainable, andinclusive growth in the (congestion, pollution)poseasignificantrisk to population, butthebuildingnegative externalities and affectsa relatively ofthe limited proportion Similarly, urbanization is stillincipient in Cambodia term.pension reform intheshort amoderate priority Cambodia’s current demographic profile makes education attainment. Atsecondary thesametime, challenges wheninvesting years inearly orboosting instruments like CCTs to address demand-side also be achieved by leveraging social protection protecting households from income shocks could ofdisasters onhouseholdincome,impact while climate resilience, for example, would reduce the from shocksfallsinto thiscategory. Increasing addressing otherconstraints. Shieldinghouseholds on capital and pose themostimmediate andpose on capital fees hinderthe “appropriability” ofreturns A seriesofbureaucratic hurdles andinformal to competitiveness inthefuture. (such astraffic andpollution) could poseabottleneck well managed, negative agglomeration externalities in African countries at thesameincome level. not If Cambodia isincipient, anditspace isslower than geographical differences still exist. Urbanizationin increased inrecent years. However, significant has expanded noticeably, and reliability has energy generation andtransmission infrastructure but lagsbehindthoseof Vietnam and Thailand. The those ofCambodia’s peersandcompetitors structural infrastructure seemsto besimilarto connectivity to international indices, and thetransportation is still incipient. As discussedearlier, according infrastructure constraints, andurbanization countries,peer Cambodia have does notable Although notsignificantly higherthanin and services. up thevalue chaininagriculture, manufacturing, economy baseandmove to tries diversify itsexport severe constraint to growth goingforward asthe education attainment are likelyto become amore force, and higher butthelow levels ofsecondary so far with a young and relatively labor unskilled hasworked relativelycost manufacturing well garment suppliers from China. The focus on low- and hasbeenbenefitingfrom the relocation of in thefastest-growing sub-region intheworld contributing to growth, since Cambodia islocated decline. Geography seemsto have beenpositively in othercountries, but they have onthe been Returns to inCambodia capital are higherthan capital accumulation. from theirinvestment), andthecost offinancing reap ofprivate to thereturnsability actually actors investment, the “appropriability” ofsuchreturns (the economic growth dependsonthereturns to capital accumulation. According to thisframework, to identify keyconstraints to entrepreneurship and Policy Priorities 115 CAMBODIA: Sustaining strong growth for the benefit of all 116 CHAPTER 6: Priority interventions to encourage sustainable development Source: household endowments ortheirintensity ofuse(e.g., by affectinglabor force participation). the useoflaborassetsandtheirreturns, whilegovernment socialpoliciesalsohave thepotential to alter growth determines employment creation and real wage growth, affecting the intensity thus directly of transfers) andremittances (seeBussoloandLopez-Calva, 2014). The rate andpattern ofeconomic returns to assets(e.g., interest rates andrents) andwages; and(iv)transfers from thegovernment (social including theemployment oflaboreitherinformal employment (iii)prices or orself-employment; these assets, meaningtheextentto whichhouseholdsare ableto usetheirassetsto generate income, human capital, physical capital, financialassets, natural capital, andsocialcapital;(ii)intensity ofuse is determined by thefollowing four (i)householdendowments factors: orstock ofassets, including to poorhouseholds. Viewed from ofhouseholds themicro capacity level, theincome-generating presented byopportunities higheconomic growth, inadditionto thetransfer ofnon-laborincomes ofhousehold’s affects thedistribution policy intheeconomic assetsand henceto partake theirability forproductive householdsto economic increase opportunities theirlaborincome andhow social ofhouseholds.capacity At themacro level, thisisdetermined by how mucheconomic growth creates andimproving poverty sharedReducing dependonboostingtheincome-generating prosperity and shared prosperity Box 3: Asset-based frameworkforachievingpovertyreduction Figure 51. Sustainability

Adapted fromBussoloandLopez-Calv

Asset-based fr Assets Net amew Intensity of Use a, 2014. or k forachievingpo Sector Composition External Conditions generation capacity Change inincome DIS GR Ke TRIBUTION Prices y Prices OW TH ve rt y reductionandsharedprosper Tr ansfers Generation Capacity Income

ity y Sustainabilit to ramp uppublicinfrastructure. ofauthorities and assetmanagement limittheability however, severe inpublic investment weaknesses fiscal space andsavings for needed investments; distress (IMF, 2016). Cambodia would thushave the fiscal consolidation and presents lowrisk of debt On thefiscalside, Cambodia hasbeen able to attain (rathersector for thaninmanufacturing, example). for to economic invest actors inthenon-tradable flexibility, policy, ineffective andincentives monetary limitations ofdollarization:lackexchange rate competitivenessexternal andrevealed someofthe appreciation of the U.S. dollar has eroded Cambodia’s maintain low levels ofinflation. However, the recent helping to reduce macroeconomic volatility and a credible nominalanchorfor foreign investors, vis-à-vis riel theU.S.Khmer hasconstituted Dollar capital inflows, of exchange the stability rate ofthe dollarized asaresult oflargequickly foreign aidand growth goingforward. As theeconomy became appreciation underdollarization could constrain uppublicinvestmentin scaling andU.S. dollar inCambodia, butdifficulties economic activity Overall macroeconomic hasfavored stability new generation ofenterprises. existing businessesandfacilitate ofa thearrival highest level, inorder ofthe to ensure thesurvival addressing ofthe theseconstraints isapriority (30 percent vis-à-vis theEuro since end2014), raising andlarge salaries USdollarappreciation facing asevere inprofit reduction margins dueto amomentare inwhichfirms actors. In sector and reducing thereturns oncapitalby private unleashentrepreneurship, to further its ability Cambodia’s competitiveness, external jeopardizing these micro-level challenges, significantly eroding across borders. addstoThe highcost ofelectricity fees significantly increase thecosts oftrading On-road informal toll andinformal forwarding incidence inASEAN. thelargest bribery report a business,and lengthy and entrepreneurs to start the countries intheworld inwhichitismost costly growth. As discussedearlier, Cambodia isoneof tobottleneck sustainingstrong economic remains low by international standards. The cost of growth, whileaccess to bankaccounts anddeposits increased financialinclusion in of creditterms significantly very overtwo thepast decades, with andmicrofinance have sectors banking developed financing, fuelingeconomic growth. The domestic haverestrictions facilitated large FDIandexternal and capital accountrate openness andlack risk, of macroeconomic andabsence of exchange stability The attainment inCambodia, ofpeace andstability domestic investment influences economic growth. Hausmann etal. (2005),thecost offinancing marketscapital limited. hasbeen Following credit growth, whilethedevelopment ofdomestic by large foreign inflows capital andfastdomestic Economic growth inCambodia driven hasbeen and regulation. on policy with authorities directly Association defend interests sector andcoordinate AssociationManufacturers andtheCambodia Tourism (ADB, other sectors, the Cambodia 2014). In Garment soybean, andaquaculture) are yet to bedeveloped emerging commodities (includingrubber, cashew, coordinationwhile subsector policiesfor other to address failures, someofthesemarket is trying and information. The Cambodia Federation Rice for isconstrained farmers interms ofconnectivity controls. However, access to bothinputsandmarkets that have beenrelying onsubsidyschemesorprice thaninothercountries reduction faster poverty which facilitated strong agriculture growth and price boom, thecommodity rice andrubberduring positive example in isthelackofinterventionism market failures seemsto achallenge. pose A theagricultureIn sector, coordination to address to economic diversification going forward. littleinnovation, whichposesachallenge undertake manufacturers, foreign-owned export-oriented Evidence suggests that in firms Cambodia, especially innovation appearasapotential constraint to growth. relatedexternalities to thecost and ofdiscovery a seriesofinformation failures exist. Information are theresult oflaissez-faire policies, although Relatively markets well-functioning inCambodia Policy Priorities 117 CAMBODIA: Sustaining strong growth for the benefit of all 118 CHAPTER 6: Priority interventions to encourage sustainable development human capital characterized by household to shocks. The key householdassetsare (i) andtheirresilience andnear-poor the poor onanincreasedepend intheassetbaseof and future upward economic will mobility reduction poverty economic opportunities, additiontoIn theavailability ofbetter assets toaccumulation ofhousehold Constraints different constraints discussedabove. Hausmann etal. (2005),basedontheanalysis ofthe applying thegrowth diagnostics framework by externalities. Figure 52summarizes theresults of and planaheadto mitigate emerging urbanization to progressively regain exchange rate flexibility, credit, promote theuseofnational currency the resilience underbooming ofthefinancialsector growth, to there enhance are alsoopportunities agriculture. While lessofacurrent constraint to innovation, andimproving access market in development, and capitalmarket supporting investment andsavings through publicpolicies growth inthelongrun,includingfostering reformsstructural to sustain strong economic of aseries Cambodia would needto undertake development and sustained growth. most immediate constraints to private sector and low to the appear be humancapital high costs offirmestablishment andoperation, “appropriability” ofreturns oncapital, suchas To summarize, hinderingthe factors could resultrisks. inhighermacro-financial propensity to invest inthereal estate sector, which alternativesportfolio for investors, whichresults ina and lack of a domestic bond means market, fewer capital markets, withjustanincipient stock market Finally, it should be noted that the lack of developed compared to borrowing intheUnited States). incorporated into interest rates issubstantial (if place in U.S.is taking dollars, differential the risk developing economies, butsince mostborrowing financing isnotsignificantly higherthaninother In addition,In secondary andhigher education is amajorsecondary The laddershows that low attainment of percent). ofthepopulationThese (44 comprise themajority households.share andfemale-headed oftheelderly more land(average andasmaller 1.6hectares) butwithslightly similar characteristics sharing betterSomewhat offthanthis group are those constitutes about15percent ofthepopulation. education. members withsecondary This group smallshare ofhouseholdeducation andwithavery households headedby olderpeoplewithnoformal poorhighestamongthegroupor extremely of lowest (15percent) andthoseofbeingmoderately end, thechances are ofattaining economic security being anemerging consumer class. At thebottom andhighestlikelihoodof being inextremepoverty livelihood,farm whichhasthelowest likelihoodof of highhuman capitaland non- the first category Table 10).About 37percent ofCambodians fallinto sourcea non-farm ofincome (groups 1and2in (mainly highhumancapitalandland)alsowith is highestamonghouseholdswithmore assets livelihoods, andvulnerabilities. Economic security groups withadifferent mixofassetendowments, success” for Cambodia (Table 10),whichreveals four grouping are presented in the of economic“ladder off (see Annex 3). The outcomes from thecluster distinguish thepoorandnear-poor from thebetter- was usedto that pinpoint thosecharacteristics Cluster analysis of theentire welfare distribution for movingprospects into economic security. vulnerability distinguishhouseholdswithhigh how householdassetendowments andlow A ofeconomic“ladder success” clearly shows capacity.household income-generating driver ofto householdsbecomes animportant nature mitigation ofrisk mechanismsavailable oftheseassets, thereforeand productivity the Calva, to 2014). Shocks pose a risk both the level and (iii)financialaccess (Box 3;BussoloandLopez- attainment, andhealthstatus; (ii)access to land; demographic composition (labor),education

