Bretton G. Sciaroni: Cambodia’s New IDP

Bretton G Sciaroni

Bretton G Sciaroni

On August 26, Prime Minister Hun Sen officially launched Cambodia’s new Industrial Development Policy (IDP) 2015 to 2025, an initiative that has been in the works now for well over a year, involving multiple, intra-ministerial deliberations, and which included input from the private sector and multi-lateral donors.

This new policy tool is designed to increase foreign direct investment (FDI) and broaden the Kingdom’s manufacturing base beyond the four existing engines of growth, which have powered the economy over the last decade – agriculture, garment manufacturing,construction and tourism.

The IDP states that the goal of this new policy framework is to increase the industrial sector’s share of GDP from 24.5 percent in 2013 to 30 percent by 2025. This expected increase may appear insubstantial, but when projected growth for the entire economy over the next 10 years is factored in, Cambodia is looking to almost double its non-garment sector manufacturing base over this time frame.

The new IDP is both significant and timely, and the Cambodian government deserves credit for hammering out this new policy.

For some years now, independent economic policy analysts and the government’s own economic advisors have recognised that the substantial growth achieved in recent years – averaging around 7 percent for more than a decade – has been too heavily dependent on too few sectors, leaving the Kingdom vulnerable to internal and/or external shocks. The IDP is public recognition by the government that this must be tackled head on if additional reductions in poverty are to be achieved.

From a regional perspective, with regard to the impending establishment of the ASEAN Economic Community (AEC) at the end of this year, the IDP adds an important arrow to Cambodia’s quiver of policy tools, which will enable it to participate effectively in this potentially historic development. While it remains unclear how the AEC will unfold, one thing is clear – Cambodia is uniquely placed to benefit from the AEC’s stated goals.

ASEAN is home to 625 million people and has a rapidly expanding middle is currently pegged at $600 billion with continued robust growth expected.

Witness the American company Coca-Cola’s decision to invest $100 million in a new plant in the Phnom Penh Special Economic Zone (PPSEZ), where ground breaking for a new factory took place just recently on August 20. When operational, Coke will employ an additional 300 workers, but the multinational firm is well aware of regional growth potential and has the ability to expand its Cambodian operations threefold should local and regional demand increase over time.

The PPSEZ, for its part, is already reaching out to ASEAN neighbours as a means of publicising Cambodia’s comparative advantages as an investment destination. In late August, together with Bangkok Bank, it held a seminar in the Thai capital for both local and international investors to highlight Cambodia as an FDI opportunity. More outreach is planned by the PPSEZ for elsewhere in ASEAN.

No one should deny that there will be many slips between the policy cup and the on-the-ground lip. Cambodia faces daunting hurdles as it seeks to implement this new IDP, with the high cost of energy and insufficient human resource capacities as two of the most glaring, among many others.

Equally, the impact of potential ASEAN-related, bilateral Free Trade Agreements with Europe or the Trans-Pacific Partnership (TPP) agreement, assuming it is approved, add separate and unknown wrinkles to the economic development mix, both for Cambodia and the region.

But the IDP, as a set of economic industrial development goals for the next decade, provides an extremely useful set of criteria and benchmarks from which the government and the private sector can refer to, focus on and encourage as Cambodia moves forward.

Bretton G. Sciaroni is Senior Partner of Sciaroni & Associates, a professional services and investment advisory firm based in Cambodia since 1993 with law offices in Laos and Myanmar. He is also Chairman of the American Chamber of Commerce in Cambodia and the International Business Chamber of Cambodia.

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