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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 documentAcronyms used
View the documentExecutive summary
View the documentRecommendations
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View the documentPart C: ILO Recommendation 189 on SMEs (1998)

(introduction...)

AUGUST, 2000
ILO, BANGKOK

ILO East Asia Multidisciplinary Advisory Team
ILO Bangkok Area Office


United Nations
Development Programme

SUPPORT SERVICES FOR POLICY AND PROGRAMME DEVELOPMENT
UNDP PROJECT CMB/97/021/08/11

Report on
MICRO AND SMALL ENTERPRISE DEVELOPMENT FOR POVERTY ALLEVIATION IN CAMBODIA

International Labour Organization (ILO)
East Asia Multidisciplinary Advisory Team
Bangkok, Thailand


Copyright © International Labour Organization 2000

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August 2000

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Foreword

This final report of the ILO/UNIDO project on Poverty Alleviation through Micro and Small Enterprise (MSE) Development in Cambodia, funded by the UNDP under its SPPD facility, is produced at an important time for Cambodia. The Royal Government of Cambodia is giving increasing attention to the development of small and medium enterprises, as well as to creating a policy environment that is more enterprise friendly. In addition, the donor community and various international organizations appear to be reassessing the potential of the micro, small and medium sized enterprises in Cambodia, with a view to enhancing their role in national economic and social development.

Financial support and financial services, as provided by the large number of micro-credit schemes and micro-finance institutions in Cambodia, are very welcome forms of assistance for micro and small enterprises. However, these alone are not enough to help entrepreneurs to identify viable business opportunities, create new enterprises, grow them, and see them contribute in an optimal way to job creation and poverty alleviation. International experience shows the need for a complementary range of innovative and demand-led business development services (BDS), including small business training.

The International Labour Organization is assigning greater prominence to the role that small enterprises can play in the creation of decent work in sustainable enterprises, as well as to the contribution that small enterprises can make to poverty alleviation. In 1998, the International Labour Conference adopted a Recommendation on General conditions for the promotion of job creation through small and medium-sized enterprises (1998) and, because of its relevance for Cambodia, a copy is appended to this report. The report of the ILO Director-General, Juan Somavia, on the theme of Decent Work (ILO, 1999), assigns significant importance to small-scale enterprises and to the informal sector, particularly as a means of creation new employment opportunities. As part of its operational structure to support the ILO’s four strategic objectives, a new International Focus (InFocus) programme has been created on Boosting Employment through Small Enterprise Development (SEED).

The timeliness of this report is underscored by the Royal Government of Cambodia’s programme to demobilize 30,000 soldiers and to provide support to veterans, widows and their families. Many of the target group is likely to want to enter into self-employment or small-scale enterprises, either in a full-time or part-time capacity. Therefore, the recommendations in this report also have a specific relevance to the Cambodia Veterans’ Assistance Programme, as well as being of general interest to the broader micro and small enterprise sector.

The purpose of this UNDP facility is to provide support services for policy and programme development (SPPD). It is intended that the recommendations contained in this report will make a contribution to the formulation of innovative and cost-effective policies, programmes and projects to enhance the employment creation and poverty alleviation potential of the micro and small enterprise sector in Cambodia. It is also hoped that existing MSEs will be supported so that they can provide more secure and sustainable employment in safe, healthy and legally compliant enterprise units.

The ILO wishes to acknowledge the assistance provided throughout the extended duration of this project by the UNDP, Phnom Penh. The comments received on the early draft from the UNDP and ACLEDA were most helpful and these have been addressed in the final version.

The ILO also acknowledges the significant contribution made by the UNIDO during the first phase of this SPPD project. Overall technical coordination was provided during the first phase by Mr Takafumi Ueda, Specialist in Enterprise and Management Development, ILO/EASMAT, and during the final phase by his successor, Mr Gerry Finnegan, Senior Small Enterprise and Management Development Specialist. In addition, the ILO acknowledges the contribution made by Professor Ian Livingstone to the fieldwork and report carried out during 1999.

Ian Chambers
Director
ILO Area Office and the East Asia Multidisciplinary Advisory Team
Bangkok
August 2000

Acronyms used

ACLEDA

Association of Cambodian Local Development Agencies

ADB

Asian Development Bank

AFTA

Asian Free Trade Area

ASEAN

Association of Southeast Asian Nations

BDS

business development services

CCB

Cambodia Community Building

CCRD

Credit Committee for Rural Development

CEPT

Common Effective Preferential Tariff

CRS

Catholic Relief Services

CVAP

Cambodian Veterans Assistance Programme

DTVET

Department for Technical Education and Vocational Training

EU

European Union

MAFF

Ministry of Agriculture, Forestry and Fisheries

MFI

Microfinance Institution

MFN/GSP

Most Favoured Nation/Generalised System of Preferences

MIME

Ministry of Industry, Mines and Energy

MOEYS

Ministry of Education, Youth and Sports

MSE

micro and small enterprise

NGO

Non-government organisation

NTF

National Training Fund

NTTI

National Technical Training Institute

PTC

Provincial Training Centre

PVMEC

Prey Veng Microenterprise Centre

RCAF

Royal Cambodian Armed Forces

RDB

Rural Development Bank

RGC

Royal Government of Cambodia

SME

Small and medium scale enterprise

SEDP

First Five-Year Socioeconomic Development Plan, 1996-2000

UNHCR

United Nations High Commission for Refugees

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.

Recommendations

Based on the findings of the ILO mission to Cambodia in mid-1999, as well as of the ILO/UNIDO Situation Review (1997), the following set of recommendations is proposed.

1. There is a pressing need for more information on the following matters so that more effective support policies, programmes and projects can be designed and implemented:

The operation and status of the informal sector in Cambodia, both in the urban and rural areas, and covering women and men as well as family/household units;

A comprehensive assessment of the enterprise activities that are receiving financial support from the “microfinance institutions”;

The barriers and obstacles, opportunities and potential of women entrepreneurs in Cambodia;

The state of working conditions in the MSE sector.

2. There should be a review of the policy, legal and regulatory environment facing enterprise promotion, creation, development and growth in Cambodia, to determine “gaps”, inefficiencies, scale biases, and other barriers to a conducive enabling environment for the MSE sector;

3. Cambodia should benefit from some of the relevant and appropriate international best practices in business development services, including the fields of business management and appropriate skills training; entrepreneurship development; marketing supports and linkages; technology information and development; improvements to productivity and competitiveness; support for e-commerce initiatives; further expansion of member-based associations of entrepreneurs to other sectors and provinces; other key BDS activities.

4. Information centres should be established (e.g. in the form of “one-stop-shops”) to disseminate information on MSE establishment and development; procurement of technology, processes, materials and equipment; information and communication technologies (ICTs); markets and marketing, including exporting;

5. Particularly in relation to proposals for support for small business training and entrepreneurship development, the expected improvements in the performance of assisted MSEs should be manifested in a range of ways:

Improved performance, productivity, competitiveness and profitability of the MSEs themselves;

Improvements in the loan repayment capacity of those MSEs which also benefit from loans from the microfinance institutions (MFIs), thereby contributing to greater effectiveness and efficiency of the MFIs;

An improved progression rate from “micro” to “small” and from “small” to “medium” sizes of enterprises, in terms of their employment generation and business development;

Improvements in the quality and range of products and services provided both to local communities, as well as through trading linkages, to the larger medium and large-scale enterprises, and export-oriented enterprises.

6. Given the relatively low level of literacy among MSE operators, training needs and knowledge requirements should be met through highly participatory, innovative and “material-less” techniques.

7. Targeted forms of assistance should be provided by the Royal Cambodia Government in association with donor support to develop those business sectors that have acknowledged external economies and that are likely to contribute both directly and indirectly to national development. These should include sectors such as building and construction, building products and supplies, transportation, food production and processing, and the tourism sector.

8. More flexible forms of skills training should be encouraged and made available, particularly through private sector training providers.

9. There should be active public debate of the role of the MSE sector in national economic development, and this report could be used as a key background document to stimulate discussion and enable the formulation of new supportive approaches.

10. The MFIs should not ignore the importance of the urban-based borrowers, particularly those involved in MSEs. Credit lines should be opened to enable urban-based MSEs, particularly in Phnom Penh, to have access to commercial finance for their working capital and long-term investment requirements.

11. Pilot activities should be undertaken to improve the quality of working conditions in MSEs, to be implemented through the various associations of small-scale enterprises.

12. The impressive development of groups of associations of SMEs in the North West of Cambodia should be consolidated, promoted and expanded with assistance from the donor community.

1. Background and introduction to the SPPD report

1.1 In 1997 the UNDP in Cambodia requested support services in programme and project development (SPPD) from the ILO Area Office in Bangkok and UNIDO, then with an office in Bangkok, an assignment for which the ILO was designated as the lead agency.

1.2 During 1997, the ILO/UNIDO team carried out extensive preliminary work, a draft Situation Review was prepared, and plans were made for a national workshop in August 1997. (A copy of the 1997 situation Review is included as Part B of this report.) However, due to the events of July 1997 it was not possible to hold the workshop and plans were put on hold.

1.3 In due course, the situation in Cambodia became conducive to completing this SPPD exercise, but due to the passage of time the ILO felt that it was more appropriate to revise and review the SPPD findings in the light of up-to-date events, developments and priorities within the country.

1.4 In June 1999, following a proposal from the ILO, the UNDP gave its approval for an ILO mission (in the absence of a UNIDO presence within the sub-region) to carry out such a review and to “refresh” the report and findings as necessary.

1.5 The ILO mission was fielded in June 1999, and a first draft of the report was completed. ILO colleagues in Geneva and Phnom Penh provided additional comments, and these were incorporated into the draft submitted to the UNDP (draft dated 30 November 1999). Subsequent comments from the UNDP in Phnom Penh have been included in this revised draft, as well as several updates of information submitted by ILO colleagues.

1.6 While this report is primarily concerned with the contribution that micro and small enterprise development can make to poverty alleviation in Cambodia, there are relevant lessons that can be drawn from the ILO’s work globally, as well as in neighbouring countries, such as Thailand and Viet Nam. In recognition of the relevance of the ILO’s Recommendation on General conditions for the promotion of job creation in small and medium sized enterprises (Recommendation 189, 1998), a copy of this recommendation has been appended to this report. This provides a comprehensive and systematic framework as well as policy guidelines for SME development, and such a framework is lacking in Cambodia at present.

1.7 In addition, the ILO, in association with several key donor agencies and international organizations, is playing a key role in the work on the Small Enterprise Development donor group. This group has been instrumental in identifying “best practices” in business development services (BDS) globally. While much attention has been devoted to the provision of microfinance and the creation of microfinance institutions in Cambodia, there has been little attention given to the provision of a wide range of BDS for micro and small enterprises in the country. There is much that can be gleaned from international best practices in this field, and there are many opportunities for adapting and testing various approaches in the Cambodian situation. For a view of international BDS provision, the reader is recommended to see the ILO’s website on www.ilo.org/public/english/employment/ent

1.8 It is particularly welcoming to view the recent statements of HE Minister Sok An, Chairman of the Council of Ministers3, as they place the content and findings of this report clearly in the context of national development priorities.

3 As quoted in the Phnom Penh Daily, circa 3 February 2000, under the heading of State Support for Development.

“The government will do everything to encourage and assist small and medium-sized enterprises because of its pivotal role providing opportunities for large segments of the community. Cabinet Minister, Sok An making the pledge said that in addition to endorsement, the state would create the legal and political framework and environment for SME development. SMEs, he said, were the backbone of the free enterprise system that had proved itself in both developed and developing nations. An said that it created jobs for even the unskilled or formally untrained, increased incomes and best of all, instilled entrepreneurship. (...) An said that to sustain growth in the reform-orientated programme, the government would have to provide specific measures and subsequent action to develop the national economy. One of these measures, he said, was the development of SMEs....”

1.9 In submitting this revised draft report to various key actors (including the UNDP and the UNIDO), the ILO would like to acknowledge the support provided thus far by UNDP for this exercise, as well as to thank UNIDO for its involvement in the “partnership approach” developed at the country level between ILO and UNIDO during the first phase of this work.

1.10 All comments, observations and corrections received thus far have been incorporated into this revised version of the report, and we would hope to produce the final report once cleared by the UNDP in Phnom Penh.

2. Employment and unemployment in Cambodia

2.1 Given the low level of agricultural incomes in Cambodia, there is an obvious need for generating further incomes and employment outside agriculture through the promotion of micro and small enterprises (MSEs), whether in rural or urban areas. By way of background, the different dimensions of the employment/unemployment situation in Cambodia may first be considered.

2.2 According to the 1996 Socio-Economic Survey of Cambodia (SESC, 1996), 78 per cent of the labour force of some five million persons was engaged as a primary occupation in the Agriculture, Forestry and Fishery sector, only 4.7 per cent in industry and 17.1 per cent in services and trade. At the same time, however, one in four persons had a secondary occupation, often engaged in a household enterprise. In line with this, almost 90 per cent were working on their own account or as unpaid family workers, and just 10 per cent as employees (including 3.5 per cent as full professionals or in the Armed Forces). If the 78 per cent in the Agriculture, Forestry and Fishery sector are deducted from the 90 per cent operating on their own account, this leaves a significant 12 per cent operating on their own account outside the primary sectors, that is, in micro and small enterprises in manufacturing, trade and services. It is noted, however, that many farming households are also engaged in some form of micro business to complement their income from farming4.

4 Comments from ACLEDA, 29 January 2000, op cit.

2.3 Open unemployment, to the extent that it exists, is likely to manifest itself in Phnom Penh, as a result of job seekers drifting to the capital city, which accounts for a dominant share of the urban population in Cambodia. According to the latest available labour force survey of Phnom Penh, for the second quarter of 1998, the overall unemployment rate is not especially high, at 2.1 per cent (1.7 per cent among males and 2.5 per cent among females). The situation is less favourable if one breaks the figures down by age. Table 1 shows rates of over 5 per cent among males in the age groups 20-29. Among females, rates are much lower in these age groups but are as high as 7.0 per cent in the age group 15-19.

2.4 In terms of educational attainment it can be seen (Table 2) that male unemployment is concentrated among Class 4 school-leavers and especially Class 9 school leavers (others dropping out at Classes 7 and 8). A third group is made up of male secondary school certificate holders. Female unemployment is more evenly spread over the whole range of educational attainment, including those who never attended school. The steady rates of school dropout in the case of females, contrasting with those of males, suggest underlying social explanations.

2.5 Given the high current rates of rural-urban migration, these rates may increase significantly in the future. Already the share of urban population in the total for Cambodia is estimated to have increased from 15.5 per cent in 1993/4 to 16.7 per cent in 1996. This implies an increase of 13.5 per cent in the absolute size of the urban population in that relatively short time, and thus an annual rate of increase of 5.2 per cent. This rate would produce a further increase over the next five years of half a million people.

Table 1. Phnom Penh unemployment rates by age and sex, 1998, second quarter

Age group

Male

Female

10-14

0.0

0.0

15-19

2.6

7.0

20-24

5.2

2.7

25-29

5.7

3.2

30-34

0.8

2.7

35-39

0.9

0.0

40-44

0.0

2.6

45-49

0.0

3.1

50+

0.0

0.0

Total

1.7

2.5

Source: National Institute of Statistics, Labour Force Survey of Phnom Penh, Second Quarter, 1998.

Table 2. Phnom Penh unemployment rates by highest educational attainment and sex, 1998, second quarter.

Unemployment rate

% of total unemployed

Educational attainment

Male %

Female %

Male %

Female %

Not attended school

0.0

2.5

0.0

6.1

Class 1-2

0.0

0.0

0.0

0.0

Class 3

0.0

4.5

0.0

18.4

Class 4

4.2

1.7

18.2

5.5

Class 5

0.0

1.7

0.0

6.2

Class 6

0.0

5.0

0.0

13.9

Class 7

1.5

5.3

8.4

18.4

Class 8

1.2

2.9

8.2

12.3

Class 9

7.1

5.0

39.2

12.3

Class 10

2.7

0.0

9.1

0.0

Class 11

0.0

6.1

0.0

6.6

Secondary school certificate

2.7

0.0

16.8

0.0

TOTAL

1.7

2.5

100

100

Source: as Table 1.

2.6 In fact, the likely rate of rural-urban migration will be still higher, due to two related observable phenomena in rural Cambodia. The first is that agricultural mechanisation is proceeding apace in many parts, displacing and reducing the demand for labour. Secondly, this opportunity for more mechanised agriculture serves as an incentive also for unethical or forced expulsion under threat of small farmers from their own holdings, in what is widely described as land grabbing. In the north-west of Cambodia this has led to an even less desirable form of migration, the increased search by Cambodians for employment outside the country, in Thailand.

2.7 There is a specific further problem of seasonal unemployment in rural areas. As evidence of this, a recent survey in Phnom Penh (Sophal et al, 1998) revealed that 89 per cent of cyclo drivers interviewed, 80 per cent of porters and 27 per cent of female vegetable traders were based residentially in rural areas. This indicates both a need an opportunity for the development of non-farm employment in the rural areas.

2.8 An immediate employment problem relates to the prospective demobilisation of some 55,000 redundant soldiers; and to 27,000 refugees due to return from Thailand, the latter hopefully to be re-absorbed in rural areas. To this must be added further substantial retrenchment from the Civil Service, as part of the reforms aimed at raising levels of pay and increasing efficiency.

2.9 Notwithstanding all the above, it can be concluded that there is as yet no general problem of open unemployment in Cambodia. However, as in other developing countries, this is associated with the absence of social security provision: the fundamental problem translates itself into one of low incomes in Cambodia, outright poverty through being engaged, often overworked, in low income, low return activities such as one-crop rice production. The problem thus becomes in large part one of rural development in order to raise incomes above the current (1998) per capita level of just $255, one of the lowest in the region. This means raising both farm and non-farm income in the rural areas, as well as providing urban employment.

2.10 Given the low incomes secured from crop production by most farm households, it has already been necessary for rural households to diversify income sources, as revealed by the 1993-4 Socio-Economic Survey of Cambodia (SESC 1993-4) (Table 3). This suggests that 44 per cent of monetary and non-monetary income of households in Cambodia came from business, broadly defined - 49 per cent in the case of Phnom Penh, but even in rural areas as much as 41 per cent. In both cases the values for agriculture appear to be substantial underestimates, it should be said, viewed against labour force survey figures for 1998. The SESC found that one-third of rural workers had secondary, occupations, compared with 8.5 per cent in Phnom Penh and 16.5 per cent in other urban areas. The low level of salaries in the public sector of $20-30 per month has led public servants of all categories to take up small enterprises in order to secure a livelihood.

Table 3. Sources of household income: Phnom Penh, Other Urban and Rural, 1993/4

Source of income

Phnom Penh

Other urban Percentages Except as indicated

Rural

Cambodia

Monetary

63.2

61.4

69.5

67.4


Wages

14.2

13.7

6.6

9.2


Business (non-ag activities)

40.2

38.9

33.6

36.8


Agriculture

1.2

5.8

27.2

18.1

Non-monetary

36.8

38.6

30.5

32.6


Own house

26.5

23.5

6.3

12.7


Non-ag activities (business)

9.0

9.3

7.2

7.7


Agriculture

0.6

5.1

16.3

11.4

Monetary & Non-monetary


Business

49.2

48.2

40.8

44.5


Agriculture

1.8

10.9

43.9

9.5

Total

100

100

100

100

Riel per household per month

535,542

264,350

130,849

Number of households

121,134

124,012

947,747

Source: SES Cambodia, 1993/4, all rounds, reproduced in SEDP.

3. Government priorities, plans and capacities affecting the MSE sector

3.1 As stated in the 1997 Situation Review, the First Socio-Economic Development Plan 1996-2000 (SEDP) established the framework for the medium-term development of the country’. The Review picked out the main elements of the plan that are particularly relevant to micro and small enterprise development and private sector development.

3.2 Implementation of the Plan was set back substantially following the events of July 5/6, 1997, when major donors withdrew their support. This withdrawal, lasting not far short of two years, had both direct effects in terms of unimplemented programmes and indirect effects in terms of spending and income generation within the economy.

3.3 The situation in mid-1999 is that donor assistance has fully resumed in a politically-stable situation. This has already brought a response in terms of normal economic activity. Since the Five Year Plan is essentially a statement of policy directions within each area, it remains valid and is being treated as such by the current political authority. It is possible, therefore, to re-review the elements referred to above.

(i) “Generation of employment through labour-intensive manufacturing for export, the promotion of small-scale enterprises and the urban informal sector and the development of tourism”.

3.4 The encouragement of labour-intensive manufacturing for export is not only a major element of the Plan’s industrial strategy but is part of the on-the-ground policy incorporating what have actually been over-generous fiscal and related incentives to foreign investors, starting in 1994. The main impact has been on the growth of the garment industry factory approvals made by the Cambodia Investment Board (Table 4).

Table 4. Garment factory approvals by Cambodia Investment Board, 1994-98

Year

No. of factories

Fixed assets proposed ($000)

Estimated nos. employed at full capacity

Average no. of employees per establishment

1994

11

27696

10184

926

1995

27

33939

16974

629

1996

40

42871

24771

619

1997

102

110429

82832

812

1998

81

111611

82724

1021

1994-1998

261

326546

217485

833

Source: CIB database

3.5 The number of garment factory approvals increased from 11 in 1994 to over 100 in 1997, reducing in 1998. The planned employment associated with this increase amounted to 217,000 jobs over the period 1994-98, the figure for 1998 being eight times that in 1994. The size of establishments measured in terms of persons engaged is very large, averaging over 1,000 in 1998. This is not a policy which the Royal Government of Cambodia would wish to abandon and the main danger is the possible loss of privileged market access under MFN/GSP status, partly related to the labour policies pursued. From the point of view of small enterprise development, its main significance is confirmation of the RGC’s adherence to Plan policies and of the resilience of private foreign investment in the circumstances of the period.

3.6 The actual number of factories established differs from approvals. The former in fact increased more steadily, if at a lower rate, in terms also of numbers employed (Table 5). The actual number of establishments in the Textile and Wearing Apparel sector as a whole at June, 1998, was 149, including 50 garment factories employing 500 or more and 112 employing 200 or more.

Table 5. Established garment factories and garment exports, 1994-98

Year

No. of factories

No. of employees

Total exports ($mn)

1994

9

2270

3.4

1995

17

9060

26.5

1996

39

17704

76.1

1997

72

36717

201.9

1998 (projected)

89

54000

250.0

Source: Standard Chartered, South East Asian Quarterly, January 1999

3.7 In tourism, discussed below in Section 13, government policies can be seen as positive, if not as sufficiently active. In the field of small enterprise, the Ministry of Industry, Mines and Energy (MIME) has a Small Industry Unit, which has the objective, if not the resources, to promote small industries. The absence of government regulations and involvement in the sector has had the positive aspect of allowing the urban informal sector to have a free rein.

(ii) “Achievement of poverty alleviation and broad participation in the development process through a focus on participatory rural development”

3.8 Poverty alleviation and the achievement of rural development continue to be emphasised as primary goals in major public statements. A large proportion of donor assistance and NGO efforts is being channeled in this direction. NGO credit programmes have the poorest households as their main focus although ACLEDA, the largest one, is increasingly directing credit towards independent small enterprises, which can play an important role in rural development.

(iii) “Development of the productive base of the economy through rice production, livestock production and diversification of the commercial livestock sector”

3.9 As the ILO/UNIDO 1997 Situation Review notes, many of the MSEs, particularly micro-enterprises in the rural areas, are engaged in agricultural and livestock activities (e.g. mushroom growing, duck-raising). As commented upon below, in our new review, while the Ministry of Agriculture, Forestry and Fisheries (MAFF) has very limited capacity in agricultural extension, the credit NGOs have been encouraged to enter this field in conjunction with credit distribution and could become more effective in the area of agricultural credit. In promoting MSEs it should be recognised that these should include both household agricultural enterprises and agro-business.

(iv) “The upgrading of human skills and their adaptation to those that are commensurate with a modern market economy”

3.10 The Royal Government of Cambodia’s priority in education has been the provision of basic education widely across the country, and this has been pursued. The ADB-sponsored Textbook Project has completed the production and distribution of textbooks for Grades 1-8 and is extending this to Grades 9-11, to cover also lower secondary schools. As the World Bank Survey of Small and Medium Scale Enterprise (SME) in Cambodia (World Bank, 1996, p.5) shows, educational attainment among SME owners is higher than for the urban population as a whole, international evidence also indicating a positive effect of education on small enterprise development. The Royal Government of Cambodia is attempting to coordinate efforts towards vocational training through its Department of Technical Vocational Education and Training (DTVET) within the Ministry of Education, Youth and Sports, as discussed later in this report.

(v) “Substantial investment in the upgrading and development of physical infrastructure, particularly rural roads”.

3.11 The road network is seen as the most serious impediment to development in Cambodia and rehabilitation of the major highways in the country is ongoing with donor assistance. The ILO Labour-based Infrastructure project, focussing on rural access roads, remains in progress, while a department of the Ministry of Rural Development has a similar focus and approach. This will progressively widen the market for local small enterprises, though it will also in due course increase the already strong competition from imports. Plans are being considered for the provision of rural electricity that could permit significant development of rural enterprises.