Source: Returns to educationReturns inCambodia are highand secondary, vocational, anduniversity education. higher levels ofeducation attainment, particularly having awage jobismuchgreater for peoplewith group. As shown in Table 11,theprobability of compared to just35and44percent inthepoorest income income and anon-farm source ingeneral, households inthetop group have wage anon-farm formal education. About 61and83percent of heads inthemostsuccessful group have some with noformal contrast, education. In allhousehold the leastsuccessful group are headedby aperson among theleastsuccessful group. All householdsin education, comparedsecondary to just17percent most economically secure group have at leastlower About 76 percent of household members in the their potential to wage obtainnon-farm jobs. education attainment which restrictedsecondary group, the bottom groups have much lower and near-poor. contrast In to themostsuccessful constraint to theeconomic ofthepoor mobility Figure 52. geograph Good Low huma adaptedfromHausmann, capita y Identif l Social r n infrastructure eturns ication ofconstr Av erage agglomeration urbanization/ Rodr Incipient High butdecliningre to economicactivity ik, and corruption, cost forfirms Ve Micr lasco (2005) o risk: aints toeconomicgro high Governmen failur turn Low appr . but constraintstoER and monetar investment &entr es Constraints togr Multi-stack Macr t in agricultur coor opriability o stability Fernald Cambodia, 33 1999).In andSethuraman, on young children’s brain development (Grantham, toxic stress at ageshas anirreversible early impact stimulationearly andlearning, and/orexposure to demonstrates that life early under-nutrition, lack of educational attainment andearnings. Evidence contributingfull potential, to partly theirlower larger for andprevent thepoor realization oftheir Disadvantages intheearly years oflife are much education andabove, isofhighestpriority. as improving outcomes learning from secondary the low education attainment challenge, aswell education andabove.secondary Thus, addressing narrows significantly withthe attainment ofupper Moreover, gapinCambodia the genderearnings remains aconstraint to theireconomic mobility. school completion among the poor secondary Clearly, byearnings about5.1percent ayear. low with anadditionalyear ofschoolingraising education, forincreasing, tertiary particularly dination Market failur y policy eholder e es owth, private wth inCambodia epre innovation neurship Cost of external financing domestic Large FDIand sa Lo vings w Cost offinance financial sector, Degr with risks Gr Medium Ve owing ee ofconstraint ry high A verage loca finacing Limited k mark Lo High w ets l Policy Priorities 119 CAMBODIA: Sustaining strong growth for the benefit of all 120 CHAPTER 6: Priority interventions to encourage sustainable development Source: World Bankstaffcalculations using SocioeconomicCambodia Survey, 2013. Table 10. Classificationofhouseholds by endowments, livelihood, (2013) andvulnerability Overall share Location Vulnerability Livelihood endowments Household Demographics status Economic Group share (%) Proportion inurban for healthexpenditures Household borrowed to pay 12 months member hospitalized inpast At leastonehousehold Share receiving remittances source incomeHas anon-farm job wageengaged innon-farm Has ahouseholdmember among landowners Agriculture land, average Share withoutland school with at leastlower secondary Share ofhousehold members schooling Household headhasno Share ofoldage adults Female householdhead ratio Dependency Household headage Extreme ormoderatelyExtreme poor Emerging consumer class(%) per capita(2011PPP) Average dailyconsumption Young, high households non-farm capital, human 36.73 0.44 0.00 0.01 0.23 0.83 0.61 0.58 0.76 0.00 0.16 0.10 63.9 42.4 52.2 7.12 1.8 6.5 (1) large land moderate capital, human Young, 4.44 0.10 0.43 0.69 0.40 0.59 0.44 0.27 0.28 0.21 0.28 0.11 74.7 45.2 15.3 39.0 5.74 2.5 (2) land owners Older, low moderate capital, human 43.81 0.12 0.00 0.00 0.50 0.58 0.42 0.26 0.29 0.00 0.24 0.20 59.5 48.3 23.7 20.2 4.54 1.6 (3) holdings (4) Older, low average capital, human 15.02 land 0.08 0.00 0.01 0.55 0.44 0.35 0.27 0.17 1.00 0.34 0.47 61.2 52.9 31.7 15.8 4.11 1.3 85 income economies (26percent). significantly below the average for lower middle- percent oftherelevant in2014,remains agecohort enrollment inpreschools inCambodia, at 17 attainment, productivity, addition, andearnings. In are likely to suffer lifelong on educational impacts percent ofthe children were stunted in 2014, and vulnerable to extremeweather events. However, a of land, andtheyare inoccupations that are less agriculture sohave notbeen constrained by lack attainment have mostlytransitioned outof growth of thepoor. Those withhighereducational change emerge constraints ascritical to income high weather variability intheface ofclimate groups, degradation ofnatural resources and With landholdingsamongthebottom modest forproviding all. equal opportunities for success isthusahighpriority, especiallyfor potential. Investing years inearly asafoundation andfuture prospects market income-generating maximize theirdevelopment, whichdimstheirlabor to education, theymissthebestopportunity are less likely to be enrolled childhood inearly for example. children Because inpoorhouseholds quintile (42percent and19percent, respectively) aslikelytotwice bestunted thanthoseintherichest age. Children inthepoorest quintile are more than at theearly ofopportunity define thehighinequality Source: World Bankstaffcalculations using SocioeconomicCambodia Survey, 2014. Table 11. avenues Educationdetermines tobetterprosperity University Vocational education Upper secondary Lower secondary Primary World Development Indicators. 85 Both dimensions Both Effect onprobabilityEffect ofhaving wage job 54.6% 33.6% 20.9% 7.7% 5.9% vulnerability tovulnerability shocks. This smallgroup (4.4 percent per household)butwithlow humancapitalandhigh consisting households(2.5ha mostlyofland-rich is a second groupeconomic security ofpeople economic mobility.further Onthecuspof expenditures—have adrag been to achieving catastrophic health to shocks—especially Among the asset-rich, high vulnerability increasing incomes. environmental sustainability, offer thebestpath to increased resilience to climate-related shocks and profitability,of theirlandandfarm together with agriculturemodernizing to increase theproductivity butland-poorhouseholds, agriculture-dependent have alsolowered productivity. Thus, for these changes inrainfall patterns, andincreased variability extreme weather events, temperatures, andrising households’ livelihoods are highlyvulnerable to lowering agricultural productivity. addition,these In to deforestation which increased soilerosion, thus The last decade’s expansion in land cultivation led water—has become more for critical theirsurvival. resources theydependon—land, and forestry Rather, sustainablemanagement ofthenatural There is limited room land expansion. for further in thesecond lowest group own ofland. 1.6hectares bottom group own ofland, 1.3hectares andthose amount ofland. Onaverage, householdsinthe still dependonagriculture, yet theyhave amodest thebottom two groups—large majority—especially Effect onprobabilityEffect ofhaving full-time wage job 52.9% 26.7% 19.8% 7.6% 6.1% Policy Priorities 121 CAMBODIA: Sustaining strong growth for the benefit of all 122 CHAPTER 6: Priority interventions to encourage sustainable development system amoderate priority. region, whichmakestheintroduction ofapension and hasoneoftheyoungest populations inthe enjoying ademographic dividendat themoment to keepinmindthat Cambodia isit isimportant thisgrouplift ofpeopleout ofpoverty. However, pension system andsocialsafety netswould help to have access to highereducation. An effective householdsarechildren lesslikely infemale-headed probability ofstudyingat school, which impliesthat 16-18 inhouseholdswithfemale headshasalower households. female-headed The population ages ishigheringenerational transmission of poverty buy food intheprevious 30days. The ofinter- risk school dueto nothaving enoughfood ormoneyto selling house or land, or withdrawing children from expenditures, spendingsavings, borrowing money, household assets, reducing essential non-food such assellingof themhadto engageinactivities levels offoodthanmen,as17percent insecurity reveals households face higher that female-headed economic security. Furthermore, the CSES 2014 for upwardlimited opportunities into mobility are vulnerable orhave to fallinginto poverty system, theselabor- andasset-poor households absence ofsoundsocialprotection andapension members are 65years ofageandabove. the In (47 percent), andoneinthree ofthehousehold households inthepoorest group high isvery and theelderly. The share offemale-headed households for especially female-headed strengthening systems, protection social constrained, highlighting theneedfor The poorest inCambodia are alsolabor- constraint isofmoderate priority. share ofsuchpeopleaffected islimited, hence this to have pulledthemdown. While catastrophic, the pay for healthexpenses. OOPspendingseems High toprior the survey, and 43 percent had to borrow to member whohadbeenhospitalized inthe12months households inthisgroup hadat leastonehousehold About 69percentexperienced ahealthshock. of economically insecure, was more likelyto have of households),whichisnon-poorbutgenerally improved service delivery to reduceimproved delivery gapsinaccess service human capitalformation. This would alsorequire an outstanding problem that challengesefforts for andwaternutrition, stunting, andsanitation to tackle education, to investit is important in pre-primary foster education andabove, enrollment insecondary wage job. At are thesame timethat made efforts to significantly increases theprobability ofhaving a education Secondary, vocational, and/ortertiary chances of transitioning into economic security. of agriculture associated with it, offers thehighest educational attainment, and the diversification out profile ofthe four groups suggests that increasing the likelihoodofbeingeconomically secure. The education, land holdings, income, non-farm and growth. vulnerability, for andcreating opportunities building householdassets, minimizinghousehold The ladderunderscores of theimportance are thusconsidered amatter ofhighpriority. water, sanitation, and electricity. Reforms in this area and effectively suchas delivering economic services ofeffectivelyhamper theability expanding access sectors, public administration constraints also capacity.their income-generating Beyond social a strong asset base for households and increase inorder to delivery build strengthen publicservice services. This necessitates reforms to equalize and of OOPspendingresulting inuneven access to challenges, governance challengesare at thecore 86 being even higher in rural areas. not read at thelevel required, withthepercentage outcomes isthat halfofthechildren ingrade 3could rural areas. andurban An example ofpoorlearning significant gaps betweenremain inaccess to services as evidenced by outcomes, poorlearning and provision of service andequity on boththequality poorly agriculture services. Cambodia performs household assets, mitigating risks, anddelivering financial managementbe critical will for building strengthening publicadministration andpublic Improving through delivery public service UNESCO, Assessment, Grade Early School 2014/15. There isaclearcorrelation between 86 Apart from quality Apart and export potential (Tableand export 12). the agriculture to unleashitsfood-security sector stemming from fast credit growth, andmodernizing to mitigateof thefinancialsector potential crises tourism), strengthening regulation andsupervision as investment (including inthetradable sector infrastructure, facilitating domestic savings aswell investment andassetmanagement to provide neededforthe capacity more efficient public reduce costs, buildingthelegalframework and to facilitate efforts operations firm sector and introducing public andprivate concerted attained through ofmeasures, aseries including competitiveness anddiversification. This could be by increasing further enhance its productivity and inclusive growth, Cambodia would need to à-vis othercompetitors. order In to sustainstrong more expensive intheEuropean andvis- markets appreciation makesCambodian goodsrelatively under themanagedfloat/peg, the recent U.S. dollar countries suchas Vietnam andMyanmar. Moreover, intense competition ingarmentsfrom neighboring and an increase in labor costs, coupled with more progressive declineinpreferential trade treatment economy to andisexpected seeamiddle-income earlier, Cambodia faces newchallengesasalower competitive andmore diversified. As discussed unless Cambodia makes the economy more but may sustainableinthefuture notbe driver of growth and employment thus far growth animportant has been Rapid inexports sustain stronggrowth andcreatejobs to competitiveness anddiversification 6.2 Pathway 1: Increasingeconomic householdincome growth.for supporting and expanding socialprotection would be important by reducing OOPexpenditure inthehealthsector degradation. Finally, ofshocks mitigating theimpact including thosestemming from environmental ifvulnerabilitiesto are economic security minimized, who are landowners, agriculture canalsobeapath and ensure outcomes. quality For thosehouseholds a newhotel businessrequires obtaining nine and registering aproperty. For example, opening procedures,permits, paying taxes, import-export operations, including dealingwithconstruction unreasonable fees forofbusiness allaspects procedures/licenses andreducing orremoving reviewing, simplifying, andabolishingunnecessary A Special Task Force could becreated, aimed at businesses whichcomprise offirms. themajority firm operation, including for female-owned procedures andinformal fees would facilitate environment by unnecessary abolishing addition,improvingIn theoverall business establishmentsimplify firm procedures. ofCommerce wouldlaunched by theMinistry help implementation oftheonlineregistration system relatively run.Full easyto implement in theshort leadership andinstitutionalenforcement, could be options are low-hanging fruitsthat, withsufficient a company seal. oftheseproposed Most policy request); andabolishing the requirement to have review oftheback-office ofaincluded aspart (thesecheckscould beRegistration Department name andobtainapproval at theBusiness an initialcheckfor uniqueness ofthecompany registered; removing theobligation to conduct to bedeposited inabankbefore thecompany is or eliminating theminimumcapitalrequirement facilitating establishment firm would be reducing formalization measures offirms. aimedat Other help facilitate entrepreneurship aswell asthe Commerce, andtaxadministration—would of Labor and Vocational Training, of Ministry which are currently at conducted theMinistry procedures andcosts for openingabusiness— First, creating a single window to streamline the to reduce thecosts offirmestablishment. medium run, Cambodia hasopportunities To regain competitiveness to intheshort costs transaction and trade and operation, costs includingelectricity establishment Reducing thecostsoffirm

Policy Priorities 123 CAMBODIA: Sustaining strong growth for the benefit of all 124 CHAPTER 6: Priority interventions to encourage sustainable development

Table 12. Pathway 1: policy options to increasing economic competitiveness and diversification

Pathway Development Selected policy option Selected policy option Additional policy option Additional policy priority areas 1 2 3 option 4

i. Increasing 1. Reducing the cost Establish a special task Reduce the cost and Eliminate the minimum Lower electricity costs economic to firm establishment force to improve the time for trading across capital requirement and by adopting downward competitiveness and operation, overall ease of doing borders by establishing remove the obligation to mid-term tariffs and and diversification including electricity business by abolishing a National Single conduct an initial check for ensuring competitive to sustain strong costs and trade unnecessary procedures Window, reviewing uniqueness of company bidding for large growth and create transaction costs and informal fees Camcontrol’s mandate, name when opening a projects jobs and establishing a business National Logistics Council

2. Boosting public Improve public Develop an internal Streamline existing and private investment and asset bond market (including investment incentives, investment to management by sovereign and private) shifting from tax holidays support the tradable passing a PIM Sub- to facilitate the into incentives that foster sector decree and developing financing of investment private investment in project selection and and to regain exchange machinery and research implementation manuals rate flexibility

3. Strengthening Introduce a Risk-Based Enhance crisis Strengthen macro- Adopt digital finance regulation and Supervision approach preparedness and prudential regulation, to further increase supervision of the through regulation establish a financial data quality, and oversight financial inclusion and financial sector to on key objectives safety net, including measures (including boost domestic savings mitigate risks from and requirements by establishing an loan classification, MFI strong credit growth, and provision of autonomous deposit guidelines, IFRS adoption) while building further methodology to the protection institution financial inclusion sector

4. Fostering Facilitate knowledge and Enhance systems for Enhance the impact and Influence the supply agricultural technology adoption managing quality and sustainability of irrigation, and demand for modernization through farm advisory food safety, strengthen including by applying healthy foods, services, national the linkages between clear procedures and including through research councils, farmers and agro- adequate financing for incentives, regulations, PPPs, agribusiness enterprises, and O&M, increasing support information, incubator programs, and introduce a coherent for water user groups, and and through the competitive grants for approach to ‘brand’ facilitating the adoption introduction of R&D Cambodian food and of alternative small-scale fortification policies agriculture irrigation technologies

