Tapping into Growth

ICT Industry Examines Strategy during Slowdown

ICT has proven popular among Cambodia’s youth, especially in the form of online games

By Chhun Kosal
Economics Today

Information and Communication Technology (ICT) plays a very important role in economic development. But in Cambodia, recent growth in ICT has been jeopardized by the economic downturn, leaving industry players looking for ways to cut costs.

More than just computers, ICT encompasses all communication networks, including telephone networks, the internet and consumer systems. No country can afford to ignore ICT or move forward without it.

Cambodia has poor communication infrastructure, even for Southeast Asia, and Cambodians for the most part are hesitant about ICT. Rapid ICT growth in Cambodia is now slowing.

“The global economic downturn has brought IT industry in our country to a standstill for a while. But Cambodia is not the epicenter of the downturn, and its effect has more largely to do with a precaution taken by investors and spending decision makers rather than the slump itself,” Volak Sao, the chief executive of Campura Systems Corporation, told Economics Today.

Nong Rada, managing director of Intel EM, said that the current economic situation has reduced Cambodians’ interest in ICT purchases. “People make purchases when there is excess money around but … many people are going through a difficult time, hence, investing in new technology becomes a secondary priority.”

He said that sales of computer equipment are down by around 15 percent compared to last year.

The Digital Age Arrives

Despite current caution, Cambodia has positively embraced ICT technology in recent years. Government institutions, the private sector and civil society are relying more and more on ICT, rather than old paperbased systems.

Volak Sao said such considerations mean that growth will soon pick up. “The economic recession we experienced just now happened because foreign direct investment [FDI] and foreign aid on which our economic growth relied upon heavily in the past decades has slowed down, and some speculative real estate investments also adopted the wait-and-see attitude during tough times. It’s just a short standstill and will be a V-shape recession for Cambodia. The ICT industry will soon pick up fast and possibly much more aggressively than during the so-called ‘boom’ time.”

Cambodia’s small ICT industry certainly suggests that ICT growth will continue. Hardware and software manufacturing industries have been successfully established in many developing countries such as China, India, the Philippines, and Thailand with a turnover of several billion US dollars. In contrast, Cambodia has no equivalent industry, though there are other forms of ICT, such as telecom companies, mobile operators, computer retail and repair shops, internet cafés, internet service providers, IT training centers, and software solution providers that specialize in web design, graphic design and web hosting.

According to a report from the Economic Institute of Cambodia (EIC), about 150 ICT distributors were listed in Phnom Penh in 2006. The IT distribution market “is highly fragmented yet largely dominated by a limited number of players. There were 268 distributors in 2008 which shows a big jump from only three IT distributors in 1993,” found the PC Penetration in Cambodia report.

The report added that “while the manufacturers of computer hardware and software are limited, the number of computer retailers or IT distributors has been increasing over time.”

Nong Rada agreed with EIC that the switchover to ICT would drive growth. The computer industry “is improving gradually with the increase of small and mediumsized businesses adopting computerization.”

However, Cambodia’s lack of an explicit ICT policy puts it behind Vietnam and Thailand, he said.

Key Challenges

An increasing number of ICT conferences, such as this one at the Mondial Center, are promoting the benefits of ICT

There are also other, more serious challenges to Cambodia’s ICT industry. A low computer literacy rate, limited knowledge of foreign languages among Cambodians, rampant piracy, a lack of reliable electricity supplies and inadequate communication infrastructure are all major concerns.

“Adoption of computing, even though apparently pretty fast and robust in urban areas, is on the whole pretty small,” said Volak Sao. “Copyright is also a challenge. A lot of software can be purchased in a few dollars in the black market. This is harmful to the product owners”.

According to the UNDP’s Cambodia Country Competitiveness report, “Companies which are heavily reliant on ICT for their business operations face high operating costs in Cambodia, discouraging both the use of ICT in local companies as well as discouraging ICT-reliant foreign companies from investing.”

Volak Sao said that ICT adoption is slower in Cambodia than in Vietnam, Thailand, Singapore and Malaysia, though a lot faster than Laos and Burma. “In general,” he added, “the development trend looks good and we should be able to catch up with our neighbors very soon if those challenges are addressed correctly.”

