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
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 ADBs 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
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 missions 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 ACLEDAs 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 Cambodias 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
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