Source: World Bank staff analysis in consultation with stakeholders. infrastructure supports trade expansion. infrastructure supports to ensure that Cambodia’s logistics hard andsoft implementation ofaNational Logistics Blueprint (IDP) 2015-2025andto formulate andmonitor the realization Development Policy oftheIndustrial thesuccessfullogistics in Cambodia to support organizations. The NLC could work to improve in closeconsultation withtherelevant business of Public Ministry Works and Transport, and working by aSecretariat by spearheaded the supported Logistics Council (NLC) could beestablished, inborder management.authority Third, aNational Council to avoid current overlaps with the customs Food to aMinisterial Safety reporting Authority could beestablishedasanautonomous statutory mandate at theborder could bereviewed, andit in many othercountries). Second, Camcontrol’s and (whichthe isInsurance not Certificate required License) be replaced witharenewable Import/Export Permit forExport non-sensitive goods(whichcould documentation requirements, such as the Import/ Window, following theremoval ofunnecessary border procedures by establishinga National Single reforms could includecompleting the automation of involved intrading across borders. First, potential could achieved be by reducing thecosts andtime Further gainsintrade facilitation andconnectivity registration process. ininformalreduction fees and automation ofthe discussed earlier—are to expected benefitfrom a andface offirms additional constraintsmajority as businesses—which comprise the female-owned reduce operation firm costs significantly. Inparticular, andlogistics wouldand transportation alsohelp licenses, permits,construction operation andimport andwhendealingwith under regular inspection theinformalto curb efforts expected fees and gifts internal work rule (Ministry of Labor and internal work rule (Ministry Vocational Training). for opening enterprise, establishment ledger, payroll and license onsign andpermit board registration (municipality) sign of board (General Department Taxation), location approval of (Ministry Tourism), taxregistration and VAT number, and taxon 87 different licenses from five institutions. Business registration (Ministry ofCommerce), Businessregistration hotel license (Ministry 87 Further and utilize expansive large power assets. generation margins reserve neededfor thesystem, Thailand would helplower system costs, reduce the cooperation withneighboring Vietnam, LaoPDR,and a comprehensive for expanding regional policy Finally, given thesmallersize ofthepower system, andutilization ratethe efficiency of power systems. management information system, would improve in thetransmission grid, backed by awell-managed for companies, distribution aswell asSCADA systems meters at consumer ends, points inter-connection such assolar. addition,theintroduction ofsmart In potential for cost-competitive renewable energy coal-fired closely at the generation, whilelooking ofhydro andexternalities and socialimpacts and to fullyassesstheenvironmental willbeimportant It associated withinvestments inenergy infrastructure. and managethelong-term contingent liabilities greaterhelp attract private investments sector advisors. andquality help ofexperts This would large are projects competitively procured, with the planning and licensing system, that and ensuring public consultation, developing a stronger water medium-term system expansion planinformed by ofenergy companies,performance developing a regular oftechnical sharing andcommercial policy,setting upadecliningmedium-term tariff tariff-setting. suggested Some measures include regulatory framework isneeded, includingfor costs,electricity a stronger institutional and orderIn to improve and energylower efficiency capital expenditure that hastakenplace since 2011. help compensate for thedeclineindonor-funded ramp up publicinfrastructure projects, which could effective. more policy andmonetary itsfiscal time making accumulationand capital whileat thesame Cambodia publicinvestment needsto boost To sustainrapid growth inthelongrun, while developing capitalmarkets acquisition andmachinery infrastructure investmentBoosting public andprivate in Cambodia currently hasfiscalspace to Policy Priorities 125 CAMBODIA: Sustaining strong growth for the benefit of all 126 CHAPTER 6: Priority interventions to encourage sustainable development to high-return but also that projects these projects can notonlyensure that suchinvestment isallocated Strengthening publicinvestment management (PIM) is thecasefor Le roads andcanals (Minh etal., 2017). standards and implementation manuals in place, as of themdonotseemto have minimumquality to buildneededinfrastructure,capacity andmost Moreover, have justahandfulofministries the for selection government-fundedproject projects. have formal guidelinesfor feasibility studiesand management found that Cambodia does not funding. An assessment of public investment areprojects implemented through government to buildinfrastructure, andonlysmall-scale partners Cambodia keeps depending ondevelopment for suchinvestments thusfar. As discussedearlier, way, since mainlyrelying ithasbeen ondonors infrastructure inaneffective andsustainable and assetmanagement to helpboost Cambodia needsto builduppublicinvestment a-pen reform. investment incentives, whichare more ofastroke-of- successful inthemedium to longrun,except for the that needtimeto beimplemented inorder to be options inthisarea for development are reforms is prone to boomsandbusts. The proposed policy proclivity to invest inthereal estate sector, which appreciation underdollarizationaswell aslower the regain competitiveness inthecontext ofU.S. dollar in themediumrun,whichwould helptheeconomy provide ahigherdegree ofexchange rate flexibility and developing aninternal would bondmarket help addition, promoting theuseofnational currency value additionwhilecontaining taxexpenditure. In economic diversification andincreasedsupport investment and R&D, in machinery which would a more targeted incentive system that fosters private incentives, moving away from tax holidays and into could also streamline its existing investment funded publicinvestment projects. Cambodia intheimplementationweaknesses ofgovernment- current reliance on donors and lack of standards and public investment andassetmanagement, given the However, thiswould first require strengthening and/or soft loans for the acquisition of machinery loansforand/or soft theacquisition ofmachinery such asaccelerated depreciation, taxdeductions, moving towards targeted cost-effective measures limiting existing corporate income taxholidays, and Policy First, oftheRGC. Cambodia could consider Law, Development asenvisaged intheIndustrial streamlining oftaxincentives inanewInvestment in 2015(Stern etal., 2017). This would callfor the to have amounted to at least5.7percent ofGDP from existing exemptions andincentives isestimated ADB, 2014). Bank, (World Tax expenditure resulting existing investment incentives could beredundant decisions, which would imply that some of the alternative location to Cambodia intheirinvestment didnotconsider any sectors other manufacturing inthegarment, surveyed the firms footwear, and tax expenditures. Approximately 75 percent of adopt international practices best and reduce A new Investment Law could helpCambodia goals.monitoring theattainment ofarticulated of maintenance and inacost-effective manner; guidingtheimplementationand localnetworks; expendituresprioritizing for thenational, provincial, quantifying andjustifyingbudgetrequirements; further, whichwould require more precisely management system alsoneedsto bestrengthened waters from inundating them.Cambodia’s road asset of wells andsanitation facilitiesto prevent flood updating plans, urban and raising the platforms roads, adoptingminimumbuildingstandards, infrastructure, flood-resilient suchasconstructing by strengthening theresilience ofCambodia’s the costs ofresponding to disasters could bereduced fundedprojects. ofexternally Finally,sustainability budgets would helpensure theeffectiveness and adequateensuring operation andmaintenance a piecemeal approach and to selection, project addition, enhancingdonorcoordination, avoiding buildingat coreas capacity andlineministries. In andimplementation manuals,selection aswell thedevelopmentof aPIMSub-decree, ofproject government-funded investment through passage require enhancing the institutional framework for are implemented more effectively. This would save in local currency would also support bothhigher save would also support inlocal currency and real estate. Introducing incentives to depositand establish alternatives to investment inconstruction of long-term fundingfor thecorporate and sector capital andbondmarkets, could helpprovide sources riel, coupled withtheprogressive development of measures aimed at fostering the use of theKhmer high economic growth. themedium run,market In investment andcapitalstock accumulation to sustain mobilization, whichwillenablescalingupof debt canpromote domesticandforeign savings to issue sovereignpublic andprivate) andstarting bubbles. Developing (both adomesticdebtmarket andprevent sustainability macro-financial preserve has, sector anditwould alsohelp that theexporting interms ofrecurrentthe sameimpact employment and realthat construction estate do not have often real isjustified estateby thefact boom.Intervention non-tradable sector, and fuelingtheconstruction channeling private investment andcredits into the have contributed to speculation rising biasedtoward large capitalinflows withlimited investment options alsoneedstothe tradable befostered, sector as regain external competitiveness. Investment into attaining greater exchange rate flexibility to fostering domesticsavings andprogressively use ofthenational currency, would helpinboth coupled withmeasures aimedat promoting the The development market, ofadomesticbond be introduced. investorFourth, further protection assurances could to instead firms ofonaproject-by-project basis. incentives and grantingmaking them time-bound, incentives, removing minimumcapitalrequirements, consider streamlining theapproval process for tax burden oninvestors. Third, Cambodia could best practice, whichwould notentail any additional could bereplaced withtaxcredits asperinternational to reduce tax evasion, VAT exemptions onimports investment sectors. Second, into highervalue-added diversification oftheeconomy by encouraging of thephysical andhumancapitalstock andfoster training—this would helpincrease theproductivity and equipment, investment inR&D, andstaff flexibility and regain monetary policy independence. policy and flexibility regain monetary would ultimately helpattain greater exchange rate investment andprogressiveThis de-dollarization. the existing framework and comply withthelatest An RBSapproach could introduced be to update in theeconomy. investmentthrough into thefinancialsector further development, ideallysavings would bechanneled to theprevious area support forin Cambodia. In and savings, whichhave beentraditionally low could be introduced to increase access to deposits Finally,is alsoimportant. ofmeasures aseries and non-governmental moneylendingactivity andprivateClose monitoring ofshadow banking preparedness andestablishingafinancialsafety net. prudential regulation, and enhancingcrisis and oversight,data quality strengthening macro- (RBS)approach, improvinga risk-based supervision introducing andmicrofinance supervision, banking strengtheningmitigating emerging by risks further measures wouldset ofcomplementary beaimedat and private moneylendingschemes. thisregard, In a suchasthoseundershadow banking lending activity microfinance andotherinformal/unregulated sector closely linkedto theboomoflooselyregulated is emerging for rural households, inparticular, bubble andover-indebtedness. Over-indebtedness those stemming from apotential construction to themounting harness risks, especially important sustained economic growth in Cambodia, it is critically fueling stronghas beenoneofthemainfactors and and theenvironment. While fastexpansion incredit macroeconomic stability, poorer households, negative from rapid impacts credit growth on the financialsector would helppreventpotential Further of enhancingregulation andsupervision financial inclusion growth, whilebuilding further fromstrongcredit to mitigaterisks ofthefinancialsector supervision Strengthening regulationand Policy Priorities 127 CAMBODIA: Sustaining strong growth for the benefit of all 128 CHAPTER 6: Priority interventions to encourage sustainable development and financialinformation transparency. (IFRS) would strengthen inter aliafinancialdisclosure of theInternationalFinance Standards Reporting accounting andauditingwiththeaim offulladoption offinancialinstitutions in enhancing thecapacity of Cambodia could (CBC) beexpanded. Finally, and householdinformation intheCredit Bureau income,of net reported and coverage of guarantors whom repayments represent more than75percent for loansto borrowers for greater provisioning income could beestablished, requiring size to onloan to repay.little capacity For example, limits and prevent lendingto predatory householdswith guidelines to enhance thesoundnessofportfolio to the microfinance andadopting lending sector regulationsconsider developing specific secondary the householdsector. could addition,authorities In and real estate and over-indebtedness sector in to prevent speculative bubblesintheconstruction limitsfor householdlending loan-size-to-income introducing limitsonmultipleloans, andintroducing to-value ratios for thenon-productive sector, loan- financial institutions;implementing stricter inloanclassifications acrossconsistency different to capture thetimedimensionandensuring revising theformula for calculating banks’ liquidity stability.financial sector Suchmeasures include oversight measures would helpstrengthen A seriesofmacro-prudential, data quality, and customer feedback. up to support Fourth, areliable system could beset ofcross-checks of terrorism could beadopted andimplemented. anti-money andcombating laundering thefinancing guidelines for applyingarisk-based approach to andoperationalrelated activities. supervision Third, established to ensure execution oftheRBSandother resources buildingstrategies andcapacity could be planforaction thedevelopment ofsupervisory methodology. Second, aconcrete road mapand objectives, key country-specific requirements, and charge of theformulation of the RBSregime, including groupsand working could be established to take ofsequentialseries steps. First, technical committees international standards. Basel This would require a protecting consumers. This could beaccompanied financial innovation framework while that supports the legal, regulatory, and institutional supervisory, financial sector, Cambodia could focus on enhancing ofthe strengthening theregulation andsupervision need to setupnewphysical of branches. As part to reach outto newcustomers rapidly withoutthe mechanism for banksandotherfinancialinstitutions being adopted around theworld asacost-effective accounts at financialinstitutions. Digitalis finance lowest ofpopulation that hasdeposit proportions of population that borrows moneybutoneofthe since Cambodia hasoneofthelargest proportions financial institutionswhere theyborrow funds, by openingandmaintaining savings accounts at between loans and deposits, particularly linkages to persuadeborrowers to establisheffective withfinancialinstitutions Authorities could partner andmobilebanking. access services to banking Cambodia could foster domesticsavings by facilitating domesticsavings.boost financial inclusionand financeDigital be a could increase way to further (Sahay etal., 2015). timesofstresswithdrawals, during particularly base whichwould reduce thelikelihoodoflarge banks would have amore solid andbroad funding enhance itsfinancialstability,Cambodia to further as improved would enable regulation andsupervision, system. Greater financialinclusion, together with thereby enhancingpublictrustinthebanking deposit accounts inregulated financialinstitutions, protection institutionto provide guarantees for plan for establishingan autonomous deposit withthedevelopment in conjunction ofanaction access to enablemore peopleto usebankdeposits, It financial crises.would alsobebeneficial to expand framework inorder to better anticipate andmanage as strengthening thecurrent management crisis among government aswell agenciesandministries and Financial Committee Stability for collaboration establishing aninter-ministerial Macro-Prudential strengthen financialinclusion. This would require preparedness, establishafinancialsafety net, and crisis to support important willalsobe It through continues irrigation. to Irrigation dominate Cambodia could intensify agricultural production demand for healthy foods. rolean active ininfluencingboththesupply and improved diets, andthestate would needto play yet alsomajorchallengesfor fosteringopportunities available andaffordable. new Urbanizationbrings that adiverse range ofhigh-nutrientfoods isreadily in improving outcomes, local nutritional ensuring and overall food system needsto play astronger role assurances. At thesametime, Cambodia’s agriculture that is more sustainably produced withcredible andsafer products fooddelivering higher-quality onaqualitative basis—reliably(and agro-industry) strategically aimingto differentiate itsagriculture strengthen theavailability ofcore publicgoodswhile low-cost, high-volume Cambodia production. could internationally, regionally, andlocallyonthebasisof tois expected find it increasingly difficult to compete Cambodianemployment agriculture opportunities. resilience, income andhigherfarm andsupplychain labor, land, andwater), greater weather/climate would contribute (of to higherproductivity systems, andincreased value addition,which increased more irrigation, diversified production nurtured. be This could involve acombination of of inclusive agricultural growth willneedto thecomingIn years, different sources anddrivers boom ofthecommodityprice aftermath inthe modernization agricultural Fostering facilities for claims. regulations andconcrete administrative processing an untapped poolofpeople, whileimproving proper motor insurance) liability property, to andthird-party poor andto insurance extend coverage (life, products could beintroducedsub-decree to helpreach the to savehamper theability effectively, amicroinsurance potential shocksat thehouseholdlevel that would development inthecountry. addition,to mitigate In economic and settlement system whichsupports strategy to develop areliable andreal-time payment by implementation ofthenational payment system alternative technologies. small-scale irrigation farmers, andfacilitate theadoptionofarange of in-fieldirrigation/drainage investmentssupport by for farmer water user and financialsupport groups, operation andmaintenance, increase technical and adequate financing systemfor irrigation infrastructure investments, applyclearprocedures assessments whendetermining thefeasibility ofnew this regard: better integrate water resource andsoil schemes.irrigation Several measures could helpin ofexisting and focus thefunctioning onensuring approach, delivery from anengineering to aservice mandates andstaffincentives need to beshifted Cambodian agriculture. knowledge Smallfarmer would gainsin helpspurbroader productivity Facilitating andtechnology knowledge adoption a necessary but not sufficient part. a necessary ordiversificationagricultural productivity andis it hasthusfarplayed onlyaminorrole infostering public anddonorspendinginagriculture, although and resulted inlower from thethird productivity rice crop. andpesticideuse),reducedfertilizer groundwater recharge, sediment andnutrient load--alsoresulting inincreased reduced Delta the Mekong floodplain benefits(declining 90 water 2017). (BD Link, could irrigation also be away to makebetterSprinkler use of improves ofvegetables, yieldandquality andreduces diseases. in Cambodia; itreduces water requirements, andfertilizer isthefastest-growing irrigation Drip technology irrigation are increasingly on fruit and vegetable using irrigation farms. focus projects irrigation on although ricefarmers production, attentionor directing toward ofpriorities. Most thesetypes only afew schemesappearto beapplyingtheseprinciples donor (loan-financed) infrastructure investment, irrigation yet 89 come from irrigated land. Cambodia’s increased feed crop andindustrial has production floods rather thanorganized systems. irrigation littleof Very rice/fish rotations basedupontheebbandflow of natural expanded has fishproduction come from practicing farms percent ofannualnational production. The bulkofCambodia’s 88 systems elsewhere Asia. inEastandSoutheast which hasoccurred insomeirrigated agriculture anunsustainabledevelopmentand agro-chemicals, towardavoid atrajectory excessive useoffertilizer will needto promote goodagricultural and practices to intensify efforts production, Cambodia making In In Vietnam theeffects ofincreased flooding downstream recent In years, large there increase hasbeenavery in accounts season paddy production for Dry only 13 88 Institutional Institutional 90

89 In In Policy Priorities 129 CAMBODIA: Sustaining strong growth for the benefit of all 130 CHAPTER 6: Priority interventions to encourage sustainable development (public/private/academic) research initiatives. competitive grants program to finance collaborative (iii) an agribusiness incubator program; and (iv) a technologies,harvest use of agricultural wastes); challenges (e.g., crop orvalue chainspecific, post- to addressprivate specific innovation partnerships promote transfer oftechnology programs; (ii)public- for asclearinghouses needs, information, act and be: (i) national research councils to R&D prioritize collaboration inagriculture innovation would groups andSMEs. Afew possibleways to ensure by farmer multiplication activities and distribution could beprovided to strengthen andexpand seed seed levels, whiletechnical andothersupport breedercould focus onsupplyinghigh-quality control.and seedlingquality Public research centers strengthen procedures and capacities related to seed procedures for registration plant variety and seed, could authorities introduce more streamlined areas. To increase theavailability ofimproved reducing losses, post-harvest andothercritical to increasing yields, managinganimaldisease, agricultural research and innovation related institutions could collaborate onapplied Public sector, private sector, andacademic mechanization services. development for ofamarket agriculturalthe further machinery,farm whilebottlenecksare removed for sale,should beappliedfor anduseof theimport, standards (andotherregulations)and performance lower environmental footprint. National quality due to theirhigherincomes, greater resilience, and farming, aswell andagro-fishery, asagro-forestry Fisheries. ofAgriculture,Strategy released by Forestry theMinistry and 91 including thoseapplyingICT. could beencouraged,and other technical services traditional andnon-state forms advisory of farm Asian Southeast countries. Non- middle-income for suchtechnologies, lagbehindthoseofother systemsand technology adoption,andthedelivery This isrecognized intherecent Agricultural Extension 91 This includesmixed cashew nuts) needto beimprovedin thosesub-sectors (e.g., specific enabling environments for investments increase asoutputexpands, yet thegeneral and to process andaddvalue locallymayopportunity private collaboration. For somecommodities, the pepper) illustrate thepotential ofsuchpublic- rice andfor specific commodities (high-quality strategiessuccesses inimplementing export infrastructure.of practice) Recent Cambodian traceability, codes organization, farmer industry andprocessing (certification facilities)andsoft (warehouses, cold chainlogistics, food packing, as well asconsiderable investment inbothhard among government, the private sector, andNGOs most of these areas require close collaboration very more distant ChileandKenya—illustrates that neighboring elsewhere—including Thailand and positive spillovers for tourism. Experience from food and agriculture. The latter would also have coherent approach to ‘brand’ Cambodian andintroducingagro-enterprises, anoverall betweenthe linkages organized farmersand andfood safety,managing quality strengthening by enhancingsystemspursued further for Strategies differentiation ofquality becan exported unprocessedexported to Vietnam 2017). (BDLink, the tenth largest producer in the world. However, most of it is 100,000 tons ofraw cashewnutseachyear, Cambodia making 92 and output. This although remains important, has longfocused onincreasing rice productivity in their diets. consumers are aware ofthese oftheimportance foods isreadily available andaffordable andthat ensuring that adiverse range ofhigh-nutrient role in improving nutritional outcomes, local overall food system should play astronger At thesametime, Cambodia’s agriculture and systems.and contract farming productive alliances,incubation, farmer-enterprise that have worked elsewhere, includingagribusiness growth, Cambodia can adapt institutional models development andensure inclusive agricultural Existingcasheworchards produce anestimated 60,000to 92 . To SMEagribusiness support Cambodia’s foodstrategy security groups buytheirfood. upgrading ofmarketplaces where lower-income vegetable andthemaintenance production, or for and community peri-urban support advertising), campaigns (e.g., onlabeling, food content, healthy eating, street food hygiene), information demand for healthy foods through regulations (e.g., rolean active ininfluencingboththesupplyand for fostering improved diets. The state shouldplay yet alsomajorchallenges newopportunities brings rice varieties.Urbanization efforts for bio-fortified and investment inR&Dandcommercialization point of use (e.g., in schools or public hospitals), rice that canbecombinedat the withunfortified be lessdominant players), provide kernels fortified (where thererice noodlesmandatory are likelyto of commercializedfortification vegetable oilor that could bepromoted would includemaking buy from localsmallmills. that sense, In alternatives eitherconsumemalnourished) theirown rice or ofthepoor(andsales andalarge proportion mills onlyaccount for asmallshare ofdomestic policies ischallenging, that large dueto thefact Cambodia, themainstreaming ofrice fortification canteens), and other spheres.civil servant In public procurement (e.g., for schoollunchesand crops), landuseprogramming schemes, inirrigation training, education ofnon-staple ontheproduction awarenessincluding nutrition modulesinfarmer research (e.g., (e.g., extension bio-fortification), be mainstreamed into programs of agricultural should concernsNutritional andopportunities programs, strategies andmedium-term targets. goals shouldbemadeexplicit innational agricultural household and local community foodhousehold andlocal community security. seeds andimproved soilmanagement—will enhance through useofbetter gains—especially productivity further 93 exports. the bulkofany increase in thefuture willgotoward national level, andwithconsumption leveling off, now enjoysthe country alarge at rice surplus the For growing farmers rice predominantly for subsistence, 93 Dietary diversity andotherfood quality Dietary for thepoor(Table 13). education and improvequality outcomes nutrition vulnerabilities but also to equalize access to high- social protection systems notonlyto mitigate be complemented by strengthened andexpanded andcouldimprovements delivery inpublicservice education as well as TVET. This would also require andtertiary secondary completion ofhigh-quality of children and increasing the transition to and goal are anewfocus oninvesting years intheearly value chains. Emerging for priorities achievingthis to thelarge share whowillremain outsidetheglobal but instead would provide economic opportunities with thediversification and competitiveness strategy economic security. Suchjobsmay notbealigned of thepoorandeconomically vulnerable to attain boost shared andincrease prosperity thechances and increase educational attainment inorder to to improve oflearning has theopportunity thequality economic diversification andjobcreation. Cambodia butalsofor sector in thenon-farm facilitating enabling people to take up better job opportunities gains. the growth process their whilealsoprotecting to facilitate in and near-poor theirparticipation A second pathway isto buildtheassetsofpoor shared prosperity to facilitateeconomicmobilityand 6.3 Pathway 2: Buildinghumanassets education attainment, particularly at theupper education attainment, particularly in agriculture. gender gapsinhigher Reducing education are also moresecondary productive wagefarm job, andthosewhocompleted at least significantly enhances one’s to getanon- ability and for women. education Attainment ofsecondary assetislabor for whoseprimary theland-poor for improving economic particularly prospects, Attainment ofhighereducation is a prerequisite andhighereducation secondary outcomesof attainment andlearning Endowing peoplewithskillsby boosting Stronger humancapitaliscrucialnotonlyfor Policy Priorities 131 CAMBODIA: Sustaining strong growth for the benefit of all 132 CHAPTER 6: Priority interventions to encourage sustainable development