Another stumbling block for Cambodian ICT is tax, said Nong Rada. He complained that a tax rate of 26.5 percent makes ICT products expensive for consumers. Expensive internet connections also affect purchases of PCs and other accessories, he added.

Nong Rada groused that “lack of government incentives to grow the ICT industry, specifically in relation to the high cost of electricity … [means] no incentives for interested companies to come and set up local manufacturing.”
Open Source

One increasingly popular option for Cambodia is Free/Open Source Software (FOSS). These are programs that users are free to distribute and change, unlike the more familiar offerings from Microsoft and others.

According to opensource.org, “Open source is a development method for software that harnesses the power of distributed peer review and transparency of process. The promise of open source is better quality, higher reliability, more flexibility, lower cost, and an end to predatory vendor lock-in.”

NGOs, the private sector and even the government are turning to free software they can tailor for specific tasks.

“Around 60 to 70 percent of Cambodian government officials use FOSS because all the programs have been translated into the Khmer language and because of a lack of money for Microsoft software licenses,” said Van Khema, Deputy Director of Department Network Working Group Leader of National Information Communications Technology Development Authority (NiDA), told Economics Today.

NiDA has been promoting the use of FOSS since 2004 across Cambodia, and most line ministries now use FOSS systems.

Be Chantra, KhmerOS trainer and public relations officer of the Open Institute, noted that FOSS is “costless and legal.”

“FOSS can be used, copied, studied, modified and redistributed [and] is having an impact in schools, universities, ICT education and government policy in Cambodia,” he said, adding that over 10,000 people have so far been educated in FOSS by the Open Institute.

The FOSS movement provides all the applications needed for a full computerized system, and facilitates translation to many languages.

Open.org.kh, a website concerning FOSS in Cambodia, stated that computing in Khmer-language— available only through FOSS—separates the skill in a ‘second-language’ (English) from the skill of ‘computer usage’, allowing students to work on these skills independently, and even use their computer skills to later learn English.

“Cambodia thus becomes the first country in the world to fully change its education system to only teach through FOSS applications,” said the website.

Cambodian Deputy Prime Minister Sok An, in a speech delivered on his behalf, said he believed that FOSS could help Cambodia make “a lot of savings in license fees,” ensure software is readily available locally, eliminate software piracy, and enable Cambodians to closely study and understand computer programming.

“Free and Open Source Software provides a way out of a vicious cycle. It increases the user’s control. It also provides a framework for promoting intellectual capital, and achieving the UN Millennium Development Goals,” said Shahid Akhtar, head of the Bangkok-based UNDP Asia-Pacific Development Information Program (UNDP-APDIP).

Despite its benefits, there are drawbacks to FOSS. Figuring out how to develop a localization project can be a long and painful learning process, which must be repeated by every localization project in every country.

The translation of Khmerlanguage FOSS began in 2004 with KhmerOS, a joint project the Open Institute and the Cambodian National ICT Development Authority (NiDA). By mid-2005 a basic set of programs had been translated, and was distributed and taught to teachers and government officials, said the Open Institute on its website.

Even after the Open Institute and the Ministry of Education in 2007 created the Open Schools Program, an initiative to improve educational quality using FOSS, the software has yet to become widely popular. Microsoft has opened a Cambodia office to offer costly but legal versions of the Microsoft software that is still the firm favorite in Cambodia.

FOSS is not user friendly and is not always compatible with other software, say critics.

NiDA’s Van Khema conceded that such criticisms were partially justified, though much of the problem is due to local inexperience of FOSS. “FOSS can run as smoothly as Microsoft, it just depends on the users and their experience in using FOSS. But in other programs, such as design, it cannot run as smoothly as Microsoft because we do not have a lot of experience.”

Be Chantra advised home users and businesses alike to switch to FOSS “before Microsoft takes action to stop using Microsoft pirated software any more.”
Long Term Expansion

Regardless of which software type will win the day, the Cambodian ICT industry is set for a major expansion over the next decade, said Volak Sao. “I really believe the ICT industry will look a lot different 10 years from now. As far as ICT is concerned, changes in the past 10 years in Cambodia are much more than over the past 1,000 years. But the changes over the next 10 years will be far greater than what we have seen so far.”

