This workshop showcases the MSME sector continues to be among the Cambodian government’s top priorities. MSMEs, many of whom are women-led, have always been the backbone of the country’s economy, accounting for 99% of the total business entities and contributing over 70% to employment and 60% to the gross domestic product. They play critical roles in creating livelihood opportunities, innovation, expediting sustainable development of the country, and realizing the vision of Cambodia’s Industry Development Plan (IDP, 2015-2025) and the country’s vision to become an upper-middle-income country by 2030 and a high-income country by 2050.

Recognizing the significance of MSMEs, the government has launched MSME support policies and initiatives one after another. Cases in point include the tax incentives scheme established in 2018, the customs-related support scheme in 2019, the Entrepreneurship Fund in 2019 to cultivate entrepreneurial culture and promote the capacity of potential SMEs and innovative start-ups, and the SME Bank in 2020 to increase access to financing for Cambodian small businesses with preferential conditions. Also affiliated with the government, Khmer Enterprise and Techno Start-up Centre, and other support institutions have been established to catalyze the support for entrepreneurs and MSMEs to grow in both scope and scale. Various digital solutions for further improving business environments for MSMEs are also rolled out. KhmerSME, for example, provides a wide range of information useful for MSME businesses including related laws and regulations, business networking, access to finance, service providers, training opportunities, regional and international markets trends and opportunities, etc. CamDX provides a one-stop service platform for accessing public services including online business registrations, where MSMEs can benefit in terms of cheaper fees, less redundant data entry and more simplified procedures, greater transparency, and better accessibility.

That said, Cambodia’s MSMEs continue to contend with multiple challenges, including credit constraints and the lack of capacity, particularly regarding business development and insufficient marketing and strategic management skills, and access to market opportunities of high value. They are further augmented when considering business regulatory issues including complicated and time-consuming licensing and certification, informal practices, tax administration, and customs rules and procedures. These challenges have undermined the resilience of MSMEs to external shocks and uncertainties, such as those brought forth by the Covid pandemic.

Generally, the negative impacts of Covid were more serious for those MSMEs led by women, youth, and groups in vulnerable conditions, with many of them experiencing cashflow pressures, reduced customer foot traffic, and interrupted supply chains. While the stimulus and liquidity injection support to MSMEs as the emergency response to Covid was rolled out, the informality challenge disconnects the majority of MSMEs from these various government supports.

That said, the government continues to display high commitments and strong political support for further improving the environments conducive for MSMEs, building their capacity to recover and grow in the post-pandemic. At his meeting with approximately 5000 MSME owners in April 2003, Prime Minister Hun Sen encouraged his ministers and relevant stakeholders to work jointly and harder to help address challenges faced by MSMEs, strengthen their efficiency, and build stronger resilience of these businesses.

The good news is that the interest of various key stakeholders is high. Multiple discussion platforms were organized for government, private sector actors, and development partners to jointly discuss and collect inputs for policy response in support of MSMEs in the context of Cambodia’s post-covid recovery. They included the ‘Towards a Post Covid-19 Recovery and Resilience’ conference by the National Bank of Cambodia (NBC) and the policy workshop on ‘Strengthening National Capacities for Enhancing MSME Resilience and Building Forward Better to Implement the 2030 Agenda for Sustainable Development in Cambodia’ by the MISTI, were already organized.

One common understanding from these discussions was that MSMEs must make more use of technology, transform the business into a digital format wherever applicable, and seize growing opportunities arising from digitalization, e-commerce, and broader market access. The rise of the new generation of family businesses where sons and daughters are more tech-savvy and familiar with the digital world presents big future potentials in this regard, but the lack of knowledge among the current generation of MSMEs remains the issue. This situation has brought forth new areas for demand-driven capacity development and can be one of the priorities under Mekong-Ganga Cooperation (MGC) activities between Cambodia and India.

The bilateral cooperation between the two countries has been strong. The Quick Impact Projects already showcased one welcome effort, which benefits Cambodia in terms of women’s empowerment and skills development related to digital education, among others. It is worth noting that Cambodia has always been impressed and inspired by India when it comes to India’s world-class ICT industry. The India-Cambodia Umbrella Memorandum of Understanding (MoU) in 2019 and the subsequent MoU between MISTI and the Embassy of India on ‘Enrichment in Science, Technology and Innovation’ in 2022 laid down the foundation for moving forward the cooperation in the area of ICT and digitalization.

India and Cambodia may consider undertaking the Japanese JICA expert model by bringing in long-term Indian experts to advise various related government ministries and agencies on various technology-related matters. ICT policy and infrastructure development present future opportunities for both countries to level up their cooperation for further progressing technological and digital advancement and adaptation in Cambodia. This can be made possible by improving the affordability and uptake of internet connectivity, online payment gateways, and smartphone-based value-added services for Cambodian people and businesses. Capacity-building programs in support of MSMEs, including expert training and targeted mentorship program in digital literacy and digital transformation as well as support for building stronger tech start-up activities can also be considered. In so doing, ensuring good collaboration and harmonization with the existing and emerging technical assistance programs in this sector by other Cambodia’s partners like the EU, UN, ADB, is encouraged. This way, India can amplify the impacts of their support, avoid duplications, create synergies, and thus sustainability.

The published versin of this article appeared in the ASEAN India Centre (AIC)’s Policy Briefs 2023.

E-commerce activities have trended upward significantly due to technological and digital advancements. This has led to the flourishing of small packages trading across borders. As far as cross-border e-commerce is concerned, the postal operator and Customs administration are two key players and are at the forefront of Cambodia’s image in the trade chain. The postal network allows MSMEs to participate in e-commerce by giving them an affordable and direct means to ship merchandise to customers and reducing the need for them to interact with distributors, customs brokers, and retailers. The fast-growing volumes of cross-border e-commerce shipments present a number of challenges to Customs to ensure rapid release and clearance while managing safety and security risks, efficient revenue collection, and statistical analysis.

Recognizing this, the Cambodian government aims to elevate the adoption and application of modern ICT to customs processes and postal services applying to postal shipments, specifically on the EAD, or the exchanging of standardized postal goods declaration information between ASYCUDAWorld of GDCE and Customs Declaration System (CDS) of Cambodia Post.