Table 13. Pathway 2: policy options for building human assets

Pathway Development Selected policy Selected policy Additional policy Additional policy Additional policy priority areas option 1 option 2 option 3 option 4 option 5

ii. Building 5. Endowing Effective Increase the Change the Get a baseline human assets people with implementation of autonomy of Higher incentives for measurement to facilitate skills by the Lower Secondary Education Institutions investing in more of existing TVET economic boosting School Effectiveness and improve education by the training programs mobility attainment Standards (LSSES) accreditation and poor and make and the skills gap, and shared and learning to improve learning quality assurance education more subsidize the private prosperity outcomes of outcomes mechanisms, affordable for the development of secondary and introduce incentives poor, including industry-specific higher education to prioritize STEM by improving the training centers subjects and support existing school research activities grants and national scholarship program

6. Investing in Ensure children are Expand access Use CCT as an Fund and the early years well-nourished, to opportunities instrument to implement the including by for early learning, potentially leverage National Action implementing the Fast stimulation, and child Health Equity Funds Plan for Rural Water Track Road Map for development through to cover identified and Sanitation, Improved Nutrition, non-institutional packages of nutrition expand piped water leveraging social and modalities, services (to women, service in rural behavior change including by training children) and areas by setting communication, and community preschool improve information up incentives for incentivizing the teachers on nutrition private operators consumption of early provided by health years services professionals

7. Shielding Reduce out-of-pocket Revise and strengthen Establish targeted Consolidate existing Reduce exposure households from expenditures related the ID Poor targeting conditional cash pension schemes to natural shocks to health shocks by system as the platform transfer programs to disasters through improving and further for expansion and shield the vulnerable risk-sensitive promoting Health consolidation of a population and planning and Equity Funds and by social protection also foster desirable design, enhancing expanding eligibility system for the poor behaviors such as risk assessment to other vulnerable and vulnerable school attendance or capacity, and population groups improved nutrition improving disaster practices preparedness capability and rapid fiscal response

Source: World Bank staff analysis in consultation with stakeholders. enhanced by providing additional schoolgrants and Standards (LSSES)isneeded. optionis This policy of the Lower Effectiveness School Secondary delivery,service effective implementation orderIn to strengthen thesystem ofeducation its impact. the amount andnumberofscholarshipsto maximize methodology to bemore equitableandincreasing scholarship program by changing the targeting strata and(ii)revising thenational socio-economic gap between schoolsand householdsindifferent poor schoolgrants to narrow theschoolresource Policiesaction. pro- shouldinclude:(i)prioritizing for females—requireshouseholds—especially policy education for thosefrom secondary to poor quality areas andhouseholds. equitableaccess Ensuring between relatively and relatively rich poorschool led to inequalitiesin school resource distribution to school, sendchildren whichhas to secondary Households continue to pay large sums of money scholarship program needto improved. be system, the existing grants school and national To create education anequitablesecondary within thesameareas. to thoseschoolsbetween thepoorandnon-poor inaccessareas ofinequality butalsoareflection schoolsinbetter-offthe availability ofsecondary Cambodia isnotyet pro-poor, of areflection partly education spendingin (2016) show that secondary with the poor less likely toSohensen et al. benefit. factors, access to education willremain unequal, school for income reasons. Without addressing such ofchildren whodropthe majority outofsecondary children inschool, which appears to bethecasefor andcontinuationimmediate oftheir survival that poorpeopledonothave to choosebetween to makeeducation more affordable for themso for investing inmore education by thepoorand isto changetheincentivesdemand-side priority side constraints to access to education iskey. One earlier. Addressing bothsupply- anddemand- described andjobquality inearnings disparities level,secondary isalsocrucialfor reducing thegender new guidelines andprocedures. Quality Internal of Cambodia (ACC) standards, quality including approvesthe RGC revised Accreditation Council accreditationInstitutional shouldbegin when management, andhumanresource management. accountable interms ofgovernance, financial to maketheirmanagement legallybe supported assuranceand quality mechanisms. HEIs should and heldlegallyaccountable through accreditation management ofpublicHEIsshouldbereformed increased autonomy at theinstitutionallevel, the approvalexternal processes. Second, inreturn for withoutundergoing faculty full-time, high-quality raise adequatecurricula, revenue, anddevelop Public HEIsshouldbeableto setorchange to publichighereducation institutions(HEIs). provide academicandnon-academicautonomy encourage First, STEMsubjects. should theRGC and by more useofpublicresources active to accreditation assurance andquality mechanisms improved be can through strengthened The education andrelevance quality oftertiary implementation. of LSSESfrom thepilotphaseto nationwide challenge willbeto expand theimplementation Project thecoming years, (2017-2022).In the Education Improvementthrough the Secondary schools lowerimplemented inselect secondary optionwillbe forpilot intervention thispolicy increase achievement anddecrease dropouts. A environmentslearning for students, whichwill through school grants; and (iv) providing conducive needs ofeachschool, whichcanbeaccomplished good teaching materials andlearning basedonthe to teachers; (iii)providingand pedagogical support systems at theschoollevel, andstrong technical teacher training, in-service mentoringquality teaching quality, withafocus onproviding high- (ii)improving schoolfunctions; monitor andsupport at the community, and provincial district, levels who management, whichengagesdifferent stakeholders through:learning (i)strengthening school-based LSSES would holdschoolsaccountable for student thatensuring schoolshave financialautonomy. The Policy Priorities 133 CAMBODIA: Sustaining strong growth for the benefit of all 134 CHAPTER 6: Priority interventions to encourage sustainable development sector operatorssector and intermediaries (suchasbusiness and training programs needed at thelevel ofprivate measurement to assess theadditionalremediation the perceptions ofbusinesses, gettingabaseline the discrepancies statistics and between formal skills with Cambodia’s diversified strategy. industrial Given the development ofworkforce that are aligned skills costs mustincrease rise, through laborproductivity decade. workers—over thenext As labor skilled mid-andhigh- labor—particularly need skilled struggling towill compete and expand exports time, foreign anddomesticinvestors currently develop better-educated students in15years’ improving educational attainment will help improving education more generally. While the role ofintermediaries, for isalsopriority with employer demand, includingstrengthening matchingBetter training thesupplyofskills increase theoverall R&Dexpenditure envelope. upgrade andexpand research facilities, aswell as and fellowships). Finally, to itwillbeimportant (through funding)andstudents (through grants to STEMfields prioritize by incentivizing bothHEIs publicresources(STEM) subjects, could beused science, technology, engineering, andmathematics in Cambodia pursuehighereducation studiesin that just12.5percent ofregistered students inHEIs ensure ofgraduates. thecompetency Fourth, given Brazil, see OECD, 2013) should also be introduced to student achievement (e.g.,assessments oftertiary of Student Performance inBrazil), standardized international experience (e.g., theNational Exam found, earnings, andcareer progression. Basedon of graduates, suchastimeto findjob,type ofjob HEIs. Data shouldtrack employment outcomes the Royal University ofPhnom Penh to otherpublic by at expanding thepilotgraduate survey tracking should makepubliclyavailable. This canbeachieved of education provided to students, whichtheRGC better information andrelevance onthequality public HEIsshouldprovide withmore theRGC and Education. ofHigher by theDepartment Third, and monitoredat each HEI, closely supported Assurance should also be developed capacity should also address specific issues of transport and should alsoaddress specificissuesoftransport such asgarments andtourism. The training format sectors of industries, including female-dominated andshouldcoverthe labormarket the spectrum the different situation facingmenand women in be designed and operated with an awareness of and workers/students. These training centers should oftraining for withemployerssharing thedelivery growth trends, butwithasustainablemodelofcost with employers’ and needsandalsowithindustry training centers to ensure that training isaligned could subsidize the development of industry-specific skills. necessary The anddevelopment RGC partners role inequippingworkersimportant withthe situations facingmenandwomen could play an take into account thedifferent market labor Training centers which skills for industry-specific framework. policy TVET resource anddevelops capacity thenewNational aimsto astheRGC strengthen itshuman important Greater coordination amongpublicentities isalso could beanotherpotential avenue to explore. workersin-house training ofmid-to high-skilled intermediaries are provision weak, ofincentives for employer level. orfirm atIn caseswhere thesector for different levels, skill basedontheneedsof training programs andprofessional certifications aggregatorsas knowledge and implementers of associations andotherintermediaries could serve training organizations. Specifically, theprofessional intermediaries suchasassociations and with skills employerssector canplay astronger role inworking relevant for bothstudents andentrepreneurs, private offered demandsandthatwith market the is TVET developmentensure that strategy theskills isaligned serious implicationsserious for andabsorptive capacity. productivity each with to analytical (high-skilled), (semi-skilled) making to theless-recognized work to attitude (low-skilled) decision- ranging from standard numeracy, literacy, andvocational skills are issues. missing,to quality alsoreported Arange ofskills education. most demandedintertiary This paradox may relate that businessstudiesare despite skills, thefact the managerial in shortages withthemostserious spectrum, the skills 94 associations or an SEZ) is an important first step.associations or an SEZ) is an important deficits across skills reports The 2013 Enterprise Survey 94 To To and (viii)improve data nutrition inexisting information systems. through andinitiatives;(vii) leverage otherministries support human resources to scaleupefficient barriers interventions; (vi)removethe scalingupofthesepackages: financialand opportunity. Three are proposed additional activities to enable change communication focused onthe1,000day window of for prevention andtreatment strategies; and (v)behavior severely wasted children; (iv)micronutrient supplementation deworming for (iii)treatment mothersandnewborns; of antenatal care; (ii) micronutrient supplementation and to bedelivered atcounselling scale:(i)Nutrition during interventions ofnutrition 2020) outlinesfive packages 95 Track for RoadMap Improving Nutrition(FTRM). outlined intheFast ofnutritionservices package stimulate theavailability ofthe andquality Results-based mechanismscould usedto be initiatives. childhoodeducationearly andothermulti-sector would ideallybecombined withthepromotion of households’ water supplyandsanitation. This improvements couldinterventions support in change communication, and nutrition-sensitive supplementation,include fortification, andbehavior targetinginterventions vulnerable children could nutrition-specific Evidence-based and work. offs facing young women between childcare as well malnutrition as loweringtackling the trade- ofchildcareforand quality are thusimportant discussed earlier. Improvements in the accessibility challenges to reducing and stunting, malnutrition as the country’s growth more generally—but alsopose migration are for critical householdincome—and degree ofwomen’s laborforce and participation thatensuring theyare well-nourished. The high them withanadequate environment, learning and at timefor theprime brain development, providing requires gettingchildren into andhence schoolearly constraints onchildren’s development. This Investing intheearly years would helpprevent Investing years intheearly industry. andinterms oflevelsin terms ofsectors withinan care occupational andthestark segregation, both The Fast Track for Map Road Improving (2014- Nutrition 95