Even the local manufacture of ICT equipment and ICT outsourcing is a possibility, he added.

Nong Rada agreed that the ICT industry will continue to grow in Cambodia, “but it is important that the Cambodian government help to resolve some basic issues, like zero tax on computer CPUs and related accessories, and lowering the cost of internet access.”

Volak Sao urged the government to focus on improving education to increase Khmer- and English-language literacy. “This will bring the ICT industry to a higher standard and improve our economic development to compete with other countries,” he said.

“The government must come up with workable policies that provide protection to ICT investors and the government itself needs to instruct all ministries to use computer systems as they mostly use manual systems now. This will add more strength to the ICT sector and help the country as whole to develop faster.”

Slipping through the Net

Cambodian Social Safety Nets seem to have Many Gaps

Healthcare is just one component of a comprehensive social security net

By An Channthla
Economics Today

The global economic crisis has turned the tables on free market economies, exposing the flaws in no-holds-barred capitalism. Nations like France with comprehensive social security systems seem to have weathered the storm well so far, but poor countries like Cambodia may find providing a similar safety net difficult.

Cambodia is one of many poor countries facing challenges that could set back development, especially as the downturn undermines traditional economic drivers. The rapid policy responses required to effectively deal with such a situation could be lacking, experts said.

Development partners have stressed to the Cambodian government the importance of social safety nets in any period of crisis. Along with other development partners, the UN has urged social safety nets as a priority to continue social, cultural, and economic growth, and attain Cambodia’s Millennium Development Goals (MDGs).

Without safety nets, the gains achieved through rapid growth are more likely to be reversed during an economic downturn, said Tim Conway, the World Bank’s (WB) senior poverty specialist. Safety nets contribute to poverty reduction in at least two ways, he told Economics Today.

Firstly, they help households avoid falling into penury and, in terms of public spending, preventing a household slipping under the poverty line in the first place is generally far cheaper than trying to lift them back out later.

Secondly, safety nets help households to make long-term investments, for example in their children’s education, which improve human development, skills and economic productivity.

An Unclear Concept

But, while their benefits are obvious, what social safety nets actually are is not always apparent.

According to a WB definition, safety nets are “non-contributory transfer programs targeted to the poor or vulnerable,” which play important roles in social policy. Safety nets, says the WB, redistribute income, thereby immediately reducing poverty and inequality; they enable households to invest in the human capital of their children and in the livelihoods of their earners; they help households manage risk, and they allow governments to implement macroeconomic or sectoral reforms that support efficiency and growth.

Still, defining social safety nets in terms of their consequences only begs the question further, as do loose descriptions like “mechanisms that mitigate the effects of poverty and other risks on vulnerable households.”

Formal programs, run by governments, donors or NGOs, that provide additional income or in-kind transfer programs, subsidies and labor-intensive public works programs are more in line with Western ideas of a safety net, though a lot less cushy. Government-led programs to ensure access to essential public services, such as fee waivers for health care services, and scholarships to mitigate schooling costs are what many are expecting of the Cambodian government.

Nevertheless, the majority of Cambodian social safety nets are provided either informally or by development partners and NGOs, said Douglas Broderick, UNDP resident representative in Cambodia. Largescale support is associated with organizations such as WFP, UNICEF, ADB, ILO and WHO, he added.

Many Cambodian households have become increasingly vulnerable to poverty over the last 20 months, according to the Development Partners’ Background Paper on Mitigation of the Adverse Impact of the Economic Crisis. Longstanding risks for poor and foodinsecure people were exacerbated by the escalating prices of food and other essential commodities in 2007-08, and while some farmers were able to benefit from higher prices, most farming households are subsistence producers, many of whom suffered a net negative impact from price increases.

Structural changes to the rural economy also mean that households are less able to withstand these shocks than in the past. The number of landless and land-poor households is higher, and access to common property resources has been significantly reduced. Reinforcing safety nets is therefore important, both to mitigate effects of the economic downturn, and to complement the government’s long-term growth-oriented development.

