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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

4. Legislative, regulatory and incentive framework

The Royal Government is committed to the emergence of a strong private sector as the engine of economic growth with the State and its institutions being “the strategist, a partner and a facilitator”. Under such an overall policy, various laws and regulations, necessary for the smooth functioning of the private sector-led economy and, thus, constitute an enabling environment for enterprises, have been either adopted or drafted. Although most of the laws and regulations exempts very small enterprises, i.e. micro enterprises, nevertheless they are important for dynamic enterprises, micro or small, which have potential to grow.

Two of the laws which will form the Commercial Code have been adopted; the Law bearing upon Commercial Regulations and Commercial Register and the Law on Chambers of Commerce. The former law requires all private firms to register with the Ministry of Commerce. The Law on Chambers of Commerce was passed by the National assembly in May 1995 and the subsequent establishment of the Phnom Penh Chamber of Commerce in mid-October 1995 represents an important step in the promotion of a strong private sector and the encouragement of new investment. The other laws of the Commercial Code that were scheduled for adoption before the end of 1996 were; arbitration, company/corporate, contract, bankruptcy, liquidation, quality control, intellectual property rights, fair competition and negotiable instruments. Other laws planned or drafted are concerning securities and exchange, secured transactions and personal property, products liability and patent and copyrights. The Law on Immigration and the Law on Land Use Planning, Urbanization and Construction have been adopted. A Commercial Court will be established in Phnom Penh in order to handle commercial cases over a certain amount.

The industrial part of micro and small enterprises are guided by the Sub-Decree on the Administration of Small Scale Industry and Handicraft, passed by the Council of Ministers on 4 June 1991. The Sub-Decree sets a general framework for such enterprises with operational capital not more than U$ 200,000 counted in Riel and acknowledges the rights of ownership by private citizens and grouping in such activities. The state permits most sectors without restrictions, with the exception of forbidden chemical substances, military ware, counterfeit goods and goods hazardous to health. According to the Sub-Decree, any new industry with a total capital between US$ 50,000 and 200,000 (counted in Riel) as well as gas products, fuel, black metal, colour metal, electrical tools, electronics, chemical substance, rubber, food products and canned/bottled food shall apply for a permission from MIME. Other industries of this size, but not included in the above list, must obtain a permission from the Department of Industry, Mines and Energy (DIME) in the province it is located. The licence is normally valid for three years. For smaller businesses (generally below 10 workers which is considered micro), no permission is required. MIME has the responsibility to control “technical implementation”, materials, raw materials and quality of products of small scale industries and handicrafts.

The Sub-Decree on the Administration and Control of Quality of Industrial and Handicraft Products, passed by the Council of Ministers on 26 February 1992, provides MIME with the authority and responsibility to manage and control the quality of all industrial and handcrafted products (except specialized products) including sampling and certification.

A draft Law on the Management of Factories was prepared by MIME in 1996 and is currently being reviewed and debated before final submission to the Council of Ministers for approval. The draft text, in its current form, provides a clear classification of enterprises into three categories:

· Small-scale industries having a value of less than 500,000,000 Riel or having no more than 50 employees;

· Medium-scale industries having fixed assets valued between 500,000,000 and 5,000,000,000 Riel or 50-500 employees; and

· Large-scale industries having a value of more than 5,000,000,000 Riel or more than 500 employees.

For new enterprises, MIME shall provide its decision to the applicant within 30 days from the day of submission of the application. The applicant shall have the right to appeal to a competent institution if he/she thinks that the decision or non-approval is not reasonable. The draft law also provides regulations for procedures related to the production process, expansion, change of location, transfer of right of management, industrial safety, factory control and inspection and legal penalties.

Another central feature of the new industrial development policy, affecting other sectors as well, is the Law on Investment, promulgated by a Royal Decree on 5 August 1994. Subsequent to this, the Council for the Development of Cambodia (CDC) was established, comprising of the Cambodian Investment Board (CIB) and the Cambodian Reconstruction and Development Board (CRDB). The Law provides generous tax and other incentives and guarantees, mostly affecting foreign investment but also applicable for domestic investors. Out of 202 investment applications approved between August 1994 and August 1995,33 came from fully domestically owned enterprises. The incentives are more generous than those available in other countries. However, because of the application procedures and other inhibiting factors, it is very unlikely that MSEs would have access to such incentive schemes.

Other relevant draft laws, decrees and sub-decrees prepared by MIME and MOC include those related to quality control (foreseeing the establishment of an Inter-Ministerial Committee for the purpose of coordination and division of responsibilities), governance and administration of industrial zones and estates, and registration and statistics of industrial enterprises.

In relation to the financial sector, the Law on the Organization and Conduct of the National Bank of Cambodia was submitted to the National Assembly in late 1995 and a new financial institutions law was scheduled for 1996. A Credit Committee for Rural Development (CCRD) was set up by the Sub-Decree on the Establishment for the Credit Committee for Rural Development of 8 February 1995. CCRD is attached to the Council for Agricultural and Rural Development (CARD)5 to manage and coordinate rural credit activities. The basic principles expressed by the Government toward the rural financial sector are (i) to foster the development of rural credit, (ii) to achieve high efficiency of rural credit activities and (iii) to maintain sustainability of rural credit activities. On 5 September 1996, CARD decided to retain CCRD for policy making roles including drafting a law to promote rural financial institutions by requiring minimum capital and giving tax incentives and to establish a development bank for supporting rural credit activities. According to the proposal, the development bank will operate under banking laws, manage all credit programmes financed from external resources through the Royal Government and operate as a partner of all the operators and credit projects, including in the form of refinancing.

5 CARD is served by co-Prime Ministers as co-Presidents and the Minister for MAFF as Vice-President, consisting of various ministers. CARD has responsibilities to advise on the overall rural development strategies, coordinate various ministries and the private sector and assist with resource mobilization and monitoring/evaluation of various rural development activities.