Advanced sharing of shipment information electronically is critical in cross-border trade facilitation. The provision of electronic exchange of advance information between customs administrations and relevant border agencies is key to countering the transport of counterfeit and prohibited objects, drugs, and other similar dangerous goods in the global supply chain, and minimizing cross-border control mechanisms and cutting unnecessary procedures that hinder traders. This means allowing customs sufficient time to process the data of the shipments against risk selection criteria before their arrival/departure and enabling them to provide pre-arrival / pre-departure advice about the action to be taken with respect to any given shipment.

So, congratulations to Cambodia Post and GDCE and I must say I have been very much impressed by the level of commitment and engagement of our officials at both organizations who have been working hard and efficiently in bringing us to where we are today.

My team at Swisscontact implementing the SeT4SME Project of the Global Alliance for Trade Facilitation is proud to have supported the EAD development alongside Cambodia’s Ministry of Commerce through its Go4eCAM Project and other key partners.

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The General Department of Customs and Excise (GDCE) signed a Memorandum of Understanding (MoU) with Cambodia Post to streamline tax collections and document verifications through automation.

Kun Nhem, Director General of GDCE, on Friday, signed the MoU with Then Samvisoth, Director General of Cambodia Post on ‘The Management and Exchange of Postage Package Information,’ a press release by GDCE said.

Representatives of the Ministry of Commerce, the Global Alliance for Trade Facilitation (GATF), UNCTAD, and the Universal Postal Union (UPU) participated in the signing ceremony online along with other officials present at the conference hall of GDCE.

Nhem said the MoU was signed on the guidance of Aun Pornmoniroth, Deputy Prime Minister and Minister of Economy and Finance, to strengthen cross-border e-commerce management.

He added that as e-commerce transactions are currently increasing and becoming more complex, combining the automation system of the two institutions can exchange, analyze and manage postal information to strengthen tax compliance and also verification of licences, permits and certificates.

Samvisoth said the automation system will remove current obstacles in line with the government’s policy to promote e-commerce.

Samvisoth added that the Automated System for Customs Data (ASYCUDA) integration project of the GDCE and the Customs Declaration System (CDS) of the Cambodia Post will support e-commerce in accordance with the best international practices and the guidelines of the World Customs Organisation (WCO) and the UPU.

Nhem, meanwhile, appreciated the support of the Global Alliance for Trade Facilitation (GATF) through the Small Package E-Trade for Small and Medium Enterprises (SeT4SME) project and other partners including Swisscontact, UNCTAD, and the UPU.

SeT4SME is a two-year project from 2021-2023 for the GATF, implemented by Swisscontact in partnership with the Ministry of Commerce. The project aims to support Cambodia in improving its trade performance and driving inclusive growth in the country by enhancing trade facilitation with more transparency.

This article first appeared in the Khmer Times’ Business Issue: July 03, 2023.

Cambodia has made remarkable improvements in making cross-border trade easier, quicker, and more cost-effective. This is particularly true in terms of using modern information and communication technologies (ICT) to simplify and automate cross-border trade procedures, i.e., the use of an automated customs processing system called ASYCUDA and Cambodia’s National Single Window (CNSW).

These improvements are good signs showing the government’s commitments to the Trade Facilitation Agreement (TFA) of the World Trade Organization (WTO). The country ratified the TFA in 2016. Today, Cambodia has notified the following measures as C items: (1) notification, (2) pre-arrival processing (3) authorized operators, (4) border agency cooperation, (5) national single window, and (6) transit. The so-called categories A, B and C designated by developing and least developed countries (LDCs) under the TFA have different implementation timings. While category A items imply the implementation at the time the Agreement enters into force (LDCs have an additional year), categories B and C allow these countries to have more time and capacity-building support to implement the Agreement.

Cambodian Customs, or the General Department of Customs and Excise (GDCE), is the leading government agency undertaking various trade facilitation reforms while exercising its missions of revenue collection and prevention of customs offenses. Indeed, the technical provisions of the WTO TFA are substantially Customs-related, with 98% of the provisions to be implemented fully or partially by the GDCE. GDCE also runs the Secretariat of the NCTF – an inter-agency mechanism newly established in 2020, to facilitate smooth and effective implementation of the WTO TFA’s provisions. The establishment of NCTF is a progress in itself regarding the TFA implementation. This mechanism enables non-customs authorities and related private sector stakeholders to take part in a structured dialogue on trade facilitation in Cambodia.

One recent achievement of the NCTF is the development of the Roadmap on Trade Facilitation 2022-2025, laying out the progress of the WTO-TFA implementation and future work plan as well as taking note of the ongoing and planned development partner contributions to specific trade facilitating measures in Cambodia. This roadmap was presented and adopted at the kick-off meeting of NCTF on 11 October 2021, where at least 8 DPs were invited to present their related technical and financial assistance. While resource mobilization is critical, ensuring the most effective support by using potential synergies and avoiding the duplication of efforts is even more crucial for the NCTF in implementing the Roadmap. This is particularly true amid the sizeable crowd of development cooperation programs whose mandates are frequently spotted overlapping.

The ARISE Plus Cambodia project, for example, is currently considered the largest among all in terms of scope and scale. The project is funded by the European Union and German Government. It the GDCE through its technical assistance and advisory support program on CNSW, Risk Management, Pre-arrival Processing, and Authorised Economic Operator (AEO). The project granted the ASYCUDA upgrade to its latest version of 4.3.3 for improvements in efficiency and opportunities for GDCE and traders to reduce operational and business costs. ARISE Plus Cambodia also coordinates the implementation of its two sister projects – Digitising Global Maritime Trade (DGMT) and Digitising Global Trade (DGT), which are implemented globally by the German Alliance for Trade Facilitation. In Cambodia, DGMT and DGT support on the development and deployment of a new data integration solution to allow the exchange of cargo data between the ASYCUDA and trade data providers for the implementation of pre-arrival processing as well as risk management of sea and express consignments.