change communication, to promote theprovision ofsocialand behavior prepared strategies plans thenecessary andaction Development; Education, Youth have andSports) caregiving. Relevant (e.g., ministries Health;Rural hygiene, sanitation, andresponsive parenting and to drivers suchas theunderlying ofmalnutrition rapid offormula rise feeding, related and practices feedingcare practices, andcomplementary the years, suchasthepersistence oftraditional maternal there are to improving barriers intheearly nutrition improving rates andexclusive ofearly breastfeeding, sectors. While Cambodia hasmadeprogress in harmonizing nutrition-relevant messagesacross behavior changecommunication aimedat Financing could upfor scaled be and social ‘packages’ services. ofnutrition in paying ofpre-defined healthfacilitiesfor delivery based payment mechanism for institutionalservices and outreach settings, whileHEFsprovide aresults- ininstitutional onnutrition worker performance to measure SDGscanserve andrewardservices. health knowledge, andcompetencies to deliver nutrition (SDGs), to helpimprove healthworker motivation, Grants platforms, Delivery such as HEFs and Service Authoritiesof theseservices. canleverage itsexisting achieving highcoverage, andimproving thequality thus farinterms ofoperationalizing theFTRM, inCambodia’s interventions nutrition impact strategy There hasbeenlimited progress ofhigh- ontheseries Sanitation andHygiene andCambodia. Guidelines for Behavior ChangeCommunication for Rural communication asakey strategy, by National supported and Sanitation 2014-25whichincludesbehavior change prepared theNational Strategic Plan for Rural Water Supply include breastfeeding. of Rural Development has The Ministry and updating the Infant Young Child Feeding Strategy to young child feeding. ofHealth is currently The Ministry 96 community, andinter-personal mechanisms. scaling upofstrategic through massmedia, actions overwill dependonthestate taking to finance the Achieving improved, results sustainable nutrition limited availability ofdomesticresources.with very exclusively delivered through financing external FTRM prioritizes anational FTRMprioritizes campaign for infant and 96 but these remain almost Policy Priorities 135 CAMBODIA: Sustaining strong growth for the benefit of all 136 CHAPTER 6: Priority interventions to encourage sustainable development in thecoming years isto expand theprogram’s Global Partnership for Education. The challenge Project funded by the Support Education Sector implementing thestandards undertheSecondary Program andCommunity Preschool, and MoEYS is for theHomeBasedCare/Parental Education (MoEYS) established minimumstandards and Sports and stimulation. ofEducation, The Ministry Youth expand access for early learning to opportunities Non-institutional could modalities used to be years results could beexplored. communes to promote theachievement ofearly to utilize results-basedopportunities incentives for utilization. Likewise, inthemediumterm, service both physical andeconomic access to barriers center orreferral hospitallevel, would helpremove at eitherthehealth services, ofnutrition packages allowance benefit to cover the receipt ofidentified theHEFtransport Extending of hospitalservices. removing access and improving barriers utilization at referral services hospitals, seeking beneficiaries allowancesprovided for transport identified poor of eligible beneficiaries. Under HEFs, MOHhas continue to beunderutilized by large numbers as welluse of public health services, as HEFs, which ofsuch programsthe ability to incentivize greater Evidence from pilotinCambodia aCCT points to with that andtarget objective group inmind. are ifinterventions onnutrition designed impact vulnerability, safety netssuchasCCTs canhave an been identified.In addition and to reducing poverty outlinedintheframework hasnotyetactivities women andchildren, althoughfinancing for the includes a cash transfer or stipend for poor pregnant Protectionnew Social Framework for Cambodia aswell asprovisionof services ofinformation. The side improvements intheavailability andquality reduce to access barriers andcomplement supply- to commune councils/commune socialfunds)can allowances, andcommunity-level incentives (suchas years-targetedas early cashtransfers, transportation essential early years such services. Interventions stimulate behavior changeandconsumption of Demand-side incentives leveraged be can to and economically vulnerable householdshasrisen into poverty. time, Over theshare ofnear-poor income andprevent householdsfrom falling building resilience would helpshieldhousehold Measures aimedat mitigating and shocks Protecting householdsfromshocks help expand access to thepipedsystem inrural areas. for private operators to expand areas network would to public utilities and setting up financial incentives to thewatersector sector. Bringing more investment theprivate andattract framework inplace to support reforms inpublicwater utilitiesandputaregulatory hascommitted and Handicraft to key of Industry tangible results on child development. The Ministry vulnerablenutritionally areas would more bring with financing for implementing NAPtargeting of upaprogram Setting partners. along external funded, so implementation largely depends on prepared NAP, afive-year the Plan hasnotbeen ofRural Development has Although theMinistry are provided, willoptimize outcomes. nutrition andnutrition-sensitivenutrition-specific services areas, i.e. geographical convergence where other providing inthesame water andsanitation services forfactor improving As childnutrition. such,jointly access to water andsanitation isanimportant and efficiency. Emerging evidence suggeststhat water operators to improve performance service inruralservice areas, buildingfor andcapacity Sanitation (NAP), expansion water ofpiped of theNational Planfor Action Rural Water and of awell-funded program for implementation services, measures could includeestablishment To improve theprovision ofwater andsanitation and monitoring. improving thedata system planning for sub-sector ofsmallchildrencaring from 0to 3years old;and pregnancy, during caring mothers onnutrition, and and teaching equipment; providing training to teachers; providing preschool community facilities could bedoneby training preschool community implementation inrural areas. This expansion In addition,HEFscould beleveragedIn to introduce for ofrisk reduction impoverishing healthshocks. progress toward universal healthcoverage and to othervulnerable groups, would contribute to poor while some basic protection is also extended ismade available deeper benefitpackage for the step, stratified expansion ofthesystem, wherein a utilization, andimpoverishment indicators. As anext Cambodia’s population, withmajorgainsinaccess, financial protection for thepoorest quintile of HEFs have beenthemainmechanism for improved expenditures in the country. thelast decade, Over catastrophic against financial protection health workers—willinformal sector improve elderly, children, andeventually near-poor vulnerable groups—such asthedisabled, Stratified expansion ofHEFs to cover more habits to fight stunting. behaviors suchasschoolattendance orfeeding vulnerable population andfoster somedesirable of targeted programs CCT could bothshieldthe and rapid fiscal response. Finally, theestablishment and improving disaster preparedness capability modernization of the country’s hydromet systems) (including at assessment enhancingrisk capacity could aim efforts planning anddesign, whilefurther disasters could be reduced through risk-sensitive non-wage income. addition, exposure In to natural households andthepopulation dependent on among female-headed of labor income, particularly minimize and mitigate old-age vulnerability the loss shocks, andfullydeveloping apensionsystem to related ofweather to health,mitigating impacts include significantly reducing OOP expenditures To helpreduce options vulnerabilities, somepolicy number ofpeopleexposed to floodingina year. hasthehighest ladder inCambodia, andthecountry more likely to be at the bottom of the socioeconomic and above, ones, are especiallyfemale-headed much concern—households withmore peopleages65 catastrophic health expenditures are a major where householdsare secure. As discussedearlier, intowith limited mobility highereconomic status significantly hasdeclined, even as poverty extreme the elderly anddisabled,the elderly there isscant evidence although mostsafety netprograms are focused on in poor,stunting, particularly rural areas. addition, In vulnerable groups asevidenced by highlevels of net program, but they remain one ofCambodia’s are notspecificallytargeted by any existing safety safety nets. For example, families with small children the HEFs. Several vulnerable groups lack access to and leveraging supply-side investments such as outcomes through andincentives, knowledge of shocks, improving healthandnutrition net for families, the impact poor softening A CCT program would provide avaluable safety CCTs, anddisaster response. social pensionsandotherforms ofsocialinsurance, safetyall publicsector-led netprograms including system, could potentially beusedasthebasisfor also ofthenon-poorandislinkedto acivilregistry ofthepoorbut includes notonlyalistandranking the future, astrengthened IDPoor system, which to communicate thosefindings to theID Poor.In own identification mechanismsbuthave noability such astheHEFs, whichare currently using their any ofthenumerous programs ontheground designed mechanismthat could beadopted by “post-identification” ofpoorfamilies, withacarefully years. The ID Poor process would need to allow for three every undertaken in additionto thesurveys programs to supplement information to theIDPoor are builtinto thesystem, withthepotential for possible, andthat grievance redress mechanisms are designed to avoid elite capture to theextent relevant, mechanisms that selection community a careful revision to ensure that remain criteria which isnow several years old, shouldundergo for thevulnerable. The IDPoor tool for rural areas, underlies any expansion ofsafety netcoverage Strengthening oftheIDPoor targeting system maternal mortality. obstetric, andneonatal care, inorder to tackle side readiness for antenatal, quality emergency such asbuildingprovider competencies andsupply- improvements delivery,further inhealthservice Policy Priorities 137 CAMBODIA: Sustaining strong growth for the benefit of all 138 CHAPTER 6: Priority interventions to encourage sustainable development poor households would be needed, building upon a it. Targeted cashtransfers to livingin theelderly considered for thebroader population to support andtargeting mechanismsbeing on theregistry assistance schemefor andbuilding thepoorelderly evaluating therationale andfiscalspace for aspecial of workers in the formal and informal and (iii) sectors; provisions that accommodate thevariedconditions establishing anumbrella platform for socialsecurity Scheme, of with theobjective Security Social prevalence Nationaland poverty againstthedraft demographics,evaluating country thelabormarket, developing aroadmap toward harmonization;(ii) pension arrangements and stock of all public service pension system could entail thefollowing: (i)taking Cambodians. A strategy for assessment of the public in away that willbeappropriate for of onlyafraction beingconsidered Scheme isdesigned Security Social of contribution requirements, and(ii)theNational withweakagencies anddepartments, enforcement and are highly fragmented between government anduniformed forcesthose inthepublicservice pension system: (i) existing programs onlycover to establishapublic key challengesinitseffort achieving fullportability. Cambodia faces two different ongoingschemeswiththeaimof withharmonization ofthe needed, starting preparationIn for aging, reform pension is are necessary. programs suchasHEFsortheCCT) include newentrants iftheyare identified aspoor by it more adaptive andresponsive (i.e. to potentially of beneficiaries, but reforms to thesystem to make system should be the main tool for identification apt to fallbackinto poverty. The IDPoor targeting in response to shockswhere thisgroup ismore like thenear-poor, or intimesofcrisis particularly to beexpanded to includeothervulnerable groups and/or smallchildren). alsohasthepotential ACCT to poorhouseholdswith pregnantsupport women pensions for poor, theelderly to thedisabled, support to consolidate anumberofschemes(e.g., public vehiclethe poorandcould beusedasadelivery could provideA CCT amuch-neededsafety netfor reachthat theirintended theyactually beneficiaries. development and increased water use for agriculture River, from upstream withimpacts hydropower in thewater regime inCambodia from theMekong Compounding theseissuesare changes expected cities’ ofclimate to change. vulnerability theimpacts increased water and air pollutionand heightened developmentplanned urban hascontributed to and management and poorly practices. Rapid decades dueto unsustainableeconomic activities been significantly degraded overtwo thelast Cambodia’sreduction, natural resource base has contributed substantially to growth andpoverty economic activities. While development urban has that andecosystemproducts sustainother services growth through reduction both andpoverty natural resources willhelpmaintain future economic earlier, improving thesustainablemanagement of strengthening climate resilience. As discussed and sustainableurban development, while pattern by investing inCambodia’s natural capital A third pathway isto ensure asustainablegrowth sustainable urbandevelopment capital,natural climateresilience, and bygrowth investing pattern in 6.4 Pathway 3: asustainable Ensuring events. are mostvulnerable andaffected by catastrophic to thosewho ofrelieffacilitate support thedelivery strengthened IDPoor targeting system would then for response, relief, andrecovery. Tapping into a of relying heavily oninternational donorassistance budget for immediate response to disasters instead System (already establishedby andthe authorities) adequate fundingfor the Cambodia Food Reserves following disasters. This would helpsecure improve for capacity rapid financing responses ofnaturalthe financialimpact disasters and isneededto helpsystematicallypolicy manage A comprehensive disaster riskfinance strategy or the IDPoor targeting system. andtargeting systemregistry andideallybasedon Reduction. However,Reduction. are stillin some oftheseefforts Growth andNational Plan Action for Disaster Risk policies such as the National Strategic Plan on Green along withadoptinganumber ofnational laws and NDC to theUNFCCC andratifying theParis Agreement, several steps inthisregard, includingsubmittingits the country’s natural capital. Cambodia hastaken change would goalongway toward preserving and programs onnatural resources andclimate up Cambodia’s existing national-level reforms for implementing andscaling Increased support while strengtheningclimateresilience capital,Maintaining anddeveloping natural (TableNationally Contribution Determined 14). (NDC), climate adaptation and mitigation commitments in its Strategy intheRectangular alongwithits objectives to achievecapacity itsgrowth reduction andpoverty approach, Cambodia will substantially strengthen its adopting acomprehensive rather than piecemeal poorsettlements,urban areas. andperi-urban By in aspecifiedcity, covering its central areas, urban anddisaster management risk sanitation, transport, reforms across sectors, variousurban includingwater, developing a long-term strategy for implementing natural disasters. For planning, urban thismeans and strengthening resilience to climate changeand restoring degraded forests and aquatic ecosystems in coordination withinvesting inmanaging and hydropower withinaspecifiedarea or landscape, expanding and sustaining tourism, and developing to agriculture, modernizing improving fisheries, into accountmeans taking thechallengesrelated and urban planning. For natural resources, this approaches to natural resources management these challenges requires spatially integrated and man-madeurban environments, addressing Given theinterlinked nature ofnatural ecosystems natural systems. its both rural areas and urban while also conserving itsfood, energy,supporting andwater needsin several decisionsonthetradeoffs critical in and domesticneeds. Authorities therefore face controlling erosion andsedimentation that have those located inupstream watersheds for critical and forests. Particular attention should be paid to inprotectedmanagement areas andconservation should focus onmeasures that improve sustainable of the NFP and NPASMP,Meanwhile, in support efforts sustainable forms offorest useintheiroperations. encourage theprivate to adoptmore sector championswould withindustry partnerships landscape management. The establishment of create along-term financingmechanism for forest improve governance and law enforcement, and the corridors, implement sustainablelivelihoods, develop azoning planfor landuseandtenure within with communities andacross different sectors, their management, strengthen co-management develop a strategic framework for plan and policy will be needed to corridors, support conservation the management ofitsforest landscapes. For the approach corridor towill applyaconservation REDD+ Strategy andrecently announced that it Strategic Plan Management (NPASMP), andNational Forest Programme (NFP),National Protected Area sustainability. to combat deforestation andmove toward institutional andinvestment isneeded support Specific to thesector,forestry further and livelihoods. thatprojects are theenvironment likelyto impact of EIAsconduct and SEAs for all public and private for information management andinstitutionalize the recommended to develop acomprehensive process costs ofunsustainableeconomic itisalso activities, forauthorities implementation. To reduce thehigh to increase for investment local support and capacity management, climate change, andgreen growth, and related to natural capitalandenvironmental services RGC’s national strategies, plans, andpractices action programs would helpaddress gapsinfinancingthe the development oftargeted publicexpenditure need to beaddressed at alarger scale. particular, In resources, andinformation challengeswhichnow of legal, institutional, technological, financial, human stagesofimplementationthe early andface anumber Cambodia hasdeveloped aNational Policy Priorities 139 CAMBODIA: Sustaining strong growth for the benefit of all 140 CHAPTER 6: Priority interventions to encourage sustainable development

Table 14. Pathway 3: policy options for investing in natural capital, climate resilience, and sustainable urban development

Pathway Development Selected policy Selected policy Additional policy Additional policy Additional policy priority areas option 1 option 2 option 3 option 4 option 5

iii. Ensuring 8. Maintaining Integrated approach Support NFP, Address gaps Improve Conduct EIAs and a sustainable and developing to natural resource NPASMP, and REDD+ in financing in implementation SEAs for all public growth pattern natural resources management, implementation to approved national- of Integrated and private projects by investing through a considering challenges improve sustainable level plans related Water Resources likely to have in natural spatially related to modernizing management and to natural capital Management impacts on the capital, climate integrated agriculture, improving conservation in and environmental (IWRM) through environment and resilience approach, while fisheries, developing protected areas and services further support to livelihoods and urban strengthening hydropower, restoring forests management, information systems development climate degraded forests, climate change, and and capacity resilience managing water green growth building resources, and strengthening climate resilience

9. Promoting Implement an Develop a centralized Implement solid Reduce congestion Upgrade poor competitive, integrated urban sanitation network and liquid waste and pollution urban settlements sustainable, planning agenda along with support management through through improved and inclusive that brings together for decentralized and solutions, including investments service provision cities through land use and disaster on-site sanitation developing in transport (drainage, trash integrated urban resilience plans solutions sanitary landfills infrastructure, collection, and planning with investments and exploring services, and land water and electricity in transportation the feasibility of use planning connections), networks and water constructing waste- provision of and sanitation to-energy plants affordable housing infrastructure