(vi) “Establishment of macroeconomic stability and creation of the institutions, instruments and policies necessary for prudent, long term economic management”

3.12 The Royal Government of Cambodia has continued to pursue a conservative macroeconomic policy. Due to the highly “dollarised” economy, Cambodia has been less affected by the regional crisis, though depreciation of other regional currencies as a result of the crisis will sharpen competition.

(vii) “Reform of the administrative and judicial institutions of the State, through reorganisation of the public service and more effective liaison between central and provincial administrations”.

3.13 Plans for the reform of the civil service, the teaching service and the Armed Forces have been in existence for several years. While certain progress has been achieved in the last case, overall implementation has been very slow indeed in reducing the numbers of staff surplus to requirements. This imposes an immense burden on the Government budget and has not allowed it to increase salary levels even for the most senior posts, such as judges, above $30-40 per month, leading to lack of commitment, inefficiency and rent-seeking. It has indirectly spawned the development of many small and household enterprises as public servants have been obliged to find other means of securing a living.

3.14 The effect on the Government budget, in combination with inadequate tax-raising efforts by the Royal Government of Cambodia (currently receiving some stimulus under international donor pressure), has left the Royal Government of Cambodia with a very limited capacity to operate. Ministries are seriously lacking in recurrent funds and depend for much of their programmes on whatever current donor-assisted projects they have been able to attract. Cambodia therefore remains very much a donor- and NGO-dependent economy, with both donors and NGOs enjoying substantial leverage in the direction of policies and on-the-ground programmes.

3.15 A very positive feature, however, is the noticeable improvement over four years, across all ministries, in the senior executive cadre of government, which has definitely increased the potential for more nationally-based economic management once the public sector reform programmes are completed.

3.16 In an otherwise relatively conducive ‘enabling environment’, one negative element which falls particularly heavily on micro, small and medium enterprises and, via those attempting to transport goods to or from rural and urban markets, on producers and consumers, is the imposition of unofficial ‘taxes’ on goods in transit. This appears to be a widespread problem, in part related to depleted local government revenues resulting from lack of Royal Government of Cambodia budget decentralisation to the provinces, a problem which still needs to be tackled.

(viii) “Reintegration of the Cambodian economy into the regional and global economies and liaison with regional institutions”.

3.17 Cambodia was admitted into ASEAN on April 30, 1999. This is viewed as a major step forward in terms of both political and economic development, establishing Cambodia firmly as a member of a regional group of nations.

4. Micro and small-scale enterprises in Cambodia

(a) The household enterprise sector

4.1 In discussing micro and small enterprise, we may distinguish between household-based enterprises and independent small enterprises, both of which can also fall into the category of what has been described as the ‘informal sector’. A large proportion of group loans through NGO agencies probably go, apart from household farm production, to other household-based activities. A feature of Cambodia, however, is that in urban areas, also, small-scale enterprises are often household-based, with residences and enterprises existing cheek-by-jowl, unzoned and intermingled5.

5 This is in fact quite common in Asia and is also observable, if less dominantly, in Bangkok.

4.2 The 1996 SESC gives (the only) good information on this aspect, being based on a stratified sample of 9,000 households in 750 villages and spanning both rural and urban areas. This showed that 11 per cent of households (one in nine) operated a business from their household premises, and as many as 20 per cent (one in five) in Phnom Penh. Extrapolated to the national level, this gave more than 185,000 households engaged in the six most common activities, retailing accounting for more than half, with textiles and wearing apparel (tailoring) also important (Table 6).

Table 6. Most common household-based enterprises in Cambodia, 1996

Activity

No. of enterprises (1000)

% of enterprises

Retailing

98.6

53.2

Textiles manufacture

37.9

20.5

Weaving apparel manufacture

21.2

11.4

Wood & wood products

13.9

7.5

Grain milling

6.8

3.7

Sugar making

6.8

3.7

185.2

100

Source: SESC, 1996

(b) Small scale enterprises

4.3 Data on registered industrial establishments are collected by the Industrial Statistics Division of the Ministry of Industry, Mines and Energy (MIME). We can refer to establishments employing 1-9 persons as micro-enterprises (including 1-2 as self-employed), and 10-49 persons as small enterprises6. There are a vast number of establishments in the former category, as can be seen in Table 7. The total number in 1998 in both categories, 24,663, compares with 28,554 recorded in 1997 and 25,620 in 1996 - an apparent decline which reflects clearly enough the effects of the regional crisis and reduced aggregate demand.

6 Credit NGOs in Cambodia use different definitions in their operations, as will become apparent.

4.4 The figure of 24,663 micro and small industrial establishments in 1998 compares with 252 establishments employing 50 persons or more. The vast majority of manufacturing/industrial establishments in Cambodia thus fall in the micro/small category. Of course, one large garment factory, which may employ 800 persons or more (as noted previously) will employ as many people as 160 micro establishments.

4.5 Table 7 brings out the overwhelming importance, in terms of number of establishments, of the Food, Beverages and Tobacco industry, accounting for more than three-quarters of the total number of industrial establishments.

4.6 The number of establishments in the category 10 and under 50 persons is significant in showing the potential capacity of enterprises in the different industries to expand in size: this shows up again the Food, Beverages and Tobacco category, but also enterprises in Mining and Quarrying; Wood and Wood Products; and Fabricated Metal Products.

Table 7. The number of micro & small industrial establishments by industry, 1998

No. of establishments

Industry

Less than 10 persons

10 and less than 50 persons

Total less than 50 persons

50 and above

Mining and quarrying

35

74

109

28

Manufacturing

23597

510

24097

218


Food, beverages & tobacco

18419

171

18590

33


Textiles, wearing apparel

291

19

310

130


Wood and wood products

847

48

895

22


Paper and paper products

15

11

26

2


Chemicals, rubber and



Plastic products

25

30

55

10


Non-metallic mineral



Products

624

187

811

15


Basic metals manufacture

-

4

4

1


Fabricated metal products

1334

37

1371

5


Other manufactured



Products

2033

2

2035

0

Electricity, gas and water

438

19

457

6

TOTAL

24061

602

24663

232

Source: MIME (1998) Activity Report of the Industry, Mines and Electricity Sector and Plans for 1999

4.7 Further information can be derived from the 1995 Survey of Establishments, which also gives the number of engaged workers by industrial category (Table 8). Manufacturing industries contributing most to employment, apart from garments, which is dominated by large enterprises, include: (1) food and beverages, (2) tobacco products, (3) wood products, (4) non-metallic mineral products (used in construction) and (5) electricity, gas and water supply. Although Table 8 covers all establishments, the preceding Table 7 indicates that in all cases the number of large establishments is small. These are therefore all industries in which potential growth capacity certainly exists (others should not, of course, be excluded) and for which assistance in the form of business management and other non-financial support services may be particularly apt.

Table 8. The structure of manufacturing in Cambodia, 1995, for establishments with 10 or more workers

Industry

No. of establishments

No. of engaged workers

Workers per establishment

Average monthly earnings ($)

Food products and

101

1888

18.7

60.8


Beverages

157

1384

8.8

45.3

Tobacco products

5

213

42.6

48.6

Textiles

15

5210

347.3

44.0

Garments

52

1406

27.0

251.6

Wood and products

6

146

24.3

41.9

Publishing, printing etc

Chemical products

6

97

16.2

63.8

Rubber, plastic products

8

883

110.4

50.3

Other non-metallic


Mineral products

398

5566

14.0

29.4

Basic metals

6

178

29.7

56.6

Fabricated metal

15

267

17.8

47.6

products

13

153

11.8

25.5

Furniture

Electricity, gas & water Supply

24

2271

94.6

16.3

Collection, purification & distribution of water

11

521

47.4

23.2

Total, manufacturing

782

17391

22.2

58.7

Source: Survey of Establishments, 1995, National Institute of Statistics. Data refers to responding establishments.

4.8 The 1995 Survey of Establishments also obtained responses from a limited number of other establishments: ‘transportation’, covering nine land transport establishments and four travel agents, together employing on average 10 workers; construction, employing on average 48 persons (including therefore also smaller enterprises); trade, with an average of 20, and hotels, with an average of 35. These activities fall in the same category as those just discussed above.

4.9 It should be observed that, while micro-enterprises are much more widely distributed across the country, partly in line with population, the ‘small industry’ category is less so (Table 9). These are much more concentrated in Phnom Penh and the surrounding Kandal Province, together accounting for 55 per cent of establishments. Together with just four other provinces (Kratie, Kampong Cham, Battambang, and Siem Reap, they account for 82 per cent of the total.

Table 9. Distribution of small manufacturing industrial establishments in Cambodia, 1998, by province (10-49 persons in size)

Province

Food, beverages

Wood & wood products

Non-metallic mineral products

Fabricated metal products

Other manufactures

Total

Total


No.

%

Phnom Penh

50

10

48

33

60

201

39.4

Kandal

18

4

51

1

4

78

15.3

Sub-total

68

14

99

34

64

279

54.7

Kratie

17

13

15

-

-

45

8.8

Kampong-Cham

19

2

15

-

1

37

7.3

Battambang

14

-

15

2

1

32

6.3

Siem Reap

8

-

15

1

-

24

4.7

Other

45

19

28

-

1

93

18.2

Total

171

48

187

37

67

510

100

Source: as Table 6

5. Constraints on and opportunities for MSE development

5.1 Constraints on MSE development in Cambodia include:

· low incomes and purchasing power

· poor national and local roads

· competition from imports and poor product quality

· lack of good information on domestic and foreign markets, and on domestic and foreign sources of technology and equipment

· shortage of working capital and low household propensities to save

· high cost and limited availability of power

· high “informal” road taxes

· low levels of education and technical skills

5.2 A basic constraint on the development of all kinds of enterprise in Cambodia, including MSEs, is the level of purchasing power, determining demand and the size of the market. This stems from the low per capita income of (in 1998) only $255, including a large percentage of non-monetary income. About 87 per cent of arable land in Cambodia is under rice, a good part of it single-cropped, yielding little more than a subsistence level of income.

5.3 With incomes so low right across the country, the pattern of demand is biased towards goods that are affordable by the poor, that is, towards ‘informal sector’ microenterprise production. The limitations of the domestic market reduce the scope for large-scale factory production - though it has been possible, as already observed, to expand very rapidly the number of garment factories, directed towards the international market. This low level of income has reduced the possibilities for backward or forward linkages between large and small enterprise in Cambodia, where these can be quite important in other developing countries, including neighbouring Thailand, where subcontracting to small enterprise has been a feature. Though uninvestigated, linkages could be quite significant among and between the small enterprises themselves, however.

5.4 A second major constraint is the state of the national road network and of rural access roads. The main east and west highways across the country (Highways 5 and 6) are still under construction, with some sections still awaiting donor funding, so that it takes as much as 14 hours to drive from Phnom Penh to the second largest town, in the north west, of Battambang - a trip that would take no more than 5-6 hours with a good tarmac road. The north-east of the country has still to be developed, and populated, due to lack of communications. As a result, Cambodia has been said to possess a ‘fragmented economy’, with the north-west region developing market links with Thailand, and the north-east with Vietnam. There are, therefore, sub-markets within Cambodia, rather than an integrated national market that can offer economies of scale in production.

5.5 The poor condition of rural access roads fragments the market further, limiting the scope for specialisation and local trade.

5.6 The state of the roads, national and local, increases the cost of materials and the price payable by consumers and, where this cannot be increased, it adversely affects the profitability and viability of enterprises.

5.7 Where, in contrast, good roads have been introduced, the impact has been immediate. Following the construction of Highway 3 to Sihanoukville, for example, there has been a dramatic increase in agricultural and non-agricultural activity, with substantial expansion of settled population.

5.8 A survey of rural road traffic carried out in Siem Reap Province by the ILO in 1998 showed that, following rehabilitation, road users almost doubled the number of trips made, and even more than this in the vicinity of several remote towns. Transporters also reported a doubling in the volume of goods transported. Among villages, bicycle transport frequencies increased by 89 per cent. The average reduction in reported travel time was 44 per cent, with a decrease in charges for all transport means of 38 per cent. In addition, 60 per cent of road users travelled to the district centre or further, compared with 40 per cent of users on non-rehabilitated roads, implying both increased access for buying and selling goods and increased access to health and other facilities only available at the district centre. These changes were associated with the decrease in travel time required and a reduction in transport charges for most road users of at least 20-30 per cent, in respect of both goods and passengers. Road rehabilitation was also found to have boosted motor cycle ownership significantly (and also, presumably, the number of motor cycle repair shops), possibly by as much as a quarter.

5.9 Further, records at five market centres located outside Siem Reap showed a six-fold increase in the total number of market stands, reflecting a sharp increase in the number of vendors, implying a corresponding increase in trade volume, based no doubt on increased farm and non-farm enterprise production.

5.10 Road transport is thus of critical importance to MSE development, directly, but also indirectly by making possible increases in agricultural production and incomes and thus increases in rural purchasing power for the purchase of MSE products. As can be seen, if affects the level of economic activity within communities, It impacts directly on the potential for income generation, and consequently is a barrier to efforts at poverty alleviation.

5.11 A significant obstacle to the development of MSE production, however is strong competition from imported consumer and other goods, which enter through ‘porous borders’ from neighbouring countries, especially Thailand. These countries being able to take advantage of economies of scale to produce and sell very cheaply, are adept at producing the types of cheap consumer goods that are in general demand in Cambodia, competing directly with domestic MSEs,. Most wholesale and retail enterprises in Cambodia are largely re-selling products imported from Thailand, Vietnam and China, with some proportion from Phnom Penh. While MSEs in different parts of Cambodia are able to obtain some natural protection, due to transport costs, this will diminish as transport facilities improve.

5.12 Cambodia’s admission to ASEAN, which occurred on April 30 1999, will have some implications in due course for the MSE sector, and can help to create new opportunities for new markets. On this admission, Cambodia is expected to participate in the schedule of tariff reductions being introduced under the Asian Free Trade Area (AFTA) and the Common Effective Preferential Tariff (CEPT). The CEPT-AFTA scheme makes provision for the reduction of intra-regional tariffs to not more than 5 per cent, over a ten-year period from 1993. This schedule covers manufactured goods, including capital goods, and some processed agricultural products. For the CLM countries, AFTA is likely to be primarily a means of promoting the export of resource-based products and labour-intensive manufactures.

5.13 For MSEs, what can be expected is an intensification of the severe competition already experienced in the area of cheap consumer goods, although the porosity of its existing borders has meant that a proportion of such goods have already been entering the country in evasion of scheduled tariffs.

5.14 Conversely, opportunities for exports of Cambodian goods within the region, particularly to Thailand, should be enhanced, including MSE products, especially those that are resource-based. Obvious areas are agro- and/or food processing (salted or smoked fish, fish sauce, jute-fibre products, traditional-pattern silk and cotton cloth) and wood and rattan products (hardwood and rattan furniture, rattan mats and baskets, reed mats, handicrafts).7

7 Identified in Sanga Uttisun, ‘Report on Market Assessment in Thailand’, UNDP/ILO Small Enterprise and Informal Sector Promotion Project, 30 November, 1993.

5.15 If we extend the definition of micro-enterprise to include household farm enterprises (which are capable of significant expansion with the assistance of rural credit as is currently being extended) there is considerable scope for the export of live animals (pigs, ducks, etc.) to neighbouring countries, though these should not have been subject to tariffs anyway.

5.16 The poor quality of domestic products is a further handicap in competing with foreign imports, which are of better quality as well as being cheaper. Following the years of relative isolation, there is an almost total lack of information regarding international market requirements, for both agricultural and non-agricultural exports, and in respect of information on available technologies and equipment, which could be used in agro-processing and other small-scale industries. There is, moreover, no one agency for an entrepreneur to go to in order to secure any such information.

5.17 The strong and clearly unsatisfied demand for NGO loans is indicative of an acute shortage of working capital among MSEs: working capital, because the limited loan period, mostly 12 months, restricts the value of such credit for longer term investments. Moreover, NGO credit to a great extent replaces the loans previously secured from moneylenders at high interest rates. These rates, up to 30 per cent per month, equivalent to 360 per cent per annum, preclude the use of such credit over periods longer than a few months. This accounts also for the high proportions of NGO credit employed in trading and in seasonal agriculture. One effect of working capital shortage among MSEs is a reduced capacity to produce goods locally to compete with imported goods.

5.18 The commercial banking system itself hardly extends into the rural areas in Cambodia, while the moneylender market is highly imperfect. Among a small group of entrepreneurs interviewed in Prey Veng, local market rates experienced varied from 10, 15, 20 and 30 per cent per month in different villages, access of borrowers being limited to the villages in which they were personally known to the lender.

5.19 This problem is complemented by a low level of savings within rural Cambodia. The proposed ADB rural credit programme identifies this as a major problem nationally and plans to incorporate a savings element into the rural credit programme it is to support. The fundamental cause of the low level of savings is evidently the low level of incomes, but in addition the absence of banking facilities in the rural areas will have had a negative effect on the development of the savings habit. This will clearly retard and reduce the growth and development of MSEs.

5.20 A major handicap for both large and small industrial enterprise in Cambodia is the high cost of power. Electricity generation and distribution was recently observed as being mainly still in the “technological dark ages”8. As a result of the erratic public power supply in Phnom Penh, factories have tended to generate their own electricity, which is still cheaper and more reliable than the public source. MSEs are at a significant disadvantage here, however, because of the economies of scale in electricity generation, and shortage of capital for investment in generators. However, since the time of the mission’s fieldwork in mid-1999, it has been reported to the ILO that “public electricity supply has improved greatly in terms of stability and price”9. Significantly, small scale electric power supply is a common industry in rural and urban Cambodia (see Tables A.1 and A.2).

8 Article in Phnom Penh Post, March 5-18, 1999.
9 Communication from UNDP to the ILO, dated 10 January 2000.

5.21 MIME has now produced a Power Sector Strategy 1999-2016 document as a draft plan for the sector. This proposes to develop a combination of base load thermal generation at Sihanoukville, based on imported oil; only peak load generation in the provincial towns and cities; and, importantly, new hydropower development based initially on the smaller, easily accessible sites such as Kirirom, Prek Thuo and Kamchay, and subsequently through a number of mid-size hydro projects. These outputs will be integrated into a National Transmission System, which will also permit reduced dependence on imported oil and transmission of such oil.

5.22 The incorporation of provincial towns will also facilitate the development of MSEs. However, the plan is also to develop rural electrification, on a limited scale. Recognising that capital investment in rural electrification has a very low rate of return, which will limit private participation, it is proposed to base development on rural electrification cooperatives in the rural areas, benefiting from soft loans.

5.23 After ADB’s completion of its major Power Rehabilitation Project for Phnom Penh, MIME is putting a high priority on gaining support from ADB for a Power Rehabilitation II Project, which would rehabilitate electricity supplies in eight provincial capitals, comprising the first stage of a Provincial Towns Electrification Plan. In the longer run, therefore, one can look forward to development that would give impetus to the development of small scale industries in the provinces.

5.24 Another ADB project, which has been approved, is for water development in six provincial capitals, in addition to existing schemes in Siem Reap and Sihanoukville. The development of power supplies would complement this, the two together facilitating the expansion of small-scale enterprises in provincial capitals across the country.

5.25 Currently, however, a large proportion of MSEs does not use electricity but has been dependent on fuelwood. The rural brick and tile industry is a particularly heavy consumer. The recent ban imposed by the government on the use of fuelwood, in the absence of an immediate alternative, is causing concern and should be replaced by measures to establish sustainable exploitation of fuelwood sources, alongside controls on logging for export.

5.26 A handicap, which has already been mentioned, is the existence of unofficial taxes, levies collected along the roads in rural Cambodia by military personnel. An example given (Ueda, 1995) is of a refreshment and ice manufacturer in Battambang who in 1995 regularly paid between $320 and $800 per trip to transport 20,000 empty bottles from the Thai border. Such taxes are still in evidence and have a particular impact on microenterprises and on farmers and small traders whose goods and materials are transported within the provinces.

5.27 The civil strife of the past several decades has left a legacy of an uneducated/poorly educated (due to the quality of education which was on offer) and unskilled workforce, particularly in the countryside. This means not only a substantial training backlog, but also special problems now in the delivery of technical or business training, as discussed further in Section 8.

6. Rural entrepreneurship in Cambodia

6.1 Is there entrepreneurial spirit in Cambodia, rural Cambodia in particular, which can be tapped? In order to see, in a more or less systematic way, what entrepreneurial activities are actually going on, loan requests granted by ACLEDA, the main credit NGO were analysed in two provinces. Each request specifies the activity involved. In Kampong Cham Province (all four districts) 1,416 loans made to individual clients during the full year of 1998, were examined, and within Battambang Province (where the rate of loan issue has been slower) a further examination was made of 1,128 loans made over the entire period 1994 to February, 1999 (after which such data ceased to be collected).

6.2 It should be stressed that the data does not represent any very accurate sampling of rural activity. Indeed, the sectoral distributions in the two provinces differ significantly (Table 10), reflecting differences in the application of ACLEDA’s lending policy from province to province, based obviously on local and provincial needs. Actual distributions are shown in official statistics as quoted earlier. The purpose here is to provide some disaggregated figures in order to see in detail something of the range of rural activities being carried on (including those in the two provincial towns, which are rural centres). The data, given in Tables A.1 and A.2, cover only loans made to individual clients, not group loans, since the objective here is to focus on micro and small enterprises that have more development potential as fully-fledged businesses.

Table 10. Sectoral distribution of ACLEDA loans in two provinces

Sector

Kampong Cham (1998)
(%)

Battambang (1994-99)
(%)

Farm/fish production

22.8

15.2

Agro-processing

11.8

6.7

Manufacturing

7.6

24.0

Repair

1.4

5.0

Selling

37.4

38.1

General services

19.0

10.9

TOTAL

100

100

6.3 What is significant is the impressive diversity of activities for which loans have been sought, and it is not suggested that these are the only ones that have potential. There are indications here of specialisation in particular lines which have been identified as having commercial promise: for example, within farm production, mushroom growing, seed production and small trees growing. Within manufacturing there is considerable diversity, including concrete pipes, water jars, trailers, wooden shutters, stoves, ploughshares, mattresses, motorbicycle saddles, ladders, threshing and firewood-cutting machinery. In the services category there is also a wide range, e.g. karaoke, a minibus service, house renting, purchase and sale, language and music schools, and a library.

6.4 The lists are sufficiently impressive to contradict the view often expressed by observers in developed countries and in the ILO 1997 Situation Review of Cambodia that ‘enterprises tend to choose the same line of business, thus creating competition in small markets’... suggesting that ‘the abilities of MSEs to identify viable... business opportunities are lacking’ (Situation Review, 1997, p21). In fact, this tendency may reflect the limited opportunities open locally, for instance in the face of competition in alternative lines from imports, and free entry into limited local activities among a large number of similarly capable persons.

6.5 There is also considerable evidence (from the research of Rozemuller) the Cambodian entrepreneurs are also very flexible in adapting and switching from one enterprise activity to another - either temporarily or for longer periods - and even having more than one “business unit”. Rozemuller cites examples of brick plant managers who were rearing ducks, and also selling their “waste” ash as fertilizer.

6.6 Given the much more active picture of the rural and provincial urban economy revealed here, one can be more optimistic of returns to promotional effort in the MSE sector. As we shall note, ACLEDA and other NGO credit agencies have in the past offered only limited training, centred upon the preparation of the business plan needed to secure a loan. In order to permit it to concentrate on developing its competencies in its core business as a microfinance institution, ACLEDA over the past few years has curtailed the training it was giving. This was also based on its own comprehensive and systematic market research, and its experience of the enterprise sector in Cambodia, and this training is now reduced to a minimum related to the loan application. As a consequence, a substantial gap would thus appear to exist across the whole range of non-financial business support services and business development services (BDS), of which training is but one approach. In addressing this gap, support would be provided not only for entrepreneurs per se, but also indirectly for the microfinance institutions, many of whose borrowers are entrepreneurs. The provision of cost-effective business support services should enhance the performance of the entrepreneurs’ businesses, and should lead to a better quality of borrower, with reduced risks for the lending institutions.

7. Credit for MSE development

(a) Background

7.1 The expansion of micro-enterprise credit by NGOs in Cambodia has been a major success story. Despite its main focus on the rural poor and a very high rate of expansion, repayment rates approaching 100 per cent and thus a high degree of sustainability of revolving funds has been achieved and maintained. ACLEDA, initiated in 1993 with ILO support, has been the dominant vehicle, but as many as 80 NGOs are now involved in the extension of microcredit to some degree. The bulk of credit being disbursed is through groups of 5-10 persons, generally women, in some cases using a village bank model in which the village as a whole serves as guarantor.

