Transcript Cambodia: Economic Outlook

Cambodia:
Good enough governance for
sectoral growth?
Presented by Kai Kaiser, Senior Economist,
Public Sector Group, World Bank
(Stephane Guimbert, Sophal Ear, Verena Fritz)
Applied Inclusive Growth Analysis
Joint Vienna Institute
Day 4, July 2, 2009
November 4, 2008
1
Growth Paradox?
• Rapid Growth
– Garments Success Story
• Growth Sustainability Concerns
– International Competition
– Challenge of Diversification
• Weak Governance
– Weak Aggregate Indicators
– Self-reported by firms
…consolidation of ruling party/stability after 1998
…first LDC to join WTO (2004)
2
1
growing with four fragile engines
Contribution to growth (%)
100
26
Tourism: rapid growth. Initially mainly to Siem Reap
and Angkor – gradually to Phnom Penh and
Sihanoukville, with further potential
Other
75
13
50
25
20
Hotel /
Transports
Construction /
Real Estate
28
Garment
13
Crops
Real estate / construction: very rapid growth,
especially in Phnom Penh; talks of a bubble
Garments: main (only?) export; mainly to US
market; slow growth in 2007 with competition from
Vietnam; further competition (inc. China) in the
future?
Crops: rain-fed; mainly rice
0
19982006
Legacies of “extractive” forestry “dis-saving” in 1990s
3
reaching new heights?
Income per
capita (2007 $)
1500
1,513
1250
1000
750
725
550
500
310
250
Good enough governance for sectoral
growth?
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0
4
weak governance
Good enough governance for sectoral
growth?
5
2
corruption & governance
Major obstacles to business, as reported by firms established in Cambodia
60
Corruption
50
Macro instability
2007/08
40
Anti-competitive /
informal pract.
Regulatory
uncertainty
30
Electricity
20
Skills
Telecom
10
Land
Crime, Theft
Cost finance Tax rates
Licenses
Transport
Tax admin
Access finance
Labor reg.
Legal system
Customs
0
0
10
20
30
40
50
60
2003/04
Sources: Investment climate surveys in Cambodia
6
Growth Analysis Approach
• CEM
– Range of background papers
– Complementary governance & political-economy analysis
• Unbundle paradox?
– Government-donor roundtable 2/2009
• What were drivers to growth?
• What are challenges to sustainability?
• What are binding constraints and policy options?
7
2
what is really binding?
Large informal
economy
No sustained
diversification
No capitalintensive or
processing
industry
–Entry costs (in terms of regulations and corruption)
–Limited benefits of formalization (weak coordination;
limited access to finance)
–Coordination / information (on markets, technologies)
–Incentives for innovators (both formal incentives – e.g.
standards, trademarks – as well as informal – scaling up
means becoming a target of corruption)
–Access to finance for locally-generated projects (in
agriculture; for SMEs)
–Governance (high informal taxation of higher rents
created by capital investment; property rights)
–Poor complementary inputs (electricity and water; skills;
coordination issues)
8
Governance & Political-Economy Analysis
Approach
• Focus on selection of promising sectors
– National plans, development partner efforts…
• Understand sectoral governance & growth
– Nature of state-elite & business relationships
– Drivers of growth?
– Strategies to manage business environment across value
chain
– Drawn on country specialist (Sophal Ear)
– Process of discovery?
9
2
Sectoral governance for growth?
Successful
Emerging?
Stunted?
Garments
Rice
Livestock
10
Garments
• International Drivers
– Quotas for labor standards (US brokered, until 2004 for garments; ILO
monitoring still ongoing)
– Strong international presence in 300+ establishments (95% +)
• Domestic Collective Action
– Garment Manufacturers Association (GMAC)
– Relationship w/ Ministry of Commerce, Labor Intensive Profile of Sector
– International Chambers of Commerce
• Open Issues
– Sustainability concerns w/ international competition
– Squeezing the golden goose?
– Value chain limited to assembly
11
Rice
• International Drivers
– Increase in food prices
– Future Everything but Arms (EU Zero Tariffs for LDCs)
• Only Sanitary & Phytosanitary
• Domestic Collective Action
– Fragmented, Limited Collective Voice
– Green Trade (state body) & National Cambodian Rice Millers now
have export waver (100 tons+)
• Status
– Mainly domestic padi production, processed reflows from neighboring
countries
– Very limited finance into rice processing
– Concerns about ability of Cambodian supply chain to deliver quality
12
Livestock
• International Drivers
– Increase in food prices
– Malaysian investment (failed)
• Domestic Collective Action
– Very Fragmented, Limited Collective Voice
– Some entry attempt by okhna
• Status
– Failure of previous venture (Mong Retth, Malaysians)
– Procdution localized, dominate by cattle rustling, high
transactions costs across value chain to Vietnam/Thailnd
13
A Strategy for Policy Actions in the
Cambodia Setting
• Potential Sector Profits/Rents Insufficient
– Sum of poor governance manifests itself on various links of
the value chain
– Export opportunities/prices
• Promote Demand Side/Collective Action
– Business Organizations (Mandatory/Sectoral “Monopoly”)
• External Drivers
– Internal National Regimes
– Pressure for domestic “compliance”
14
Open issues…
• Integrity of governance & growth narrative
– Limited selection of sectors (successful & unsuccessful)
– Replicability of garments wrt to different sectoral value
chains
• Multi-sectoral state growth champions?
– Focal point acts to enforce credible business
environment (pending systematic change)
• Captured/Self-serving institutions
• Capacity/incentives for this type of institutions
• Potential discovery of oil & gas
– Impacts on drivers of growth
– Concentrated rents & incentives for state
November 4, 2008
Good enough governance for sectoral
growth?
15
Conclusions
• Binding constraints lens provides useful disciplining
device in weak-institutional setting like Cambodia
where everything can be perceived constraint
• Limited binding constraints may be politically
counterintuitive…
– Temporal, Need to be forward looking, Balance path,
perception of all eggs in one basket
• Value of looking at sector constraints
• Timing
– Impacts of Global Economic Crisis…
July 2, 2009
Cambodia Growth
16
Q&A
Selected References
World Bank, (2009), Sustaining Rapid Growth in a Challenging Environment”,
www.worldbank.org/kh/growth
Ear, Sophal, (2009), Sowing and Sewing Growth: The Political Economy of Rice
and Garments in Cambodia, Palo Alto, CA: Stanford Center for
International Development Working Paper, No. 384
Guimbert, Stephane, 2009, Cambodia 1998-2008: An Episode of Rapid
Growth, Working Paper (draft)
17