Source: World Bank staff analysis in consultation with stakeholders. the cross-boundary impacts ofnational development impacts the cross-boundary sectors, climate anddevelopment and uncertainties, Plan”Delta between that takesinto account trade-offs Cambodia plans and a develop sub-basin “Mekong vegetable growing. Likewise, itisrecommended that alternative livelihoods suchasaquaculture and of thedevelopment pesticides runoff, and supporting reducing agriculture in upstream watersheds, improving sustainableforest management include managing the Tonle Sap, measures could priority For instance, in environment andgovernance. agriculture, industry, development, urban energy, inIWRM,including shouldbeengaged of sectors addressing aquatic resource challenges, a range decentralization process. Given thecomplexity of government capacity building, oftheongoing aspart water information systems andlocal for its support through further particularly (IWRM), Management the implementation ofIntegrated Water Resources to improve recommended that Cambodia continue As afirststep, itis and Tonle ecosystems. Sap policies, andpractices for theMekong River stronger implementation ofitsexisting plans, and highlyproductive fisheriesalso requires The management of Cambodia’s water resources their livelihoods base. ensure that villagersandsmallproducers donotlose local and foreignsupport private investment and rights for to (includingforestry) allrural sectors to improvebe important land tenure andlanduse erosion prevention provided by forests. willalso It enable forest communities to becompensated for payment for (PES)schemesto ecosystem services and sustainablemanagement, andsettingup to raise awareness onthebenefitsof conservation outenvironmental educationcarrying activities sustainable forestunder certified management, fuelwood andtimber, bringing natural forests developing sustainablymanagedplantations for from non-timberforest andeco-tourism, products expanding alternative livelihood opportunities to flooding. optionsinclude Proposed policy fisheries, and hydropower as well as weaken resilience negative ondownstream impacts users, agriculture, development andresource management practices erosion prevention, andpromoting theadoptionof suchassoil schemes for services providers ofcertain developing payment for (PES) ecosystem services watershedsectoral investment planningprocess, fishing community zones, implementing across- basisforstrengthening secure thepolicy tenure in For instance, could interventions include priority and community-level building activities. capacity infrastructure, development alongwithmarket reformincluding regulatory andinvestments in combine both publicandprivate approaches, sector should interventions local authorities. Selected and resource useplansdeveloped by various identify compromises interests among conflicting interests. Spatially integrated planningwould better across variousstakeholdersdueto conflicting inotherareasexternalities orinequitableoutcomes positive outcomes, causingnegative italsorisks resource suchasforests may orfisheries achieve Although a limited focus or on just one sector while also strengthening climate resilience. sectoral initiatives in forest and water resources, effectiveness andlong-termof sustainability resource management isneededto ensure the a spatially integrated approach to natural these terrestrial andaquatic landscapes, Moreover, given theinterlinked nature of and contribute to thecountry’s economic growth. generated from fishingandagriculture communities, but also improve food security, increase incomes wateronly increase theavailability of cleandrinking the country’s watersheds, mostcritical would not resources inthisintegrated manner, focusing on Addressing water should be undertaken. scale at the lower basin Mekong hydropower for particular, In strategic planning management. pollutionanddomesticsanitationindustrial flow management, andimprovements inupstream appropriate areas for flood control andstream in features mitigation effective impact fisheries with facilities, ofhydraulic construction structures small-scaleirrigation investments in include further initiatives.Mekong inthecould Specificactivities Policy Priorities 141 CAMBODIA: Sustaining strong growth for the benefit of all 142 CHAPTER 6: Priority interventions to encourage sustainable development coordination andimplementation oftheseplans is developed for Phnom Penh. Strengthening the and sewage, andwater supplyplanshave been solidwaste management, transport, drainageurban parallel,and implementation. In master plansfor plans, with limited progress in their enforcement Battambang have developed master detailedurban areas.and peri-urban To date, onlyPhnom Penh and that are inclusiveservices poorsettlements ofurban reliable electricity, water, sanitation, andsolidwaste are investmentsEqually important insustainableand firms to access local, regional, andglobalmarkets. infrastructure to enable cities needreliable transport networks andinfrastructure. To becompetitive, plans withinvestments intransportation brings together landuseanddisaster resilience of anintegrated urban planningagendathat and inclusive citiesrequires theimplementation The development ofcompetitive, sustainable, planning urban inclusive citiesthroughintegrated Promoting competitive, sustainable, and communities are sustained, ifnotincreased. and that theincomes offishing, farming, and forest climateactivities, change and natural disasters, from thenegative ofneweconomic impacts that people’sservices, livelihoods are safeguarded benefit from thelarger watershed’s environmental ensure that downstream communities continue to area’s terrestrial andaquatic resources butalsohelp resources management would notonlyprotect the doingso,corridors. In spatially integrated natural conservation on implementation ofthepolicy of theongoingdecentralization and efforts insupport localgovernments, and national both different among sectors common targets across reduceco-management, fragmentation and set landscapes, to itwillalsobecritical strengthen the Tonle Sap. order In to effectively managethese andCardamomDelta together Mountains with to landscapes, specificcritical Mekong suchasthe may selected interventions betargeted particular that strengthen livelihoods’ climate resilience. The sanitation, particularly in peri-urban areas. in peri-urban Finally,sanitation, particularly (DEWATS) could bepursuedto increase access to DecentralizedWastewater TreatmentSystems and on-site solutionssuchascommunity-managed of acentralized sanitation system, decentralized tariffs and fees.In parallel withthedevelopment recovery through improved ofuser collection to itwillalsobecritical improveimportant, cost from willbe developmentwith support partners 2015). Although increased government finance 9.5 millionannuallyfor O&Mexpenditures (WSP, would berequired, inadditionto anestimated USD 2025, USD86.7millionperyear incapitalexpenditure population to wastewater treatment facilities by is needed. For instance, tohalf of the urban connect around USD6millionannually, ofwhat fallfarshort and maintenance. Current investments, averaging is indisrepair dueto lackofsufficient operations total area urban is connected, and the infrastructure wastewater treatment plants, only a small share ofthe have thebeginnings ofasewerage including network Although SiemReap, Sihanoukville, andBattambang inallofCambodia’sand institutionalsupport cities. sanitation system isinneedofsignificant investment entireupgrading settlements. ofurban poor The along withincreasedtransport, attention to the integrated plansincludeurban sanitation and Priority areas for investment withinthese generations to come. investments madetoday form willlockinthecity for the country, since whichiscritical decisionsand more effective andintegrated planningacross urban information andresource constraints willenable have few localrevenue sources. Addressing these of userfees andtaxes are limited, often municipalities national government grants, andsince thecollection the financing available to municipalitiesare from investments ininfrastructure. Currently, muchof orto makeadequatetheir institutionalcapacity sufficient local revenues andbudgets tostrengthen are needed, asmostmunicipalitieslack partnerships financing mechanismssuchaspublic-private addition, strongerIn institutions and innovative for development urban important andmanagement. addition, neighborhoods thataddition, neighborhoods are lagging behind or coordinated landregistration andtitlingprocess. In as well astheimplementation ofatransparent and connections— andwatercollection, andelectricity settlements—including drainage systems, trash reforms should focus on upgrading poor of urban insecure landrights. investments Priority and suffers provision from publicservice poor and to accommodate theneedsofapopulation that provision of affordable housing are necessary Finally, upgrading settlements ofpoor and moredriven attractive. and makewalking use planningcanreduce thenumberofkilometers influencing thespatial ofcities,By structure land could helpreduce trafficurban congestionin areas. Land useplanningisanotherusefulapproach that through-traffic, anddesignating pedestrian zones. regulations andzoning, roads ring for constructing vehicles,use oflow-emissions introducing parking vehicle emissions standards and incentivizing the along withincentives to promote theiruse, adopting suchascommuter trains modes ofpublictransport modessuchasbuses, introducingtransportation new include improving andincreasing thescaleofpublic and pollution.For measures example, could priority a numberofmeasures to helpreduce congestion couldmunicipalities across implement thecountry and theNational Strategic Plan for Green Growth, and planssuchasthePhnom Penh Master Plan ofexistingof road policies networks. support In increased motor vehicle use, zoning andpoor combination ofincreased urban populations, cities are facingincreased congestion dueto a With regard to Cambodia’s transportation, energy-efficient technologies. pipe pollutiontreatment to adoptcleanerandmore to gobeyond end-of- pollution, itwillbeimportant industry’s large andgrowing contribution to water plants. Moreoever,waste-to-energy considering thelandfills and exploring of constructing feasibility Potential solutionsincludedeveloping sanitary sanitation challengeinneedofadditionalsupport. solid waste management isalsoagrowing urban conditions poordramatically. oftheurban these changescould helpimprove theliving to interventions revitalizesector activity. Together, rundown could betargeted forparticularly multi- subnational levels could fostered be by credible Decentralization to the of public services improve accountability andoversight. limit thescope for patronage andcorruption, and value for moneyintheuseofpublicfunding, citizen feedback mechanisms, would helpincrease together withstaffmonitoring andenhanced addition,achangemanagement approach,In to improving delivery. for capacity publicservice public administration reform, would thusbekey management reform, together with overarching The continuation ofongoingpublicfinancial resources across different levels of government. corresponding reallocation offundingandhuman The rebalancing ofresponsibilities requires a for infrastructure maintenance). irrigation, (e.g.,health) andeconomic sectors extension providers,service bothinthesocial(education, autonomyand decisionmaking offrontline by increasing delivery the responsibilitiesservice (D&D) reforms, whichaimto improve public to pursuedecentralization anddeconcentration and subnational levels. Cambodia hasstarted rebalancing ofresponsibilities at thenational economy, Cambodia isconsidering the mechanisms. As alower middle-income oversightperformance andcitizen feedback administration reforms, includingimproved public financialmanagement, and public decentralization, oncomplementary depend andimplementation,delivery whichwould require for significant capacity publicservice All reform prioritiesidentified intheSCD delivery service for improvedmanagement reforms andpublic financial administration 6.5 Cross-cutting: Public Policy Priorities 143 CAMBODIA: Sustaining strong growth for the benefit of all 144 CHAPTER 6: Priority interventions to encourage sustainable development monitoring andcivicengagement. ofcitizens inboth by promoting theparticipation providers of councils and other service performance citizen’s access to information onbudget usageand inthecountry.all districts I-SAFaimsat enhancing Accountability Framework (I-SAF)to eventually cover with theexpanded implementation oftheSocial Finally, shouldbemet decentralized delivery service investments that localneeds. respond to priority decentralized andto planandimplement services to provide assurance quality building support for level. needextensive capacity district Districts infrastructure andinvestment at projects the to provide aconditional grant for earmarked local Investment Fund (SNIF),afiscaltransfer mechanism and expanded useofthenewlycreated Sub-national needed, including enhanced own source revenue space for development meaningful investment is are limited by escalating administrative costs, so Development investments at thesubnational level from guidance, lineministries. policy andsupport be accompanied by additionalfunds, training, The transferred responsibilities would needto municipal level have yet to befullytransferred. that havefunctions been delegated to the district/ much ofthisremains unfinishedbusiness.Most has beenmadeinimplementing D&Dreforms, but Considerable support. progressand lineministry financing, building,capacity accountability, social Source: World Bank staffanalysis in consultation withstakeholders. option 5 Additional policy option 4 Additional policy option3 Additional policy option2 policy Selected option1 policy Selected Public administration andpublicfinancial management reforms for improved delivery service Table 15. Cross-cutting: delivery policyoptionstoimprove public service policymaking Increase fundingto improve ofthestatistical system thecapacity to inform Continue implementation oftheFMIS andprogram budgeting reforms essential publicservices managementIntroduce for merit-based performance directors/managers of improving users’ feedback mechanisms(e.g., expansion ofI-SAF) Strengthen citizens’ delivered voice ofpublicservices by onthequality management performance-based humanresourceModernize information management tools to introduce expansion of FMIS functionality toexpansion ofFMIS lineministries functionality expenditure/resource management through the further, withafocus onstrengthening public PFM reform underthePFMRP can bedeepened of theFMIS andprogram budgetingreforms. increasedbe by completing implementation Value for money intheuseofpublicfundscould withintegrity.services and empowerment to handlefundsfor specific adequate management pay andperformance staffed by competent with civilservants, maintain publicadministration awell-functioning resources efficiently andwithaccountability, and and investment requirements, spendtheavailable sufficient revenue publicspending for important ofgovernment istheability to generateservices quality, adequacy, ofpublic andefficiency education remains mediocre. the Underlying reading assessments show, ofprimary thequality rates have improved substantially, butasthe some cases. For enrollment example, primary two decades, remains quality aconcern in the provisionover of the public pastservices Cambodia hasbeensuccessful inexpanding significantly. delivery public service While public administration, would helpimprove management, coupled withanoverhaul ofthe Further strengthening ofpublicfinancial

happen at the Ministry of Civil Services and other of Civil Services happen at the Ministry andlabor-intensiveDuplicate efforts data entries environment under the D&D reform effort. resources intheincreasingly decentralized itdifficult to manage human making servants, system security, anduniqueidentification ofcivil generation functionality,analytical report adequate contract staff,servants, andpayroll andwithout with adifferent setof technologies used for civil systems for managing humanresource information, reforms. Cambodia currently has highly fragmented people, payroll management, organizations, and better workforce planningandmanagement of human resource information systems to facilitate standards,identification ofcivilservants), and means improving (to HR data include unique quality sector. Improving HRinformation management overall ofthepublic HRmanagement functions andthe managementperformance ofstaff information management tools would support Modernization of human resource (HR) essential publicservices. that canhave of onthedelivery apositive impact improved fundsflow and greater accountability level, offersatfor thelineministry opportunities processes, andrefinement ofprogram budgeting together withtheneededstreamlining ofexisting toexpansion of FMIS lineministries, functionality programs (mainlydecidedat thecentral level). The given rigidities to reallocate fundingacross managers to utilize thebudgets at theirdisposal, is coupled withinadequate discretion for budget to citizens. andtimelyservices high-quality This processes/workflows, itdifficult to making provide by thehighlycentralized cashmanagement andbudgetare constrained between policy linkage budget format, substantive improvements inthe presentingministries budgetsintheprogram progressed rapidly interms ofthenumber policy. While program budgetimplementation for improved between budgetand linkages program budgetimplementation andreporting to facilitate budgetexecution andto support and streamlining ofrequired workflows/processes servants. oftheincentive for structure part civil important incentives,provide non-monetary whichform an the scope for patronage andinformal fees, andto increases withenhanced to performance, limit quality. would alsobeaway It to pairrecent salary interms ofaccess,of publicservices quantity, and measures andprograms, andtheenhancement could help improve theimplementation ofother Thisas embeddedine-services). reform program call center, a gateway aswell to publicservices, (e.g.,evaluation ofpublicservices through aunified users’ feedback mechanisms and monitoring and providers accountable; and (iii) introducing service accountability, so citizens holdservice can directly providers forservice improved downward by frontlinethe management of essential services (ii)increasing theautonomypublic services); in management for directors/managers of essential (including merit-based performance delivery that are toactivities critical improving service broad-based reformwith afocus onsupporting Program for Public Administrative Reform (NPAR), improvement oftheNational program insupport comprehensive andwell-sequenced publicservice could beenhanced through:public services (i)a ofgovernmentcapability agenciesto deliver delivered by frontline providers. service The citizens’ voice ofpublicservices onthequality need to introduced, be alongwithstronger Finally, a change management approach would local level. level to provide at provision the quality ofservices and monitoring ofhumanresources at thecentral tool would alsohelpensure adequate deployment appraisal). pension calculation, performance This management, payroll, career management, (e.g., personalinformation, attendance, workforce developing and/orautomating offunctions aseries workforcea professional, by performance-oriented management andthedevelopmentperformance of improvedmanagement tool would support central ministries. Amodernized HRinformation Policy Priorities 145 CAMBODIA: Sustaining strong growth for the benefit of all 146 CHAPTER 6: Priority interventions to encourage sustainable development of agriculture, laborforce, healthanddemographic, producing data. Second, improving thefrequency methodology andprocedures for and collecting IMF, Cambodia could significantly strengthen its to theSpecialData Dissemination Standard ofthe First, by improving itsstandards andsubscribing progress indevelopment inthecoming years. process, aswell asto monitor andevaluate to decisionmaking inform anevidence-based improving of the statistical system the capacity aimedatindicators for call aseriesofactions The identified instatisticalcapacity weaknesses and dissemination (Figure practices 53). international standards, andinterms ofopenness which inmostcasesisnotupto parwiththelatest lags behindinterms ofthemethodologyused, in terms ofavailability but ofcensuses andsurveys improve data quality. Overall, Cambodia doeswell toof anewFMIS constitutes anopportunity this sense, the implementationdepartments—in fragmented inconsistent andoften records across the endoffiscal year andhasbeenbasedon operations isreleased more thansixmonths after delayed inpublishing. Data oncentral government are onlyavailable onanannualbasisandare often frequency, national accounts and employment data of payments) are publiclyavailable withcertain macroeconomic indicators (e.g., inflation, balance are surveys available.quality While anumberof dates backto 2007, andnoenterprise or education health surveys. However, theonlylaborforce survey socioeconomic surveys, aswell asdemographic business, andpopulation censuses andfrequent data. Cambodia has relatively recent agriculture, and introduce aculture ofpublicandopen andconsistency,quality increase frequency, and development are neededto ensure partners coordinated by different efforts stakeholders produces data ofdimensions, onanumber but Cambodia’s national statistical system knowledge gaps andidentified 6.6 Dataconstraints from mirror data analysis to doublecheckandtry in2008. system starting The analysis alsodrew to theprogressive introduction oftheASYCUDA Cambodia hasreliableexports, customs data thanks and other macroeconomic indicators. terms of In accounts, theCambodia SocioeconomicSurvey, of information for this SCD were the national some data gapsexist. sourcesThe maincountry informationsecondary whenrequired, but complemented withinternational sources and This informed SCDhasbeen by sources, country informed policymaking. economy and needsmore sophisticated and well- hasbecome alowerthe country middle-income in Cambodia are desirable, especiallynow that control, quality production, anddata sharing and become thecentral institution for statistical tostructure enableitto fullyaccomplish itsmandate funding theNISandrevamping theorganizational was soondiscontinued.but thiseffort Adequately to national accounts, produceNIS started quarterly following technical assistance from theIMF, the personnel rotation andlackoffunding. For example, introduced by hampered donors is often by programsof data collection building andcapacity development matters. addition,thesustainability In limits thescope for rigorous research onrelevant informal playing networks arole indata access, which from sharingcollecteddata publicly. This leadsto discouragestimely manner and often institutions ofrelevant data ina production andgood-quality the hampers Limited fundingandcapacity indicators. key socio-economic datatime series orbrowse metadata ofCambodia’s to enableuserstoas well download asadata portal to inform usersonthescheduledreleases ofkey data, would ideally include an Advance Calendar Release offeredImprovements services. to theNIS website ofitswebsiteon theperformance andimprove National for Institute Statisticsfeedback (NIS)collect Third, would helpthe survey ausersatisfaction and more updated information for decision-making. wouldand businesssurveys helpto generate richer Conducting • Carrying • Analyzing • Conducting • research, astheygobeyond thescope ofthisSCD: gapssignal potentialknowledge for directions future firm concerns and dynamics. of identified A series Group were Enterprise Surveys usedto describe to capture aswell. informal exports, World Bank Source: Figure 53. 100 120 20 40 60 80 urbanization needs in Cambodia, as structural and marketing, personnelmanagement). developed (e.g., management, production sales dimensions ofSMEcapabilitiesare theleast be considered for scalingup, andwhat specific whichdemand-ledmodelscan higher skills, the private isdealingwiththelack of sector The analysis could alsolookat how specifically and technology improvements (orvice versa). supplyisinhibitinginvestmentsskill inprocess understanding oftheextent to whichthelackof the point of view the firm to gain a better household income andbehavior. migrants, ofremittances aswell astheimpact on to capturewell-equipped information). employment (onwhichlaborforce are surveys especially given the large share of wage 0 De velopment EconomicsDataGroup Methodology Cambodialagsbehindotherpeer & Standards migration out more Bangladesh additional additional regular trends work labor Guatemala & Sur Censuses and , the analyses on v Wo eys force the rl Statistical CapacityIndicator skills d BankGroup. profile surveys, around Cambodia Pr from actices &Openness of Dissemination