7.2 At an early stage, in February, 1995, the Cambodian government established the Credit Committee for Rural Development (CCRD) with the purpose of improving the coordination of policy among the disparate NGOs and of establishing in due course a Rural Development Bank (RDB). The latter now exists, in embryonic form. The main objectives of the Royal Government of Cambodia in rural credit were stated in 1997 to be to ‘foster the development of rural credit’... ‘achieve high efficiency of rural credit activities’... and ‘maintain sustainability of rural credit activities’. (CCRD, 1997). It is envisaged that the RDB would act largely as a ‘wholesaler’ of credit, which would be distributed through an expanded NGO system based especially on legalised micro-finance institutions (MFIs).

7.3 According to the 1996 Socio-economic Survey of Cambodia (SESC) an estimated 704,000 rural households, about 40 per cent of the total, took loans during the two years 1994 and 1995, of which only 1 per cent came from banks and another 10 per cent (since increased) from NGOs and other such agencies. This implies enormous scope for the substitution of cheaper NGO credit for existing sources of loans. Different estimates have been made of the total and the unsatisfied demand for credit among rural households, a recent one by ADB putting these at US$69 million and $37-40 million respectively. The demand for rural credit in Cambodia is thus extremely large. NGOs interviewed by the Mission were of the unanimous view that a large unsatisfied demand exists.

7.4 It should be noted that not all borrowing is intended for investment, by any means. A study of three provinces by Murshid (1998), dividing rural households into six income strata ranging from the ‘rich’ and ‘well off’ to the ‘very poor’, showed great differences between strata in the uses to which credit was put. In the case of the ‘very poor’ 70 per cent of borrowing from all sources was for family rice consumption and 20 per cent for health treatment, both representing distress - relief borrowing. Among the ‘well off only 11 per cent of loans were for rice consumption and 9 per cent for health treatment, leaving 80 per cent for other purposes, including more directly productive ones. This offers something of a dilemma for NGOs aiming particularly at rural poverty alleviation but also wishing to promote more positive rural development.

(b) Absorptive capacity of the NGO-MFI system

7.5 In recent years, credit lines have been available to NGOs from a number of international sources, notably the UNDP and ILO project, and the EU. With the restructuring of the sector under the umbrella of the RDB and conversion of some of the leading credit NGOs into MFIs, after the Assembly passes the relevant law, the ADB expects to make available a substantial new injection of some $26 million, including $20 million from its own sources.

7.6 Several NGOs have put forward extremely ambitious expansion programmes, despite starting from relatively small bases. At the time of the ILO mission in mid-1999, and from the latest statistical records available to the mission, the sector appears to be dominated by ACLEDA (Table 13). This information also shows that ACLEDA accounts for 70 per cent of lending by the 25 main NGOs involved in credit operations, the next four together accounting for only a further 20 per cent and the remaining 20 just 10 per cent between them.

7.7 GRET (Ennatien Moulethan Tchonnebat) anticipates a new injection of external funding of some $3.5 million and plans a more than five-fold increase in loan disbursements over the period 1998-2004, implying annual rates of increase of 25-27 per cent. Cambodia Community Building proposes to increase the value of loans outstanding from $818,000 currently in 1994 to $5,425,000 in 2004, a seven-fold increase over five years, implying annual rates of increase of 40 per cent or more. Catholic Relief Services is more cautious, given the need to expand only as fast as more trained credit agents can be produced, and it aims first to consolidate its activities. A particular element here is that CRS has operated as a ‘wholesaler’ through other NGOs, so that only two of its eight credit outlets are its own branches. In order to establish itself as an MFI it will need to expand its own credit structures. Taking the five prospective MFIs together, it will be important that existing structures do not become flooded’ with new credit at the expense of their existing high efficiencies.

(c) Group loans versus individual small enterprise loans

7.8 In addition to its contribution to poverty alleviation, an objective of microcredit should be the expansion of small enterprises. A substantial portion of many NGO programmes in Cambodia is for group credit, almost entirely to women grouped into units of 5-10, each woman receiving a relatively small loan. As shown in Table 11, 23 out of 25 leading credit NGOs had average loan sizes in December 1998 of below $50, and 16 had average loan sizes below $30. Where these are used for income-generating purposes (the loans are potentially fungible) they are often used to improve existing farm production rather than to establish new non-farm enterprises.

7.9 An example of a poverty alleviation programme with a strong focus on group credit and very small loans is that of Cambodia Community Building (CCB) which, as its name suggests, aims to target communities, in terms of impact, rather than individual enterprises. CCB provides lending through ‘village banks’ with an average of above 11 clients, through smaller ‘solidarity groups’ with 4-8 clients, and to individuals. At the end of March 1999, it was supplying 680 village banks and 330 groups, and 224 individual clients (Table 12). Village banks and groups together accounted for about 82 per cent of loans outstanding, although the 1.6 per cent of individual clients were able to secure 18 per cent of the total value of funds disbursed.

7.10 Similarly, GRET/EMT currently has only 100 small business clients among a total of 40,000 clients, these accounting for only 1.4 per cent of loans outstanding at end-1998, about $100,000 out of $7,256,000. Although EMT plans to retain poverty alleviation through group lending as its primary focus, and sees its move towards MFI status as a means to sustainability, its programme for individual loans implies a 35-fold increase to 2004, with annual rates of increase initially of 100 per cent. The mean loan size for individual clients at end-1998 was $167, much lower than for CCB, which averaged $894.

Table 11. Credit provision by the 25 largest NGO credit providers. 31 December 1998

Name of organization

Organization type 1/

Loans outstanding

Borrowers

Avg. loan out/Borrower


KR m. 2/

%

No. 3/

%

KR

$

1. ACLEDA

NGO

Pros. MFI

37,385

70

62,215

31

600,900

159

2. Ennatien Moulethan Tchonnebat/GRET

Pros. MFI

4.687

9

39,824

20

117,693

31

3. Catholic Relief Services

Pros. MFI

2,.598

5

19,618

10

132,429

35

4. Cambodia Community Building

Pros. MFI

1,885

4

12,404

6

151,967

40

5. Seilaniti

1,816

3

10,435

5

174,030

46

6. Hattha Kaksekar

Pros. MFI

1,323

2

2,926

1

452,153

119

7. Action Nord Sud

850

2

8,062

4

105,433

28

8. WVI-C

1,065

2

17,285

9

61,614

16

9. Adhoc

357

1

2,979

1

119,839

32

10. Samarky

224

0.4

1,822

0.9

122,942

32

11. CHC

187

0.4

1,873

0.9

99,840

26

12. LWS

174

0.3

1,753

0.9

99,258

26

13. CWDA

125

0.2

1,290

0.6

96,899

26

14. MCC

103

0.2

1,405

0.7

73,310

19

15. Camfed

97

0.2

1,192

0.6

81,376

21

16. Concerm

93

0.2

3,400

1.7

27,353

7

17. Arunreah

91

0.2

785

0.4

115,924

31

18. Samarkithor

81

0.2

897

0.4

90,301

24

19. CIDSE

73

0.1

3,299

1.6

22,128

6

20. Help the Widows

69

0.1

663

0.3

104,072

27

21. Padeck

41

0.1

6,517

3.2

6,291

2

22. KRDA

36

0.1

628

0.3

57,325

15

23. SDR

17

0.0

274

0.1

62,044

16

24. WOSO

3

0.0

185

0.1

16,216

4

25. Cadet

2

0.0

435

0.2

4,598

1

TOTAL

53,382
$14.08 mn

100

202,166

100

264,050

70

Source: ADB Note: Data compiled from data supplied by NBC Supervision Office of Decentralized Banking System. 1/Expressed interest in becoming licensed MFI or bank and possible to participate in Project. 2/Generally excludes loan loss provision. 3/In some cases the numbers refer to members rather than borrowers.

7.11 CRS currently only provides credit through (women’s) groups and proposes to maintain this policy.

7.12 ACLEDA, however, now dominating the rural credit market, has modified its lending procedures progressively over time, with increasing importance being given to the small/medium enterprise component. According to the information made available to the ILO mission, at the end of 1998 this accounted for 12 per cent of loans but 65 per cent of the value of loans outstanding, with similar percentages for loans disbursed in the month of December 1998 (but only 7 per cent and 51 per cent, respectively, for the full year). The sub-component of medium enterprises, with only 0.5 per cent of the total number of loanees, secured nearly 16 per cent of the value of loans disbursed in December. The mean sizes of loans disbursed in December were respectively $108, $1,194 and $8,118 for joint liability group loans, and for small and medium individual loans (Table 13).

7.13 There is an issue as to what the balance of loan disbursement should be nationally between group loans and small enterprises. In ACLEDA’s case, with the average loan sizes cited, one small enterprise loan could fund 11 group loans, and one medium enterprise loan could fund 75 group loans. However, ultimately it will be market forces that determine the balance between group loans and loans to small enterprises.

7.14 There is thus a trade-off between a poverty-alleviation focus associated with group loans and a rural growth focus associated with individual loans to small enterprises, although the latter will also contribute to poverty alleviation to the extent that paid employment is generated. In fact most of the ACLEDA small enterprises are very small indeed, employing 3-5 persons (ACLEDA, 1998) and, if internationally accepted definitions of micro-enterprise (1-9 persons engaged) were used, would easily fall into this category. The 1993 Survey of Industrial Establishments shows that in manufacturing the average number of workers in the 1-9 category was 4.5. It should be noted that “ACLEDA experiences that loans to small and medium-sized businesses create direct employment for the non-entrepreneurial poor as these businesses stimulate the local economies through horizontal linkages. ACLEDA sees itself as providing financial services to the lower segments of the market, and not exclusively to the lowest segment”10.

10 Response by ACLEDA, 28 January 2000, op cit.

7.15 There is no national or NGO policy on this issue, and from a developmental perspective one might be desirable. Finance institutions such as ACLEDA do not support the idea of having any policy of this. However, there are other major issues affecting the development of micro and small enterprises for which a national policy is most desirable.

(d) Associated business training

7.16 At its inception the ILO-supported ACLEDA programme included a significant business training component, going beyond simple preparation of the business plan required as a basis for loan issue. The component has diminished over time, from one month initially to two weeks in mid-1995, and to four days in 1997, before its abandonment in mid-1998, since when only some business advice is offered, with the possibility of subsequent meetings on a more casual basis. As indicated above, this shift of emphasis has been to allow ACLEDA to concentrate on its core business activity, viz. as a microfinance institution. In addition, ACLEDA’s decision was based on its own market research with its clients.

Table 12. Distribution of loans by Cambodia Community Building, March, 1999

Active Community Banks

Active Solidarity Groups

Active Individuals

Total

No. of units

680

330

-

-

No. of clients

12,199

1,649

224

14,072

% of clients

86.7

11.7

1.6

100

Loans outstanding ($)

426,435

211,257

141,695

779,386

(%)

54.7

27.1

18.2

100

Mean size of loan ($)

66

227

894

-

Source: Cambodia Community Building Business Plan, Years 2000-2004, CCB/World Relief, April, 1999.

7.17 This reduction in training provision may have created a gap in business training for small enterprises. However, this would appear to leave a training gap in the rather limited range of non-financial business development (BDS) services to support micro and small enterprises in Cambodia. As just indicated, micro and small enterprises accounted for some 65 per cent of the value of loans outstanding by ACLEDA in December 1998, amounting to nearly 7 million dollars. The scale of small business credit is destined to expand very significantly over the next period as the $20-26 million ADB and other credit lines come on stream, with ACLEDA likely to further increase its 70 per cent share of the market, given its established delivery capacity, and other prospective MFIs also having ambitious plans for assisting small enterprises through individual loans.

7.18 The absence of any significant business training element is likely to be critical, given the high risks associated with individual loans, due to moral hazard and to the frequently more innovative nature of the activities involved. It is noteworthy that, while ACLEDA has eliminated pre-loan training, almost 100 per cent of micro and small business clients interviewed in 1997 by ACLEDA considered follow-up activities to be very valuable.

7.19 Micro and small enterprises are much more likely to need general management advice and training, and in specific cases skills training, procurement advice in relation to machinery and equipment, advice on purchasing and selling, on land or premises, or on government regulations and impositions. In addition, recent thinking among the Small Enterprise Development donor committee has brought about a range of best practices in business development services, and many of these approaches have yet to be attempted and applied in support for MSEs in Cambodia11. Given the situation, there is need for urgent consideration of the specific form interventions should take as these would contribute to assisting both the individual MSEs, as well as improving the efficiency and repayment rates of the MFI loans disbursed to these MSEs.

11 See the report of the SED Donor Committee, ILO, 1998

Table 13. ACLEDA: Loans outstanding and disbursed by category, December. 1998

No. of loans outstanding end-Dec, 1998

Value of loans outstanding end-Dec, 1998

Mean value of loans outstanding

(%)

($)

(%)

$

Group loans*

54,679

(87.9)

3,635,200

(35.2)

66

Small/medium loans

7,536

(12.1)

6,683,399

(64.7)

887


Small loans

7,362

(11.8)

5,590,254

(54.2)

759


Medium loans

174

(0.3)

1,093,145

(10.6)

6,282

Total

62,215

(100)

10,318,599

(100)

No. of loans disbursed, Dec, 1998

Value of loans disbursed, Dec, 1998

Mean value of loans disbursed

Group loans*

6,299

(88.1)

678,040

(34.8)

108

Small/medium loans

847

(11.9)

1,271,320

(65.2)

1,501


Small loans

809

(11.3)

962,820

(49.4)

1,194


Medium loans

38

(0.5)

308,500

(15.8)

8,118

Total

7,146

(100)

1,949,360

(100)

No. of loans disbursed, full year, 1998

Value of loans disbursed, full year, 1998

Group loans*

90,309

(92.8)

9,022,169

(49.4)

100

Small/medium loans

6,957

(7.2)

9,250,288

(50.6)

1,330

Total

97,266

(100)

18,272,457

(100)

* Group loans converted at $1=R3,500

Source: ACLEDA data (e) Allocation of NGO credit among activities

7.20 Referring back to the ACLEDA data in Tables A.1 and A.2, in line with the importance of trade as indicated in official data, the share of selling activities in both provinces (Battambang and Kampong Cham) is substantial, amounting to 37-38 per cent of value. Outside this sector, however, very different sectoral allocations have been made in the two provinces: much less to farm production and to general services in Battambang, and much more to manufacturing, compared with the other province. What this might imply is not that one or the other approach has been the correct one, but rather that each might have been able to expand further in specific directions had additional effort been made - more farm credit, for instance, in Battambang, and more loans to manufacturing in Kampong Cham. Whilst in its early stages, lending by ACLEDA might have been largely passive, responding to loan applications that emerged, rather than proactive, this situation seems to have changed considerably. The design of ACLEDA’s loan products, policies and marketing strategies (help to) determine the composition of its client base12. The respective gaps also imply a substantial potential for an increase in the total volume of supportable activity.

12 Comments from ACLEDA, op cit.

7.21 Specific mention may be made of truck transport, which accounted for 12 per cent of loan value in Kampong Cham and hardly any in Battambang. The development of the trucking industry could be important in improving farm-gate prices and widening local markets. This is a further example of a rural industry that could with benefit be promoted, and it is one that would have positive externalities within the local communities.

(f) Using NGO programmes for agricultural credit

7.22 Referring again to the ACLEDA data in Tables A.1 and A.2, a significant portion of lending (and group lending is not included here, which will be very much more agricultural) is for farm/fish production, i.e. is agricultural credit. In Kampong Cham 23 per cent of loan value was for farm/fish production, including 16 per cent for crop production, especially for commercial banana and soya bean production. If, therefore, the same very satisfactory repayment rates are secured by ACLEDA for this component, it suggests that NGO micro-finance institutions’ lending to small scale farm businesses can be an effective medium for the distribution of agricultural credit and substitute for more common government programmes and government - sponsored agricultural development banks, which have often had poor records. It would appear that these MFIs could be more effective in reaching small farm businesses compared with agricultural development banks, which generally support larger farms; or commercial banks, which may not reach the farm sector at all.

7.23 Group members are in much less need of training of any kind, and less interested in receiving it. This is related partly to the small size of loans and their short-term nature, which do not allow much, if any, enterprise development. With a significant proportion of loans used in farm production, what may be more relevant in, for example, pig or poultry raising, are measures for disease control. In the absence of an effective national extension system, local donor or NGO programmes incorporating these have had a positive impact.

7.24 If on grounds not only of poverty eradication and equity, but also of much easier and safer implementation, at least as large an increase in funding goes into group loans as to individual loans, the idea that NGO-MFI group and individual lending should be a vehicle for a national farm credit programme (alongside its use for developing non-farm activity) might be accepted and developed as a policy. Although such a step might find favour with some donors and the Government, caution should be taken in interfering with market forces and sound MFI practices.

(g) Information gaps

7.25 Very few studies of the economic or financial impact of credit programmes have been carried out and the results of these are not very reliable. An analysis based on 11 ACLEDA branches carried out in June, 1998, showed large percentage increases in the profits of both micro and small enterprises following acquisition of loans (ACLEDA, 1998), especially in the latter case.

7.26 Likewise there is no data compilation regarding the detailed sectoral uses of NGO credit. The collection of earlier data by very broad categories (in itself not particularly useful) was discontinued towards the end of 1996. From a development point of view, however, it would clearly be useful to know which activities are benefitting from credit allocations. There is thus a more general information and policy gap in relation to credit for MSE development.

(h) An urban gap in assistance to micro and small enterprises (MSEs)?

7.27 There may also be an ‘urban’ gap in the attention given to and assistance available for MSEs. In April, 1999, about 10 per cent of ACLEDA loans were distributed in Phnom Penh, in the case of both group and individual loans. Other credit NGOs have concentrated largely on provincial areas away from the capital, in line with their poverty alleviation focus. Evidently, the micro and small enterprise sector in Phnom Penh is many times more vibrant than those in provincial towns and rural areas, and for that reason may be considered to be in less need of assistance - assistance which might only contribute to further rural-urban migration.

7.28 At the same time, urban-based enterprises in Phom Penh, particularly, may have much greater potential for enterprise development and for employment creation. Similarly, they could contribute significantly to the absorption of vocational school leavers, possibly themselves serving as a training ground, with skill acquisition in informal sector apprenticeships and on-the-job. Again, the specific needs should be examined, as well as the functioning of informal sector apprenticeship systems within Phnom Penh, as discussed again presently. The role of MSEs in urban poverty alleviation could also be greatly improved.

7.29 The ‘urban gap’ may be most significant, not in terms of access to capital, though this may certainly be important, but in terms of what might be provided to potentially stronger and growth-oriented MSEs by way of non-financial support and business management training. This could contribute to strengthening the capacity of the sector to provide goods and services domestically, to compete for contracts, and to compete with imports.

7.30 The MSE sector itself should not be viewed in isolation from the larger and medium enterprises. There is evidence from many countries that demonstrates the pivotal role that the MSE sector plays in serving larger enterprises, both directly through formal sub-contracting arrangements, and indirectly by providing essential services and products. Consequently, support for the MSE sector should not be measured in terms of its impact on the MSEs themselves, rather it should be seen as part of a wider contribution to the economy.

8. Vocational training, employment and MSE development

8.1 It is not appropriate here to engage in a detailed assessment of Cambodia’s vocational training systems. Some comments can be made, however, on the interface between vocational training, employment and MSE development.

8.2 Existing vocational training opportunities are both formal and informal. The former centre upon the Department of Technical and Vocational Education and Training (DTVET) which is a section of the Ministry of Education, Youth and Sports (MOEYS), though not situated physically within it. The DTVET is responsible for the three vocational institutions in Phnom Penh that offer longer courses, as well as seven Provincial Training Centres (PTCs). The latter were established outside the capital in order to extend the outreach of the formal vocational training system beyond that of the Phnom Penh institutions. DTVET is also nominally responsible for the Chantiers Ecole in Siem Reap and the Vocational Training Centre in Battambang, but these are effectively independent entities, run under donor funding.

8.3 The National Technical Training Institute (NTTI) is based on the staff of two of the Phnom Penh training institutions at Tek Thia. It engages in trainer training for technical teachers, provided on a fee basis, and in curriculum development and training material preparation. It is currently developing ‘modularised’ material for nine two-year and four three-year vocational training courses. Donor funding for government or private training institutions can be secured indirectly by applying to the National Training Fund (NTF). It has been proposed that a portion of the NTF should be allocated to a loan fund to finance trainees’ businesses, since the MFIs have been found reluctant to do this - experience being that finance which is linked to training, particularly for new business entrants, is not likely to be repaid. This proposal would seem to be a risky one, given the young target group and the inexperience in business of many of those emerging from the vocational training courses.

8.4 Each of the PTCs offers two to four month courses in non-farm skills such as motor, radio and TV repair, hairdressing, tailoring or carpentry, generally provided at the Centre. They also offer shorter courses of about a week in length on specialised farming topics such as fish farming, pig fattening or vaccination, onion growing or, duck or poultry raising. Courses have to date been offered free.

8.5 In determining an appropriate vocational training policy, it is important that an assumption should not be made that vocational training, simply by its “blue collar” nature, is more likely to lead to employment than general education. In many countries, in Africa particularly, vocational training graduates have often been just as likely to fail to secure jobs. It may be observed that the huge increase in employment in the garment industry in Cambodia has not been based on the acquisition of any prior technical skills but, as in other countries, has needed relatively short, on-the-job training of the garment workers recruited. A generally well-educated workforce can, however, be attractive to foreign investors in deciding among alternative international locations.

8.6 Rather, policy should be determined with reference to the needs of the particular economy in question, and its structure. This is particularly true in Cambodia’s case. Apart from the labour-intensive export manufacturing sector just mentioned, the economy is exceptional for its particularly narrow large-scale sector and the overwhelming predominance of micro- and small-scale establishments.

8.7 A second feature of the situation is that lack of past access and limited current access to formal post-school vocational training, on top of limited years of basic education, have left those entering the workforce to find their own way in an informal enterprise-based training system of apprenticeships or family enterprises. It has been estimated that over the period 1993-98 as many as half a million have received training in the informal system, compared with only about 5,000 in the institutionalised system, which therefore accounted for only 1 per cent of the informal system numbers.

8.8 These numbers clearly represent a choice made by those seeking vocational training of some kind, which must reflect either costs (and opportunity costs) - direct and indirect - of attending the courses, family levels of income and what they can afford to pay for, or the courses’ perceived appropriateness in terms of the specific nature and level of skills acquired and their linkage with subsequent job opportunities.

8.9 Under this informal sector apprenticeship system the family of the apprentice, generally already known to the enterprise owner/craftsman, pays as much as $50-450, if necessary in installments, for the duration of the training, which may extend over several months, up to a year. The ILO’s 1997 Situation Review refers to workers’ willingness to pay $100 for a one-year arrangement in tailoring, and up to $300 for TV/radio repair, demonstrating the existence of useful returns in those two occupations. A similar system exists in many other countries, in West Africa for instance. In Cambodia, the apprentices can progress from “apprentice” to “assistant” as they acquire skills until they are either retained as employees or move on to another enterprise or into self-employment.

8.10 The fact that significant fees are paid ensures that the training provided is demand-driven. This demand is based on a judgement, founded on observation and information, of the likely resultant benefits of the training. It does not involve subsidy and is thus entirely sustainable. Offering a demand-driven product in a competitive environment, owners are forced to provide a competitive level of quality as well as of price to reflect value for money to the trainee/apprentice.

8.11 Current limitations, however, may be lack of coverage in terms of occupations catered for - something which needs to be verified by closer investigation of the sector. Such an investigation would provide much-needed information on the operation and scope of informal sector training. Secondly, this training may reinforce the existing restricted capacities and limited product ranges, rather than extending them over time.

8.12 It would be desirable, therefore, that the formal system develops specific complementarities with the micro and small enterprise sector. The idea presently being developed of modularization is most appropriate, with independent skill training modules available and accessible both to working people and young people just joining the workforce. These would be for people with a range of educational backgrounds, as described in the Strategy Plan for the Development of a National System of Formal and Non-Formal Technical and Vocational Education and Training (RGC, 1996, Table 3.1). Such a system could be used to upgrade and build upon the existing informal system.

8.13 In practice the existing proposal seems to be geared more closely to completing a formal programme in sections, rather than to meeting the specific needs of the informal sector and its market for skills training which, as indicated already, needs closer investigation.

8.14 The approach pursued by the PTCs appears relatively sound, based also on short courses focussing on identified local needs and opportunities. The fact that these have hitherto been dependent on donor funding - no longer assured since the termination in October 1998 of the UNDP/ILO Vocational Training for Poverty Alleviation Project (VTAP) - does not in itself indicate lack of value. One problem has been the lack of freedom to charge fees. A more fundamental question is whether the courses are able to secure the economies of scale required to reduce costs to necessary levels. However, they appear to constitute an important regional facility that can be developed in appropriate directions.

8.15 There are a number of possible implications of the above for policy towards MSE development and training. Although expansion of the MSE sector generally will increase opportunities for endogenous training and employment in the sector, there may be particular scope for interventions at the larger end of the MSE sector. This could be within Phnom Penh or elsewhere, among construction enterprises, brick and tile enterprises, or the larger motor vehicle repair enterprises, for example. Associations of such enterprises could provide a vehicle for identification of appropriate short courses and the specific skills needed. Within urban areas, clusters of adjacent workshops could also be brought together as a group in this way, for the development of particular skills, technologies or new products.