Swisscontact, on behalf of the Global Alliance for Trade Facilitation, is working alongside GDCE and Cambodia Post on the project Improving Small Package e-Trade for SMEs (SeT4SME), to make it easier, quicker, and more cost-effective to send parcels internationally. This is possible through enabling Electronic Advance Data (EAD), a system that sends customs and security information electronically before the arrival of a package to the destination country, to end the burdensome paper processes and thus facilitates more rapid customs clearance of small packages sent through the Post. The project contributes to progressing the pre-arrival processing, risk management, and border agency cooperation around the postal consignments.

Through its long-term expert at Cambodia’s customs, Japan International Cooperation Agency (JICA) is assisting GDCE in implementing of diagnostic and plan for the improvement of the risk management system; developing of action plan and diagnosis to implementing AEO program; conducting of time release studies; strengthening of customs enforcement and control; improving of cross-border management between Cambodia with Vietnam and Thailand; among others. Other related development programs include UNCTAD’s supports for strengthening of the capacity NCTF in implementing various trade facilitation measures; IMF’s work on reviewing of Customs Law, business process engineering, and improving of the Strategy for Customs Reform and Modernization; and WCO’s capacity development supports to customs on HS classification and various customs matters.

The virtual coordination meeting organized by the GDCE in January 2021 that brought together the ARISE Plus Cambodia, Swisscontact, and JICA to present and discuss the synergies of their ongoing and potential future cooperation activities already showcased one welcome effort. As part of the process in building and promoting a full-functioning NCTF going forward, such coordination forum shall form one of the formal work plans of the NCTF, bring in more related players, and be arranged more regularly and consistently; to jointly develop cooperation plans around NCTF’s priority needs. This will level up the coordination effort of contributions and a more structured arrangement of cooperation among different programs. From the perspective of the DPs, in addition to building a trustful partnership with GDCE, such coordination forum can make an efficient contribution to avoiding duplication in their effort, strengthening of their project planning, and using synergies with other support programmes to support a broader trade facilitation context and ensure sustainability.

This article first appeared in the Asian Vision Institute (AVI)’s Commentary Issue: 2022, No. 01. AVI is an independent think tank based in Cambodia.

The official launch of SeT4SME, graced by H.E. Pan Sorasak, commerce minister, and co-organized by the Ministry of Commerce, the Global Alliance for Trade Facilitation, and Swisscontact, took place on 8th February 2022 at Hyatt Regency Phnom Penh. We were glad to have welcomed at the event over 90 participants from different governmental institutions, development partners, and private sectors.

It’s also a delight to our team to have seen several big media outlets covering our event, such as the one below. The team, as seen here in the picture, worked very hard to prepare for the launch. Thank you so much, everyone!

Public-private partnership to digitally upgrade cross-border trade facilities

Mutual development of e-commerce and cross-border trading processes are themes consistent in both the Royal Government of Cambodia’s Rectangular Strategy and the World Trade Organization’s Trade Facilitation Agreement.

Competent infrastructure in this area is crucial to the Kingdom’s continued economic ascent, with SME demand for imports and exports growing rapidly en masse. Speed and user convenience are not the only efficiencies that will meet this demand however, cross-border compliance under the unifying WTO regulations is also key to ensuring fluent and timely delivery of packages to and from overseas partners.

Yesterday, at the Improving Small Package e-Trade for SMEs (SeT4SME) ceremony held in Phnom Penh’s Hyatt Regency hotel, the Global Alliance for Trade Facilitation (GATF) officially launched its initiative to digitally link systems between the General Department of Customs and Excise (GDCE) and the Cambodian Post.

The primary feature of this link is to facilitate and provide Electronic Advanced Data (EAD), so that customs and security information of the postal shipments can be received by customs ahead of arrival, making clearance and processing of imports and exports much more efficient. Phillipe Isler, Director of the GATF based at the World Economic Forum said:

“We have one word to describe this project – digitalisation – it is the lifeblood of e-commerce. The new digital connection platform that will link the respective electronic systems between GDEC and Cambodian Post for processing clearance of small packages is a key component.”

He added, “Our colleagues at UNCTAD and UPU will ensure the technical aspects of this project are delivered, however, technical delivery alone is not enough. One needs to ensure the users are sensitised and trained appropriately and that new processes are clear and concise. Only then will small businesses, many of them women-led, be able to unlock the true potential of e-commerce and online trading.”

The GATF promotes public and private sector partnership through mutual collaboration in the planning and financing of projects that accelerate economic development and integrity. The SeT4SME project has the Royal Government’s full support, which was evidenced by the attendance of Minister Pan Sorasak of the Ministry of Commerce.

“Completion of this project will further progress Cambodia’s commitment in trade participation through the digitisation of trade-related processes. These improvements will contribute to opening cross-border e-commerce possibilities, particularly for small and medium enterprises.

By delivering on these commitments, we can diversify and leverage opportunities in new growth sectors, especially emerging digital sectors.

This project comes at a time when cross border trade is needed more than ever before, particularly in times when the pandemic has accelerated the uptrend shift towards e-commerce. Some SMEs have suffered as a result, and they need to be supported in developing their business processes.”

Minister Pan Sorasak was keen to praise the efforts of Swisscontact which had been collaborating with the GDCE for several years, and are responsible to providing the digital interface between Cambodia Post and the GDCE’s current systems.

In addition to this implementation, Swisscontact will also develop an e-Trade portal that effectively acts as a one-stop shop for international traders who hope to scale their business reach and compliance across the ASEAN network. Sok Kha, Project Manager at Swisscontact and early advocate of EAD innovation explained to Khmer Times how their technologies worked.

“Our technology acts as a layer between the existing ASYCUDAWorld (GDCE) and CDS (Cambodia Post) systems, enabling the advanced relay of product and risk information which will allow clearance of small packages before they arrive.

At the moment, everything is done manually which can result in the hold up of small packages and in many other cases their rejection. Think about the processing complications of customs processing chemicals or combustibles without having any prior knowledge of their arrival.”

This initiative is projected to take roughly two years and is expected to be fully implemented by mid of 2023.

The article “Public-private partnership to digitally upgrade cross-border trade facilities” first appeared in the Khmer Times’ Business Issue: February 09, 2022.

Sok Kha, a research fellow at the Centre for Governance Innovation and Democracy (CGID) at AVI, argued that if Cambodia does not adopt EAD, it may risk having packages returned.

Sok added action must be taken soon, because the European Union, the United States, China and Russia are some of the countries that now require EAD.