Increasingly Vulnerable

Cambodians remain vulnerable to a wide range of shocks, including harvest failure, macroeconomic and trade shocks, natural disasters and livestock losses, said Broderick. Even ill health can often force households into debt and the sale of assets, pushing relatively wealthy households into poverty, and forcing an already poor household into destitution.

Healthcare is just one component of a comprehensive social security net

Thus, Cambodia is more in need of robust social safety nets than most, Broderick said, and not just to stimulate economic growth and improve human development indicators such as health and education.

“Every way you look at it, social safety nets make good economic sense. When Cambodia invests in its poorest, it is helping a third of its people reach their full potential. Today’s poor and disadvantaged could be tomorrow’s best and brightest individuals whose talents, skills and innovations could be harnessed to drive and inspire Cambodia’s future socio-economic growth.”

NGOs and the government have a number of relevant policies and programs, said the WB’s Tim Conway, including food distribution and vulnerable and scholarships to help poor families keep their children in school.

Still, the government’s provision of social safety nets seems a confusing ad-hoc hotchpotch scattered across several ministries. The Ministry of Social Affairs, Veterans and Youth Rehabilitation, Ministry of Labor and Vocational Training and the Ministry of Woman’s Affairs are all mandated with managing state social services and protecting specific vulnerable groups. In collaboration with the WFP, the Ministry of Rural Development and the Ministry of Water Resources and Meteorology have a food for work program that distributes 3,500 tons of rice per year to approximately 20,000 households.

The WFP and the ADB fund socalled food-based transfers, support that includes school feeding, foodfor- work schemes—whereby people receive food for work, usually on rural infrastructure projects such as canals, dams and roads—and free food distribution, said Broderick. UNICEF and UNFPA also fund a number of Health Equity Funds (HEFs) whereby poor patients are exempted from paying patient fees, which are paid by a third party from so-called health equity funds. A number of HEFs are administered by local NGOs.

In response to a June 2008 government request, the ADB provided a grant and a loan to alleviate the needs of areas around the Tonle Sap Lake, said Ngy Chanphal, secretary of state for the Interior Ministry, in a February 2009 report. The Emergency Food Assistance Project, providing short-term transitional support, met unexpectedly high expenditure due to higher food, fuel, and agricultural prices. The program also saw questions raised over the eligibility of some families for aid, with unsubstantiated accusations of nepotism.

Such threats to the sustainability of short-term stopgaps are perhaps why the WB is working with development partners such as the WFP, UNICEF and the ADB to help the government develop a coherent safety net strategy, said Conway. “Along with other organizations, they are providing advice, analysis, and lessons from experiences in other countries to help government policy-makers develop their strategy and programs.”

Health equity funds are one example of the progress of social safety nets in Cambodia, Conway claimed, having evolved from a set of experiments to mainstream national health policy. The system for household targeting developed by the Ministry of Planning can now be used to target a number of different safety nets, which would create consistency and cost-effectiveness across the system, he added.

Broderick noted that the government is currently developing an integrated national social safety nets system to be unveiled at the end of 2009. The government is updating its National Strategic Development Plan (NSDP) to incorporate this new strategy, he said.

Long-term Lag

Despite these best laid plans, the devil is the detail, experts warned. Implementation, the stage where theories meet with rude reality, is raising concerns.

Cambodia’s weaknesses make the transfer of resources to the poor all the more challenging, said Broderick. He listed little absorptive capacity, poor infrastructure and a shaky banking system as areas of concern.

The safety net programs currently in place are mostly modest, covering only certain parts of the country, said Conway. Some parts of the country, some common forms of vulnerability, and some significant vulnerable social groups are not yet covered by any scheme, he warned. Existing schemes are funded largely from development cooperation, which makes them unsustainable in the long term.

The challenge, Conway maintained, is to stitch together the existing patchwork of programs into a coherent framework, scale up existing schemes or introduce new ones to fill in the gaps in coverage, and to ensure all schemes fit together.

But, as with any public service, safety nets cost money, a commodity not currently in abundance. “One obstacle is low levels of government revenue and difficulties in coordinating flows of funds from development agencies,” he explained. “The other challenges are to do with capacity and institutional coordination. Operating a good safety net scheme requires skilled staff working within a well-structured organization and good coordination between line Ministries and between different levels of government. All of this takes some time to develop.”