8.16 The basic skills training (BST) approach implemented by the ILO, and more recently by the GTZ, is likely to have more direct impact on poverty alleviation with a larger number of families, than the long-course formal training carried out by most of the vocational training institutes. Therefore, in this context, the BST approach merits further support.

8.17 The long-course teaching in the main Phnom Penh technical/vocational centres is providing a core of more systematic training in Cambodia. The large majority of students are, however, mainly drawn from the cohorts of young people in process of joining the labour force. This means that they are candidates for wage employment for the most part, rather than for self-employment in any effective micro and small-scale enterprise of their own.

8.18 The limited information that exists suggests a fairly satisfactory rate of post-training employment, although this not been adequately verified by tracer studies or surveys. Further information should be collected as a matter of priority. On the basis of this information, and the equivalent in respect of informal sector training, it should be possible to calculate the relative rates of return and cost-effectiveness of the alternative training modes. Effectiveness will depend on the degree to which those trained under each system are absorbed into productive enterprises of whatever size.

8.19 A distinction should be drawn between training in respect of specific vocational skills - be it in mechanics or hairdressing - and business management skills, which are needed at some level by anyone engaged in business of whatever kind. What is required in the latter case, moreover, goes beyond the preparation of an initial business plan and should serve as the basis for efficient, continuing business operations over time. Very little such training is an offer in Cambodia to the micro and small enterprise sector at the present time. Such training needs to be delivered in an appropriate manner directly to enterprise owners in the sector, most of whom are aged over 35 and quite commonly in their forties, as interviews carried out by the mission in different provinces confirmed.

8.20 Delivering such training will not be a straightforward matter. Interviews were held with entrepreneurs receiving loans under rural credit programmes in Kampong Cham (25 entrepreneurs), Battambang (28 ACLEDA borrowers and 12 members of the Brick and Tile Association) and finally Prey Veng (15 entrepreneurs). As part of the Mission’s enquiry, a fairly straightforward questionnaire was employed which, however, caused considerable problems not only for the small number of non-literate entrepreneurs, but also for the majority with 6-8 years of education, provided some decades ago for these cohorts. The difficulties so revealed make the need for business training, appropriately delivered, even more obvious. Therefore, innovative approaches to highly participatory, experiential and “material-less” training need to be developed.

8.21 The experience to date of the Micro-Enterprise Centre (PVMEC) at Prey Veng further illustrates the difficulties. Established in 1995, the core of the Centre’s activities has comprised the provision of short-course skills training at the Centre in technical (rather than management) skills, with a particular view to establishing graduates in self-employment, whilst also providing for the alternative of paid employment. Centre staff also visits entrepreneurs in the villages and some time ago established a credit programme based entirely on the group model.

8.22 The first course commenced at the end of May, 1996, so that the programme is three years old. As Table 14 shows, the initial choice of activities, horn and wood carving, was not at all successful, with only 4 out of 63 graduates (6 per cent) securing employment in the trained field, and with post-training unemployment rates of 70 per cent. Overall, however, the percentage engaged in employment related to their training was still no more than 48 per cent, and the percentage unemployed as high as 38 per cent. It is significant that the most favourable outcome has been in basket-weaving (72% in relevant employment), motorcycle repair (70%), hairdressing (61%), machine shop (54%), and small engine repair (46%). All of these except basket-weaving are common activities in the Cambodian rural economy, rather than innovative items in relation to the market.

8.23 With a staff of 130 (including support staff of 32 involved in credit) and expensive physical facilities, the cost-effectiveness of the Centre is in doubt, so that the teaching of English has been introduced to improve capacity utilisation, and a credit programme developed to expand the impact of the Centre. Underlying problems appear to be the relative poverty of the Province and consequent paucity of rural economic activity, and the lack of a systematic approach, as elsewhere in Cambodia, towards identification of enterprise development opportunities13.

13 Sensibly, a survey of enterprises in the area was commissioned at the outset but appears to be no longer available or used as a guide towards a development programme.

8.24 Following the identification of a common tendency for small industrial enterprises to form ‘clusters’ based on a particular activity, there has been great interest internationally in recent years in promoting such clusters as vehicles for exchange of technical and other information, and thus the development of new or improved production methods and products.14

14 There is now an extensive literature on the possibilities for ‘networking’ and process/product development among ‘clusters’ of small scale manufacturing establishments in both developed and developing countries. In the brick and tile industry Rozemuller cites a study by Sandee (1995) of the roof tile industry in Central Java where successful innovation in the industry required joint action through collaboration of the involved entrepreneurs.

8.25 An extension of this is where these are used as a means of introducing training that is devised and organized among group members themselves, with the help only of external facilitators. The groups involved can then be referred to as ‘improvement circles’, emphasizing the cooperative basis of the process. This approach is being tested out in Kampong Thom in Cambodia on an experimental basis, over three months in late 1999.

Table 14. Post-course situation of trainees at Prey Veng Micro-Enterprise Centre, May, 1999

Activity

No. of trained persons

Employment related to training

Other employment unrelated to training

Unemployed

Paid

Self-Employed

Total

Paid

Self-Employed


no.

no.

no.

%

no.

no.

no.

%

Horn carving

31

3

-

3

9.7

4

3

21

67.7

Wood carving

32

1

-

1

3.1

2

6

2

71.9

Small engine repair

175

-

80

80

45.7

27

8

60

34.3

Air-conditioning

9

9

-

9

100.0

-

-

-

0.0

maintenance

61

13

-

13

21.3

11

8

29

47.5

Air-conditioning repair

46

23

2

25

54.3

5

1

15

32.6

Machine shop

66

1

45

46

69.7

2

1

17

25.8

Motorbicycle repair

95

1

67

68

71.6

3

5

19

20.0

Basket weaving

44

-

27

27

61.4

-

7

10

22.7

Hairdressing

50

20

-

20

40.0

2

-

28

56.0

Computer (English)

(159)

-

(80)

(80)

(50.3)

-

(10)

(69)

(43.4)

Total, excluding English

609

71

221

292

47.9

56

39

233

38.3

Notes: Excludes 4-day course in small engine maintenance geared to trainees’ own equipment. Total excludes English on the grounds that this type of training is not directly related to microenterprise or self-employment. Computer training was given to people already in paid employment, and therefore not related to microenterprise development.

8.26 An obvious question mark is against the willingness of MSE owners to share their information and pass on skills in this way. However, some element of group formation with exchange of information exists in the associations already formed in two industries in Northwest Cambodia, as discussed in Section 10. Such groups may be especially responsive where a new product or improved process is introduced from outside the group. Thus, with the assistance of the Private Sector Development Unit in CARERE, members of the Rice Milling Association visited Thailand to compare the methods and equipment there and the results being achieved.

9. Employment for former soldiers and refugees

9.1 In Cambodia there are many vulnerable groups requiring attention, support and practical actions to enable them to overcome social exclusion, to achieve sustainable livelihoods, and to alleviate poverty. These include women operating in the informal sector and microenterprises where they frequently experience gender-specific issues and problems. In addition, persons with disability (including land-mine victims) and young persons leaving school and entering the job market require special attention. As a start, essential background information on the status of these groups should be gathered. However, of late much attention has been devoted to the plight of former soldiers and refugees.

9.2 The need to find effective employment for ex-soldiers is urgent for economic and financial reasons; for security reasons - since they could constitute a serious threat if remaining in large numbers without proper means of livelihood; and for the sake of their own welfare. The Royal Government of Cambodia in 1995/96 prepared a special programme to facilitate demobilisation, the Cambodia Veterans’ Assistance Programme (CVAP) targeting a total of 43,000 soldiers, including special groups. Since then, with final defections to the Royal Cambodian Armed Forces (RCAF), those targeted for demobilisation number 55,000, including special groups (widows, chronically ill, disabled and female soldiers) totaling more than 17,000. It should be noted also that about 37,000 Cambodian refugees are currently being repatriated from camps in Thailand by UNHCR, to be re-established, it is hoped, in their homelands.

9.3 The economic case for demobilisation is clear. In 1994 defense spending accounted for over 46 per cent of government recurrent expenditure, compared with 29 per cent spent on economic and social services. As the SEDP emphasised later, achieving its goals for economic and social development depended on the planned reductions in defense spending being achieved.

9.4 A current proposal exists, sponsored by the World Bank, for a four-year programme of assistance to the Cambodia Veterans’ Assistance Programme. This envisages a sequence involving in turn registration, demobilization, ‘reinsertion’, and ‘reintegration’. Reinsertion would consist of a small amount of cash payment per veteran family, as well as other forms of support. Given the lack of experience of those involved (detailed below), it seems most unlikely that this cash and support could be put to good use in achieving sustainable microenterprise activities, unless a comprehensive approach to enterprise promotion, development, growth and sustainability is created, which would also benefit the veterans and their families. Payment of small amounts should be less expensive and might be more effective if paid in the form of vouchers, with a much stronger emphasis placed on training.

9.5 Reintegration is envisaged to encompass skill development, the finance of micro-projects for community social infrastructure, and information and counselling services. ILO has a potential interest and demonstrated competencies in all of these areas, and is a willing partner in such developments.

9.6 Caution needs to be exercised here, however, particularly in relation to attempts to establish veterans in self-employment. The problem relates to the background and qualifications of the veterans, more than half of whom report no economic experience prior to joining the Army (Table 15).

Table 15. Indicators of vulnerability among prospective veterans (%)

General profile

Female soldiers

Disabled

Chronically ill

Spouses

KR Defectors

Retirees

No house

54

71

51

38

36

53

26

No assets

49

44

64

53

33

84

43

No livestock

59

79

65

48

41

47

54

No land

66

91

80

66

69

59

69

Separated/widowed/

Divorced

15

25

27

17

97

7

55

Father deceased

57

60

67

71

58

63

94

Primary


Education or less

52

57

85

85

90

92

86

No economic


Experience

53

53

40

34

0

28

2

No marketable


Skills

37

34

71

44

37

61

37

Poor health

11

9

49

83

11

5

44

Source: CVAP Executive Secretariat, 1996. Socio-Economic Survey of the Royal Cambodian Armed Forces (RCAF)

9.7 In particular, it should not be expected that any significant percentage of 55,000 could be assisted successfully to set up in business, even if supplied with initial capital, lacking as they do any relevant experience. Specific possibilities are discussed presently. As noted also by Ueda (1995, p. 19) ‘military culture emphasises obedience and conformity to the authority, which is not conducive to entrepreneurial spirit’.

9.8 The most obvious destination is agriculture. In this they would be joining the 75 per cent of the labour force already so engaged and would in most cases be returning to their ancestral home, if not their current family home. It is clearly important that the large majority of veterans be absorbed into the rural areas rather than remaining openly unemployed, in a large proportion of cases, in urban areas.

9.9 According to the socio-economic profile of RCAF soldiers, about 36 per cent have experience as farmers. It appears also that, already, large numbers of soldiers have voluntarily left the army to return to rural homes. The socio-economic profile indicates that almost half would willingly take up farming, with a comparatively small proportion envisaging any problems with the community in which they would settle. Among perceived reintegration needs as seen by prospective veterans, land was identified in 72-85 per cent of cases. Two-thirds of soldiers apparently already frequently visit the place in which they would choose to settle.

9.10 The constraint is access to land, and only 34 per cent reported such access. What would be of assistance here might be a system of provincial officers working with local chiefs to identify possible locations, in the manner of employment exchanges. In principle this would be the responsibility of Provincial Departments of Women and Veterans Affairs, but organizationally these are currently extremely weak, so that any such system would require external assistance.

9.11 One contribution could come from employment in labour-based public works. Veterans would be generally suitable for such work, being accustomed to rather arduous conditions in the countryside and, it appears, they are quite willing to accept such work.

9.12 One limitation is that, at current levels of such activity, this is likely to contribute to only periodic and partial employment and income. Moreover, it would be undesirable and inequitable to recruit soldiers per se for whatever amount of employment is available, rather than on equal terms with other villagers in the places in which they have settled.

9.13 Given the achievements and success of the existing ILO labour-based roads programme in generating employment, while simultaneously contributing an important social dividend in the form of rural roads, schools and clinics, this situation calls for the maintenance and significant further extension of the existing programme. Roads, in particular, are a top national priority.

9.14 Assistance towards skills-based employment can be either towards the establishment of those trained in independent small enterprises or, initially at least, towards acquisition of skills, or topping up of existing skills through training, in order to make it possible for veterans to secure paid employment. In quantitative terms, the latter should be seen as the more substantial programme to be pursued.

9.15 The socio-economic profile of soldiers revealed that more than half had some skills, ranging from driving to masonry. The construction industry, both urban and rural, is quantitatively significant and should offer employment opportunities, either paid - in towns especially - or as self-employed, for those with masonry skills. Drivers, with training, can become motor mechanics, for which demand has been accelerating. In addition, as mentioned earlier, road improvements have given rise to increasing use of vehicles, and consequently an increased demand for employed or self-employed truck or public transport drivers.

9.16 Interventions needed are, firstly, the establishment of a government capacity to sift out individual skill bases and thus, secondly, identification of suitable further short or longer courses for skilled employment. The ILO/GTZ assistance could be applied here, in what could be an important and substantial task. A possibility would be to use training vouchers, issued selectively in appropriate cases, which could be redeemed at appropriate training institutions of the person’s choice.

9.17 In considering the establishment of veterans in self-employment or in independent micro and small enterprises, it would be important that veterans compete, without special advantage, for ACLEDA loans - an advantage that initially they might find difficult to forego. The suitability of veterans as ACLEDA clients is itself in question. Their repayment rates have been lower as, without sufficient commitment, demobilised soldier clients have until now tended to sell their assets and return to the army. Cases have also occurred of physical threats being made to credit officers attempting to collect repayment (Ueda, 1995, p.19).

(introduction...)

15 This section draws heavily on the contributions of Rozemuller, referenced.

(a) The brick-and-tile industry

10.1 While most programmes for the promotion of rural micro, small and medium enterprises treat the sector as a whole, and attempt to devise appropriate sector-wide policies, it makes sense also to identify particular industries that call for more specific intervention. An example of this is in relation to technology development, or in other activities for which interventions may be particularly fruitful. The resource-based industries identified here, brick and tile manufacture, rice milling and construction, are all substantial industries within the rural economy, are widely spread across it, and are characterised by different scales of operation.

10.2 A survey carried out by MIME in 1997 identified 317 brick plants in six provinces, including Phnom Penh. As can be seen in Table 16, although there was a spread of plant sizes, with most of the largest ones in the capital, the predominant size groups were small, in the output range 200-500,000 pieces a year. These brick and tile enterprises are sufficiently large to generate significant local employment opportunities. The six factories investigated by Rozemuller in 1999 employed during the year between 110-143 people, an average therefore of 18-28 per plant. The factories may sell through local retailers or directly to construction companies and individuals. Bricks sold retail supply a wide range of customers in their respective localities - supply responding directly to demand.

Table 16. Size distributions of brick factories in six Cambodian provinces, 1997



Production capacity (10,000 pieces per year)

Province

No. of plants

0-

20-

50-

100-

200-

300-

500+

Phnom Penh

73

3

41

13

10

2

-

4

Kandal

76

13

53

7

-

-

-

3

Kampong Cham

81

39

38

4

-

-

-

-

Kompong Thom

48

-

33

13

2

-

-

-

Battambang

26

13

13

-

-

-

-

-

Banteay

Meanchey

13

11

-

2

-

-

-

-

TOTAL

317

79

178

39

12

2

-

7

Source: MIME (1997) Brick factories in Cambodia

10.3 This survey was not comprehensive, however, and current estimates suggest the existence of some 500-600 brickyards in the country as a whole. The industry demonstrates the extent to which enterprise was stifled by regulatory policies during the 1980s. In North West Cambodia, for example, there was in 1989, apart from village units, just one large state-run brick plant in Battambang, supplying the whole province, including what is now Banteay Meanchey Province. During the 1990s, economic liberalization permitted a strong revival of private sector brick-making, demonstrating the possibilities of private enterprise growth in favourable sub-sectors in the context of the Cambodian rural economy. As just indicated, there is now a large a number of brickyards across the country, of different sizes and character.

(b) The rice milling industry

10.4 In the rice milling industry there was similarly a tremendous growth in private sector investment in the 1990s, following a progressive withdrawal of government from the industry. According to Department of Industry figures, there are about 280 private mills as well as the government-owned ones, but this is probably a substantial underestimate of the numbers.

10.5 The industry is characterised by different scales of operation, which may be divided into village, small and medium sizes. None are large by international standards. The predominance of micro and small enterprises, with village mills classifiable as micro enterprises, makes the industry of interest and relevance to the present review.

10.6 Village mills are typically family businesses that do not hire labour, and mill in small amounts for local village consumption. Rozemuller (1999) further distinguishes (a) farmer-supplied mills, the owners of which also conduct other farm activities of some kind, such as pig-raising; (b) collector-supplied mills, operating on a larger scale and using rice collectors for the supply of paddy; and (c) still larger ‘wholesaling’ mills, which also require large storage facilities.

(c) The construction industry

10.7 Another potentially substantial actor in rural development is the construction industry contractor. A systematic analysis of the industry does not exist, but it is evident that large numbers of private contractors of different sizes have emerged in the course of the last decade, stimulated by the opportunities offered by the (re-) construction boom, both in the area of building construction and road construction.

10.8 Issues of technology and management arise if smaller, nationally-owned construction companies are to be able to respond to these opportunities. This is a field in which labour forces of several hundreds need to be hired, usually on a project-by-project basis, and management capacity is an important element.

10.9 The ongoing ILO Labour-based Rural Infrastructure Rehabilitation and Maintenance project in Siem Reap, having encountered exceptionally great problems of maintaining newly-constructed laterite roads in Cambodia - resulting in short road surface life spans - has been experimenting in a number of ways. This includes (a) improved road surfaces; (b) training employed contractors in their use of the relevant techniques; and (c) using these local contractors in road building rather than the project itself carrying out the construction work.

10.10 In recent months (since the ILO mission in June 1999), the ILO’s Labour-based project has taken steps to assess the potential benefits of associations of small-scale contractors, and opportunities and needs have been identified at a workshop in which 20 contractors participated. This is a significant initiative and, given the pivotal developmental role of this sector, it should be worthwhile drawing on lessons learned from other sectoral associations of enterprises.

10.11 A policy issue that can be given emphasis here is the possibility and need of giving encouragement to the development of local construction enterprises wherever possible. This will incorporate an element of capacity-building in the construction sector with a mind to the future, since such enterprises can be involved subsequently in facilitating decentralised provision of social infrastructure such as roads, schools and clinics. The policy thus incorporates important external economies as a result of developing this as a micro, small and medium enterprise sub-sector.

11. The potential of business associations in private sector development

11.1 One highly topical issue in international circles, is the extent to which micro and small enterprises can be assisted to help each other. A promising development in North West Cambodia has been the establishment in 1997 of producer/business associations under encouragement of the Private Sector Development Project of CARERE in two of the industries just described - rice milling and brick and tile production - in which larger ‘small’ and medium enterprises operate.

11.2 In rice milling, three associations have been established, two in Battambang Province and one in Banteay Meanchey. In the former, membership is confined at present to two categories among those mentioned in Section 10: the collector-supplied and the wholesaling mills. The three associations together now have 84 members.

11.3 In brick-making, 24 out of 30 brick plants identified in Battambang Province in 1999 by Rozemuller were members of one association, while a separate association in Banteay Meanchey had 12 members.

11.4 Apart from the sub-sectors already mentioned, activities in which associations could be beneficial in Cambodia in the ways described include:

· light engineering
· fabricated metal products
· motor vehicle repair
· electricity suppliers
· furniture makers
· sawmillers
· different sections of the food processing industry
· hotel keepers
· travel agents
· transporters

11.5 The potential advantages of associations for the development of local industries and other enterprises can be discussed under the heads of (i) information collection; (ii) quality control; (iii) bargaining advantage; (iv) advocacy; (v) workers’ conditions; and (vi) training.

11.6 As indicated in the introduction (and in footnote 1), the Mekong Project Development Facility is restarting its operations in Cambodia and placing considerable emphasis on support services for the larger small and medium-sized enterprises. Support for associations of SMEs is also a priority to the MPDF.

(i) Information collection:

11.7 Dissemination of technological or market information within the group or cluster of like enterprises, or supplied to the group from external sources such as an Enterprise Promotion Centre, can bring major advantages. Information regarding types of equipment which might be available elsewhere could be especially important for MSEs which may not have the same means of securing this information, operating individually, as do large enterprises.

11.8 In Cambodia, mutual distrust among competing producers and reluctance to share information has had to be overcome in the case of brick and tile members. This seems to have been achieved successfully, leading to good communication and interaction among members (Rozemuller, 1999, p.35). However, there is also some evidence of already existing informal networks of entrepreneurs, based on ethnicity, and attitudes to sharing information with others can also be greatly influenced by common ethnic bonds.

11.9 In the rice milling industry in North West Cambodia many farmers, collectors and millers complain about lack of information regarding prices at different markets (Rozemuller, 1998a). This is the sort of problem that the effort being made by the Agricultural Marketing Office in Ministry of Agriculture, Forestry and Fisheries (MAFF) to establish a ‘Market Information System’ is seeking to address.

(ii) Quality control

11.10 Together with the achievement of improved access to information on technology, associations can take steps together to tackle problems of quality control, standardisation and improvement. This is important in Cambodia, both for successful resistance to competition from imports and for the penetration of export markets, permitting the industry as a whole to develop. In Cambodian rice milling, the large percentage of broken rice due to defective equipment and processes has been a major obstacle to exports. In Battambang, for instance, mills only produce between 50 and 65 per cent of unbroken rice, despite the great potential which the province has for export, given the varieties of rice which can be produced there.

(iii) Bargaining advantage

11.11 Associations can secure increased market power through cooperation in areas such as bidding for materials supply. In both North West provinces, the newly formed rice millers’ associations are reported by Rozemuller to be proving successful in bidding for rice trawlers and negotiating bulk fuel supplies from Shell. A less desirable development would be producer price-fixing agreements among members, thereby reducing competition.

(iv) Advocacy

11.12 The associations are in a good position to perform an advocacy function, representing the group where its interests are affected by external factors or unfavourable government decisions. The current Royal Government of Cambodia ban on the use of fuelwood, apparently untenable given the necessity of fuelwood for ordinary domestic purposes in rural households, remains in force, but is an issue which the associations should take up.

11.13 Rice millers and traders could take up with Government the issue of excessive regulations, bureaucracy and bribe-taking about which they complain (Rozemuller, 1998a, p47).

11.14 Since the problem of rice quality extends to the farmer level, an association could extend its remit to discussing with Government the development of paddy/rice production on an industry basis.

(v) Working conditions in MSEs:

11.15 In an area where small enterprises in developing countries are generally quite negligent, associations of such enterprises are in a better position to agree on acceptable working and health conditions for their workers, without being exposed to unfair individual competitive disadvantage. The ILO has much to contribute to any efforts being made in the improvement of occupational safety and health, and general working conditions, within the micro and small enterprise sector.

(vi) Training

11.16 There are economies of scale in training. Where business management or technical education might not be economically conveyed to businesses one at a time, this may be effectively organised on an association basis. The mission, while in Battambang, looked in on a well-attended training course covering different aspects of enterprise management and accounts, organised for members of the brick and tile association.

11.17 Significantly, the enterprise management training with the brick and tile association was being implemented in association with the MIME.

11.18 The rice milling sector, as observed by Rozemuller (1998b, p5), has been in a transitional state in which different scales and methods of production and business organisation have evolved, calling for training in general management, simple accounting principles, and marketing.

11.19 The types of industry appropriate for the promotion of associations are likely to be those that fall in the small/medium rather than micro category. At this level business training benefits will be greater, but also technical issues relating to the individual enterprise or affecting the industry as a whole are likely to be more substantial. Opportunities for mutually beneficial interaction will be greater on a range of matters, both internal to the group and in respect of their wider commercial and regulatory environment.

11.20 The promotion of MSE/SME member-based associations is by now recognized as a highly effective tool in enterprise development. Therefore, the innovative initiatives undertaken in Cambodia should be consolidated, expanded and replicated in other provinces and in other sectors, but this will require additional pump-priming funds from donor sources.

12. Small scale enterprise and the tourist industry

12.1 The tourist industry offers major opportunities for micro and small-scale enterprise because most of the activities it generates in different areas are served by just such enterprises. These include small hotels and restaurants, travel agents and transporters, craft industries and furniture makers, peri-urban farmers and agro-business, (hotel-) construction companies and suppliers of building materials, and wholesalers/retailers. Moreover, as stated above, these are activities in which more substantial small enterprises, employing up to 50 persons, can be expected to develop, particularly with the assistance of supportive policies.

12.2 Political stability and personal security are critical to any tourist industry, and the events of 1997 and uncertainty in 1998 produced a dramatic fall in holiday tourist arrivals (Table 17), falling by 27.0 per cent in the two years after 1996, and by 28.5 per cent in all foreign arrivals over the same period. This produced large falls in hotel occupancy rates.