s indatastandardsandopenness Gaining • Analyzing • Assessing • Conducting • Elaborating • for institutionalreform. assessment ofareas for development, and scope potentiallinkages, for andeconomic eco-tourism development andidentifying sustainability transformation to isexpected accelerate. in Cambodia. Telecommunication Technologies andplatforms Cambodia. costs for establishment firm andoperation in the businessenvironment andreduce the implementable reforms that canhelpimprove light on Assessment aimedat sheddingfurther renewable alternatives low-cost for thefuture. relate to thecurrent energy mix,andidentifying to what costs extentrelatively highelectricity ofcurrentthe sustainability policies. Assessing energy generation sector, to helpunderstand as well ascontingent liabilitiesfrom PPPs in the Cambodia andofpoorquality. isscanty The levels ofdomesticsavings andinvestment in investment byasurvey. conducting Data on potential to raise domesticsavings andprivate Nicar agua a of KeyIndicator environmental better the A an an vailabilit Philippines assessment main updated understanding y s constraints and Vietnam Investment of social Information Ov Score of er externalities, Cambodia´s to all tourism Climate and Policy Priorities 147 CAMBODIA: Sustaining strong growth for the benefit of all 148 CHAPTER 6: Priority interventions to encourage sustainable development and lackofpensionfundsinvestment funds. incipientdebt market, stock andinactive market, large interest wage differential, lackofadomestic of savings andinvestment dueto therelatively moment, domesticinvestors have limited choices environment.to theexternal addition,at the In growth ininvestment increasingly vulnerable widening investment-savings gapmakesstrong Carrying • Conducting • poor households. both formal andinformal micro-borrowing on of to gainabetter understandingoftheimpact of existing gaps. by gender, inorder to deepentheunderstanding financial assets, natural capital, andsocialcapital out an household assessment indebtedness of physical surveys capital, References to the impacts ofclimateto changeonfisheries. theimpacts N.,2009. 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Annexes 160 Annexes Development Annex 1: Cambodia’s Benchmarking Rural population (%oftotal) Agriculture value added(%ofGDP) Broad moneygrowth (annual%) expenditure (%ofGDP) General government total consumption Total investment (%ofGDP) of GDP) Government revenue excluding grants (% GDPgrowthReal (annualpercentage) Macro statistics and fiscal in2013-15 Years ofschoolattained (%pop. aged15+) (% pop. Aged 15+) schoolingattained% complete secondary Health expenditure, public(%ofGDP) Hospital beds(per1,000people) Human development index rank (2014) Human development Labor force, female (%oftotal) (%) Employment to population ratio, 15+,total Labor force participation capita, bottom 40percent Average growth ofmeanconsumption per shareIncome heldby thebottom decile GINI index (2011 PPP)(%ofpopulation) Poverty headcount ratio at USD1.90aday Shared prosperity Variable Table 16. Cambodia’s Benchmarking Development inasnapshot

79.50% 30.40% 22.80% 21% 21.70% 13.10% 7.10% 4.72 4.51% 1.50% 0.7 145 49.90% 82.20% 8.50% 3.90% 30.8 6.20% (unless specified) Latest value 93 90 97 14 48 2 92 15 4 11 10 25 94 97 94 95 94 83 53 Percentile WDI WDI WEO, IMF WEO, IMF WEO, IMF Statistics, IMF Government Revenue WEO, IMF Attainment Dataset, 2010 Barro andLee School Attainment Dataset, 2010 Barro and Lee School WDI WDI WDI, modeledILO estimate WDI, modeledILO estimate World Bank World Bank World Bankestimate WDI Source government contracts to expected % offirms give to securegifts from agenerator (%) of electricity ageneratorIf isused, average proportion licenseDays to obtainanimport capita) (%ofGNIperCost ofbusiness start-up rank) creditGetting (country Days required abusiness to start Average timeto clearcustoms (days) Infrastructure, 1-7(best) Global Competitiveness Index, Business environment account, age15+) Withdrawal inthepastyear (%withan Saved at afinancialinstitution(%age15+) year (%age15+) Received government transfers inthepast institution (%age15+) Borrowed moneyfrom afinancial Financial inclusion Remittance inflows to GDP(%) Net ODA received, %ofGDP Tourism receipts to total exports Merchandise trade as%ofGDP Economic complexity rank (2009-11) exports) ofintermediate goods(shareExport of exports) ofintermediate goods(share ofImport of GDP) Foreign investment, direct netinflows (% sector External Variable Table 16. continued 77% 36.20% 5.9 122.90% 12th 101.3 2 3.2 44.30% 3.60% 3.10% 27.70% 1.20% 5.20% 28.90% 144% 111 2% 38.50% 9.50% (unless specified) Latest value 2 85 93 5 95 4 95 31 2 9 10 95 43 68 80 95 16 12 93 87 Percentile Bank Group Survey, WorldEnterprise Bank Group Survey, WorldEnterprise Bank Group Survey, WorldEnterprise Businesssurvey Doing Businesssurvey Doing WDI GCI, World Economic Forum Database Global Financial Inclusion Database Global Financial Inclusion Database Global Financial Inclusion Database Global Financial Inclusion WDI WDI WDI WITS WITS WEO, IMF Source 161 CAMBODIA: Sustaining strong growth for the benefit of all 162 Annexes Source: Find Your Friend tool usingmultiplesources. scoreCitizen Engagement in rulemaking (best) Government effectiveness, -2.5 to +2.5 Control ofcorruption, -2.5to +2.5(best) 1-7 (best) Global Competitiveness Institutions, Index, Institutions Environmental Protection Index Natural index Disaster Risk Climate index (rank for Risk 1996-2015) Environmental sustainability Variable Table 16. continued 0.4 -0.8 -1 2.4 36.2 165 13 (unless specified) Latest value 26 21 14 28 18 5 7 Percentile Indicators World Governance Indicators World Governance GCI, World Economic Forum Germanwatch Source CMDG Table 17: Cambodia’s progresstowards theMillenniumDevelopment Goals poverty by halfpoverty extreme Reduce 1. Eradicate extreme andhunger poverty by half Reduce hunger Schooling Primary Universal 2. Achieve Universal Education Primary primary school primary enrolment in Equal girls 3. Promote andempower genderequality women employment share ofpaid Women's parliaments in national representation Women's equal thirds old by two under 5year of mortality Reduce 4. Reduce childmortality three quarters by mortality maternal Reduce 5. Improve maternal health health reproductive universal Access Indicators below US$1.25/day (%) population living Proportion of consumption (%) energy of dietary minimum level population below Proportion of children) (enrollees/100 education in primary Net enrolment ratio primary education primary ofgirls toRatio boys in nonagricultural sector wage employment in Share ofwomen in only) (single orlower house national parliament held by women in Proportion ofseats children/1000 births) children/1000 births) rate (deaths of Under 5Mortality deaths/100,000 births) ratio (maternal Maternal mortality contraception) or inunion,using women 15-49,married prevalence rate (%of Contraceptive planning) unmet needfor family or inunionwith aged 15-49,married planning (%ofwomen Unmet needfor family Value Baseline 44.5 32.1 82 0.84 41.1 5.8 117.3 1,020 12.6 33 Year 1994 1991 1997 1994 2000 1997 1990 1990 1995 2000 Value Latest Year 10.1 14.2 94.7 0.97 40.9 20.3 28.7 161 56.3 12.5 Year 2011 2015 2015 2014 2012 2015 2015 2015 2014 2014 Change % -77% -56% 15% 15% 0% 250% -76% -84% 347% -62% Target 2015 19.5 NA 100 1 50 NA 65 250 60 NA Achievement Achieved Progress Significant No Target, Achieved Partially Achieved Partially Not Achieved Progress Significant No Target, Achieved Achieved Achieved Partially Progress Significant No Target, 163 CAMBODIA: Sustaining strong growth for the benefit of all 164 Annexes Development Indicators(2015). Annual Progress onMDGs, (December 2013), RGC Report WHO/UNICEF Joint Program-Cambodia Monitoring 2015),and (June World Sources: United Progress Nations MDG Country Snapshot - Cambodia (August 2015) (http://mdgs.un.org/unsd/mdg/Data.aspx), CMDG Table 17: continued AIDS spread ofHIV/ to reverse the Halt andbegin 6. Combat HIV/AIDS,malariaandotherdiseases of TB reverse spread Halt and forests Reverse loss of 7. Ensure environment sustainability drinking water drinking without proportion Halve sanitation without proportion Halve dwellers lives ofslum Improve Internet UsersInternet 8. Developfor development globalpartnership to mines duereported casualties of civilian number Annual 9. Demining area area contaminated ERW Indicators 15-49) year 100peopleaged of newHIVinfections/ HIV incidence rate (no. population new cases/100,000 with TB (no. of death rate associated rateIncidence and population) (no. ofdeaths/100,000 with TB associated and death rate rateIncidence covered by forest (%) Proportion oflandarea water source (%) improved drinking population usingan Proportion of facility (%) facility improved sanitation population usingan Proportion of slums (%) population livingin Proportion ofurban inhabitants usersper100Internet reported dueto mines reported civilian casualties Annual numberof cleared contaminated area Percentage of Value Baseline 0.08 584 207 73.3 23.4 2.9 78.9 0 1691 11 Year 2001 1990 1990 1990 1990 1990 2005 1990 1993 2000 Value Latest Year 0.01 400 58 57.2 75.5 42.4 55.1 9 241 45 Year 2013 2013 2014 2010 2015 2015 2014 2014 2009 2009 Change % -82% -32% -72% -22% 223% 1,362% -30% - Target 2015 0.4 NA 50 60 50 30 NA NA 0 100 Achievement Achieved Progress Some No Target, Achieved Partially Achieved Partially Achieved Achieved Progress Some No Target, Progress Some No Target, Not Achieved Not Achieved and 4,374inrural areas. As ofDecember 30,2014, per capitaaday inPhnom Penh, areas, 5,434inother urban 97 measurement inCambodia Annex 2: Insightsintopoverty the consumption aggregate, sothat changes that prosperity. lineisalwaysThe poverty peggedto progress andshared reduction onpoverty conclusion that Cambodia madesignificant thequalitative analysisbut sensitivity support headcount rates andtrends are ambiguous, of thesechangesonthepoverty The impact per person. requirement increased from 2,100to 2,200 calories aggregate. addition, theminimumcalorie In and housing were dropped from the consumption each strata; rural areas basedontheaverage expenditures in separately for Phnom Penh, areas, otherurban and (ii) estimation lineisdone ofthenon-food poverty in total expenditures for areference population; 20th –30thpercentile instead ofthenon-food share average expenditures on14items consumed by the non-food lineusesthe component ofthepoverty consumption theestimation aggregate—(i) ofthe lineand made inthecomputation ofthepoverty capita asaproxy ofwelfare, three keychangeswere cost ofbasicneedsapproach withconsumption per isstillmeasured usingthe 2009. Although poverty a different withtheCSES methodologystarting Working lineusing Group, thepoverty re-estimated undertheoversightworking ofanInter-Ministerial of Planning (MoP), the Ministry methodology after until 2008. The from government this departed estimation forpoverty allrounds oftheCSES jointly withthe World was thebasisfor Bank, methodology for poverty, measuring developed (CSES), annually. whichtheNIS conducts The from Survey theCambodia Socio-Economic Poverty estimates inCambodia are generated linein2014riel perperson was7,924 The official poverty 97 and(iii)imputed values ofdurables Urban householdsinCambodiaUrban own more durable areas anddownward biasofrural poverty. unambiguous upward inurban biasofpoverty Changes to have the methodology an headcountlevel rates ofthepoverty themselves. challenge to makeanindicative statement onthe below, described to thesurvey pertaining posea estimates.poverty However, other data issues thus broadly similarto thosebasedonthenational andshared reduction are prosperity in poverty of inequality. The qualitative conclusion ofprogress andrelativelyin thedeclinepoverty low levels (Deaton and Zaidi,2002)suggestthestrong trend following international methodology bestpractice The World Bank’s checksontheseissues sensitivity for example, tend to underestimate inequality. excluding imputed values ofhousinganddurables that underestimate consumption ofthewell-off, like but are line. independent Changes of the poverty are sensitive to the consumption aggregate too, Measures reduction. ofinequality pace ofpoverty consumption aggregate matter for determining the patternline andthedistribution oftherevised line.around thepoverty Thus thelevel ofthepoverty ofthepopulation isconcentratedif themajority same growth rates, would decline faster poverty oftheconsumptiondistribution aggregate. For the linerelativeand thepositionofpoverty to the then dependsonthegrowth inconsumption aggregate. The estimated reduction pace of poverty understated (overstated) thantheconsumption linebecomes disproportionately the poverty the methodological changesdependsonwhether is lower (higher)thanitshouldhave beenwithout the resultant headcount estimate inthepoverty line, whichoffsetthe poverty eachother. Whether can alsobemirrored inadecrease (increase) in decrease (increase) theconsumption aggregate 165 CAMBODIA: Sustaining strong growth for the benefit of all 166 Annexes 0.0 0.2 0.4 0.6 0.8 1.0 0.0 0.2 0.4 0.6 0.8 1.0 the poverty linefor Phnonthe poverty Penh –adifference that areas respectively, are 81 and 46 percent lower than linesforThe rural poverty areas andotherurban inherently ahigherlevel or reflect ofutility welfare. 30th percentiles areas in urban are higher and thus food expenditures ofthehouseholdsin20- andruralbetween urban areas, since average non- linebeyondfood theprice differences poverty households in two ways. One isby raising thenon- The methodological changesthuspenalized urban generally spendmore onnon-food expenditures. assets (Figure 54), live in better dwellings and Source: Figure 54.