Rapid responses could be unlikely in Cambodia, a country which, according to the Council for the Development of Cambodia (CDC), is not yet able to develop an integrated system or a sustainable program to respond to crises as they occur. The Background Paper on Social Safety Nets in Cambodia characterized current efforts as fragmented, uncoordinated and unsustainable.

Another major constraint for the development of safety nets and rapid assistance responses is the lack of a government body with a clear mandate to coordinate safety net interventions across ministries; there is no central authority to implement cross-sectoral interventions.

Broderick urged the government to complete a national strategy on social safety nets and, most importantly, commit more resources to new and existing programs.

Other countries in the region spend between 1 and 2 percent of GDP on social safety nets. Cambodia spends less than 1 percent.

“It would seem, therefore, that there is room for the government to expand its financial commitment to the provision of social safety nets,” Broderick said. “It is also important that any new social safety nets are developed in conjunction with existing informal structures so as not to undermine the systems already in place.” Coordination between government, NGOs and development partners will be important.

Safety net development looks increasingly like a long-term prospect, to be developed in line with old age pensions, health insurance, disability and illness benefits. Can poor Cambodians wait?

A Lot to Learn

Educational Quality May Not Match Quantity

By An Sithav
Economics Today

Unskilled and semi-skilled workers are not the only victims of the recent wave of unemployment: this year’s university graduates also seem unlikely to land a job.

These potential skilled additions to the labor force could provide timely contributions to economic growth if they find appropriate employment, analysts said. But once strong demand from the private sector and NGOs has withered in the wake of the economic downturn, leading some to predict a contraction in the skilled labor market this year.

Chan Sophal, the president of the Cambodian Economic Association warned that recent graduates will likely find it harder to find decent employment this year because economic activities, especially new investment projects, are expected to be down on 2008. "For instance,a number of Korean investment projects and investors reportedly returned home after their government called them back in the face of the serious economic downturn at home," he said.

Foreign buyers of Cambodia’s garments and visitors to Siem Reap’s many hotels have tightened their belts amid the downturn’s uncertainty, with predictable results for beleaguered tourism and the already-decimated garment sector, until recently key employers of fresh graduates. “Hotels in Siem Reap receive fewer tourists in 2009 compared to 2008 and garment factories cut down sub-contracts to smaller firms,” said Chan Sophal. "All of these directly reduced the prospects of new decent employment for fresh graduates.”

Way Off Course

Source: National Educational Congress summary report, MoEYS, March 2009

Other experts pointed finger at graduates themselves, saying youth are pursuing irrelevant courses of study at poorly accredited institutions, and failing to gain appropriate work experience.

Ban Thero, vice-chancellor at Cambodian Mekong University, said students must specialize in a particular field or skill, rather than attempt to study as many subjects as possible. "I personally believe that students who study at two universities at once are wasting their time since they do not have enough time to do enough research … They must change their attitude toward reading and research."

Cambodia’s growing number of higher education institutions (HEIs)—the Ministry of Education (MoEYS) officially recognizes 63, of which 18 are public and 45 private—have seen significant improvements in quality, said Im Sethy, minister of MoEYS. “Collectively these public and private HEIs provide higher education to about 140,000 students including doctoral, master, bachelor, and associate degrees,” he added.

But improvements in both quality and quantity do not necessarily translate into a good education. An additional proliferation of privately run colleges and universities can add to the problem by concentrating on the bottom line rather than educational value. Much of the staff at these institutions have dubious qualifications and offer classes of doubtful quality.

Sandra D’Amico, secretary-general of the Cambodian Federation of Employers and Business Association (CAMFEBA), said the poorly informed younger generation is characterized by a “lack of knowledge on how to find a job, a lack of experiences, a lack of right skilled demands for potential employers and lack of support skills.”

“The challenge in education is not only the curriculum and types of courses that are provided, a large part of the challenge is how we teach,” D’Amico said at the March 12 Cambodia Outlook conference. “We need to build in the basics from the beginning: Education and development will not have an impact if those who are learning do not have access to the facilities and support they need to learn.”