Table 17. Distribution of tourist and other foreign arrivals in Cambodia, 1993-1998

Year

Holiday tourist

Other foreign arrivals

Arrivals from Asia-Pacific

Arrivals from other continents

Total arrivals

1993

70,183

48,000

80,917

37,266

118,183

1994

133,341

43,276

114,014

62,603

176,617

1995

162,317

54,363

156,978

59,702

216,680

1996

194,419

66,070

178,015

82,474

260,489

1997

163,005

55,838

150,205

68,638

218,843

1998

141,926

44,407

117,844

68,489

186,333

Source: Ministry of Tourism, Cambodia Tourism Statistical Report, 1998

12.3 The value of tourism to employment creation is made evident by a report by the Ministry of Economy and Finance (cited in the Cambodia Development Review, August, 1997) of a 20 - 40,000 loss of jobs primarily in the tourist industry, after the July 5/6 incidents.

12.4 With the return of a stable situation, this trend should be reversed, if not as quickly as might normally be expected due to the effects of the regional financial crisis. This is reflected in a “normal” year (such as 1995 and 1996), when 68 - 70 per cent of total foreign arrivals are from Asia and the Pacific. These fell by 34 per cent in the two years concerned (1997-98), compared with just 17 per cent for arrivals from other continents.

12.5 It may be observed that, in the previous two years up to 1996, total foreign arrivals had increased by 47 per cent and Asia-Pacific arrivals by 56 per cent, or by 22 and 25 per cent p.a. respectively. Resumption of such trends would create capacity problems for the industry, in Siem Reap at least, rather than problems of demand.

12.6 In Siem Reap, the establishment of a twice daily direct flight from Bangkok has had an immediate impact. As reported in the Bangkok Post (3.6.99), ‘tourists are flocking back to the northern Cambodian town of Siem Reap... new hotels and guest houses are going up about five kilometres from the sprawling Angkor complex... Streams of minibuses and motor-scooter taxis ferry visitors out to the temples by day and back into town at night where restaurants and pubs are abuzz!’.

12.7 There is concern that this development may divert tourism from Phnom Penh. However, once the immense tourist potential of the country as a whole is developed, including Sihanoukville as a seaside resort - which also shows signs of some increase in patronage - there is every likelihood that a section of the tourist trade will take a more specific Cambodia-wide perspective. Given also the immediate benefits being reaped in revenue, there is no apparent move to adopt any restrictive measures on the tourism sector.

12.8 It remains true that, despite the geographical spread of potential tourist sites across Cambodia - at present poorly developed and promoted - the immediate benefits from tourism are likely to be rather narrowly concentrated in Phnom Penh and the Siem Reap area, to the exclusion of other provinces.

12.9 It is important that planned supportive and developmental efforts are put in place to ensure the promotion of environmentally responsible tourism developments, as well as the creation of safe, non-exploitative, quality employment opportunities particularly for women and vulnerable groups.

(i) References specific to Cambodia

ACLEDA (1998) Impact Survey Report, June.

ACLEDA (1996) ACLEDA in Figures, 01 January 1993 up to 01 October 1996.

CCRD (1997) Policy and Strategy of the Royal Government of the Kingdom of Cambodia on Rural Credit, January.

Murshid, K.A.S. (1998) Food Security in a Transitional Economy-the Case of Cambodia, CDRI-UNRISD, Phnom Penh - Geneva.

Royal Government of Cambodia (1996) Strategy Plan for the Development of a National System of Formal and Non-formal Technical and Vocational Education and Training, February.

Sophal, C., T. Savora and S. Savannarith (1998) ‘Impact of the Regional Economic Crisis’, Cambodian Development Review, 2, 2, June.

World Bank (1996) Small and Medium Scale Enterprise in Cambodia: Survey Results, mimeo.

Rozemuller, H.B. (1998a) From Pig Rearing to Stock Marketing: Rice Milling, a Broad Spectrum of Entrepreneurial Activities. Centre for Advanced Study, Phnom Penh, Occasional Paper Series No. 1, May.

Rozemuller, H.B. (1998b) Overview of Rice Millers’ Associations in North West Cambodia, Center for Advanced Study, Phnom Penh, Occasional Paper Series No. 4, October.

Rozemuller, H.B. (1999) An Overview of the Brick and Tile Manufacturing Industry in North West Cambodia, Center for Advanced Study, Phnom Penh, March.

Sandee, H.M. (1995) Innovation Adoption in Rural Industry: technological change in roof tile clusters in Central Java, Indonesia, PhD thesis, Vrije Universiteit, Amsterdam.

SESC (1993-4) Socio-Economic Survey of Cambodia, 1993-4, National Institute of Statistics, Phnom Penh.

SESC (1996) Socio-Economic Survey of Cambodia, 1996, National Institute of Statistics, Phnom Penh.

UNIDO/MIME (1998) Business Directory of Cambodia, Mining and Quarrying, Manufacturing, Electricity, Gas and Water, Phnom Penh.

(ii) General bibliography

Committee of Donor Agencies for Small Enterprise Development (1995); Small and micro-enterprise finance: Guiding principles for selecting and supporting intermediaries; (No objection draft) Unpublished working paper.

Gibson, A. (1997); Monitoring and evaluation of small enterprise development projects in South Africa: A guide for non-government organizations; ODA.

Gibson, A. (1999); The Development of Markets for Business Development Services: Where we are and how to go further; Committee of Donor Agencies for SED.

Henriques, M. (1994); What is sustainability in a small enterprise development context? Paper presented in the Hague, 2 December 1994, ILO, Geneva, Switzerland.

ILO (1995); General conditions to stimulate job creation in small and medium-sized enterprises; Report V (1), ILO, Geneva, Switzerland.

ILO (1998); Report of Committee of Donor Agencies for Small Enterprise Development; Business development services for SMEs: Preliminary Guidelines for donor funded interventions, Geneva, Switzerland.

International Donors’ Co-ordination Group on ‘Small and Micro Enterprises Promotion in Pakistan’ (1995); Promotion of small-scale enterprises in Pakistan.

Loucks, K. (1988); Training entrepreneurs for small business creation: Lessons from experience; ILO, Geneva, Switzerland.

McVay, M. (1999); Measuring the Performance of Business Development Services for Small Enterprises: Guide to the preparation of case studies for the BDS Conference in Hanoi, April 2000.

McVay, M. (1996); Non-financial services for micro-enterprises: A situation assessment; (draft), CARE.

Neck, P. & Nelson, R. (1987); Small enterprise development: Policies and programmes; (2nd revised edition) ILO, Geneva, Switzerland.

OECD (1995); Boosting businesses: Advisory services; OECD, Paris, France.

Tanburn, J. (1998); Business development services: how sustainable can they really be? Report on workshop on BDS, Harare, 1998.

Tolentino, A. & Theocharides, S. (1991); Integrated strategies for small enterprise development: A policy paper; ILO, Geneva, Switzerland.

Tolentino, A. & Theocharides, S. (1992); Strengthening existing small enterprises; ILO, Geneva, Switzerland.

UNDP, Netherlands Government, ILO, UNIDO, (1988); Development of rural small industrial enterprises; UNDP, New York, USA.

UNIDO (1993); Poverty alleviation and rural small-scale industries; UNIDO, Vienna, Austria.

UNIDO (1995); Discussion paper No. 1: Principles for promoting clusters and networks of SMEs; prepared by John Humphrey and Huber Smitz, Vienna, Austria.

UNIDO (1995); SME Programme: Project Stories; Vienna, Austria.

UNIDO (1995); Small and medium enterprise package: Services provided under the SME Programme, Vienna, Austria.

White, S. (1995); Creating an enabling environment for small and medium sized enterprise development; ILO, Geneva, Switzerland.

(iii) List of useful websites

The following list of Web sites is a good source of information on MSE development issues, including access to BDS.

ILO websites on Employment and Enterprise

http://www.ilo.org/public/english/employment/index.htm
http://www.ilo.org/public/english/employment/ent/sed/index.htm
http://www.ilo.org/public/english/employment/empsed.htm
http://www.ilo.org/pubhc/english/employment/ent/index.htm

ENTER Web:

http://www.enterweb.org

This Web site has a series of useful links to other Web sites and is a good starting point for getting information on the MSE sector on the Web.

Donor Committee on Small Enterprise Development:

http://www.ilo.org/public/english/employment/bds/index.htm

Here one can access copies of ‘Business Development Services for SMEs: Guideline for donor-funded interventions’, and copies of all of the papers relating to the Harare BDS Workshop of 1998, as well as the Rio de Janeiro BDS Conference (1999), and the Hanoi BDS Conference (2000).

Micro-enterprise Innovation Project:

http://www.mip.org

Funded by USAID, this site focuses on micro-enterprise development, finance, policy and impact.

Micro-enterprise Best Practice Project:

http://www.mip.org/pubs/pubs-def.htm
Contains several useful SED papers.

ID21

http://www.id21.org or http://www.ids.ac.United Kingdom/id21

Hosted by the Institute of Development Studies, and supported by DFID, is a search engine for development research publications.

The Small Business Administration of the government of the United States:

http://www.sba.gov

Web site on marketing and markets:

http://www.openair.org

The websites of some noteworthy BDS organizations are also presented below.

Enterprise Support Services for Africa:

http://www.ifc.org/abn/essa/essa.htm

Empretec Ghana:

http://www.Webstar.com.gh/Govemment/NGOs
The overall Programme is described at:

http://www.unicc.org/unctad/en/techcop/invt0103.htm.

FIT:

http://www.ilo.org/public/englisWemployment/fit/index.htm

Start and Improve Your Business:

http://www.ilo.org/public/english/employment/siyb/index.htm

Manicaland Business Linkages:

http://www.norad.no/eng/country/africa/zi-aid.html

The CEFE Network Project:

http://www.gtz.de/cefe/index.html

There is a number of interesting and relevant websites on Women’s Entrepreneurship.

ILO:

http://www.ilo.org/public/english/employment/papers/gender.htm
http://www.ilo.org/public/english/employment/isep/gender/index.htm

National Association for Female Executives (NAFE):

http://www.nafe.com/

National Foundation for Women Business Owners:

http://www.womenconnect.com/Display/ContentHistory.htm?Type=NFWBO

National Women Business Owners Corporation (NWBOC):

http://www.wboc.org/framedoc/mainbody.html

Online Women’s Business Centre (created by Small Business Administration):

http://www.onlinewbc.org/docs/links.html
http://www.onlinewbc.org/resourcedatabase.html

Small Business at Women.com:

http://women.com/smallbiz/

UNESCAP WID Section:

http://unescap.org/wid/mt01in.htm
http://unescap.org/wid/mt02ag.htm#PROVISIONAL AGENDA
http://unescap.org/wid/mt03tb.htm

Women and Business:

http://www.enterweb.org/women.htm

Women Connect - Asia:

http://www.women-connect-asia.com/
http://www.women-connect-asia.com/articles.htm
http://www.women-connect-asia.com/articles/gender.htm
http://www.women-connect-asia.com/articles/glass-c.htm

Women’s Business Network:

http://www.wbninc.com/content.htm

Women’s Work:

http://www.wwork.com/index.shtml

WWWomen Women-Owned Businesses WebRing Home Page!

http://www.wwwomen.com/webring biz2.shtml

Tables

Table A.2.1: Activities receiving ACLEDA loans, 1998, Kampong Cham Province

No. of Loans

Value ($)

Mean Value ($)

A. FARM/FISH PRODUCTION

Crop production & sale
(esp. soya, bananas, veg.)

240

318,500
(15.8%)

1,327

Mushroom growing

3

5,500

1,833

Palm sugar production/sale

5

9500

1,900

Rubber-tree processing

7

10,500

1,500

Flower production/sale

3

2,200

733

Fishing/fish raising

21

16,200

771

Fish selling

58

63,500

1,078

Cow-raising/sale

1

1,000

1,000

Pig raising/sale

9

11,900

1,322

Poultry/egg production

9

8,700

967

Duck-raising/sale

7

9,200

1,314

Milk production/sale

1

3,000

3,000

SUBTOTAL

364

459,700
(22.8%)

1,263

B. AGRO-PROCESSING

Rice milling

31

41,300

1,332

Wood processing

2

6,000

3,000

Charcoal production

3

2,100

700

Tobacco drying/sale

31

84,100

2,713

Silk-weaving

10

4,800

480

Raw leather

2

8,000

4,000

Noodle manufacture

15

22,700

1,513

Fish sauce

1

1,500

1,500

Cake-making/bakery

11

12,300

1,118

Cheese production/sale

2

2,000

1,000

Ice-cream/ice-making

7

8,200

1,171

Desert sale

1

400

400

Beverages

23

43,100

1,874

Wine-making

2

1,300

650

SUB TOTAL

141

237,800
(11.8%)

1,687

C. OTHER MANUFACTURING

Carpentry/furniture-making

27

49,900

1,848

Lathe work

2

3,800

1,900

Ladder manufacture

2

1,000

500

Brick and tile production

6

10,000

1,667

Drainage pipe production

2

4,000

2,000

Pot production

19

18,800

989

Goldsmithing

9

13,100

1,456

Metal working

4

10,500

2,625

Welding/blacksmithing

5

5,400

1,080

Tailoring/embroidery

15

14,050

937

Basket-making

1

400

400

Buddha carving

2

3,000

1,500

Power supply

6

15,500

2,583

Machine-making (threshing, firewood cutting)

3

4,500

1,500

SUB TOTAL

103

153,950
(7.6%)

1,495

D. TRADE/RETAILING

Rice/cereal sales

153

266,500
(13.2%)

1,742

Paddy buying & selling

6

7000

1,167

Vegetable/fruit selling

22

14250

648

Coffee selling

2

2000

1,000

Wood selling

17

38700

2,276

Firewood/fuel selling

11

13200

1,200

Dealing in cows

8

13500

1,688

Dealing in cow bones

2

4000

2,000

Sale of hides

1

1000

1,000

Slaughter/sale of meat

39

55600

1,426

Retail sales n.e.s.

74

123800

1,673

Groceries

114

44700

1,038

Jewelry

21

46900

2,129

Medicinal product sales

34

300

1,379

Water selling

1

2000

300

Scrap dealing

3

4000

667

Gas station

2

2,000

SUB TOTAL

584

755,750
(37.4%)

1,294

E. REPAIR SERVICES

Engine/machinery repair

3

5,000

1,667

Motorcar repair

6

8,500

1,417

Bicycle repair

5

2,200

440

Battery charging

10

7,500

750

Car air pumping

1

300

300

TV/radio repair

3

5,100

1,700

Tap repair (plumbing)

1

500

500

SUB TOTAL

29

29,100
(1.4%)

1,003

F. GENERAL SERVICES

Tractor hire

6

7,000

1,167

Rice threshing service

1

400

400

Truck transport

111

236,200
(11.7%)

2,128

Boat transport

5

16,500

3,300

Minibus service

1

4,000

4,000

Push cart transport

8

4,850

606

Taxi business

4

3,900

975

Motorbike taxi

2

500

250

Car wash

1

1,300

1,300

Electrician

2

11,000

5,500

Restaurant

11

22,100

2009

Cooked rice/chicken

11

8,400

764

Roasted meat

2

2,000

1,000

Photography

9

13,000

1,444

Photocopy

1

3,000

3,000

Guest house

4

8,000

2,000

Karaoke

4

8,800

2,200

Snooker

2

400

200

Wedding supplies

4

19,000

4,750

Clinic

1

400

400

Dentist

1

4,000

4,000

House renting

2

1,500

750

Purchase/sale of houses

2

6,500

3,250

SUB TOTAL

195

382,750
(19.0%)

1.963

GRAND TOTAL

1,416

2,019,050
(100%)

1,426

Table A.2.2: Activities receiving ACLEDA loans, 1994-1999 (February), Battambang province


No. of Loans

Value ($)

Mean Value ($)

A. FARM/FISH PRODUCTION

Agricultural production

12

26,800

2,233

Tractor purchases

39

112,900

2,895

Mushroom growing

5

750

150

Mushroom seed production

1

1,500

1,500

Small tree production/sale

1

700

700

Egg hatcheries/chicken raising

37

25,796

697

Duck raising

54

15,150

281

Pig raising

18

22,500

1,250

SUB TOTAL

167

206,096
(15.2%)

1,234

B. AGRO-PROCESSING

Sawmilling

1

2,000

2,000

Fish processing

39

32,800

841

Slaughter/butchery

10

8,600

860

Rice milling

15

34,600

2,307

Rice powder grinding

3

3,100

1,033

Soya bean mill

1

3,500

3,500

Soya sauce/pickle

6

5,700

950

SUB TOTAL

75

90,300
(6.7%)

1,204

C. MANUFACTURING

Stone crushing

1

2,000

2,000

Concrete pipe production

27

26,100

967

Ceramics

1

600

600

Water jar manufacture

4

1,900

475

Brick production

5

13,500

2,700

Salt grinding

1

500

500

Carpentry

15

14,200

947

Furniture-making

2

3,000

1,500

Rattan furniture

3

2,300

767

Trailer manufacture

1

3,000

3,000

Handcraft production

2

1,500

750

Wooden shutters

1

1,800

1,800

Incense sticks

1

800

800

Mechanical workshop

1

15,000

15,000

Welding

3

2,900

967

Tinsmithing

7

7,900

1,129

Stove manufacture

2

2,700

1,350

Ploughshares

3

5,200

1,733

Wine-making equipment

1

2,000

2,000

Key-making

4

840

210

Electrician

1

2,500

2,500

Power supply

34

31,100

915

Gem cutting

8

13,000

1625

Goldsmithing

19

27,600

1,453

Fishing nets

1

2,000

2,000

Tailoring

34

27,200

800

Weaving

6

2,900

483

Knitting

1

300

300

Mattress production

3

4,750

1,583

Sandal making

1

4,000

4,000

Motorcycle saddles

2

4,000

2,000

Candle making

1

4,000

4,000

Noodle manufacture

20

32,384

1,619

Cake production/bakery

32

22,000

1,532

Ice cream, ice production

14

36,250

2,589

Wine-making

3

3,500

2,783

SUBTOTAL

265

325,224
(24.0%)

1,227

D. REPAIR

Machine repair

6

8,000

1,333

Motorcycle repair

20

18,400

920

Motor vehicle repair

12

14,550

1,213

Bicycle repair

14

3,700

264

Tyre repair

2

1,200

600

Boat repair

1

300

300

Water pump repair

2

350

175

Sewing machine repair

2

3,000

1,500

Watch repair

6

4,800

800

Radio/TV repair

18

13,050

725

SUBTOTAL

83

67,350
(5.0%)

811

E. SELLING

Fish selling

7

4,500

643

Rice selling

69

78,423

1,137

Vegetable & fruit selling

13

11,100

854

Vegetable seed selling

1

500

500

Tobacco selling

5

4,500

900

Building materials

20

36,300

1,815

Wood, including bamboo

14

15,100

1,079

Firewood/fuel

18

17,903

995

Groceries

130

140,760

1,083

Retailers

107

125,730

1,175

Pharmacies (medical supplies)

10

23,300

2,330

Leather sales

6

24,500

4,083

Stationery shops

6

8,600

1,433

Bookstore

1

800

800

Furniture shop

2

1,800

900

Handicraft shop

1

300

300

Water distribution

14

19,200

1,372

Petrol station

1

3,000

3,000

SUB TOTAL

425

516,316
(38.1%)

1,215

F. GENERAL SERVICES

Land transport

3

4,750

1,583

Boat transport

3

1,500

500

Battery charging

11

11,300

1,027

Car wash

6

5,000

833

Photocopying

4

9,000

2,250

Printing

2

5,500

2,750

Photography

1

4,000

4,000

Hairdressing/beauticians

24

22,200

925

Laundry

1

200

200

Restaurant

18

28,850

1,603

Cooked food selling

8

5,100

638

Videos

10

10,900

1,090

Karaoke

8

7,200

900

Wedding hire

1

4,000

4,000

Computer service

2

3,500

1,750

Interphone

1

4,000

4,000

Language school

5

15,000

3,000

Music school

1

1,000

1,000

Library

1

2,500

2,500

Dental clinic

3

2,600

867

SUB TOTAL

113

148,100
(10.9%)

1,311

GRAND TOTAL

1,128

1,353,386
(100%)

1,200

(introduction...)

15 April 1997

Draft

Situation Review on Micro and Small Enterprise Development in Cambodia

Background report for discussion

March 1997

Joint mission of ILO and UNIDO funded by UNDP under SPPD facility

List of acronyms

ACLEDA

Association of Cambodian Local Economic Development Agencies

ADB

Asian Development Bank

ASEAN

Association of South East Asian Nations

CARD

Council for Agricultural and Rural Development

CCB

Cambodian Commercial Bank

CCRD

Credit Committee for Rural Development

CDC

Council for the Development of Cambodia

CIB

Cambodian Investment Board

CRDB

Cambodian Reconstruction and Development Board

DIME

(Provincial) Department of Industry, Mines and Energy

EASMAT

East Asia Multidisciplinary Advisory Team

EGP

Employment Generation Programme

ESCAP

Economic and Social Commission for Asia and the Pacific

GBTP

Georgetown University Small Business Training Programme in Cambodia

GRET

Groupe de Recherche et d’Echanges Technologiques

GSP

General System of Preferences

GTZ

Gesellschaft fhnische Zusammenarbeit (Germany)

IFC

International Finance Corporation

ILO

International Labour Organization

IRRI

International Rice Research Institute

ISO

International Standards Organization

LWS

Lutheran World Service

MFN

Most Favoured Nations

MIME

Ministry of Industry, Mines and Energy

MOC

Ministry of Commerce

MOEYS

Ministry of Education, Youth and Sports

MOSALVA

Ministry of Social Affairs, Labour and Veteran Affairs

MOWA

Ministry of Women’s Affairs

MPDF

Mekong Project Development Facility

MPWT

Ministry of Public Works and Transport

MSE(s)

Micro and Small Enterprise(s)

NISP

National Industrial Statistics Programme

NTC

National Training Centre

NTS

National Training Secretariat

OOPP

Objectives Oriented Programme Planning

PRASAC

Programme for Rehabilitation and Support of Agriculture in the Kingdom of Cambodia

PSD

Private Sector Development

SME(s)

Small and Medium-sized Enterprise(s)

SPPD

Support for Policy and Programme Development

TA

Technical Assistance

TCDC

Technical Cooperation among Developing Countries

TVET

Technical and Vocational Education and Training

UNDP

United Nations Development Programme

UNICEF

United Nations Children’s Fund

UNIDO

United Nations Industrial Development Organization

UNTAC

United Nations Transitional Authority for Cambodia

USAID

United States Agency for International Development

VET

Vocational Education and Training

WTO

World Trade Organization

1. Introduction and background

The approval of the First Socioeconomic Development Plan (1996-2000) by the National Assembly marks the new stage for Cambodia in that the country has emerged from the rehabilitation and recovery to a stage where they are ready to lay solid foundation for the future sustainable development in the longer term perspective. Healthy and dynamic local enterprises, most of which fall under the category of micro and small enterprises (MSEs), are an essential component in the national economy and the society where employment opportunities are created and the necessary goods and services are locally provided. These are some of the reasons why in most of the countries in the world, small enterprise development is considered to be very important and a variety of supportive measures have been taken. It is recognized that MSEs could play the following fundamental roles1:

(a) the promotion of full, productive and freely chosen employment;

(b) greater access to income-earning opportunities;

(c) economic growth and the ability to react flexibly to changes;

(d) increased domestic savings and investment;

(e) training and development of human resources;

(f) balanced regional and local development;

(g) provision of goods and services which are better adapted to local market needs;

(h) the possibility of access to improved working conditions, quality of work as well as social protection for large numbers of people;

(i) stimulating innovation, technology development and research; and (j) accessing domestic and international markets.

1 International Labour Conference 85th Session 1997 Report V (2) “General conditions to stimulate job creation in small and medium-sized enterprises”. International Labour Office, Geneva, 1997.

This report provides a situation review of the micro and small enterprise sector in Cambodia. It is the result of the joint mission conducted by ILO and UNIDO, two of the specialized agencies in the United Nations system that have been involved in micro and small enterprise development in countries around the world. The 10-day mission was the first of the two missions planned for the joint ILO/UNIDO exercise funded by UNDP under their SPPD facility. The mission conducted a desk survey and undertook interview visits to various stakeholders such as ministries, NGOs, financial and training institutions, donors and about twenty enterprises in Phnom Penh, Kampong Cham and Battambang.

Collaboration between ILO and UNIDO for enterprise development in Cambodia dates back to 1994 when the UNDO/ILO Small Enterprise and Informal Sector Promotion Project was successfully assisted by an UNIDO expert to improve the bicycle tire manufacturing sector in Cambodia. When formulating the successor project, the ILO made a proposal to include a component for facilitating the enabling environment for small enterprises in Cambodia. At the same time, UNIDO was proposing to UNDP to conduct an OOPP2 workshop on small enterprise development in order to complement the UNDP/ILO Project. Recognizing the priority of the Royal Government for poverty alleviation and the importance of the private sector development to address this priority, UNDP commissioned the SPPD exercise titled, “Micro and Small Enterprise Development for Poverty Alleviation” for a joint execution of ILO and UNIDO.

