Monday, June 1, 2009

Cambodia Strengthens Small and Medium Entrepreneurs


Cambodia’s economy is driven by four engines – tourism, the garment industry, construction and agriculture. The impact of the global economic crisis has decreased foreign investment in each of these sectors and leaving the agricultural sector as the main source of exports and employment. This is according to Dr. Cham Prasidh, Senior Minister and Minister of Commerce.

The Senior Minister said that the Royal Government will continue to work towards speeding up access to banking and finance services for Small and Medium Entrepreneurs (SMEs), especially those connected to agriculture and agro-processing.

“Most Cambodian SMEs are suffering from a shortage of credit coupled with relatively high interest rates, often resulting in a lack of sufficient capital for the enterprises,” Prasidh said during his opening remarks at a workshop on Access to Finance for SMEs. The workshop covered aspects of Cambodia’s Short-Term Responses to the Global Economic Crisis and was held May 26 in Phnom Penh.

Minister Prasidh said there is no easy solution as a multitude of other barriers exists such as a lack of entrepreneurship, a lack of managerial and financial skill, limited information on market access and weakened infrastructure. They all conspire to keep SMEs lagging behind most of their regional counterparts.

To survive the present global downturn, Prasidh said the Government will need both short-term support and long-term investment. Therefore, structural improvement to the financial environment will be critical if sustainable growth is to be attained.

The Minister said access to finance is one of the major impediments that producers and exporters have to contend with. The United Nations Developments Program (UNDP) Cambodia has teamed up with the International Trade Centre (ITC) and published a concept paper proposing financial mechanisms to help SMEs confront such challenges.

The team appointed to work on this topic proposed a partnership between UNDP, ITC, and Agence Francaise de Development (AFD). Under this union, the UNDP would fund technical assistance to the banks with ITC executing the activities and AFD providing a credit guarantee fund to facilitate loans to SMEs via participating banks, said Prasidh.

He continued that in his opinion, this grouping represents a practical response to help the Government’s short-term response to the global economic crisis. It will reestablish confidence for both SMEs and their customers.

“The Ministry of Commerce looks forward to customarily consistent support from the UNDP and hopes the activities will start soon. We hope that everything will be in place to assist agricultural concerns with the 2010 harvest,” Prasidh said.

Prasidh said that the workshop lays the foundation for a tentative short-term response to help alleviate the stumbling blocks that prevent access to finance. He also expressed his hopes that other donors such as the Asian Development Bank would also contribute.

Ros Seilava, Deputy Secretary General of the Ministry of Economy and Finance said Cambodia’s economic growth was robust, averaging 9.4 percent during the last decade and 10.6 percent during the 2003 to 2007 timescale. Record highs of 13.3 percent were achieved in 2005, 10.8 percent in 2006 and 10.2 percent in 2007.

The Deputy Secretary General said growth stood at 7 percent in 2008 and projected an overall figure of 6.5 percent for 2009, reflecting the global economic slowdown. Inflation is expected to be reined in to single digits in 2009.

“Key challenges are the shortage of finance for public and private investment and trade.” Seilava continued. “Overcoming these challenges is critical not only for minimizing the impact of the crisis but also for positioning Cambodia to take advantage of global recovery after the crisis.”

Development of the domestic financial sector is a prerequisite to improving domestic resource mobilization, said Seilava, adding that the focus must be on promoting efficiency and deepening the financial system while access to financial services is still limited.

Jo Scheuer, UNDP Country Director, said by allowing producers to overcome the limitations of a small domestic market, international trade makes it possible to increase production, create more jobs and capitalize on higher returns to scale.

Scheuer continued “Exposing producers to foreign competition and know-how, accelerates the introduction of improved production techniques and technologies. This is critical to raising productivity and increasing competitiveness.

“As several studies have noted, we are facing a new competitive paradigm. The ability of Cambodian producers and exporters to compete on the basis of tariff preferences and advantages is fast eroding. As a result, Cambodia must increasingly learn to compete based on the strength of its domestic supply capacity,” Scheuer said.

Scheuer continued that Cambodian producers must learn to develop products and services that meet international technical standards. It brings new opportunities to strengthen coordination between the government and its development partners, not only here in Phnom Penh but also in Paris and Geneva.

The UNDP is pleased to cooperate with the ITC and the AFD in supporting Cambodia, said Scheuer. He added that producers must learn to boost productivity and lower unit costs by embracing new technologies and making more efficient use of better trained workers.

“To meet these new challenges requires a strengthened dialogue and partnership between Cambodia’s private sector and Cambodia’s government. The ideal will be freer access to innovative financial products and services,” Scheuer said.

He added that the global financial crisis is already affecting Cambodia and its affects will be felt more and more as this crisis continues to unfold.

According to Ministry of Commerce’s investment climate assessment 2009, 93 percent of the firms operating in Cambodia are SMEs. 71 percent of them fall into the micro-entrepreneurs category, having less than 10 workers. 60 percent of SMEs are owned by women, and 80 percent of SMEs have never had a loan from a bank. ///

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