Wo 1 1 rl d BankstaffestimatesfromCSES(2014) Urbanhouseholdsaremorelik 2 2 W W Refr T elfare quintile elfare quintile elevision iger 3 3 ator 4 4 . Rur Rur al al 5 5 ely than of consumption (Alfani, et.al., 2012). This appearsto poorer thanrural households withmuchlower levels with much higherconsumption can be deemed profile. households In somecasesurban the poverty asdonefor consistency Cambodia,utility distorts lineswithoutcorresponding adjustmentpoverty for 2010) shows that separately computing “regional” Bidani, 1994andMozambiqueSimler, inArndt countries (seecasefor inRavallionand Indonesia less than5percent, for example. Evidence from other the provincial CPI shows regional price variation of more spatial thanreflects price differences. Data from 0.0 0.2 0.4 0.6 0.8 1.0 0.0 0.2 0.4 0.6 0.8 1.0 Phnom P Phnom P ru ra 1 1 l householdstoow enh enh 2 2 W W Motorcycle elfare quintile elfare quintile Bed set 3 3 n dura 4 4 b les 5 5 the methodologyfor calculating poverty. Currently, of theinstruments for consumption measuring and room for improvement inboththechoice anddesign improve theway itmeasures poverty. There is forward,Going thegovernment potentially can items isusedinstead. when national average expenditure onnon-food food items, thusunderestimating than rural poverty calculated from a lower average expenditure on non- lineinruralthe non-food areas isinherently poverty food share intotal consumption. At thesametime, consumption ofspecificgoods rather thanthenon- lineisestimatedsince usingaverage thepoverty lower lineforproportionately areas, urban poverty of value ofsuchdurables. This isnotreflected ina more thaninrural areas from theexclusion ofuse living, welfare householdsisunderstated ofurban more in durables higher whichreflect comfort are better inPhnom Penh. Furthermore, by owning like assets owned suggest that livingconditions example, yet otherindicators oflivingconditions 7 percentage for points higherthanrural poverty headcount inPhnom Penhthe poverty in2014was the official consumptionaggregate suggestthat be thecaseinCambodia too. Estimates basedon above. into account taking raised the factors the country currently reviewing in the measurement of poverty measurement methodologywith the MoP, which is of theNISinadditionto cooperation ofthepoverty in thisarea to to extend data generation activities The World Bankcould alsodeepenitsengagement implied from recall-based consumption measures. information likelyunderestimates line thepoverty were used. linegeneratedThe usingdiary poverty percent across alltheyears where bothinstruments from therecall instrument by between 18to 40 consistently lower than food consumption measured that food consumption is measured from thediary lineinstead.estimate analysis thepoverty Our finds in 2012,2013,2015and2016),hasbeenusedto with therecall instrument inmostyears (except Therefore thediary, concurrently implemented The ofitems quantity consumed isnotrecorded. consumption ofeachtheitems inthisgroup. the past30days, instead ofseparately reporting items, for example consumption of cereals in This asksfor consumption for abroad group of intheCSESusingarecallcollected instrument. the consumption aggregate iscalculated from data 167 CAMBODIA: Sustaining strong growth for the benefit of all 168 Annexes prioritization inCambodia prioritization Annex 3: UsingClusteranalysis toinform clustering variables are andcategorical amixofmetric the Because connection). toilet, andan electricity (i.e. havingto services improved water, improved income, having business),and(iii) access anon-farm household livelihoods (i.e. having wage anon-farm asmeasured by to health shocks),(ii)opportunities education, andhealth–measured by recent exposure andat least secondary no formal education, primary agehouseholdmemberswhoattained of working human capital (mainly education attainment - share ownership oflandand otherproductive assets)and endowments interms ofphysical assets(i.e. fall into thefollowing categories –(i)household clusters. The variablesusedinthecluster analysis the results by defining and labelling the obtained number ofclusters, andvalidating andinterpreting variables, choosingtheclustering procedure andthe analysis involves four cluster steps –selecting and maximize between groups variance. The groups soasto minimize withingroup variance Clusters are formed by into placingobservations within them. poor andnearpoor, butfor thespecificsub-groups are constraints themostcritical notonlyfor the better off. The identified gapsthusinform which relativepoor andnearare mostlacking to the andwelfare,determinants ofpoverty whichthe level using the CSES 2013 data to identify those key particular, exploits thistechnique at thehousehold gapsacrossbiggest, mostcritical groups. This SCDin used to oridentify suchinterventions prioritize the targetinginterventions eachgroup. This canbe the differences canbe exploited to customize groups reveals what makesthemdifferent and from eachother.but distinct Profiling these population into groups that are homogenous statistical technique usedto segment a Cluster analysis isadescriptive andmultivariate chaining effect whereby the cluster solution results isbothlessinfluencedalgorithm by outliersandthe cluster variance to thesmallestextent possible. This clusters whose merger increases the overall within forms clusters or smaller by combining observations which clustering algorithim, the wards linkage but we base theanalysis on results obtained using hierachy. Various can be used, clustering algorithms at thehighestlevel ortopall observations of the of aggregation, withasinglecluster comprising at higherlevelsassigning additionalobservations as many clusters asthenumberofobservations, this, clusters are builtfrom bottom up,with starting the Euclidian isused. distance Basedon function distance) inamultidimensionalspace. thiscase, In grouped (or onthebasisofameasure ofsimilarity the hierarchicalIn procedure, are observations until thewithincluster variation isminimized. betweenreassigning thekclusters theobservations to thefixedobservations numberofkclusters, before solution isformed by first randomly assigning of clusters (k)ispredetermined, sotheclustering methods, thenumber partitioning population. In apply different concepts to segmentation ofthe The methods hierarchical andpartitioning profile ofthedifferent groups. within thepopulation, inadditionto analyzingthe of clusters, helpsinform thedegree ofsegmentation SCD, findingout rather thanassumingthenumber For a-priori. number ofclusters isnotknown this The hierarchical procedure ispreferred because the (acombinationtwo). ofthefirst two step-clustering and methods (mainly kmeans) two – partitioning the hierarchical procedure ischosenover theother thethree mostcommonOf clustering procedures, component analysis ofthevariablesspecifiedabove. scores onfactor from theprincipal is performed data measured inmultiplescales, theclustering capital andlowest landownwership. of thenfemale headed, householdswithlow human and at thebottom oftheladderare (iv)older, many human capital, moderate landowning housholds larger landowning households, then(iii)older, low households, followed by (ii)young moderate capital, the top are (i)young, highhumancapitalnon-farm of theprobability ofsuccess between groups. At emerging class. there So isaclearhierarchy interms near poorandlessthan16percent are considered an percent of the bottom group is considered poor or be anemerging consumer class. contrast In 32 nearly percent ofpeopleinthisgroup canbeconsidered to the highestranked group ispoorornearand55 at the bottom. Only 6.5 percent of the population in 2011 dollarsto anaverage of$4.1PPP2011dollars daily consumption percapitaranging from $7.1PPP ranked inaccordance to theireconomic status with Groups from thecluster solutioncanbeclearly Cambodia, whichwe refer to astheladderofsuccess. The profile ladder for reveals asocio-economic rates,poverty andtheshare ofeconomically secure. those notincluded–suchasconsumption percapita, used in the clustervariables directly analysis and for robustness checks. The profile includesboth clustered usingthek-means was alsoreviewed Table 10inthemaintext. Aprofile for four groups the clusters was created, whichispresented in Once theclusters are identified, aprofile of charateristics.by theirsocio-economic number for segmenting thehouseholds in Cambodia Je(2)/Je(1) index. Four clusters emerge as the optimal ortheDuda-Hart and Harabasz pseudoF-Index complemented by quantitative theCalinksi criteria, usingadendogramis identified by inspection a few observations. The optimalnumberofclusters in onelarge cluster andotherclusters comprising of and nearpoor. forkey priorities improving livelihoods ofthepoor resilience andreducing inagriculture risks remain this area. This meansimproving and productivity aretheir potential factors concentrated andrisk in the mainassetofbottom two groups soboth than average landholdings, landstillconstitutes constraint for thepoor. Though theystillown smaller inadequate labor (old age) is another emerging emergesclearly asoneofthedefininggaps, while areshocks abigriskfactor. Education attainment more likely to to belong thetop group buthealth agricultural householdslarge landholdersare and have more education, whileamong those whohave transitioned outofagriculture The results show that success is more likely among one group asopposedto another. household welfare ormore are abandant in lacking determinants of among the known which factors causal, butrather provides away ofidentifying groups are largest. Note that theinference isnot and where thegapbetween thepoorest andrichest affectingalargerto thosefactors group ofpeople at thenational level. Greater weight isthusgiven constraints factors orrisk ofparticular importance the size oftheindividualgroups to determine the to evaluate factors, theirrisk andtakeinto account ofthepoorandnear look at theassetportfolio the mostbindingconstraints thepoorface. We also but abundantgroups amongthebetter-off to be amongthepoor consider thoseassetsmostlacking or mostprevalent amongthepoorer groups. We of economic and(iii)risksare activities, lacking – humanandphysical, –types (ii)opportunities asset basedframework, which(i)endowments the groups, we askfrom thepoint ofview ofthe Having establishedaclearhierarchy between 169 CAMBODIA: Sustaining strong growth for the benefit of all 170 Annexes How • the following questions: After the presentation, discussions were heldaround Cambodia. andboostshared in prosperity extreme poverty ideas withregard to themainpathways to reduce and aslidepresentation which presented preliminary the views ofCambodians from diverse backgrounds, All meetingscommenced withavideothat captured including breakout group discussions, whenneeded. and Khmer. The meetingstook around 3-4hours, in theprovinces were inbothEnglish conducted in English withsimultaneoustranslation, whilethose All themeetingsheldinPhnom Penh were conducted andEnglish. online survey, inKhmer The roundtable meetings, andsmallgroup discussions. workshops,face meetings hadamixofplenary by a wide range of stakeholders. The well asanonlineplatform to enableparticipation meetingsas The engagement includedface-to-face Engagement format stakeholders Annex 4: CambodiaSCDengagementwith widely in the next fivewidely inthenext to ten years. prosperity andsharing ending extremepoverty to acceleratechallenges andpriorities progress in around the SCD aimed to identify key development of stakeholdersinCambodia. Public engagements also sought to consider theviews ofawiderange best possibleanalysis andavailable evidence, it other stakeholders. On top of drawing from the close consultation withnationaland authorities byconducted the in World BankGroup (WBG) The Systematic Diagnostic (SCD) Country was achievements to date, itsdevelopment online engagement gathered views through an do you see Cambodia’s development face-to- What • locations andmeeting Key stakeholders • • • • • range ofstakeholders, including: Engagement meetingswere withawide conducted growth inCambodia. and inclusive reduction achieve sustainable poverty thekeydevelopment toand prioritizing priorities from 13provinces provided feedback on identifying Reap, andoneinKratie. total, In 375participants in Phnom Penh, oneinSiem oneinSihanoukville, four different six meetings regions of the country: meetings were in Cambodia.prosperity Nine held in strong, inclusive, and sustainablegrowth and shared areas for development to beaddressed to ensure society, including academia) to identify critical private sector, development andcivil partners, government,and sub-national National Assembly, held withabroad range ofstakeholders(central 2016, extensive publicengagement meetingswere For over three weeks inNovember to December address over 5-10years? thenext development inCambodia, to focus onand challenges, andgoalsfor thefuture? Private Representatives Sector: of domestic UN agenciesandotherdevelopment partners Development Representatives Partners: from provinces of Takeo, SihanoukandKohKong Kampot, of provincial, andcommune councils district Government:Sub-national members Elected National Parliamentarians Assembly: Economy andFinance andlineministries of Government: Ministry from the Officials are the three most important areas for • • • • were: of Cambodia where consultations were held. These consultations, withlittlevariation across the regions emergedA clearlistofpriorities from the consultations fromthe ofpriorities Summary by Figure 55. Source: genderandstakeholdertype 10 20 30 40 50 60 70 80 90 LGBT people institutions, academics, laborunions, youth, and NGOs, NGOs, advocacy think tanks, research community-based organizations, delivery service Organizations:Civil Representatives Society of provincial chambersofcommerce and international private companies and sector through publicadministration andpublic improvingdelivery: government efficiency Institutions, governance, andpublicservice technical andvocational education andtraining. education aswellprimary, asin andsecondary : investingEducation andskills inpre-primary, to markets. including through improved andaccess irrigation andincomes inagriculture,productivity Agriculture modernization: increasing

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Pa Female rtners 14 8 Civil Society 51 17 Male systematic-country-diagnostic-cambodia https://consultations.worldbank.org/consultation/ for Cambodia. in EnglishandKhmer, ontheconsultation website of discussionsfrom alltheninemeetingsare posted, inCambodiaprosperity goingforward. Summaries sustainable economic growth andboostingshared of theSCD, allaimedat maintaining strong and are embeddedinallthreeparticipants pathways identifiedThese priorities by the consultation • Cambodians around the country through colorful Cambodians through around colorful thecountry The World Bankteam alsoreached outto other are alsosummarized in Table 18. groups inthisexercise participated andtheirresults for development. Approximately 190peoplein21 asked, asagroup, to identify their top three areas the ninemeetings, were groups of8-10participants feedback themeetingsthemselves. during four In of found. were Second, participants askedto provide no significant differences in replies across genders discussions, with identified the face-to-face during areasalso point as to asimilarsetofpriority shown in Table from 18.Results thesequestionnaires arecompleted and their priorities by 322 participants and share more prosperity widely. was The survey development areas for Cambodia to endpoverty which askedthemto identify thetop three crucial Englishversion available,English andKhmer; below) wereparticipants given questionnaire (in asurvey priorities for thecountry’s development. First, all Different tools were used to helpidentify Tools for engagement informal fees and electricity costs.informal fees and electricity business environment aswell of asareduction operation, includingthrough an improved reducing thecost to establishment firm and Cost ofdoingbusinessandtrade facilitation: delivery.enhance service financial management reforms, inorder to 171 CAMBODIA: Sustaining strong growth for the benefit of all 172 Annexes Cambodia. More than1,000individualsfilledup postcards that asked them about the future of Source: Figure 56. Source: obtainedfrom Results consultation meetings. Natural resource management anddisaster management risk Financial andaccess sector to finance Healthcare Resilient infrastructure andimproved connectivity Cost ofdoingbusinessandtrade facilitation Institutions, governance, delivery andpublicservice Education andskills Agriculture modernization Priority discussions Table 18. Top areasfor development fromindividualquestionnairesandmeeting 10% 15% 20% 0% 5% Resultsobtainedfrompostcardcollection. Education 18.7% To p themes, To

Growth p areasfordev 8.6% collected postcards

Agriculture by 7.6% percentageoftotal

Roads 7.3% elopment incollectedpostcard

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ruption 6.8% Figure 56. these postcards andtheresults are summarized in s Meeting discussions Meeting 17% 22% 22% 28% 33% 33% 56% 67% Survey 26% 28% 41% 33% 28% 23% 36% 41% Reducing • Improving publicinvestment management to boostinfrastructure • Improving water resource management, protecting householdsthat dependonfisheries • priorities). and share over throughout prosperity decade? (Please, the country the next circle with your pen your top 3 yourIn view, what are the crucial development areas for Cambodia to focus aimed at ending poverty actions Cambodia, areas for development Thanks • Improving • Strengthening ofthefinancialsector theregulation andsupervision • Facilitating domesticsavings andprivate investment • Moving towards supply acheaper andmore reliable electricity • What • Cambodia’s drivers andupcoming challenges 6. Other: 5. 4. 3. 2. 1. Type oforganization you work for: posted inthewebsite. feedback we getwillnot beattributed to any individualbutwillbeconsolidated, willbe andasummary feedback from asmany stakeholdersaspossible. Please takeafew survey. minutes to filloutthisshort The schedule ofthesemeetingsisposted onthe World BankCambodia website. We to are get usingthissurvey andsharedevelopment andwhat more canbedoneto prosperity endpoverty widely. opportunities, The engagements withstakeholdersinCambodiaThe onthecountry’s isundertaking World BankGroup (WBG) Cambodia: More How toEndPoverty andShareProsperity Widely? Share your views! questionnaire Survey forward (over decadeorso)? thenext do you think are the main challenges to sustaingrowth Cambodia reduction faces going and poverty the pasttwo decades? What have beenthemainfactors? services, investmentservices, products, consumer financialeducation tackling corruption tackling Development Partner Private Sector Academia Civil Society Government Agency do to you sustained the access think cost to have to economic financial firm been establishment the services growth, main Cambodia – drivers bank and accounts, of operation, strong became growth credits a including lower-middle Province:______and for individuals poverty improving income reduction Gender: []malefemale Gender: or the economy firms, doing in mobile Cambodia business, in 2015. financial What over and 173 CAMBODIA: Sustaining strong growth for the benefit of all 174 Annexes Enhancing • information andcommunication technology Supporting adoption,aswell asinnovation • ______Other: • ______Other: • ______Other: • Investing inawell-planned urbanizationprocess to accommodate economic transformation • Equality • Putting • Consolidating andexpanding socialprotection andsocialsafety nets • Improving • Fostering education andabove attainment ofsecondary • education Investing inpre-primary • to malnutrition unlockchildren’s Reducing potential andto promote growth andinclusion • Public administration reform delivery for publicservice • Modernizing • Improving forest management to reduce/stop degradation • for Investing growth ininfrastructure andconnectivity andinclusion,includingroads andbetter logistics • Improving macroeconomic management and reducing dollarization • Intersex people) droughts, etc. earthquakes, to healthspending productivity in and a access the place no agriculture allocation discrimination a to strengthened and quality through and effectiveness among of disaster investing health genders, services risk of in management public irrigation including and expenditure protecting and LGBTI system facilitating (Lesbian, households and to protect overall machinery Gay, fiscal from against Bisexual, financial and acquisition the debt Transgender impact shocks management to of improve related floods, and

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