2 Objective Oriented Programme Planning. This methodology has its roots in Logical Framework (“Logframe”) developed by USAID which was farther developed into a project cycle management tool by GTZ known as “ZOPP”. UNIDO has adopted it as a primary tool for quality management of their technical assistance programmes and projects, calling it OOPP, and has specialized facilitators.

The summary of the present report will be translated into Khmer as a background document for the OOPP workshop planned during the first half of August and toward the end of the second and larger joint mission. The workshop will be participated by the various stakeholders who are currently and potentially involved in micro and small enterprise development in Cambodia. It is expected that the outputs of the whole exercise will be identification of issues to be addressed to promote the MSE sector in Cambodia, possible measures to tackle the identified issues and agreement of the roles of different players. It is also hoped that the exercise will generate the interest in the donor community as well as the policy makers so that the recommended measures would be implemented.

The March mission was conducted from 10 to 21 March 1997 by Mr. Takafumi Ueda, Enterprise and Management Development Specialist in ILO East Asia Multidisciplinary Advisory Team (EASMAT), and Mr. An Huhtala, UNIDO Country Director for Cambodia, both of whom are stationed in Bangkok. The mission was assisted by two capable Khmer staff of UNDP/CARERE, Messrs. Hem Chanthou and Rin Seyha, who are assigned to be working in the newly created Private Sector Development (PSD) Unit, headed by Mr. Tony Knowles on secondment from the UNDP/ILO Project CMB/95/010. This arrangement combined the contacts and experience gained by ILO, UNIDO and CARERE in Cambodia and in addition to providing logistical and consultancy support to the mission, provides good potential to develop some pilot activities to test some of the ideas that may emerge.

April 1997, Bangkok

2. Macro-economic framework for micro and small enterprise development in Cambodia

The Cambodian economy began recording strong GDP growth of around 7% in 1991, although from a very low base and was partly driven by a tremendous increase in consumption demand spurred by the presence of UNTAC personnel. Political uncertainties, departure of UNTAC personnel and natural calamities created an economic setback resulting in slower GDP growth in both 1993 and 1994. In 1995, overall GDP grew by 7.5% due to improved macro-economic planning and increase in foreign investment inflows, mostly from neighbouring countries (from US$ 10 million in 1994 to US$ 100 million in 1995). The impressive growth, however, was mainly concentrated in Phnom Penh in geographical terms and in construction and services in sectoral terms. The Government succeeded in achieving some macroeconomic stability; the inflation decreased from an average of 140 percent in 1990-92 to 3.5 percent in 1995 and the exchange rate has been relatively stable. The bulk of external financing is still provided by official grants and concessionary loans. Despite this favourable environment, the current account deficit grew to 14.9% of GDP in 1995.

Agriculture is the largest sector of the economy, representing about 45% of GDP and even a greater proportion of the total employment. Rice and rubber production have increased substantially in recent years, but progress is severely hampered by undeveloped infrastructure and the inability to cultivate more land area due to the widespread presence of land mines. Over recent years, rubber and timber have been the most significant export commodities. However, a ban on timber exports in 1995 resulted in a 40% decline in hardwood production and contributes to an even slower growth rate for the agricultural sector in 1996.

The industrial sector (10% of GDP including construction, energy and mining) grew by 9.5% in 1995, compared to 7.5% in 1994. Although the state sector was responsible for more than half of the total industrial production, its share is contracting at an accelerated pace due to growing household and small-scale private sector activities. Economic liberalization has resulted in the emergence of private, export-oriented manufacturing. In the last three years, the manufacturing sector has (medium- and large-scale) created some 16,500 new jobs, out of which the majority (64%) are in the labour intensive textile sector (ready-made garments). The textile industry is now the largest sector in industry, contributing to 50% of total manufacturing employment at the medium- and large-scale level. A large share of such manufacturing enterprises is fully (27%) or partly owned by foreigners (25%; joint ventures). These industries are located in a few areas in Phnom Penh and neighbouring Kandal Province absorbing 65% in employment terms. Overall, five provinces out of 22 account for three quarters of total medium-and large-scale manufacturing employment.

The service sector grew at over 8% between 1990 and 1995. Within the service sector, the hotel and restaurant component expanded at almost 21% a year and both trade and transport components grew by about 10%.

According to statistics available at the Ministry of Industry, Mines and Energy (MIME), in 1996 there were some 25,620 micro and small industrial establishments (capital of US$ not more than 200,000) in the 22 provinces in Cambodia. These establishments employed some 68,000 persons (49,000 male, 19,000 female). Compared to the figures collected during the UNIDO industry sector review mission in January 1992, there appears to be no growth in the number of such establishments, nor in the number of people employed by them. A large share of these establishments are rice mills and other small food processing enterprises. Other industries of some significance are textile and wearing apparel (some provinces), non-metallic and mineral processing (most provinces) and fabricated metal (all provinces). Only 9% of the registered establishments are licenced at the national level by MIME, whereas 33% are licensed by the provincial departments of MIME, and 58% are not licensed at all (according to their size; see Chapter 4 for criteria). MIME estimates that the figures collected by the 22 provincial departments represent about 90 per cent of all industrial small establishments.

The MIME statistics reveal that the heaviest concentration of micro and small industrial enterprises is found in Kampong Cham (labour force above 18,500 particularly in agro-processing and textiles), followed by Phnom Penh (9,000 persons), Kratie, Kampong Thom, Takeo and Kandal (some 5,000 persons each). Some provinces (Kep Vill, Preah Vihear, Mondul Kiri) report virtually no micro and small-scale industrial activities. The majority of the industrial work force is male whereas trade has a larger proportion of women.

Although some medium-scale industries have emerged as an important new form of employment generation in some urban areas, it appears that the contribution of micro and small industrial establishments to employment generation and the diversification of the economy has not increased after the liberalization of the economy in the early 1990s. However, micro and small enterprise development in trade and other services has been significant.

One estimate mentioned in the 1996 World Bank report put the total number of enterprises with more than 3 but less than 50 workers at not more than 50,000. In Phnom Penh municipality, there were 26,000 companies registered, the vast majority of which were small. Majority of the enterprises were in production followed by trade and other services.

Micro enterprises can be loosely defined as self-employed persons and family enterprises. Because of the low start-up capital (e.g. $100) and skill requirements, the self-employed persons, most of whom are women, are often engaged in trade or other services. In most cases, the business are undertaken to support their incomes, often on a part-time basis. Family enterprises are found in manufacturing and repair as well as trade and other services. Manufacturing requires more capital, up to $1,000 for family enterprises, and higher levels of skills. In rural areas, it is estimated that nearly every rural household has at least one family member engaged in some form of business activities of a seasonal nature and with minimum capital requirements3. Examples include livestock, rice wine making, preparing food and small-scale trade. In urban areas, micro enterprises activities provide income to the majority of households. The activities are diverse, encompassing service and production activities such as mechanical and electrical repair, tailoring, hairdressing, food processing, sild weaving and wholesale and retail trade.

3 There were about 1.7 million households in Cambodia in 1994.

3. Government priorities and plans

The First Socioeconomic Development Plan 1996-2000 of the Kingdom of Cambodia has established the “framework for the medium-term development of the country”. The Plan has a clear focus on poverty alleviation and, at the same time, lays down some investment priorities with view to promoting longer-term development and industrialisation. The major priorities expressed in the Plan are; reducing poverty and developing human resources, developing the productive base, generating employment through the private sector, increasing domestic self-reliance, strengthening absorptive capacity and regional cooperation.

The main elements of the Royal Government’s development programme in the Plan that are particularly relevant to micro and small enterprise development as well as private sector development are: (i) employment generation, (ii) rural development, (iii) development of the productive base, (iv) human resource development, (v) investment in physical infrastructure, (vi) macro economic stability, (vii) legal and administrative framework and (viii) reintegration into the global economy.

(i) “Generation of employment through labour-intensive manufacturing for export, the promotion of small-scale enterprises and the urban informal sector and the development of tourism.”

This is a clear expression of the Government priority endorsing the needs for micro (albeit using the phrase “the informal sector”) and small enterprise development. It is compatible with the overall focus on poverty alleviation since the key to any long-term and sustained attack on poverty (as well as any attempt to decrease dependence on external assistance) is a growing economy and particularly the growth that generates employment and enhances livelihood.

The Plan further points out that the promising development of medium-scale formal sector manufacturing is not enough to absorb the annual increases in the urban labour force resulting from natural increase and migration as well as the planned civil service retrenchment and demobilisation. Therefore, “a substantial contribution to labour absorption will have to come from small-scale enterprises and informal sector activity of all kinds.”

The industrial development strategy, which will be described in more detail later, includes focuses on labour-intensive, export-oriented industry and industries with linkages to tourism.

The development of tourism, for which the Cambodian potential is large and the micro and small enterprises could potentially play a big role, could be an important means of generating jobs, income tax revenues and foreign exchange quite rapidly in the short term.

(ii) “Achievement of poverty alleviation and broad participation in the development process through a focus on participatory rural development.”

Micro and small enterprise (MSE) activities are a means for people to participate in development through their day-to-day effort in improving their lives. It would facilitate the improvement of people’s livelihood and self-reliance.

MSE development is one of the important components of rural development to achieve increases in (commercially-oriented) farm and non-farm incomes and to help limit rural-urban migration and the transfer of more poverty to the urban areas. Cambodia can learn from a lesson of Thailand and avoid the emergence of another “Bangkok”.

(iii) “Development of the productive base of the economy (through rice production, livestock production and diversification of the commercial agricultural sector).”

Some of the MSEs, particularly micro enterprises in the rural areas, are engaged in agricultural and livestock activities (e.g. mushroom growing, duck raising). The agricultural, forestry and fisheries sector also has an important relevance to MSEs in terms of potential backward and forward linkages; MSEs produce farm instruments, tools and machines and buy agricultural, livestock, forestry and fishery products as their raw materials. It is also important to note that higher income of rural population generates larger market for MSEs4.

4 The mission encountered such an example with a noodle making enterprise whose sales dropped because the farmers (who are their major customers) lost much income due to flood.

(iv) “The upgrading of human skills and their adaptation to those that are commensurate with a modern market economy.”

Skills are simply necessary to operate micro and small enterprises and to generate income. Human resource development is furthermore important for Cambodia to meet the challenges of the market economy in managing enterprises, adapting and developing technologies and to compete effectively with enterprises of neighbouring countries, particularly because such capacities were deliberately destroyed in the late 1970s. It will be essential as the economy will be more reintegrated into the regional and global economies.

(v) “Substantial investment in the upgrading and development of physical infrastructure, particularly rural roads.”

Improving road network in quantity and quality will reduce costs of transporting goods and people and result in more economic activities. It will facilitate the expansion of internal and international trade and thus the commercialisation of agriculture.

(vi) “Establishment of macroeconomic stability and creation of the institutions, instruments and policies necessary for prudent, long-term economic management.”

Macroeconomic stability and sound economic management are a prerequisite for the MSE development as well as the private sector development since productive investment, either small or large, domestic or foreign, is made only in a stable economic environment.

The Government aims to establish an “enabling environment” for domestic and foreign investment, through achievement of macroeconomic stability and an appropriate legislative base and provision of generous incentives for investment and physical infrastructure, including electricity.

The present predominance of small-scale and informal sector enterprises is one of the factors that make it difficult for the Royal Government to secure government revenue needed to sustain its programmes.

(vii) “Reform of the administrative and judicial institutions of the State, through reorganization of the public service and more effective liaison between central and provincial administrations.”

Capacity to implement laws and regulations constitutes an essential part of an “enabling environment”.

(viii) “Reintegration of the Cambodian economy into the regional and global economies and liaison with regional institutions.”

Cambodia’s location within an increasingly dynamic subregion and within the East Asian region as a whole is seen to offer great opportunities for the longer-term development. But it could pose as a threat because of potential competition from the economically powerful neighbouring countries. The Government has taken on policies that will be directed towards reintegrating the Cambodian economy into the regional and global economies. In successfully coping with the challenges that this objective poses, raising the education and skill levels of the workforce is essential.

The industrial sector is particularly important for MSE development. The Plan includes a specific industrial development strategy which involves the incorporation of the following key parameters:

· Export orientation (with prospective MFN-status and GSP entitlements as incentives);

· Labour intensity (broadening from garment industries);

· Natural resource-based industry (agro-, wood-, fisheries- and non-metallic minerals-based industries);

· Selective import substitution of consumer goods (based on locally available materials);

· Large versus small scale industry (shift from large, for instance in rice milling, vegetable oil processing, animal feed production, furniture-making and brick and tile manufacture);

· Rural industry (including technical and business advice, vocational training and increasing the availability of credit);

· Urban informal sector employment promotion (emphasis on small-scale enterprises);

· Tourism-related industry (such as building materials, furniture-making and other wood-based industry, metalworking, food industries and handicrafts); and

· Downstream industries based on petroleum (provided current exploration leads to concrete finds).

In order to stimulate industrial development, the Royal Government will pursue a policy of identifying and fostering selected urban areas as “growth centres”. These will be supported through the provision of facilitating infrastructure such as industrial zones and export processing zones (Phnom Penh and Sihanoukville). Battambang, with its hinterland richly endowed in terms of agricultural and fishery resources and favourable location, is expected to play an important role as a focal point in regional economic growth in the west of Cambodia. Tourism-related industries are expected to develop in Siem Reap, and Kampong Cham is expected to lead the development of the eastern part of the country based on the large rural population, significant rubber plantations and processing plants, sugar, tobacco, soybean and banana cultivation and trade with Vietnam.

The Plan particularly outlines the following constraints to be addressed during the period of 1996-2000:

· Strong competition from countries in the region requiring industrial policies encouraging establishments to operate successfully within a highly competitive domestic and international market environment;

· Low level of education of the work force compared to other countries in the region;

· Cost of energy, water and telecommunications and access to serviced industrial land;

· Administrative delays in securing imports of machinery, spare parts and materials;

· Inadequacy of the primary road network; and

· Scarcity of credit, particularly for rural and urban small-scale industry.

These constraints were amongst those quoted to the ILO/UNIDO mission team during the interviews and will be partly addressed more in detail in Chapter 9.

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.

5. Brief description of stakeholders in MSE development in Cambodia

There are a number of stakeholders in MSE development in the public as well as private (for-profit and non-profit) sectors. The following brief descriptions should be read in conjunction with those of donors in the next chapter. There are naturally overlaps because the donor-assisted projects and programmes often work with Cambodian counterpart organizations. The mission was able to visit most of the following stakeholders. Additional information, particularly of those that the mission could not meet, was obtained from indirect sources6.

6 See Annex 2 for the list of persons met by the mission.

a) Ministry of Industry, Mines and Energy (MIME)

MIME consists of six Departments (Administration, Energy, Technical, Planning, Mining and Inspection) in Phnom Penh. In addition, each province has a Department of Industry, Mines and Energy (DIME) reporting to MIME. Apart from manufacturing and handicrafts, MIME/DIME is responsible for power generation, oil exploration and water resources. The most relevant Departments for MSEs are: the Planning Department in which some 13 staff are working in the SME Unit, Technical Department (quality control, testing, industrial zone development, environmental questions) and the Enterprise Divisions of each DIME. The total staff of MIME/DIME is 2,000. Each DIME has officers both at the provincial capital and in each district of the province.

MIME is formally responsible for formulating development plans and establishing an appropriate legal framework to promote private sector industrial activities, including small scale. MIME is required to promote the development of small-scale industries, while encouraging domestic and foreign investment, primarily in selected geographical areas. MIME is also in charge of the monitoring and testing the quality of products from manufacturing enterprises. Currently the technical capacity concentrates mostly on food and food products. MIME is also the focal point in Cambodia for the International Standards Organization (ISO). In the provinces, DIME monitors the activities of not only manufacturing enterprises but also repair shops and other service enterprises, except trading. MIME/DIME also has an important role in protecting lables and products from imitations and pirating.

MIME staff is heavily constrained in its capacity to assess the performance, potential and constraints of the industry sector, and it lacks a coherent policy for the promotion of the sector. In particular, as identified by the Asian Development Bank (ADB), there is a need for developing skills in policy analysis and formulation in senior and middle-class officials and for developing basic skills such as computer operations and knowledge in economics.

There is currently no capacity to provide consultancy services to MSEs at MIME or other ministries or institutions in Cambodia. Enterprises and ACLEDA approach MIME/DIME on an ad hoc basis with questions related to procurement of machinery, generators, raw materials, quality improvement and marketing. In February 1996, MIME prepared a basic project concept for the establishment of an Industrial Promotion Centre for Cambodia (for possible funding by Japan) with the Directorate General of Industry as the implementing agency. Pending approval and funding, the Centre is planned to provide education and training (metalworking, electric/electronic technology, foodstuffs, textile and garments, vehicle repair, and woodwork) and practical firm management and other services such as industrial pollution control, quality control, production control, market research and product development using indigenous materials, and promotion of local products by holding exhibitions and fairs.

b) Ministry of Commerce (MOC)

MOC is in charge of developing a long-term policy for the trade sector in Cambodia, drafting commercial laws, and developing regulatory and administrative systems for domestic commercial activities and international trade. MOC is faced with the urgent task of preparing the economy and the trade and industry sectors for the country’s integration into the regional and global economy through participation in ASEAN later in 1997, and possibly later in the WTO. The total staff of MOC is 2,000.

MOC has no regional presence through departments in the provinces and its orientation is distinctly towards trade with the outside world. MOC is also in charge of CAMCONTROL which is the official control and certification body for exported and imported goods as well as goods at the market. MOC is also severely constrained in its capacity to develop coherent policies for the promotion of the trade sector and, as identified by the ADB, there is a need for developing skills in policy analysis and formulation.

c) Ministry of Labour, Social Welfare and Veteran Affairs (MOSALVA)

Poverty Alleviation through employment promotion is a priority of MOSALVA. The Department of Employment and Manpower is under the Directorate of Labour and Manpower. The Department has three Bureaus; Placement, Personnel Control and Statistics. Bureau of Placement provides placement services for job seekers in the country as well as facilitates Cambodian workers to be working overseas. They have received 1,566 new registration by job seekers in 1996. Bureau of Personnel Control issues labour books for Cambodian workers, labour permits and labour books for foreign workers. They are hoping to establish “Employment Promotion Centres” that would identify labour market needs, provide vocational training and job placement services and promote self-employment.

As an example of provincial activities, the Provincial Secretariat of Social Affairs, Labour and Veterans Affairs in Battambang has four divisions (called “offices”) and one of them is the Labour Office. None of the district offices under the Secretariat have functions related to labour matters. The Labour Office was started in 1993 and its (currently 9, including 3 women) staff received short training courses in MOSALVA. According to the Labour Law, all the factories employing more than 10 workers are required to inform the Secretariat but most of the enterprises had been established before the Law took effect. The main functions of the Labour Office are to issue labour books and to conduct inspections to enforce the government policies. They are planning to conduct 12 routine inspections per month. They have a system of registration for job placement but they have not had any successful placements.

d) Ministry of Education, Youth and Sport (MOEYS)

MOEYS has been designated as the coordinator of the technical and vocational education and training (TVET) system. Responsibility for the delivery of formal TVET has been increasingly concentrated under MOEYS but others run formal TVET institutions as well. Non-formal vocational education and training (VET) is delivered under the responsibilities of MOEYS, MOSALVA, Ministry of Rural Development (MRD) and Ministry of Women’s Affairs (MOWA) in collaboration with various donor-assisted projects and NGOs.

The TVET system in Cambodia has gone through a major change because of the shift to the market economy. The basic principles of the TVET in Cambodia are: (i) flexibility and responsiveness to changing needs and emerging market conditions, (ii) access to training for those with little or no education, with particular emphasis on access for girls/women and rural dwellers, (iii) holistic approach combining training with basic education and life skills, oriented towards practical occupations and with progression and quality, (iv) partnership with private sector and NGOs and (v) sharing responsibilities and costs.

e) Ministry of Agriculture, Forests and Fisheries (MAFF)

Major priorities of the Government concerning the agriculture, forestry and fishery sectors are (i) to achieve food security and rice exporting capacity, both of which by increasing rice production, (ii) developing commercial crop production such as rubber and other crops, (iii) expanding livestock production, mainly through improvement in animal health, (iv) achieving the sustainable development of fisheries subsector, (v) ensuring sustainable social benefit from forest resources. MAFF plans to further strengthen agricultural planning and policy-making capacities.

f) Ministry of Rural Development (MRD)

Ministry of Rural Development was established as a leading agency in promoting a system of decentralised, participatory rural development planning based on new structures of rural development administration and the newly-established village development committees, in which NGOs will continue in an important way.

They are responsible for setting up rural development committees at the provincial, district, commune and village levels as well as coordinating and/or implementing rural development activities such as rural roads7, primary health care, sanitation and water supply, education and training, commercial development, agriculture and rural credit (including for non-farm micro enterprises).

7 National (primary) and secondary roads fall under the responsibility of the Ministry of Public Works and Transport (MPWT).

g) Phnom Penh Chamber of Commerce

The Chamber was founded in 1995 and has had since a 24-person Board of Directors (active members, including 3 female members), elected by a membership of 600. Four sectors - commerce, industry and handicrafts, hotels and liberal professions, and agriculture - are represented on the Board. The functions of the Chamber include:

· Promoting Cambodia to foreign investors through the provision of information and other means;

· Providing services to members, such as information on export markets, international laws and regulations, and available technologies and products;

· Working together with the Ministry of Commerce in establishing good business practices, standards and, when appropriate, grading systems;

· Representing the interests of members in respect of their specific needs or in matters of public policy, such as the impositions of particular taxes or new regulations;

· Advising the government on establishing or consolidating business laws and working closely with the Royal Government through the Ministry of Commerce in matters related to the development of the business sector; and

· Arbitrating where necessary in disputes between business.

Although their current capacity is limited, the Chamber is planning to provide services to their members. They are establishing a database which was supported by EU and are planning to provide training courses for hotel workers.

So far the Chamber does not have wide coverage of micro and small enterprises and its effective coverage does not reach to areas outside Phnom Penh. The Chamber has, however, an important role in policy, strategy and incentive scheme formulation for all private sector activities in Cambodia and will therefore contribute to the creation on an enabling environment for micro and small enterprises as well. There are no active regional or subsectoral clubs or associations that would represent the concerns and interests of the micro and small enterprises in Cambodia for the time being.

h) Association of Cambodian Local Economic Development Agencies (ACLEDA)

ACLEDA was established as a Cambodian NGO in 1993 by the national project staff of the UNDP/ILO Small Enterprise and Informal Sector Promotion Project. Initially ACLEDA provided an integrated services of business opportunity identification, small business training, credit and follow-up advisory services. After a series of strategic planning exercises and analysis of demand, ACLEDA decided that the best way to serve the people of Cambodia was to become a “Financial Institution for the Poor”.

They are currently the largest micro finance institution in Cambodia with 18 provincial branch offices and district offices around the country employing more than 180 professional staff. As of the end of 1996, their active loans outstanding amounted to US$2.65 million with the number of borrowers at 36,700. They provide collateralized loans to small business clients up to $4,000 and the “medium-scale” enterprises up to $30,000. The average collateralized loan size is about $500. They also provide non-collateralized loans to micro-business clients up to $150 with the average size of $100. About 85% of their clients are women and the overall recovery rate is 96%. All the collateralized loan clients receive 4 to 6 days of basic business training which results in development of business plans used for loan application. Micro-business clients receive a one day workshop which leads to group formation. They are developing saving services as well as agricultural credit.