“The enforcement [of EAD] implies that Cambodia’s postal shipments to the markets in those countries risk being returned or destroyed by their customs administrations as per their respective regulation,” he said.

The EU-Import Control System came into effect last month while the US Stop Act took effect in January this year.

“As a workaround, Cambodia needs to enable the EAD, allowing advanced data exchange of critical customs and security information of the postal shipment electronically between the Customs Declaration System (CDS) of Cambodia Post and ASYCUDA World (AW) of the General Department of Customs and Excise of Cambodia (GDCE),” Sok said.

AW is the current customs system in place by the GDCE and is responsible for processing customs declaration data at ports and checkpoints in Cambodia.

The problem, he said, is that communication between CDS and AW is not sufficient.

Sok listed three reasons why this switch would benefit Cambodia. “First, it ensures regulatory compliance of the outbound postal shipments to EAD countries. Second, the rapid growth in cross-border commerce e-commerce puts increasing pressure on [the] GDCE. Third, it contributes to progressing Cambodia’s commitments under Article 7.1 on the Pre-Arrival Processing and Article 7.4 on Risk Management of the WTO Trade Facilitation Agreement.”

He added the dramatic rise in Cambodia’s e-commerce sector provides more reason to implement EAD.

According to a Statista report, e-commerce revenue is slated to grow annually at 8.98 percent from 2021 to 2025.

“The e-commerce turnout is expanding beyond Cambodia’s national border, with small Cambodian e-traders engaging mostly with the international delivery of small packages,” Sok said.

He added Express Mail Service packages accounted for 47 percent of Cambodia Post’s revenue in 2019. This represented an increase of volume by about 43 percent for outbound packages and 38 percent for inbound packages in 2017.

This article first appeared in the Khmer Times’ Business Issue: April 27, 2021. 

The context in which these businesses operate is dramatically changing due to the rapid technological and digital advancement and adaptation in the country over the past decade, with growing affordability and uptake of internet connectivity and smartphone-based value-added services. For instance, a report published by DataReportal suggests the number of internet users stood at 9.7 million in January 2020, a 1.3-million rise from the preceding year. Alongside, the e-commerce activities have trended upward significantly with the growth in tech start-up activities accompanied by increasing numbers of online payment gateways such as Wing Pay, ABA’s PAYWAY, ACLEDA E-Commerce Payment Gateway, among others. A report by Statista highlights the revenue in the e-commerce market in Cambodia, expected to grow at an annual rate of 8.98% from 2021 to 2025.

Moreover, the enactment of the E-Commerce Law in November 2019 and the E-Commerce Strategy in November 2020 adds an even stronger momentum, providing an institutional, legal, and regulatory framework for electronic transactions and for accessing and sharing information and data in e-commerce transactions.

The e-commerce turnout is expanding beyond Cambodia’s national border, with small Cambodian e-traders engaging mostly with the international delivery of small packages. The flourishing of international postal items has illustrated this. For example, the Express Mail Service or EMS packages accounted for 47% of Cambodia Post’s revenue in 2019, with the volume increasing by around 43% and 38% for outbound and inbound, respectively, from 2017.

In a previous AVI publication, the author highlighted that Cambodia had made remarkable improvements in digital trade facilitation, using modern information and communication technologies to simplify and automate cross-border trade procedures. Similar improvements are called for in response to the uptrend of cross-border e-commerce. Specifically, an enhanced cooperation of Cambodia Post and the Customs administration or the General Department of Customs and Excise of Cambodia (GDCE) will facilitate the movement of small packages across Cambodia’s border.

This is particularly critical now than ever before when certain countries enforce new laws and regulations that require the Electronic Advance Data (EAD) for the postal items arriving at their soil. Those countries include the members of the European Union, the US, China, Russia, among others. The enforcement implies that Cambodia’s postal shipments to the markets in those countries risk being returned or destroyed by their customs administrations as per their respective regulation, i.e., the EU-Import Control System and the US Stop Act, which come into effect in early 2022.

As a workaround, Cambodia needs to enable the EAD, allowing advanced data exchange of critical customs and security information of the postal shipment (i.e., sender, contents, and value) electronically between Customs Declaration System (CDS) of the Cambodia Post and ASYCUDAWorld (AW) of GDCE.

AW is the automated customs processing system implemented by GDCE at all ports and checkpoints to capture and process customs declaration data of export and import consignments. While the CDS, a system developed by the UPU Postal Technology Centre for its member postal operators, including Cambodia, can capture declaration data of the postal shipments, the linkage between CDS and AW is currently lacking. So, why is it both important and necessary for Cambodia to have a fully operational EAD? Overall, enabling the EAD will facilitate the cross-border movement of Cambodia’s small package exports and imports. At least three reasons stand out.

First, it ensures the regulatory compliance of the outbound postal shipments to EAD countries. Without it, Cambodia’s exporters risk having their postal items returned or destroyed due to security and safety measures imposed by certain destination countries. Second, the rapid growth in cross-border e-commerce puts increasing pressure on GDCE. It is the leading government agency responsible for revenue collection from the imports of low-value goods subject to duties and taxes. Besides revenue collection, GDCE has an equally high responsibility to prevent the importation of prohibited items from entering Cambodia. That means all merchandise imports, regardless of their value, are subjected to risk assessment and, where appropriate, checked by customs officials as part of the wider risk management process. Efficiency in this process can be improved if the capturing and processing of the customs declaration data of the import shipments can be carried out against risk selection criteria before their arrival. That also means expedited customs clearance procedures of postal items imported into Cambodia. Third, it contributes to progressing Cambodia’s commitments under Article 7.1 on the Pre-Arrival Processing and Article 7.4 on Risk Management of the WTO Trade Facilitation Agreement (TFA).

In conclusion, establishing a fully operational EAD will strengthen the government’s efforts in employing modern information and communication technologies in their reforms around cross-border trade facilitation, while at the same time benefiting Cambodia’s private sector, which increasingly embraces the global e-trade and digital economy.

This article first appeared in the Asian Vision Institute (AVI)’s Commentary Issue: 2021, No. 07. AVI is an independent think tank based in Cambodia.

