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close this bookPoverty Alleviation Trough Micro and Small Enterprise Development in Cambodia - ILO/UNDP Project CMB/97/021 - Final Report (ILO - UNDP, 2000, 126 p.)
close this folderPart B: Situation Review 1997 (“stand alone” report)
View the document(introduction...)
View the documentList of acronyms
View the document1. Introduction and background
View the document2. Macro-economic framework for micro and small enterprise development in Cambodia
View the document3. Government priorities and plans
View the document4. Legislative, regulatory and incentive framework
View the document5. Brief description of stakeholders in MSE development in Cambodia
View the document6. Main externally assisted programmes for MSE development
View the document7. Constraints and opportunities at the enterprise level
View the document8. Conclusions and issues to be elaborated further
View the documentANNEX 1: Documents
View the documentANNEX 2: List of key persons met

8. Conclusions and issues to be elaborated further

The mission served as a first attempt to review various aspects related to MSE development in Cambodia including the macro-economic framework, government policies and plans, legislative and regulatory framework, stakeholders in the process and main relevant externally assisted programmes. As a result, a tentative analysis of constraints and opportunities has been provided in Chapter 7. These findings are intended to stimulate further discussion and debate to be elaborated further, and not prejudging the opinions of the various stakeholders, at the Objectives Oriented Programme Planning (OOPP) workshop, to be held in Phnom Penh during the first half of August 1997. At the three-day workshop, representatives of the stakeholders (ministries, NGOs, credit institutions, training and other supporting institutions, private sector and the donor community) will have an opportunity to review these issues and agree on approaches, responsibilities and possible assistance programmes and project through participation, constraint, objectives and alternatives analyses in a systematic manner. The resulting agreement will form a basis for the future steps in addressing the various constraints faced by MSE development in Cambodia.

The following conclusions and proposals emerged during the first mission and need to be thoroughly reviewed during the August workshop. They will be reviewed at three levels of possible interventions, i.e. policy, intermediate and enterprise levels.

Policy level

The First Socioeconomic Development Plan 1996-2000 provides an overall direction to private sector development and recognizes the important role played by MSEs in employment generation and increasing value added of indigenous resources. There are, however, no specific government policies and programmes in developing this sector, nor are there specific incentives in promoting MSEs. The legislative framework (existing and drafted, awaiting for promulgation) outlines the basic parameters and specific roles of ministries related in general to PSD and in limited cases to MSE development, but does not include issues related to policies and planning, support institutions and other promotional activities.

Among the various government ministries, the Ministry of Industry, Mines and Energy (MIME) has emerged as the potential focal point for MSE development in Cambodia. MIME has created the SME Unit and there is an apparent willingness to steer the Ministry to a new direction, i.e. playing promotional rather than controlling roles which are appropriate under the prevalent market economy. This readiness to adapt is considered highest at the central level in Phnom Penh whereas, for the moment, the participation of the provincial departments (DIMEs) depends on the relationships developed between DIME officials and other local stakeholders such as ACLEDA, private enterprises, CARERE, etc., depending on the specific situation in the province. In Kampong Cham the Director of DIME is a member of ACLEDA’s Advisory Board and Credit Committee contributing to a potentially close relationship. In Battambang, the Director of DIME actively participates in cross-sectoral planning meetings initiated by CARERE and MRD. Promotion of such cooperation in the provinces should be encouraged. It is, however, important to point out that it would not be practical or desirable for MIME to be involved in everything. There will be important roles to play for other ministries, including MOSALVA, MOC, MOEYS, MAFF and, perhaps, MOWA, to promote the MSE sector.

The private sector has no institutional mechanism to provide inputs and feedback to the formulation of policies, strategies and plans related to private sector development or MSE development. Whereas the Phnom Penh Chamber of Commerce has access to decision makers on specific issues related to import-export regulations, taxes, tariffs, etc., the MSE sector particularly outside Phnom Penh has extremely limited opportunities to engage in such a dialogue. In the absence of associations or any other bodies representing the interests of MSE groupings and due to the difficulties of articulation and advocacy of such issues by individual entrepreneurs, participatory or consultative mechanisms in creating an enabling business environment for MSEs are not currently practised.