The organizational structure of ACLEDA consists of General Assembly, Board, Executive Committee, technical staff for consultancy and training as well as branch offices and district offices.

i) Groupe de Recherche et d’Echanges Technologiques (GRET)

Apart from the government-sponsored lending facility that was established in 1985, GRET, a French NGO, is the pioneer in micro financing that started in late 1991. They have established a number of village banks in three provinces; Kandal, Kampong Speu and Prey with about 20,000 clients. Before any loans are provided, the villagers are trained to be able to manage their funds. They have established 229 village banks as of the end of 1996. Their outstanding loan amounted to $600,000 with 19,800 borrowers.

j) Khemara

Khemara is an NGO founded in 1991 by a woman activist returning from a refugee camp. The main objective of the NGO is the advancement of women in Cambodia through health, nutrition and day care, community-based rehabilitation, human rights training, family support programme and a special scheme for women in business which includes credit linked with skill training. The credit scheme operates in two communities (one in a suburb of Phnom Penh and another in Kampong Speu) has currently less that 20 women’s groups benefitting from it. There are no formal links with the government, but Khemara works closely with local authorities. All activities depend on donor funding and there is currently little scope for expansion. The handicrafts outlet in Phnom Penh has developed into an interesting venue for the display and retail of traditional textiles and other items. The new Executive Director plans to focus the business activities of Khemara more to improving quality and competitiveness rather than supporting the woman entrepreneurs through all steps of the production process. Despite its small size, Khemara through its wide experience in grassroots employment generation activities can well represent the views of a number of NGOs and issues related to the role of women in economic development in Cambodia.

k) Small Business Training Programme

Small Business Training Programme in Battambang is a part of the USAID-funded Georgetown University Small Business Training Programme in Cambodia (GBTP). It is located in the premises of Regional Teacher’s Training Centre (Eab Khut School). The programme was started in September 1994. Since then 275 students (out of whom 121 women) graduated from their 4.5 month course which consists of 3 month classroom sessions and 1.5 month enterprise (or farm) internship. The course is divided into general management, managerial accounting, general accounting, marketing, “business consumer maths”, business English, credit, field visits to enterprises, guest speakers, internship and business plan research. They receive support from Faculty of Business in Phnom Penh which is also a part of the project. In Phnom Penh, the qualification to apply is to have graduated from high school (i.e. 12 years education) but in Battambang 8 years is acceptable, although they conduct entrance examinations. They also conduct a three-month evening course charging $100 per person. 19 people are enrolled in the evening course, most of whom come from NGOs. The Battambang programme has difficulty in identifying enterprises who are willing to accept internship. In Phnom Penh, MIME has been requested to assist in this respect.

l) Vocational Training Centre in Battambang

The Centre, established in 1989, is a part of the Provincial Department of Education, Youth and Sports. The Centre provides two-year courses for those with 8 years of education in five technical areas; i) agricultural machineries, ii) automobiles, iii) electricity, iv) concrete construction and v) carpentry. The last two courses were added in 1994. Each course has 18 to 25 trainees. 14 out of their 160 trainees are women who are mainly in electricity and construction courses. The Centre has 28 staff, who are all trainers, and 5 assistants. They have 5 German advisors and have been supported by Lutheran World Service (LWS) since 1992. The Centre prepares their own curriculum, following the policies of MOEYS, and sends it to the Ministry for approval. The Centre’s budget comes from the government as well as LWS. The running cost for one course is US$20,000. They invite local enterprise owners two to three times a year to identify skill demands. Until 1993 all the graduates had been placed in the government but since then finding jobs after graduation became difficult except for concrete construction and carpentry. Out of the 54 graduates last year, 11 found jobs in the skills they had learnt, 3 found different jobs, 2 opened their own businesses and 24 formed “shelter work groups” operating in the adjacent premise of the Centre.

m) UNDP/ILO-supported Provincial Training Centres

The mission visited the Battambang Provincial Training Centre which is one of the decentralized provincial training centres that are located in seven provinces; Kampot, Takeo, Kampong Cham, Pursat, Banteay Meanchey, Battambang and Siem Reap. All of the seven centres are managed by national counterpart staff, National Outreach Coordinators and their assistants, seconded from provincial departments of MOEYS. When the Battambang Centre started in 1993, it was first located with DIME but was transferred to the Department of Education, Youth and Sports in 1995. Since 1993, they have conducted 52 courses resulting in 960 trainees, out of whom 292 were women. Besides courses in the Centre, they also provide mobile training in rural communities. The courses are decided based on a training needs assessment. They try to avoid duplication with the training courses that NGOs provide. The courses are provided free of charge. Priorities are given to women, internally displaced persons and people with disability. A more detailed explanation about the project as a whole is given in Chapter 6.

n) JSRC Vocational Training Centre

The Centre is managed by an NGO, Japan Sotoshu Relief Committee (JSRC), and started as an effort to provide skills for the poor, the returnees (former refugees) and female-heads of household. They have provided training in ceramics, pottery and brick making. The purposes of the Centre are technology transfer and employment promotion. 20 people have graduated and currently they have 40 trainees. The Centre provides one-year training courses. Because their products are of high quality and targeted for tourists as customers, their current location in Battambang is not particularly suitable in terms of marketing. The raw material for ceramic comes from another province. However, the Centre is valuable as the (only) source of high level expertise in Cambodia for ceramics and pottery.

o) Cambodian Commercial Bank (CCB)

The CCB was the first commercial joint venture (the National Bank of Cambodia and the Siam Commercial Bank from Thailand) in the banking sector in Cambodia and has currently four branches. The CCB mostly provides services in savings and deposits (mostly in US$, some in Riel and Thai Baht) and in Phnom Penh also export-import credit facilities, etc. All branches provide commercial and agricultural loans at a fixed interest of 18%. One of the key problems for business credits is the very complicated and costly procedure to obtain land title documents necessary for collaterals.

p) Canadia Bank

Among the various commercial banks, Canadia Bank is said to be the only bank that is providing credit to small farm households. As much as 5% of their loan portfolio could be in the agricultural sector. They are currently reaching about 400 farm households and the loans are provided through village heads. So far they have achieved 100% repayment rate.

6. Main externally assisted programmes for MSE development

a) Cambodian Resettlement and Reintegration Project (CARERE)

Primarily funded by UNDP, CARERE started in mid-1992 to resettle and reintegrate hundreds of thousands of internally displaced persons and refugees from the Thai/Cambodia border into Cambodian society. In 1996, they shifted their operational framework from an emergency-oriented direct assistance effort to a pilot programme in decentralized planning and financing of participatory local development, named SEILA (meaning “foundation shone” in Khmer) under the principle that SEILA would form the foundation on which to build an effective and self-sustaining rural anti-poverty effort. CARERE operates in five provinces; Battambang, Bantay Meanchey, Pursat, Siam Reap and Ratanakiri. CARERE links anti-poverty interventions with democratic processes and changes in the prevailing economic and social structures by ensuring participation of villagers in decision-making and implementation of development activities through the establishment and capacity building of Development Committees at village, commune and provincial levels. They have initiated the process of piloting the formulation of the Provincial Development plans based on the National Socioeconomic Development Plan.

CARERE’s development activities cover health and water sanitation, education and culture, governance and civil society, infrastructure and natural resource management and local economic development which includes agriculture, rural finance and private sector development (PSD). For rural finance, they have established a partnership with ACLEDA. The establishment of the PSD Unit in CARERE is based on the belief that it is necessary to build a foundation for healthy economy which would be based on local initiatives in order to alleviate poverty in the long run.

b) International Labour Organization (ILO)

With funding of UNDP and other donors, the ILO has implemented the Employment Generation Programme (EGP) that consists of the projects in three technical areas; (i) small enterprise development, (ii) vocational training and (iii) labour-intensive infrastructure development.

Under UNDP/ILO Small Enterprise and Informal Sector Promotion Project (1993-95, CMB/92/010) and the successor project, Alleviation of Poverty through ACLEDA’s Financial Services (1996-99, CMB/95/010), the ILO has provided assistance in establishment and capacity building of a Cambodian NGO, ACLEDA (described in Chapter 5). The main objective of the current project is to help ACLEDA become a self-sustainable institution and the project will be reducing contributions to ACLEDA gradually, phasing out by the end of 1999.

UNDP/ILO Vocational Training for Employment Generation Project (CMB/92/020) provided demand-based short skill training which was suitable for local economic conditions. From 1993 to 1996, the project offered 305 training courses with 5,193 graduates in 35 skill areas, 47% of whom were women. Duration of the training courses varied from 1 week to 6 months. The project successfully established 8 provincial training centres that conduct outreach training on a mobile basis around the country and contributed to the human resource development of both local project staff and national counterparts from the Ministry of Education, Youth and Sports (MOEYS) working in the National Training Secretariat (NTS) and the National Training Centre (NTC). 77% of the graduates were found to be utilizing the skills. Besides increased and stable income, there are also non-economic benefits such as self-confidence, respect from community members, higher aspiration for self and family, improved family relationships as well as strengthening of community relationships. As an indication of the value of the courses as perceived by the trainees, it was also found that a number of graduates would have been willing to pay up to US$20 or $40 for the training courses. The training courses included such skill areas as automotive and motorcycle repair, electrical engineering, plumbing, food processing, rattan furniture, sewing, weaving, mushroom growing, duck raising and pig rearing.

The successor project, Vocational Training for the Alleviation of Poverty (CMB/96/002) started in July 1996, addresses two main issues. The first is capacity building at the central and provincial level of MOEYS, with the ultimate goal as developing a sustainable capacity within the Government to develop and coordinate training programmes and to gradually transfer responsibility for continuation of activities to the Government. The second issue concerns the direct provision of vocational skills training for employment or self-employment, either by the project or indirectly through collaboration with other ministries, NGOs or private sector providers.

c) European Commission

The European Commission has been implementing “the Programme for Rehabilitation and Support of Agriculture in the Kingdom of Cambodia (PRASAC)” in six provinces; namely, Kampong Cham, Kampong Chhnang, Kampong Speu, Takeo, Prey Veng and Svay Rieng. The PRASAC provides rapid assistance and a boost to the rural sector in Cambodia. The principal activities include the rehabilitation of irrigation schemes, rural credit for farmers and small scale entrepreneurs and domestic water supply. It helps the government to support, and the people to carry out, such activities through a “learning by doing” process. They work with MAFF and MRD. PRASAC has the loan outstanding of $1.26 million as of the end of 1996 with 32,000 borrowers.

Under PRASAC 3 which operates in Svay Rieng and Prey Veng, Enterprise Centres have been established in each of the provincial towns. Each Enterprise Centre consists of four units; (i) technical training unit that provides skills training for micro and small enterprises, (ii) enterprise unit that provides business training, (iii) language training unit to facilitate trainees to read technical manuals and (iv) business unit to generate income for the Centres. The types of skill training that the technical training unit provide include light engineering, motorcycle repair, blacksmithing, irrigation pumps and small engines, radio and television repair, electricity, cooling equipment repair and maintenance, and basket weaving and cottage industry. The business training by enterprise unit includes planning, book keeping and marketing. Priorities are given for (i) people with existing successful enterprises wishing to upgrade their activities and skills, (ii) those with sound ideas for starting a small enterprise and (iii) those people who need to upgrade their skills for improved job opportunities in the enterprises of (i) and (ii). They have special considerations for people with disabilities.

d) United States Agency for International Development (USAID)

USAID is planning to launch a US$45 million project for Regional Economic Development in the three provinces in the northwest. The project will be formulated by the end of 1997. Its activities will include agriculture (rice production) and infrastructure development (particularly roads).

USAID has funded the Georgetown University Small Business Training Programme (GBTP).

e) Asian Development Bank (ADB)

In February 1997, the ADB launched a technical assistance project, “Strengthening Capacity in the Trade and Industry Sectors” (two experts for seven months), to address capacity strengthening of MIME and MOC in the promotion of private sector industries activities and of trade and commerce. The TA will also seek to build basic skills and knowledge of primarily middle level staff, which will serve as a base for the ministries’ future activities. The scope of work includes (i) assessment of the potentials and constraints of the trade and industry sector (ii) recommendations on policy and regulatory measures to promote private sector and industrial activities; (iii) clear definition of the functions of MOC and MIME regarding the promotion of private sector trade and industrial activities; (iv) training at least ten high and middle level officials each of MOC and MIME in formulating policy, industrial zoning and estates, and coping with reintegration of the economy; and (v) training to primarily middle level staff in basic skills and knowledge.

The ADB also provided technical assistance on Rural Credit Review in order to analyse the potential demand for rural credit and the current supply from formal, semi-formal and informal financial sectors. The Review also assessed the legal and supervisory framework, the rural credit policies and the proposal to set up a rural development bank. Finally, the Review recommended improved rural financial policies and a national strategy for the development of rural financial services.

f) International Finance Corporation (IFC)

Under the “Extending IFC’s Reach Initiative”, IFC has created a US$ 40 million Small Enterprise Fund for Vietnam, Cambodia and Lao PDR, to be invested in projects costing between US$ 250,000 and $ 5 million. IFC is in the process of opening an office in Phnom Penh for the component in Cambodia and of reviewing options for collaborative arrangements with credit institutions. In addition, the IFC has created a Mekong Project Development Facility (MPDF) to be based in Hanoi and to provide technical assistance to small and medium enterprises in the same countries. MPDF is funded by Australia, EC, Norway, Sweden and Switzerland. The IFC facilities will provide an important window for the establishment and the expansion of small and medium enterprises, so far largely absent from Cambodia.

g) United Nations Industrial Development Organization (UNIDO)

UNIDO has provided assistance to Cambodia in three fields related to a certain extent to MSE development:

· Establishment, in MIME, of a National Industrial Statistics Programme (NISP) developing a directory of industrial establishments and management information related to medium and large enterprises currently and small industrial enterprises as well in the near future;

· Advice to MIME in the legislation, establishment and management of industrial zones and estates; and

· Promotion and development of agro-related metalworking industries through a national focal point at the Agricultural Engineering Division of the Ministry of Agriculture (transfer of technology through prototypes and blueprints, training courses for metalworking entrepreneurs in manufacturing of food processing equipment and blacksmithing, etc.).

h) Gesellschaft fhnische Zusammenarbeit (GTZ)

Under a bilateral German assistance scheme executed by GTZ, work programmes are being developed for the promotion of agricultural production, setting up food processing shops and small enterprise development in Kampong Thom under a Provincial Development Programme, as well as for a Food Security Programme in Kampot.

i) GTZ and Economic and Social Commission for Asia and the Pacific (ESCAP)

The Advisory Assistance to Industry for Export Project is planned and implemented by the International Trade and Economic Cooperation Division of ESCAP in Bangkok with the help of two GTZ experts. The project is supporting Cambodia, Lao PDR and Vietnam with export-oriented economic consultancy and assistance. Its purpose is to increase exports of industrial products from the selected countries. The project targets directly enterprises which, as they gain export experience, serve as demonstration units for other companies. In Cambodia, the government focal point for the project is MIME and the ground survey for the selection of pilot enterprises has been subcontracted to ACLEDA.

Out of a survey of some 200 enterprises, less than 40 (handicrafts, local textiles, seafood, furniture) will be selected for seminars and consultancy on quality and financial management, marketing, etc. and their products will be exposed in international fairs. The implementation of enterprise-specific activities will start in late 1997 and will continue until 1999.

j) United Nations Children’s Fund (UNICEF)

UNICEF started its credit programme in 1988 in collaboration with the Ministry of Women’s Affairs (MOWA) as the implementing agency. It has credit activities in 18 provinces, involving 324 villages, with the loan outstanding of $560,000 and the number of borrowers at 15,400 as of the end of 1996.

7. Constraints and opportunities at the enterprise level

a) Constraints

Cambodian micro and small enterprises face a number of constraints which also apply to medium and large enterprises, thus encompassing the entire private sector. The types of problems depend on the extent to which the enterprise is exposed to imported inputs and international markets, and to the extent to which the entrepreneur has internalized the range of constraints he/she is facing. The series of interviews revealed that after years of isolation and self-education in running an enterprise, the owners/managers of businesses do not appear to perceive many of the constraints (such as lack of knowledge in technology, lack of support institutions, etc.) as affecting them. In the following, the main findings of the mission, supported by a review of previous studies, are provided under the heading used for enterprise interviews8.

8 Results of the 21 enterprise interviews are attached in Annex 3.

Demand and marketing

Particularly in micro and small business, enterprises tend to choose the same line of business, thus, creating heavy competition in small markets. This suggests, firstly, that the abilities of MSEs to identify viable (and not viable) business opportunities are lacking. Secondly, there is no mechanism or institution providing guidance or information on sectors in which investment is recommended and in which the market is already saturated. Business plans required for credit programmes do address the issue, but based on very limited information and knowledge. When enterprises face competition, they sometimes turn to the government such as MIME/DIME for assistance in curtailing other producers, thus displaying an attitude toward the role of the government reminiscent of a planned economy and not in compliance with the principles of the market economy that the Royal Government pursues. Also some entrepreneurs revealed a lack of understanding of changing consumer patterns and tastes dominating the Cambodian market due to the recent massive inflow of beverages, cigarettes, processed foodstuffs and consumer goods from abroad.

Several enterprises reported problems with imitations and pirated labels and product/company images to the extent of copying the original producer’s address. They report the cases to MIME and the Ministry has in some cases succeeded in locating the pirate enterprise and destroyed the production facilities. The enforcement of legislation in most cases, however, appears to be difficult and the entrepreneurs are left to fend for themselves with the rivals who usually flood the market with a cheaper, inferior quality product thus gradually eroding the reputation developed by the original producer’s high quality product and established markets.

For larger projects, local capacity to prepare feasibility studies is extremely limited. Nearly all export-oriented businesses have partnerships with foreign enterprises and marketing is normally the responsibility of the foreign partner. There is no support service in the country to provide international market information to enterprises. The rapid liberalization of the foreign trade regime and imminent membership in ASEAN will pose a particularly important challenge to demand analysis, marketing capabilities and competitiveness of Cambodian products in terms of price and quality. Currently price competition is heavily dependent on the extent to which import duties are enforced on products from neighbouring countries and on the distance to the markets due to high informal road taxes. Due to the lack of capacities to enforce tariffs and the “porous” borders, enterprises in Cambodia seem to be already facing fierce competition from imports.

Raw material, technology and product development

Generally low levels of technology and knowledge in using the technology in the enterprises result in wastage of raw material and energy, and low quality of products. The availability of raw materials of sufficient quality was not quoted as a problem by enterprises which sell to local or regional markets. Dependence on firewood for energy (production of bricks, tiles, household utensils, rubber tyres, etc.) is, however, a major cost factor due to recent restriction on the use of firewood by MAFF and the high cost resulting from numerous middlemen and informal taxes levied between the source and the user. Electricity cannot so far be considered as an alternative to firewood due to extreme scarcity and high cost.

Entrepreneurs in Cambodia have generally learned their technologies from the trade and have very limited theoretical background. They have ideas and experience, but lack the ability to innovate or adapt and master new technologies. Due to the extreme scarcity of technical specialists in the country, there are very few institutions to which an entrepreneur can go for technical advice. Several entrepreneurs and ACLEDA branch offices named DIME/MIME as the institution to which they turn to with questions related to the acquisition of new machineries, generators or other technical issues.

Finance

There is an apparent need for loans for investment and working capitals. Although 31 commercial banks existed as of 1995, they had very limited branch networks outside the capital and a large portion of lending was concentrated in Phnom Penh. Their lending is mainly through the provision of overdrafts for wholesale and retail trade (32%), other services (20%) and export/import businesses (18%). Agriculture and manufacturing comprise only 13% of the total lending. The interest rate in the commercial banking sector is currently 18% p.a.

A number of “semi-formal” micro and small credit schemes have been operated with generally good results. At the end of 1995, it was estimated that the 30 large NGO credit operators were reaching about 3.5% of the total number of rural households. About 70% of the lending goes to women, with about 70% of the total lending being micro-loans for micro-enterprises. With the exception of ACLEDA which also provides larger loans, loan sizes vary from $35 to $60, usually for a term of four to six months. Effective annual interest rate is from 60% to 96%9. By the end of 1996, the NGO operators had the loan outstanding of about $6.6 million and the deposits of about $ 174,000.

9 Informal “money-lenders” charge on average 10 to 60% per month.

Although “semi-formal” NGO credit programmes are providing valuable loans and seem to be making sizable impact, supply of loan capital is still very limited compared to the potential demand. Since the commercial banks are not yet providing significant amounts of loans to manufacturing enterprises and certainly not outside Phnom Penh and the NGO credit programmes, with the exception of a part of ACLEDA credit programmes, are targeting micro enterprises, most of the small enterprises currently do not have access to reasonable loans necessary to compete and expand. For capital investment, long-term lending is necessary but such loans are generally not available.

For commercial loans, the difficulties in obtaining land ownership title documents for collaterals for Cambodians10 and the non-availability of assets to foreigners severely hampers the abilities of enterprises to generate enough working capital and investment financing through the commercial banking system.

10 The land title documents that are necessary for collateral for loans, irrespective of the location within the country, have to be obtained in Phnom Penh.

Labour

There is abundance of potential labour in Cambodia, but with very limited skills and at a cost which may at times be higher than in Vietnam. Private entrepreneurs generally did not cite difficulties related to maintaining the workers after training on the job. The normal salary ranges between 70,000 and 180,000 Riel per month11.

11 Meals and accommodations are generally provided “free of charge”.

There are some vocational, skill and management training institutions providing training of various duration to existing and potential entrepreneurs as well as workers. A relatively low percentage of the graduates find employment in the areas they have been trained in. Mechanisms and instruments for assessing the actual human resource development requirements and matching curricula to address those requirements have not yet been introduced in a systematic manner thus leaving to some wastage in the utilization of scarce resources in training programmes. The need for flexibility and responsiveness to the skill needs of the market is recognized in the new TVET policies and the challenge for the Government is to implement such policies12. Providers of skill training need to have capacity to put them into practice.

12 UNDP/ILO CMB/96/002 Project is assisting the Government in this direction.

Interesting to note in terms of skill formation is that some enterprises are offering apprenticeship as a means to earn extra income for themselves and for providing opportunities for workers/apprentices to learn new skills. The workers are willing to pay for apprenticeship; e.g. $100 for one-year arrangement in tailoring and up to $300 for TV and radio repairing.

Observations of MSEs confirmed the generally poor safety conditions in the workplace that are typical for the sector in most developing and transitional countries. Family-based enterprises, in particular, have genuine concerns about the safety and would be interested in improving the conditions. The obstacles are three-fold; finance, technology and awareness that safety improvements can be made in a fairly cost-effective manner. For example, changes in workshop layout could improve the productivity and the safety conditions for workers at the same time.

Management

As to management skills in general, there appears to be a lack of awareness among the entrepreneurs of their importance even for the immediate future. It is natural that the entrepreneurs are generally content with their management capacity having successfully managed their enterprises under such difficult conditions. However, increasing competition among themselves and from the neighbouring (more sophisticated) countries will necessitate them to improve their management capacity further.

The already mentioned abilities for business opportunity identification relate to marketing management; i.e. one of the marketing 4P’s, “products” suitable for market13. Lack of such abilities is particularly prevalent among micro enterprises. One of the two major problems identified by micro enterprises in one of the previous studies was competition (the other one being finance). Although due to opportunity costs they may not be able to attend full-fledged business training courses, even if offered, they may benefit greatly from getting to know basics of marketing management.

13 4P’s of marketing management are; products, prices, places and promotion.

Infrastructure

The overall condition of the road network poses a serious bottleneck for access to raw materials and markets. The relatively good physical infrastructure in the corridor from Kampong Som (Sihanoukville) to Phnom Penh provides a comparative advantage for that region, particularly for export-oriented businesses and imported products. On the other hand, proximity to raw materials and markets does provide a comparative advantage for small enterprises in the provinces due to the high cost of transport of products from elsewhere. A particularly significant factor, besides the physical condition of the transportation network, seems to be the existence of the informal road tax levied by a large number of checkpoints, raising the prices of raw materials, energy and finished products.

For most MSEs, problems related to communications (limited telephone network) and water supply were not cited as significant. Such factors are more likely to affect decisions related to joint ventures with foreign partners or direct foreign investment who know what is available in other countries and, thus, have higher expectations. There are currently no industrial zones or estates, but some are planned (first in Sihanoukville). Preparations are underway in MIME.

For energy, virtually all businesses using electricity to any significant extent rely entirely on their own generators due to the very poor state and high cost of public power supplies. For all enterprises needing the generation of heat in the processes, the traditional use of firewood is becoming increasingly difficult and rice husk as an alternative may soon face problems of availability. Energy is potentially one of the key constraints of the future competitiveness of a number of enterprises, particularly vis-a-vis products from neighbouring countries.

Business environment

Looking from the standpoint of the MSEs, one could assume that the government is taking the laissez faire approach to the private sector development. This is a clear view that emerged from the enterprise visits. Except for the tax authorities who make visits once a month (but rarely to micro enterprises) and the visits of health authorities to food processing enterprises, the government seems almost non-existent. Although a major effort has been made for the establishment of the legal and regulatory framework that would facilitate the private sector development and its subset, the micro and small enterprise development, the process is far from complete. Ironically, because of the inadequacy of existing framework and the lack of capacity to implement the existing laws and regulations, the current environment under which the MSEs are operating can be described as “enabling”.

However, the current situation is deceptive and is not even desirable for the long term health of the private sector. The fact that there are a large number of government officials who are more used to controlling enterprises rather than promoting them would suggest that, without conscious effort to preserve and/or promote an enabling environment for the private sector in general and MSEs in particular, the policies toward the private sector expressed in the First Socioeconomic Development Plan would not be fully implemented. For this purpose, capacity building of the officials is a necessity. Such capacity building needs are all the more important because there are enterprise owners who have asked the government to eliminate their competitors, which suggests that even the entrepreneurs still see the government as controlling rather than promoting them.

For the more modern and outward-oriented enterprises and particularly for foreign investment, the absence of a positive, supportive and facilitative policy, strategy and legislative framework constitute an obstacle, rather than an enabling factor, exacerbated by the security concerns depending on political developments in the country. Issues such as complicated import procedures for machinery, unclear responsibilities of various ministries and institutions, and enforcement of label protection laws against imitations were quoted as a part of such a necessary framework.

In the public sector which is responsible for implementing various policies, low motivation and initiative coupled with lack of understanding of enterprise management in a private sector environment were cited as constraints. A large number of people are on government payroll in various ministries but not actively contributing to the activities of their employers.