“JapanCorp” is a Japanese multinational corporation that produces machinery components and electronic devices. The company owns multiple production plants in several countries in Asia, including Cambodia. The decision to open their factory in Cambodia was driven by a combination of the firm’s risk diversification program, enhanced market access in the region, and the availability of skilled Cambodian labor. In addition, the operation was at minimal cost due to the government’s pro-trade and pro-investment policies.

The completion of all legal procedures necessary to get the factory up and running was smooth and swift. Employing over 1,200 Cambodian workers, JapanCorp built its production facilities in a special economic zone on the outskirts of Phnom Penh. The zone boasts a liberal business environment, an effective administrative system, and efficient infrastructure.

A large number of the workers are sourced from a number of national TVET institutions. These institutions are in partnership with multiple industry players, including JapanCorp, to build human resource capacity corresponding to the needs of the industry. Frequently, these firms send their technical staff to provide training to students at various educational institutions. Workers at the plant also have access to the company’s different in-house training programs. High-level technical and senior management staff are frequently sent to the firm’s Thailand plant for senior technical training.

JapanCorp’s Phnom Penh plant focuses on assembling small- and medium-sized motors, household electrical appliances, and digital equipment. It sources most parts from plants in Thailand and Vietnam, in addition to domestic factories owned by Cambodian, Japanese, and Chinese manufacturers. Most of the assembled finished products are exported to ASEAN markets, China, Japan, and India. These are among the markets with whom Cambodia has bilateral free trade agreements.

The plant’s financial transactions with business partners are done digitally through a swift and secure online banking platform. The firm commissions a partnered customs broker to deal with import and export procedures. Thanks to the firm’s ‘Authorized Economic Operator’ status and an improved customs process with full-fledged automation, the import and export process is fast and efficient. Inbound and outbound logistics are supported by the inter-connected infrastructure developed under China’s Belt and Road Initiative (BRI) and ADB’s Greater Mekong Subregion (GMS) Economic Corridor Program in addition to Japan-backed port capacity expansions.

The description above represents a snapshot of the culminating vision for the next twenty years. It is motivated by Cambodia’s anticipated impressive growth within both regional and global value chains (GVC).

— excerpt from the chapter. Thanks and cheers to team #Cambodia2040, esp to the editorial team for their support and all the hard work. This publication was featured in the Envision Cambodia, one of the first podcasts by Voice of America (VOA), where I had a great time discussing and sharing with the VOA journalist what the country would be like in the future.

The course ended up being so enriching, with perspectives and thoughts shared among instructors, speakers, and participants. The organizer did a great job bringing in a good mix of academic/practitioner as well as cross-border trade policy and trade facilitation experts to provide many great knowledge and practical insights. Overall, the course was very insightful and made absolute sense in terms of the principles and their application.

Thanks again to Dr. Somnuk, Yann, Sangwon, Dr. Mohammad Saeed, Prof. Yumiko Yamamoto, Dr. Pamela, Dr. Shantanu; who ran us through a variety of important topics.

Making the trade facilitation more inclusive is equally important, if not more, and I am particularly happy that we had one session in our course on mainstreaming the gender topics in trade facilitation.

At least three of the topics – Business Process Analysis (BPA), Online Trade Portal, and Cross-border Paperless Trade with a significant focus on the national single window (NSW) – made a great addition to my existing experience in related consultancy projects in my roles as: (1) national business process consultant in a team comprising of 6 international experts to design and develop preparatory work for the establishment and operation of the Cambodian National Single Window (CNSW); (2) trade process mapping consultant where I worked collaboratively with 12 government ministries and their departments that are involved in trade processes and produced 46 trade process mapping documentation for the Cambodian National Trade Repository (NTR) database. In addition, these topics are directly related to the workstream that my team at ARISE Plus Cambodia is currently working to support Cambodia’s government.

I am also particularly happy to hear many examples of country case studies. While successful trade facilitation implementation may depend very much on the national circumstance, one commonality that I kept on hearing throughout the course is the importance of roles and responsibility as well as the mandate of the leading national agency and the significance of successful coordination among stakeholders.

My take on ‘Digital and Sustainable Trade Facilitation in Cambodia’

Cambodia has made noticeable improvements in the implementation rate across surveyed trade facilitation measures are already taking place (Figure 1). The rate in 2019 was 70.97%, up from 54.84% in 2017 and 50.54% in 2015. On average, Cambodia scores better than Asia-Pacific and Southeast Asia.

With reference to my previous post, the improvement in digital trade facilitation over the last recent years deserves the highest praise and is a good sign that represents the picking up of momentum in Cambodia’s reforms in trade facilitation. The showcase includes progress in adopting ICT in establishing the digital trade platform that allows disseminating trade-related regulatory information and requirements as well as the processing of trade-related documents and procedures in key ministries and agencies (i.e., commerce ministry and customs administration).

That said, implementation of measures regarding the e-payment, e-manifest submission, electronic application, and issuance of import and export permits in other government agencies remains limited. The country also scores low across most of the Cross-Border Paperless Trade measures.

It should also be noted that the score calculation for Cambodia concentrates only on measures with regards to the General Trade Facilitation, Paperless Trade Facilitation, Cross-Border Paperless Trade, and Border Agency Cooperation. A majority of measures in such categories as SME-, Agricultural-, and Women-related measures were reported to be unknown or not in implementation. With that, it is still too soon to boast Cambodia’s progress in terms of sustainable trade facilitation measures.

Going forward, there is a need for a stronger reform momentum to push the digital trade facilitation implementation to a higher level. Work to establish a strong foundation for sustainable trade facilitation to take-off must also progress without delay. The newly-established National Trade Facilitation Committee (NTFC) must build, strengthen, and consistently promote its role and responsibility to gain strong political support and long-term commitment from the top government executives. In its operation, the mechanism must also ensure greater participation of both relevant government agencies and trader communities to secure a broader stakeholder buy-in. Only then that the continuous and significant progress can be made in terms of promoting Cambodia’s endeavors in fulfilling its trade liberalization and facilitation commitments under international frameworks.