It may be an interesting option to consider the establishment of a mechanism, perhaps under the similar setup as CCRD, involving various stakeholders in the government, NGO, and enterprise communities, to formulate MSE development policies and programmes, to coordinate the implementation and to review implications of various existing and forthcoming laws and regulations on MSEs. A small but significant attempt in this direction was initiated by ACLEDA which organized a consultation meeting between government officials and entrepreneurs. Because of the current absence of interest groups representing MSEs, organizations which have day-to-day contacts with MSEs and, thus, are in a good position to present their interests, could be proxy representatives on their behalf.

At the national and provincial levels there are extremely weak analytical capabilities at the government and enterprise level, imperfect information flows between the various levels of agents, and limited resource mobilization capacity for the implementation of strategies and plans even if they are formulated. To address these constraints in the industrial sector, a UNIDO subregional programme titled “Integrated advisory services for industrial policy formulation and competitiveness strategies” was formulated in 1995 and is currently under full implementation in Vietnam. MIME has endorsed participation of Cambodia in the programme, but so far no funds have been forthcoming from the donor community to this priority programme for the other countries involved with the exception of the National Industrial Statistics Programme which UNIDO has already completed in Cambodia.

While fund raising for the programme should continue based on the relevance and urgency of the programme confirmed by the present MSE development study, pilot activities should be considered at the provincial level to enhance the capacity of DIME officials to absorb future capacity building in their new promotional role in MSE development, two activities are proposed for immediate consideration:

· As suggested by MIME, to invite all Directors of provincial DIMEs to a one-day seminar on their role in MSE development, to be held immediately after the OOPP workshop in August; and

· Selected officials of the DIME in Battambang (and perhaps Sisophon, Pursat and Siem Reap) to attend the 4.5-month business training course or the three-month evening course provided by the Georgetown University Small Business Training Programme in Battambang. The cost for the evening course is US$ 100 per participant. Such training could be considered under the CARERE private sector development component.

Intermediate level

The provision of (non-financial) support services to MSEs is virtually non-existent with the exception of those provided by credit institutions (e.g. ACLEDA training courses) and some projects (e.g. GBTP, PRASAC’s Enterprise Centres). This applies to the provision of information on raw materials, technologies, products development and markets, as well as to management training and consultancy for feasibility analysis, adaptation and absorption of technology, production process, quality testing, business management and marketing. Embryos for such services may be found in ministries, universities, training institutions and NGOs, but their capacities are generally low, they are not generally known to the enterprises nor are they actively offering their services to the private sector. A case in point is the Agricultural Engineering Division of the Ministry of Agriculture which, through support projects by IRRI and UNIDO, have developed considerable consultancy capacity in the manufacturing of agricultural and food-processing machinery, and yet is not widely used by local entrepreneurs or the donor community as a source of expertise and know-how.

An interesting consideration in terms of technology development linked to marketing would be the introduction to Cambodia of the ILO/TOOL14 programme, “Promotion of appropriate tools and implements for the agriculture and food processing sectors through local intermediaries”, generally referred to as “Farm Implements and Tools (FIT)” Programme which has conducted various activities such as broking workshops, Participatory Technology Development, MSE shows, enterprise visits, Rapid Market Appraisal and disseminating information to MSEs through self-sustaining channels. The programme activities could be linked to the UNIDO project mentioned above.

14 TOOL is an NGO based in the Netherlands.

In addition to the very successful credit scheme by ACLEDA and a number of other rural and small business credit schemes, there appears to be a need for a window for a wider availability of loans for start, expansion and modernization of business and working capital. The proposal to establish a “development bank” seems to be a matter of dispute because of various experience of failure in many countries in the world. The key to the proposal is how much independence the bank would be able to maintain from administrative and political interferences in basic matters such as interest rates and selection of clients. In any case, the issue of formal and semi-formal financial sectors deserves a review by itself and cannot be covered fully under the scope of the current SPPD exercise. The mission would just point out that although there is a clear need for more and better loans for micro and small enterprises, the question remains as to how realistically the financial sector of Cambodia could be developed in order to serve the unmet demand.

