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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.)
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View the documentForeword
View the documentAcronyms used
View the documentExecutive summary
View the documentRecommendations
Open this folder and view contentsPart A: Report from ILO mission (June 1999)
Open this folder and view contentsPart B: Situation Review 1997 (“stand alone” report)
View the documentPart C: ILO Recommendation 189 on SMEs (1998)

Executive summary

a) The low level of rural incomes in Cambodia, centred on low-productivity, rice based agriculture, makes it important to diversify and supplement existing rural income through the expansion of non-farm activities, rural industry in particular. At the same time, the high rate of rural-urban migration into Phnom Penh, especially, the overwhelming predominance of informal, small-scale enterprises in the urban areas, and their important role in providing urban employment, means that promotional efforts in respect of micro, small and medium enterprise should span both rural and urban sectors in Cambodia.

b) There is some evidence of growing urban employment among certain categories of school-leaver, and this is likely to expand with continued migration. However, the more fundamental problem facing Cambodia is one of raising income levels, particularly through rural development.

c) Apart from the low level of agricultural incomes, limiting the extent of forward ‘demand’ linkages to rural industry and other non-farm activity, a major factor constraining the development of rural enterprises is the state of the national road network and of rural access roads in Cambodia. Where good roads have been constructed in the last few years, however, the consequential impact on economic activity has been in some cases quite dramatic. Further major donor-assisted road investments are planned which will have further such effects on both agriculture and non-agriculture.

d) Other operative constraints on the development of small-scale manufacturing, however, include strong competition from cheap regional imports, the generally poor quality of domestic products, an acute shortage of working capital among micro and small enterprises (MSEs), as indicated by a substantial unsatisfied demand for NGO credit, and the high cost of power.

e) Once the ADB’s current Power Rehabilitation Project for Phnom Penh is completed, the Ministry of Industry, Mines and Energy (MIME) is hoping to secure ADB support for a second project which would rehabilitate electricity supplies in eight provincial capitals, as the first stage of a Provincial Towns Electrification Plan. In the long run, therefore, one can anticipate changes which should provide a major boost to the development of MSEs within the provinces.

f) Despite the constraints listed above, and the historical background in Cambodia, data analysed by the Mission, based on NGO loan requests, revealed an impressive diversity of activities identified by local entrepreneurs in the provinces, indicating good scope for entrepreneurship promotion.

g) The expansion of micro-enterprise credit by NGOs in Cambodia has been to date very impressive and new donor finance now promises institutional changes which will convert a number of NGOs into legalised micro-finance institutions (MFIs).

h) A number of questions arise in relation to this development in micro-finance. The first relates to the absorptive capacity of existing NGOs, where caution will be needed in order to avoid ‘flooding’ the system.

i) A second issue relates to the balance between group loans, related especially to poverty alleviation, and individual loans, which are more likely to relate to promoting growth among small enterprises. Trends as evidenced from the mission’s analysis of the nature of loans and types of borrower supported by ACLEDA in Kampong Cham and Battambang provinces, are towards the latter category of individual loans. To date, it would appear that no clear national or NGO policy on this issue exists. ACLEDA has noted1 that “the growth in the average net loan outstanding for small businesses within its portfolio is mainly caused by a natural process of gradual expansion into the financial market by starting from the lower segments while gradually upscaling to higher segments once sufficient experience in products and (the) environment is acquired. In general, the implementation of such strategy depends on the market demand in combination with the managerial, technical and financial capacity of the MFI.”

1 Comments kindly provided by ACLEDA to the UNDP (dated 27 January 2000) based on the earlier draft of this report Other quotes from ACLEDA come from the same source.

j) Despite the trend towards more individual loans, more specifically geared towards developing small and medium enterprises, there has recently been, if anything, a reduced emphasis on associated management or entrepreneurship training. In the case of ACLEDA, “the present curriculum for business training has been developed with entrepreneurs based on their expressed needs and ACLEDA’s requirements, (and, over time) the curriculum has been adapted and the training shortened, based on the request of (its) customers.” The reduction in more generally available training has left what appears to be a gap in non-financial business development support for micro, small and medium enterprises. The specific forms which relevant interventions in this area should take need urgent consideration.

k) A third question is whether there should be any overt policy regarding the allocation of micro-finance institution (MFI) credit, identifying particular activities for which credit provision might be especially effective. At present no such policy exists, credit effectively being allocated on demand, subject to repayment on schedule. Certainly, information needs to be collected on the allocation of credit among activities and on the impact it secures in different directions. From a developmental perspective, funding of activities with external economies could take preference over other economic activities. However, this could be seen as interference in the free market mechanisms.

l) Since a significant proportion of NGO credit is in respect of farming households (for both on-farm and off-farm activities), and achieves in this direction the same high repayment rates as elsewhere, the question arises whether this should not be more systematically developed as a vehicle for the distribution of farm credit in lieu of rather ineffective ministry-based programmes which combine agricultural credit with extension services.

m) A fourth issue, related to the second above, regarding the balance between poverty alleviation and small enterprise development objectives, is the balance of micro-credit allocation, and small enterprise promotion generally, as between rural and urban sectors. While the first objective favours a rural emphasis, and has always been the primary target among NGOs, this may have left an important ‘urban gap’ in promotional efforts, given what is evidently the more dynamic growth of small-scale enterprises as a whole within urban areas, particularly Phnom Penh.

n) In particular, consideration needs to be given to the provision of non-financial support and business management training (commonly referred to as business development services, or BDS) to sectors and activities in which enterprises exhibit greater potential for growth, whether these are rural or urban.

o) Business management training needs to be delivered directly to enterprise owners in the MSE sector. Its relevance may be greatest in particular industries which include somewhat larger enterprises.

p) A promising development in North West Cambodia has been the establishment of producer/business associations. Possibilities for their adoption exist in several other sectors and should be pursued. It is interesting to note that, subsequent to the mission in mid-1999, the Mekong Project Development Facility will provide assistance to Cambodia’s private enterprises, particularly to associations of SMEs2.

2 As reported in The Cambodia Daily, 29.10.99 - “Agency to Restart Business Aid”.

q) Quantitatively, the bulk of vocational training in Cambodia has been received within the informal sector, through local apprenticeship arrangements. The fact that significant fees are paid to acquire this training demonstrates that it is perceived to provide good returns to the recipients. The nature, coverage, advantages and limitations of informal sector training systems need to be systematically investigated and documented.

r) At the same time the formal vocational training system needs to develop specific complementarities with the MSE sector. The modular approach to training being developed offers great promise in this direction.

s) In determining an appropriate vocational training policy, it should not be assumed, simply from its “blue collar” nature, that such training is more certain to lead to employment than is general education. More information should be collected regarding the post-training employment experience of vocational training graduates, secured through tracer studies and surveys.

t) Measures to be adopted for the reintegration of ex-soldiers are envisaged to encompass skill development, financing of micro projects, community infrastructure, and information/counselling services, in all of which ILO has a potential interest. However, only a small number can be expected to be suitable as entrepreneurs, and the large majority needs to be absorbed into farming. Skills training to facilitate their absorption into paid employment is much more promising. ILO/GTZ assistance could be applied in identifying suitable short or longer courses.

u) The tourist industry, which has immense potential, should provide substantial opportunity for MSEs, in a number of sectors, again calling for financial and non-financial support.