I had a remarkably good experience on an ANA flight from Phnom Penh to Tokyo for a business trip in early February this year. The new Coronavirus outbreak caused some inconvenience for traveling. However, I found the services of the whole trip satisfactory, from check-in to landing. What amazed me even more was their in-flight meal, which included at least two Cambodia’s local products: ANGKORMILK Strawberry Yogurt and Vital Premium pure water. It was a rare occasion for a Cambodian national like me to have witnessed my country’s local products being served on a major international airline. The anecdote also showed Cambodia’s ongoing efforts to establish and develop its regional and global value chains or GVC integration.

The vision of connecting Cambodia to the GVC is not new but a result of decades-old strategic decisions about the future. The country has been pursuing policies and reforms to integrate itself into the GVC since its adoption of a market-oriented economy in 1989. This article aims to provide a comprehensive understanding of the challenges in promoting GVC participation of businesses in Cambodia. Based on the authors’ desk research reviewing the World Bank’s Enterprise Surveys[1],  OECD-WTO Trade in Value-Added (TiVA) database[2],  and other relevant economic and surveyed data, the article explores the persistence of challenges manifesting in many forms at different levels of private sector capacity and business environment and regulation domains.

These enduring challenges continue to hamper growth in Cambodia’s private sector and preclude them from fully engaging with the growing GVC activities in ASEAN and beyond and from benefiting from the opportunities presented by the evolving regional and global environments, such as the removal of trade preferential treatments, Industry 4.0, and the growing number of regional and sub-regional cooperation and integration initiatives.

Two Decades of Growth and Industrialization Progress

Cambodia has witnessed significant economic growth and transition over the last two decades. Since 2001, the annual GDP growth rate has averaged 7.7% and has been at least 6% every year except in 2009 during the global economic slowdown.

Figure 1: Real GDP growth rate, 2001–2018

The share of the industrial sector increased from 22% in 2001 to 36% in 2018. The service sector increased marginally from 38% to 39%, while agriculture declined almost halfway down to 18% from 34% during the same period.

Figure 2: Sectoral share of the economy, 2001–2018

The government’s efforts to accelerate economic diversification have been reinforced by the arrival of large Japanese corporations which have over the last few years opened their factories in the country as part of their ‘China+1’, ‘Thailand+1’ and ‘Vietnam+1’ strategy[3] while at the same time taking advantage of Cambodia’s proximity to their major plants in neighboring countries. The cases in point include Minebea (motor manufacturing), Denso (automotive and motorcycle component manufacturing), and Yazaki (automobile wire harnesses), among others. As such, Cambodia’s manufacturing sector has experienced a noticeable transition toward higher value-added products, such as automotive parts, light manufacturing machinery, and equipment products.

The rapid growth and economic transition have significantly contributed to the country’s poverty reduction, bringing down the poverty rate from the realm of 50% in 2004 to 13.5% in 2014, measuring based on the US$1.90 threshold daily consumption expenditure. Cambodia attained the status of a lower middle-income country in 2015 based on the World Bank’s classification, and it set out an ambitious development vision of becoming an upper-middle-income country by 2030 and a high-income country by 2050. This vision has added momentum to the government’s reforms toward further industrial development and deepening Cambodia’s integration into the GVC.

Cambodia’s Limited GVC Participation

GVC participation can facilitate industrialization progress in developing countries helping them to further integrate into the global economy at relatively lower costs by producing only certain types of components or engaging with only certain tasks, rather than with the entire production process. The benefits can be substantial in terms of economic development for developing countries, as GVC participation brings about the sophistication of production, enhanced productivity, and diversification of exports.

GVC participation is defined for a reference country as to when the country embeds its value-add in exports in both looking backward and forward. Backward participation happens when the country’s domestic firms use foreign inputs for exporting activities. Forward participation happens when the country’s exports are used as inputs by firms in partner countries for their own exports. Figure 3 shows Cambodia’s overall GVC participation is below the ASEAN average[4]. The GVC participation is broken down into backward and forward participation measures and is expressed as shares of the country’s exports. The strong backward participation showcases the fact that the country has thus far embraced the ‘Factory Asia’ growth model, relying largely on foreign value-add, in combination with trade preferential treatments and inexpensive low-skilled labor to give thrust to boost the country’s industrialization and exports. The weak forward participation highlights the low level of upstream activities in the country.

Figure 3: Cambodia’s GVC participation

Sector-wise, the magnitude of Cambodia’s overall GVC engagement is still limited to only a few industries. The manufacturing is the most involved in GVCs, led by textile products such as leather and footwear, and followed by food, beverage, and tobacco. It is then followed by agriculture, transportation and storage, and wholesale and retail trade (Table 1).

Table 1: Magnitude of Cambodia’s GVC participation by sector, (% of gross export)

Cambodia has demonstrated a strong connection with ASEAN as a bloc and regional countries. Table 2 presents the top ten individual partners in Cambodia’s GVC participation.

Table 2: Cambodia’s top 10 partners in GVC participation

Within ASEAN, Singapore has the highest average GVC participation rate of 62.8%, followed by Malaysia at 58.0%, Vietnam at 53.4%, Thailand at 51.5%, the Philippines at 46.4%, Cambodia at 43.7%, Brunei at 42.2%, and Indonesia at 41.1%. The average rate for ASEAN stands at 49.9%.

Figure 4: Average GVC participation among ASEAN countries, 2005–2015

From a micro perspective, firms may participate in GVCs by combining import and export, investment, movement of staff, and knowledge and technology through various business cooperation with foreign firms in order to optimize their internationalization activities. To our knowledge, attempts to investigate the mode of GVC participation among firms in Cambodia are still limited. On the industrial front, for example, the FDI–driven garment sector in Cambodia relies heavily on foreign inputs and has remained focusing on highly labor-intensive and on basic, low value-added activities, with factories engaging mainly in cut-make-trim processes. Design work and higher-level production are predominantly made at the headquarters of the foreign parent companies. The emerging travel goods and handbags sector and other light manufacturing sectors have experienced a noticeable transition toward relatively high value-added activities.

On the agricultural front, agribusiness remains weak, with small and informal primary processors accounting for the majority of the agroindustry. These processors normally perform basic value-added activities (besides packaging) and sell to the markets. Cooking, grinding, drying, roasting, and/or packaging are the most common value-added activities. Modern agroindustry is emerging for rice and its exports, attributing largely to the government’s commitments to turning rice into the ‘white gold’ through the establishment of Policy Document on the Promotion of Paddy Rice Production and Export of Milled Rice in 2010. The rice milling industry also relies on imports of machinery and inputs to keep value-added processing inside its borders. Most of the other commodities are exported in raw forms, mainly to neighboring countries to be processed for their exports.