The shortage of skilled labour has not yet emerged as a major bottleneck for MSE development in Cambodia, but the low levels of education and small numbers of graduates from business and vocational schools will pose a challenge to the competitiveness of Cambodian enterprises through increased global and regional integration and the need for growing sophistication of the enterprise structure. Faced with such a challenge, MSE owners/managers would benefit from improving their business management skills and capacity to provide small business training is needed for Cambodia. Such training packages and programmes are already available internationally; such as ILO’s Improve Your Business (IYB, for existing enterprises) and Start Your Business (SYB, for potential entrepreneurs). Women’s Entrepreneurship Development (WED, also from the ILO), UNIDO’s Training Programme for Women Entrepreneurs in Food Processing Industries and GTZ’s CEFE (Competency-based Economies through Formation of Entrepreneurs) Programme, and could be adapted to the local situations. Small business training could be delivered in modules and meet the particular needs of entrepreneurs. Instead of the whole set of business training, micro enterprises who are unlikely to be able to spend so much time but are faced with “competition” and in need of capacity to identify viable opportunities, would greatly benefit from acquiring such know-how.

Besides building capacities of entrepreneurs, information on potentially viable business opportunities as well as on already saturated markets could be made available. Capacity to assess such information, which could be called “business opportunity identification”, and to make it available for MSEs could be built in some institutions. Since such business opportunities are likely to exist locally, the capacity is best built at the local, perhaps provincial, level.

Skill training at all levels needs to be demand-oriented and curricula based on strategies and plans made on the development of the business sector for the intermediate future. Thus, human resource development and related support institutions need to be closely integrated with the overall strategic economic planning mechanisms addressed above. Again, the UNDP/ILO CMB/96/002 Project is assisting the Government in this respect but further support would be appropriate.

MIME has already started, with some assistance from UNIDO, concrete preparations for the establishment of an Industrial Estate Authority of Cambodia, to be in charge of developing (in cooperation with the private sector) zones and estates with services and facilities for easier operation of small and medium enterprises. Such zones and estates are planned first to Sihanoukville, Phnom Penh and possibly Battambang, and will provide a useful support facility with necessary infrastructure and possibly easier access to technology and human resources while providing a more effective opportunity to pollution control and overall monitoring of compliance with regulations.

Concrete proposals for addressing the constraints at the intermediate level are complex and the sustainability of any proposed solution depends on a large number of factors. Some of the required support services may need to be provided by state institutions, but outsourcing to the extent possible will alleviate pressure on the revenue budget and enhance the likelihood of continuity. It is considered better not to make concrete proposals at this juncture, but to review the potential partners and their roles more in detail during the OOPP workshop in August 1997 and immediately thereafter.

Enterprise level

The series of interviews revealed an apparent lack of awareness among entrepreneurs of the potential role of policies, strategies, plans, information and consultancy in improving the competitiveness of their businesses. The advantages of collaborative initiatives and approaches towards decision making are also not widely recognized, and most of the support expected by the interviewed entrepreneurs relate to credit for operations or expansion, or assistance to curtail competition. As important it is to raise the awareness of government officials of their potential promotional role in MSE development, it is equally important to raise the awareness of the entrepreneurs of issues affecting their operations, competitiveness and survival. This can be commenced through the participation of MSE representatives in the pilot consultative fora being introduced by CARERE in some provinces. Close integration of entrepreneurs also in human resource and other support development planning would improve the demand-orientation of training and other support services.

The scope for productivity and quality improvement at the enterprise level through short-term managerial and technical interventions is broad and the actual selection of priority areas will depend on the interest of the enterprises and the donor community. A good example of the usefulness of such an intervention is the combined ACLEDA credit and UNIDO technical advisory service package provided to the last private bicycle tyre factory in Cambodia in 1994, resulting in a considerable increase in competitiveness, expansion of business and generation of more employment. Such activities should be actively pursued in enterprise clusters and/or in subsectors.

A part of the productivity improvement relates to the workplace environment. Improvements in safety conditions in MSEs would be desirable in terms of protection of workers (i.e. human resource). The ILO’s effort called “Work Improvements in Small Enterprises (WISE)” which combines workers’ safety and productivity improvements in small enterprises may be worthy of consideration in Cambodia.

In addition to processing technology and management, a pilot project is proposed in the introduction of energy-efficient technologies in industries using firewood in large quantities, such a brick, tile and rubber tyre manufacturers as well as producers of aluminium pot and pans and other metal items. This may be achieved by approaching groups of enterprises through DIME and ACLEDA offices and by providing field experts from South-East Asia to the clusters/subsector groups under a special TCDC contribution by Japan to UNIDO.

Although it is desirable for MSEs to form some types of associations which could present their views to the government and to serve the members, it is unlikely that entrepreneurs would have strong short term incentives to form such groups. Concrete activities that would benefit them directly, as is suggested in the previous paragraphs could be combined with an effort to encourage participants in this direction.