Other issues

Although we are seeing the beginning of sectoral organizations (e.g. garment manufacturers, but consisting of medium and large enterprises), so far there have been no initiatives to establish associations for micro and small enterprises. The only association which sees itself representing the private sector is the Phnom Penh Chamber of Commerce that includes medium and large manufacturing and service sector enterprises. Due to the history of the country, the climate for the promotion of such cooperation among enterprises is not conducive. In the long run, however, the emergence of such interest groups will be advantageous for the purposes of coordination and advocacy. Potentially, such groups could also act as intermediaries for support services for their members.

b) Opportunities

The opportunities for micro and small enterprise development in Cambodia are not entirely overshadowed by the constraints elaborated upon above. The rapid emergence of private sector activities in the trade and service sector after the liberalization of the economy clearly demonstrate the latent entrepreneurial talent available in the country. Investment in longer-term venture in agro-business and manufacturing has taken longer and the success so far has been mostly in the garment sector. However, as expressed in the Socioeconomic Development Plan, the country has good potential for resource-based industries (rubber, marine products, rice, sugar, soy beans, sustainable forest products) and handicrafts (for instance Muslim weavers exporting to Malaysia). In addition, the booming construction industry provides a market for building materials and potentially some intermediate products, the agricultural sector for agricultural inputs including farm tools and machineries, and the consumer market for a large number of beverages, foodstuffs and selected consumer goods.

The imminent membership in ASEAN will provide both opportunities and challenges to the Cambodian economy in ways and at a scale that cannot be covered by the present limited study. A special review on that issue will be needed in connection with the question of private sector development in general.

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.

ANNEX 1: Documents

Asian Development Bank, “Technical Assistance; Rural Credit Review: Cambodia, Final Report”, 13 December 1996.

Association of Cambodian Local Economic Development Agencies, various reports.

Credit Committee for Rural Development, “Policy and Strategy of the Royal Government of the Kingdom of Cambodia on Rural Credit”, Phnom Penh, January 1997.

ING Barings, Indochina Research, “Cambodia & Laos Review”, Bangkok, February 1997

International Labour Office, “International Labour Conference 85th Session 1997 Report V(2) General conditions to stimulate job creation in small and medium-sized enterprises”, 1997.

Ministry of Commerce, “Cambodia; the Reemergence of New Opportunities; Business & Investment Handbook”, 1996.

Ministry of Industry, Mines and Energy in cooperation with UNIDO, “Directory of Large and Medium Industries”, 1996.

Ministry of Planning, “First Socioeconomic Development Plan 1996-2000”, the Royal Government of Cambodia, February 1996.

Royal Government of Cambodia, “Strategy Plan for the Development of a National System of Formal and Non-Formal Technical and Vocational Education and Training”, supported by UNDP/ILO and GTZ, February 1996.

United Nations Development Programme/Cambodia, “1996 Annual Report; Development in Cambodia: Facing the Challenges”.

United Nations Industrial Development Organization, “Promoting Industrial Development in Cambodia: Needs Assessment and Assistance Programme Responses”, February 1992.

World Bank, “Cambodia: From Recovery to Sustained Development”, May 31,1996. (And its background documents; “Small and Medium Scale Enterprise in Cambodia: Survey Results”, 1995, which is based on the survey conducted by ACLEDA and “Opportunities and Constraints in the Informal Sector in Cambodia”, which is written by Takafumi Ueda mainly based on various materials of the CMB/93/010 Project, September 1995.)

ANNEX 2: List of key persons met

ILO/UNIDO FACT-FINDING MISSION TO CAMBODIA ON MICRO AND SMALL ENTERPRISE DEVELOPMENT

PHNOM PENH/KAMPONG CHAM/BATTAMBANG 10-21 MARCH 1997

Ministry of Industry, Mines and Energy (MIME)

Mr. Ith Praing, Secretary of State
Mr. Ho Vichit, Director, Technical Department
Mr. Peng Navuth, Chief of ASEAN Unit, Consultant to SMEs
Mr. Teng Thet, Office of Industry and Enterprises
Mr. Leuk Hai, Director, Department of Industry, Mines and Energy (DIME), Battambang
Mr. Yin Vun Han, Chief of Small Scale Industry & Handicrafts Office, DIME, Battambang
Mr. Ourng Sorn, Chief of Personnel, DIME, Battambang
Mr. Hak Mon, Deputy Director, DIME, Kampong Cham

Ministry of Social Welfare, Labour and Veteran Affairs

Mr. Hou Vudhty, Deputy Director, Department of Employment and Manpower
Mr. Uch Bora, Deputy Director, Department of Employment and Manpower
Chief, Labour Office, Secretariat of Social Welfare, Labour and Veteran Affairs, Battambang

Association of Cambodian Local Economic Development Agencies (ACLEDA)

Mr. Sar Roth, Branch Manager, Kampong Cham Branch Office
Mr. Hass Sombath, Loan Assistant (Medium Enterprises), Kampong Cham Branch Office
Mr. Sun Bun Thon, Deputy Branch Manager, Battambang Branch Office

Phnom Penh Chamber of Commerce

Mr. Oknha Sin Sokha, Director, Service & Private Sector
Ms. Tan Phally, Manager, Sokhla-Phally Dusit Group Co. Ltd.
Mr. Lay Meng Sun, Managing Director, Phoenix Import-Export Co., Ltd.
Ms. Chea Somaly, Administrative Assistant

KHEMARA

Ms. Young Vin, Executive Director

LWS Vocational Training Centre, Battambang

Mr. Prak Sotin, Director
Mr. Min Siphhat, Deputy Director
Mr. Frank Huttisch, VTC Coordinator, Lutheran World Federation

Georgetown University Small Business Training Programme in Cambodia (GBTP) Battambang

Mr. Tan Soroeun, Coordinator & Business English Instructor

Japan Sotoshu Relief Committee (JSRC)

Mr. Osamu Izaki, Deputy Director and Director of Battambang Training Centre

Cambodian Commercial Bank

Mr. Charanya Dissamarn, Manager, Battambang Branch
Mr. Wichai On-Sri, Accountant, Battambang Branch

UNDP

Mr. Andrlap, Deputy Resident Representative
Mr. Olli Ruohom, Programme Officer
Mr. Mathew Varghese, Poverty Alleviation Expert
Mr. David Luccock, Consultant for rural finance project evaluation, Development Alternatives Inc.

CARERE

Mr. Scott Leiper, Programme Manager
Mr. Lambien Samreth, Provincial Programme Manager, Battambang
Mr. Victor Bottini, Planning Adviser, Battambang
Mr. Hem Chanthou, LED/RF & PSD Unit, Sisophon
Mr. Rin Seyha, LED/RF & PDS Unit, Battambang

ILO

Mr. Peter Kooi, Chief Technical Adviser, CMB/95/010
Mr. Tony Knowles, Rural Credit Advisor, CMB/95/010
Mr. Say Piset, Asst. to Outreach Coordinator, Vocational Training Programme, Battambang
Mr. Phal Phoeun, Administrative Assistant, Vocational Training Programme, Battambang

European Commission

Mr. Pierre van Roosbroeck, Charge Programmes

Enterprises

See attached enterprise visit summary sheets in ANNEX 3.

Part C: ILO Recommendation 189 on SMEs (1998)

INTERNATIONAL LABOUR CONFERENCE

RECOMMENDATION CONCERNING GENERAL CONDITIONS TO STIMULATE JOB CREATION IN SMALL AND MEDIUM-SIZED ENTERPRISES

The General Conference of the International Labour Organization,

Having been convened at Geneva by the Governing Body of the International Labour Office, and having met in its Eighty-sixth Session on 2 June 1998, and

Recognizing the need for the pursuit of the economic, social, and spiritual well-being and development of individuals, families, communities and nations,

Aware of the importance of job creation in small and medium-sized enterprises,

Recalling the resolution concerning the promotion of small and medium-sized enterprises adopted by the International Labour Conference at its 72nd Session, 1986, as well as the Conclusions set out in the resolution concerning employment policies in a global context, adopted by the Conference at its 83rd Session, 1996,

Noting that small and medium-sized enterprises, as a critical factor in economic growth and development, are increasingly responsible for the creation of the majority of jobs throughout the world, and can help create an environment for innovation and entrepreneurship,

Understanding the special value of productive, sustainable and quality jobs,

Recognizing that small and medium-sized enterprises provide the potential for women and other traditionally disadvantaged groups to gain access under better conditions to productive, sustainable and quality employment opportunities,

Convinced that promoting respect for the Forced Labour Convention, 1930, the Freedom of Association and Protection of the Right to Organise Convention, 1948, the Right to Organise and Collective Bargaining Convention, 1949, the Equal Remuneration Convention. 1951, the Abolition of Forced Labour Convention, 1957, and the Discrimination (Employment and Occupation) Convention, 1958, will enhance the creation of quality employment in small and medium-sized enterprises and in particular that promoting respect for the Minimum Age Convention and Recommendation, 1973, will help Members in their efforts to eliminate child labour,

Also convinced that the adoption of new provisions on job creation in small and medium-sized enterprises, to be taken into account together with:

(a) the relevant provisions of other international labour Conventions and Recommendations as appropriate, such as the Employment Policy Convention and Recommendation, 1964, and the Employment Policy (Supplementary Provisions) Recommendation, 1984, the Co-operatives (Developing Countries) Recommendation, 1966, the Human Resources Development Convention and Recommendation, 1975, and the Occupational Safety and Health Convention and Recommendation, 1981, and

(b) other proven ILO initiatives promoting the role of small and medium-sized enterprises in sustainable job creation and encouraging adequate and common application of social protection, including Start and Improve Your Business and other programmes as well as the work of the International Training Centre of the ILO in training and skills enhancement,

will provide valuable guidance for Members in the design and implementation of policies on job creation in small and medium-sized enterprises,

Having decided upon the adoption of certain proposals with regard to general conditions to stimulate job creation in small and medium-sized enterprises, which is the fourth item on the agenda of the session, and

Having determined that these proposals shall take the form of a Recommendation;

adopts this seventeenth day of June of the year one thousand nine hundred and ninety-eight the following Recommendation which may be cited as the Job Creation in Small and Medium-Sized Enterprises Recommendation, 1998.

I. DEFINITION, PURPOSE AND SCOPE

1. Members should, in consultation with the most representative organizations of employers and workers, define small and medium-sized enterprises by reference to such criteria as may be considered appropriate, taking account of national social and economic conditions, it being understood that this flexibility should not preclude Members from arriving at commonly agreed definitions for data collection and analysis purposes.

2. Members should adopt measures which are appropriate to national conditions and consistent with national practice in order to recognize and to promote the fundamental role that small and medium-sized enterprises can play as regards:

(a) the promotion of full, productive and freely chosen employment;

(b) greater access to income-earning opportunities and wealth creation leading to productive and sustainable employment;

(c) sustainable economic growth and the ability to react with flexibility to changes;

(d) increased economic participation of disadvantaged and marginalized groups in society;

(e) increased domestic savings and investment:

(f) training and development of human resources;

(g) balanced regional and local development;

(h) provision of goods and services which are better adapted to local market needs;

(i) access to improved quality of work and working conditions which may contribute to a better quality of life, as well as allow large numbers of people to have access to social protection;

(j) stimulating innovation, entrepreneurship, technology development and research;

(k) access to domestic and international markets; and

(l) the promotion of good relations between employers and workers.

3. In order to promote the fundamental role of small and medium-sized enterprises referred to in Paragraph 2, Members should adopt appropriate measures and enforcement mechanisms to safeguard the interests of workers in such enterprises by providing them with the basic protection available under other relevant instruments.

4. The provisions of this Recommendation apply to all branches of economic activity and all types of small and medium-sized enterprises, irrespective of the form of ownership (for example, private and public companies, cooperatives, partnerships, family enterprises, and sole proprietorships).

II. POLICY AND LEGAL FRAMEWORK

5. In order to create an environment conducive to the growth and development of small and medium-sized enterprises. Members should:

(a) adopt and pursue appropriate fiscal, monetary and employment policies to promote an optimal economic environment (as regards, in particular, inflation, interest and exchange rates, taxation, employment and social stability);

(b) establish and apply appropriate legal provisions as regards, in particular, property rights, including intellectual property, location of establishments, enforcement of contracts, fair competition as well as adequate social and labour legislation;

(c) improve the attractiveness of entrepreneurship by avoiding policy and legal measures which disadvantage those who wish to become entrepreneurs.

6. The measures referred to in Paragraph 5 should be complemented by policies for the promotion of efficient and competitive small and medium-sized enterprises able to provide productive and sustainable employment under adequate social conditions. To this end, Members should consider policies that:

(1) create conditions which:

(a) provide for all enterprises, whatever their size or type:

(i) equal opportunity as regards, in particular, access to credit, foreign exchange and imported inputs; and

(ii) fair taxation;

(b) ensure the non-discriminatory application of labour legislation, in order to raise the quality of employment in small and medium-sized enterprises;

(c) promote observance by small and medium-sized enterprises of international labour standards related to child labour;

(2) remove constraints to the development and growth of small and medium-sized enterprises, arising in particular from:

(a) difficulties of access to credit and capital markets;

(b) low levels of technical and managerial skills;

(c) inadequate information;

(d) low levels of productivity and quality;

(e) insufficient access to markets;

(f) difficulties of access to new technologies;

(g) lack of transport and communications infrastructure;

(h) inappropriate, inadequate or overly burdensome registration, licensing, reporting and other administrative requirements, including those which are disincentives to the hiring of personnel, without prejudicing the level of conditions of employment, the effectiveness of labour inspection or the system of supervision of working conditions and related issues;

(i) insufficient support for research and development;

(j) difficulties in access to public and private procurement opportunities.

(3) include specific measures and incentives aimed at assisting and upgrading the informal sector to become part of the organized sector.

7. With a view to the formulation of such policies Members should, where appropriate:

(1) collect national data on the small and medium-sized enterprise sector, covering inter alia quantitative and qualitative aspects of employment, while ensuring that this does not result in undue administrative burdens for small and medium-sized enterprises;

(2) undertake a comprehensive review of the impact of existing policies and regulations on small and medium-sized enterprises, with particular attention to the impact of structural adjustment programmes on job creation;

(3) review labour and social legislation, in consultation with the most representative organizations of employers and workers, to determine whether:

(a) such legislation meets the needs of small and medium-sized enterprises, while ensuring adequate protection and working conditions for their workers;

(b) there is a need for supplementary measures as regards social protection, such as voluntary schemes, cooperative initiatives and others;

(c) such social protection extends to workers in small and medium-sized enterprises and there are adequate provisions to ensure compliance with social security regulations in areas such as medical care, sickness, unemployment, old-age, employment injury, family, maternity, invalidity and survivors’ benefits.

8. In times of economic difficulties, governments should seek to provide strong and effective assistance to small and medium-sized enterprises and their workers.

9. In formulating these policies, Members:

(1) may consult, in addition to the most representative organizations of employers and workers, other concerned and competent parties as they deem appropriate;

(2) should take into account other policies in such areas as fiscal and monetary matters, trade and industry, employment, labour, social protection, gender equality, occupational safety and health and capacity-building through education and training;

(3) should establish mechanisms to review these policies, in consultation with the most representative organizations of employers and workers, and to update them.

III. DEVELOPMENT OF AN ENTERPRISE CULTURE

10. Members should adopt measures, drawn up in consultation with the most representative organizations of employers and workers, to create and strengthen an enterprise culture which favours initiatives, enterprise creation, productivity, environmental consciousness, quality, good labour and industrial relations, and adequate social practices which are equitable. To this end. Members should consider:

(1) pursuing the development of entrepreneurial attitudes, through the system and programmes of education, entrepreneurship and training linked to job needs and the attainment of economic growth and development, with particular emphasis being given to the importance of good labour relations and the multiple vocational and managerial skills needed by small and medium-sized enterprises;

(2) seeking, through appropriate means, to encourage a more positive attitude towards risk-taking and business failure by recognizing their value as a learning experience while at the same time recognizing their impact on both entrepreneurs and workers;

(3) encouraging a process of lifelong learning for all categories of workers and entrepreneurs;

(4) designing and implementing, with full involvement of the organizations of employers and workers concerned, awareness campaigns to promote:

(a) respect for the rule of law and workers’ rights, better working conditions, higher productivity and improved quality of goods and services;

(b) entrepreneurial role models and award schemes, taking due account of the specific needs of women, and of disadvantaged and marginalized groups.

IV. DEVELOPMENT OF AN EFFECTIVE SERVICE INFRASTRUCTURE

11. In order to enhance the growth, job-creation potential and competitiveness of small and medium-sized enterprises, consideration should be given to the availability and accessibility of a range of direct and indirect support services for them and their workers, to include:

(a) business pre-start-up, start-up and development assistance;

(b) business plan development and follow-up;

(c) business incubators;

(d) information services, including advice on government policies;

(e) consultancy and research services;

(f) managerial and vocational skills enhancement;

(g) promotion and development of enterprise-based training;

(h) support for training in occupational safety and health;

(i) assistance in upgrading the literacy, numeracy, computer competencies and basic education levels of managers and employees;

(j) access to energy, telecommunications and physical infrastructure such as water, electricity, premises, transportation and roads, provided directly or through private sector intermediaries;

(k) assistance in understanding and applying labour legislation, including provisions on workers’ rights, as well as in human resources development and the promotion of gender equality;

(l) legal, accounting and financial services;

(m) support for innovation and modernization;

(n) advice regarding technology;

(o) advice on the effective application of information and communication technologies to the business process;

(p) access to capital markets, credit and loan guarantees;

(q) advice in finance, credit and debt management;

(r) export promotion and trade opportunities in national and international markets;

(s) market research and marketing assistance;

(t) assistance in product design, development and presentation;

(u) quality management, including quality testing and measurement;

(v) packaging services;

(w) environmental management services.

12. As far as possible, the support services referred to in Paragraph 11 should be designed and provided to ensure optimum relevance and efficiency through such means as:

(a) adapting the services and their delivery to the specific needs of small and medium-sized enterprises, taking into account prevailing economic, social and cultural conditions, as well as differences in terms of size, sector and stage of development;

(b) ensuring active involvement of small and medium-sized enterprises and the most representative organizations of employers and workers in the determination of the services to be offered;

(c) involving the public and private sector in the delivery of such services through, for example, organizations of employers and workers, semi-public organizations, private consultants, technology parks, business incubators and small and medium-sized enterprises themselves;

(d) decentralizing the delivery of services, thereby bringing them as physically close to small and medium-sized enterprises as possible;

(e) promoting easy access to an integrated range of effective services through “single window” arrangements or referral services;

(f) aiming towards self-sustainability for service providers through a reasonable degree of cost recovery from small and medium-sized enterprises and other sources, in such a manner as to avoid distorting the markets for such services and to enhance the employment creation potential of small and medium-sized enterprises;

(g) ensuring professionalism and accountability in the management of service delivery;

(h) establishing mechanisms for continuous monitoring, evaluation and updating of services.

13. Services should be designed to include productivity-enhancing and other approaches which promote efficiency and help small and medium-sized enterprises to sustain competitiveness in domestic and international markets, while at the same time improving labour practices and working conditions.

14. Members should facilitate access of small and medium-sized enterprises to finance and credit under satisfactory conditions. In this connection:

(1) credit and other financial services should as far as possible be provided on commercial terms to ensure their sustainability, except in the case of particularly vulnerable groups of entrepreneurs;

(2) supplementary measures should be taken to simplify administrative procedures, reduce transaction costs and overcome problems related to inadequate collateral by, for example, the creation of non-governmental financial retail agencies and development finance institutions addressing poverty alleviation;

(3) small and medium-sized enterprises may be encouraged to organize in mutual guarantee associations;

(4) the creation of venture capital and other organizations, specializing in assistance to innovative small and medium-sized enterprises, should be encouraged.

15. Members should consider appropriate policies to improve all aspects of employment in small and medium-sized enterprises by ensuring the non-discriminatory application of protective labour and social legislation.

16. Members should, in addition:

(1) facilitate, where appropriate, the development of organizations and institutions which can effectively support the growth and competitiveness of small and medium-sized enterprises. In this regard, consultation with the most representative organizations of employers and workers should be considered;

(2) consider adequate measures to promote cooperative linkages between small and medium-sized enterprises and larger enterprises. In this connection, measures should be taken to safeguard the legitimate interests of the small and medium-sized enterprises concerned and of their workers;

(3) consider measures to promote linkages between small and medium-sized enterprises to encourage the exchange of experience as well the sharing of resources and risks. In this connection, small and medium-sized enterprises might be encouraged to form structures such as consortia, networks and production and service cooperatives, taking into account the importance of the role of organizations of employers and workers;

(4) consider specific measures and incentives for persons aspiring to become entrepreneurs among selected categories of the population, such as women, long-term unemployed, persons affected by structural adjustment or restrictive and discriminatory practices, disabled persons, demobilized military personnel, young persons including graduates, older workers, ethnic minorities and indigenous and tribal peoples. The detailed identification of these categories should be carried out taking into account national socio-economic priorities and circumstances;

(5) consider special measures to improve communication and relations between government agencies and small and medium-sized enterprises as well as the most representative organizations of such enterprises, in order to improve the effectiveness of government policies aimed at job creation;

(6) encourage support for female entrepreneurship, recognizing the growing importance of women in the economy, through measures designed specifically for women who are or wish to become entrepreneurs.

V. ROLES OF ORGANIZATIONS OF EMPLOYERS AND WORKERS

17. Organizations of employers or workers should consider contributing to the development of small and medium-sized enterprises in the following ways:

(a) articulating to governments the concerns of small and medium-sized enterprises or their workers, as appropriate;

(b) providing direct support services in such areas as training, consultancy, easier access to credit, marketing, advice on industrial relations and promoting linkages with larger enterprises;

(c) cooperating with national, regional and local institutions as well as with intergovernmental regional organizations which provide support to small and medium-sized enterprises in such areas as training, consultancy, business start-up and quality control;

(d) participating in councils, task forces and other bodies at national, regional and local levels established to deal with important economic and social issues, including policies and programmes, affecting small and medium-sized enterprises;

(e) promoting and taking part in the development of economically beneficial and socially progressive restructuring (by such means as retraining and promotion of self-employment) with appropriate social safety nets;

(f) participating in the promotion of exchange of experience and establishment of linkages between small and medium-sized enterprises;

(g) participating in the monitoring and analysis of social and labour-market issues affecting small and medium-sized enterprises, concerning such matters as terms of employment, working conditions, social protection and vocational training, and promoting corrective action as appropriate;

(h) participating in activities to raise quality and productivity, as well as to promote ethical standards, gender equality and non-discrimination;

(i) preparing studies on small and medium-sized enterprises, collecting statistical and other types of information relevant to the sector, including statistics disaggregated by gender and age, and sharing this information, as well as lessons of best practice, with other national and international organizations of employers and workers;

(j) providing services and advice on workers’ rights, labour legislation and social protection for workers in small and medium-sized enterprises.

18. Small and medium-sized enterprises and their workers should be encouraged to be adequately represented, in full respect for freedom of association. In this connection, organizations of employers and workers should consider widening their membership base to include small and medium-sized enterprises.

VI. INTERNATIONAL COOPERATION

19. Appropriate international cooperation should be encouraged in the following areas:

(a) establishment of common approaches to the collection of comparable data, to support policy-making;

(b) exchange of information, disaggregated by gender, age and other relevant variables, on best practices in terms of policies and programmes to create jobs and to raise the quality of employment in small and medium-sized enterprises;

(c) creation of linkages between national and international bodies and institutions that are involved in the development of small and medium-sized enterprises, including organizations of employers and workers, in order to facilitate:

(i) exchange of staff, experiences and ideas:

(ii) exchange of training materials, training methodologies and reference materials;

(iii) compilation of research findings and other quantitative and qualitative data, disaggregated by gender and age, on small and medium-sized enterprises and their development;

(iv) establishment of international partnerships and alliances of small and medium-sized enterprises, subcontracting arrangements and other commercial linkages;

(v) development of new mechanisms, utilizing modern information technology, for the exchange of information among governments, employers’ organizations and workers’ organizations on experience gained with regard to the promotion of small and medium-sized enterprises;

(d) international meetings and discussion groups on approaches to job creation through the development of small and medium-sized enterprises, including support for female entrepreneurship. Similar approaches for job creation and entrepreneurship will be helpful for disadvantaged and marginalized groups;

(e) systematic research in a variety of contexts and countries into key success factors for promoting small and medium-sized enterprises which are both efficient and capable of creating jobs providing good working conditions and adequate social protection;

(f) promotion of access by small and medium-sized enterprises and their workers to national and international databases on such subjects as employment opportunities, market information, laws and regulations, technology and product standards.

20. Members should promote the contents of this Recommendation with other international bodies. Members should also be open to cooperation with those bodies, where appropriate, when evaluating and implementing the provisions of this Recommendation, and take into consideration the prominent role played by the ILO in the promotion of job creation in small and medium-sized enterprises.



ILO East Asia Multidisciplinary Advisory Team
ILO Bangkok Area Office