Enduring Challenges

The persistence of challenges manifests in different forms at various levels of private sector capacity and business environment and regulation domains. As mentioned earlier, a large portion of Cambodia’s agro-products including cassava, maize, and cashew nut are often reportedly exported, both formally and informally, to neighboring Thailand and Vietnam where they are processed for exports. It is a clear example of the insignificant level of upstream production activities and thus weak forward GVC participation. This is largely a result of private capacity issues, including constraints in sourcing raw materials, quantity and quality issues, and poor storage facilities. Other major issues include production and delivery constraints, which include the lack of finance; inadequate processing facilities and know-how; limited knowledge about the export process; and limited information access not supporting an informed decision-making regarding market needs, access to buyers, payment terms, and certification regarding safety and standard. Across various sectors, domestic firms tend to have relatively more capacity constraints than those with foreign partners due to the different levels of know-how and technical skills acquisition.

Connecting themselves to GVC through foreign firms in Cambodia is also a challenge for domestic firms. From foreign firms’ perspective, the high rate of informality and weak production capacity among domestic businesses as well as the lack of information about suitable domestic business partners make it challenging for them to partner with domestic firms. The Qualified Investment Projects (QIP) tax incentive policy to attract foreign investment to Cambodia also has its flaws. These investment projects are entitled to receive investment incentives, including profit tax exemption for a specified period or special depreciation allowance, import tariff and export tax exemptions, and VAT exemption. However, they will not be able to reimburse VAT if their projects source materials locally.

Relevant studies also highlighted a multitude of challenges in the business environment and regulatory domains. World Bank surveyed a total of 98 manufacturing and agro-processing firms and logistic service providers to capture an overview of logistics performance and costs in Cambodia. The study found relatively higher costs and lower quality of logistics services, ranging from transportation to warehouse to inventory, if compared with regional countries such as Vietnam and Thailand. The study also highlighted significant informal charges levied by government agencies, accounting for nearly half of the firms’ logistics administration costs.

In the World Bank’s Enterprise Survey of 2016, 32% of the surveyed firms identified “Competition in the informal sector” as major constraint issues, implying the informality was the most serious business environment constraint. It was followed by Crime, theft and disorder (24.2%), Inadequately educated workforce (17.6%), Access to finance (16.9%), Transportation (12.0%), Business licensing and permits (11.1%), Corruption (10.2%), Customs and trade regulations (8.0%), Tax rates (6.5%), Tax administration (6.4%), Electricity (6.1%), Labor regulations (5.2%), and Courts system (4.0%). Among the 373 surveyed businesses also included the 131 businesses who had also participated in the preceding survey in 2013, meaning the database also allows for panel analysis which illustrates the noticeable improvement in certain constraint issues (Table 3). Despite some improvements, the extent to which the business environment constraints undermining business operations remains rampant, with the high two-digit numbers being reported on half of the issues.

Table 3: Reporting ‘major’ or ‘severe’ constraint issues – 2013 vs 2016 (%)

Business environment and regulatory challenges also manifest at the macro level as shown by various available data. For example, the country positioned at 144^th out of 190 economies in the World Bank’s Doing Business Report. The country also ranked low across World Bank’s Governance Indicators, particularly in terms of Control of Corruption, Rule of Law, Government Effectiveness, and Accountability. Transparency International put Cambodia at 162^nd out of 180 countries in its 2018 Corruption Perceptions Index, which aims to give scores to countries and territories by the perceived levels of public sector corruption according to experts and businesses. The country scored 0.49 in the World Bank’s Human Capital Index, positioning itself at 99^th out of 157 countries. The Logistics Performance Index 2018 (LPI) ranked Cambodia at 98^th out of 160 economies. The country scored the lowest at 130th for the infrastructure component of the Index. The Global Competitiveness Index’s 2019 edition ranked Cambodia at 106^th out of 141 economies, positioning the country among the least competitive countries in Southeast Asia.

Embracing the Evolving Regional and Global Environment

Cambodia is in the regional and global environment that keeps evolving and becoming uncertain, which include the potential removal of trade preferential treatments, the dramatic development in digital technology, and the growing number of regional and sub-regional cooperation and integration initiatives. Such changes are both inspiring and alarming, which means Cambodia needs to optimize them to accelerate the country’s GVC participation process.

The European Commission (EC) formally announced on February 12^th, 2020 that it would partially remove Cambodia from the EBA scheme, a blow to the country’s export-driven economy which counts Europe as its largest and most lucrative market. Putting aside the political narratives and implications, the impact from the withdrawal is unclear at the time of this writing. With the new decision coming into force after August 12th, 2020, tariffs will be formally imposed on roughly 20% or US$1.09 billion worth of Cambodia’s current exports to Europe. The scaledown, however, will spare some of the textile and footwear products, which are by far the largest merchandise exports to Europe. Cambodia can be fully reinstated to a full-fledge EBA scheme if civil and political rights conditions in the country improve as outlined by the Commission. Otherwise, the country will face further scale down or complete removal of the EBA and other trade preferential treatments, a scenario that will make the garment and textile industry less attractive to foreign investment and that will affect the livelihoods of hundreds of thousands of Cambodia’s vulnerable groups, particularly women and low-skilled workers. This will also intensify the need to compete with other low-wage countries producing similar products. For example, the recent free trade agreement between Vietnam and the EU will compound the pressure on the prospect of Cambodia’s export-driven economy.

Reconsidering Cambodia’s overdependence on China for production capacity and investment is as critical as reconsidering its overreliance on the EU for market access. Putting geopolitics concerns aside, such an overdependence makes Cambodia extremely vulnerable to disruptions stemming from China’s capital control. A slowdown or reversal of FDI inflows from China will significantly affect the private sector growth. The grim news about the operation suspension of as many as 91 garment factories that would result in over 60,000 job losses due to an abrupt supply chain disruption from limited access to China’s raw materials is a recent case in point.

In this regard, Cambodia’s ongoing efforts to advance bilateral Free Trade Agreement (FTA) negotiations and expedite multilateral negotiations on the Regional Comprehensive Economic Partnership (RCEP) and other trade and investment agreements will lead to mid- to long-term measures to overcome these structural weaknesses and to create greater opportunities for firms in Cambodia in terms of markets and product diversification. Low import tariffs, both at home and in export markets, and engagements in regional trading agreements (RTAs) can all facilitate backward and forward GVC participation.

Moving toward developing a technology-driven and knowledge-based modern industry has been outlined in the latest and most important ‘economic growth strategy’ – the Industrial Development Policy 2015–2025 (IDP). Embracing the dramatic development in new digital technology will enhance the potentials for all important economic sectors. With an increased level of mechanization, for example, agriculture will see a substantial improvement in productivity, diversification, commercialization, and exports. The manufacturing sector will experience a greater transition toward higher value-added products. The service sector will have the highest level of ICT utilization, led by a full-fledged embrace of digital transactions and fintech. As per their implications on GVC participation, one possibility is that they will unlock the full potentials for digital payment and e-commerce development, which will contribute to transforming traditional businesses and manufacturing and connecting them better to the GVC. An improved telecommunication technology will also allow for better coordination of complex and geographically dispersed production processes.

To seize all these opportunities, however, Cambodia needs to enhance its readiness for the fourth industrial revolution and at the same time amplify supports to local firms, which remain struggling in promoting their upstream production activities to mitigate the risks of having their tasks replaced by such new technologies as artificial intelligence, robotics, and internet of things.

ASEAN membership continues to be a catalyst for the improvement of Cambodia’s business, investment, and trade policies. It is also for the stimulation of investment and trade and for the establishment and improvement of an enabling environment for local firms to unlock their full potentials and for contributing to creating significant backward/forward linkages with overseas firms. From infrastructure development to cross-border trade and to tourism, Cambodia has benefitted greatly from the connectivity development focus of the many emerging intra- and extra-ASEAN cooperative and integration initiatives, such as the Greater Mekong Subregion (GMS), the Ayeyawady-Chao Phraya-Mekong Economic Cooperation (ACMECS), the Lancang-Mekong Cooperation (LMC), Mekong-Japan Cooperation, Mekong-Ganga Cooperation (MGC), Mekong-ROK Cooperation, the Lower Mekong Initiative, and the China-led Belt and Road Initiative (BRI). They contribute to reducing the various forms of disparities between Cambodia and ASEAN member countries while at the same time accelerating the ASEAN integration process as a whole. Cambodia’s businesses can then use the improved intra-ASEAN trade and investment relationships as a testing lab to substantiate their own strategies and learn from regional peers for their own capacity improvements in meeting international standards and requirements to ensure the sustainability of their engagements with foreign firms.

However, relevant data suggest Cambodia has not yet fully reaped the benefits from the regional integration initiatives, considering the country’s insufficient volume of intra-ASEAN trade compared with other countries in the region. Only around one-fifth of Cambodia’s exports are sold to the ASEAN Member States. This indicates the need for strengthening the reform momentum to deepen Cambodia’s trade and investment engagements with ASEAN if Cambodia aims to capitalize on the opportunities arising from an increasingly integrated and cohesive ASEAN community.

Conclusion

Connecting to GVC brings about economic benefits in terms of the enhancement of productivity, sophistication, and diversification of exports. The vision of having a strong participation in the GVC is not new for Cambodia but a result of decades-old strategic decisions about the future. However, Cambodia’s GVC engagement is still insignificant and limited to only a few industries due to a multitude of persisting challenges. They manifest in many forms at various levels of private sector capacity and business environment issues, which include regulatory constraints (such as business informality, licensing and tax, and corruption), infrastructure and logistics, quality and standards, and limited understanding and inadequate information on import and export methods.

These enduring challenges continue to hold off the efforts of Cambodian firms and the government to participate fully in the GVC. The potential removal of trade preferential treatments, a dramatic development in digital technology, and the growing number of regional cooperation and integration initiatives in the increasingly connected Southeast Asian region have significant implications for Cambodia’s trajectory toward the GVC integration.

The opportunities presented by these evolving regional and global environments are plenty, and so are the risks. The bottom line is that the enduring challenges still create some ‘gaps’ or ‘missing links’ that need to be linked or bridged. Attempts to narrow the gaps are not non-existent. For example, the IDP laid out ‘key reform measures’ which include the formalization of businesses, reduction in electricity cost, enhancement of connectivity in transport and logistics, and improvement of the labor market and skills. Prime Minister Hun Sen’s five recommendations for reforms– “looking into the mirror, taking a shower, scrubbing away the dirt, treating wounds and conducting surgery”– are also meant to address specifically the long-standing governance and public capacity issues regarding coordination, accountability, government effectiveness, law enforcement, and corruption. As per the policy implication going forward, efforts to bridge these missing links need to build up momentum with the aim of capitalizing on the emerging opportunities presented by the regional and global environment and connecting Cambodia better to the GVC.

This article first appeared in the Asian Vision Institute (AVI)’s Perspective Issue: 2020, No. 11. AVI is an independent think tank based in Cambodia.

[1] This is a business-level survey of a representative sample of an economy’s private sector, from manufacturing such as food and garment to retail to other service sectors such as hotels and restaurants and construction. Its 2016 database is the latest version for Cambodia. It collects information about a country’s business environment, covering various issues identified to be the major business constraints by each of the 373 businesses participating in the survey. The database can be accessed from its online portal at https://www.enterprisesurveys.org/.

[2] TiVA online database is more commonly used to assess the economy’s participation in the GVCs. TiVA is the outcome of an on-going international effort to develop measures of Trade in Value Added. TiVA indicators are published by OECD and based on the 2018 release of OECD’s annual Inter-Country Input-Output (ICIO) tables which cover the period 2005 to 2015. The database can be accessed at http://oe.cd/tiva.

[3] These ‘X Plus 1’ refers to a strategy whereby a corporation branches out from their plants in X by opening production facilities in other regional countries, basically to diversify risk, control cost, and access to new markets.

[4] ASEAN in OECD-WTO TiVA Database excludes Lao PDR and Myanmar due to data unavailability.