David Williams, a technical consultant at the International Labor Organization (ILO), shared similar sentiments. “There is in Cambodia today a significant—and growing—mismatch between the needs of employers and the skills of new labor market entrants,” he told Economics Today. “Cambodia—at its current level of development—needs more vocational and technical skills that are carefully tailored towards the needs of the labor market if it is to address the current youth employment challenge and provide decent work opportunities for all new labor force entrants.”

Based on his experience as manager of a company in Cambodia, Laurent Notin, general manager of the research firm Indochina Research, said there are indeed startling discrepancies between courses offered in Cambodia and the needs of the market.

“For example, there is a lack of quality sales people, while all companies need qualified sales staff, whom not only sell products but also develop long-term relationships with clients based on mutual trust,” he said. “Young people are often not well prepared to the employment market: they have limited professional experience, have not … done internships. While the international companies are often more prestigious, they are also far more demanding in terms of skills, experience and attitude.

School’s Out

Certainly the around 23,000 graduates of the 2008-2009 academic year are likely to find their next few years testing. During the rigors of a recession, employers become far more demanding, sparing selecting only a select few the best candidates.

Notin remarked that finding the right job is never easy, but has certainly become more difficult as companies cut their budgets. “In addition, most graduates have not been correctly prepared to enter the market on essentials skills such as writing a CV, writing a cover letter or undertaking job interviews.”

Denis Gambade, director of the French- Cambodian Chamber of Commerce, said that there are “no more huge recruitment plans like last year.”

“This year, companies need staff, but they are looking for the skilled and experienced ones first. Companies cannot afford to have huge payrolls like before; they want efficient staff.”

Ban Thero, agreed that the demand for labor is currently unsteady. “However,” he said, “demand for skilled and talented potential employees is still increasing, while demand for unskilled workers is decreasing.”

The news might not all be bad: Chan Sophal said that demand is still high for the best graduates and could be increasing. “As competition gets tougher, companies need to recruit more competent Cambodians, some to replace more costly expatriates,” he told Economics Today, recommending students study hard.

Cambodian Mekong University’s Ban Thero suggested students take their studies more seriously. “To upgrade and equip themselves for the market’s demands, students have to work harder to be better prepared during their time in universities,” he said.

The ILO’s David Williams argued for more state spending on education. “Under-investment in education is one key factor at the heart of this: Cambodia spends less than 2 percent of its GDP on education, compared with 4.2 percent in Thailand and 6.2 percent in Malaysia,” he said. To address the problems, more effective and targeted employment services are needed, especially in the provinces, as well as needs and demand-based job training, including technical and vocational training. “Greater investment in education [and] diversification of the economy and expansion of the industrial base, including moving up the value chain in existing key sectors, so as to create greater ‘skilled’ employment opportunities for young Cambodians,” would be the best strategy, Williams concluded.

Sub-Standard Issue

Yim Yan, the president of Cambodian Pharmacist Association

By Phen Raksmey
Courtesy of Economics Today Magazine

China’s melamine milk scandal, which saw at least six infants die from kidney damage and over 800 more babies hospitalized, brought product standards to the forefront of international consumer concerns. Like China, Cambodia is now waging war on counterfeit and unsafe products, though the battle here is just beginning.

The prevalence of imports in the Cambodian market, poor consumer knowledge of safety standards and a lack of robust legislation make product standards a critical issue. The Institute of Standards in Cambodia (ISC) stipulates that all food products and electronic products must apply for a Cambodian standard but this rule is only currently enforced for pure drinking water, vinegar and chili sauce. Most consumer products are thus not covered under Cambodian law, so are not subject to compulsory quality testing.

Poor education and scant information are reasons why producers, suppliers and consumers have been slow to address the issue, opined Han Sam Att, as she browsed for milk powder for her 8-month-old son. She cared little whether products meet Cambodian standards, confessing she would be unsure how to tell whether a product meets standards or not. Han Sam Att chooses milk powder according to the advice of her friends or relatives, who learn the better products through trial and error.

Thought for Food

Mak Soeun of the Ministry of Agriculture, Forestry and Fisheries (MAFF) said that Han Sam Att’s experience, currently the norm in Cambodia, is beginning to change. The former deputy director of the Department of Planning and Statistics said that Cambodia already has a complex the system of food controls to help ensure unsafe products are not on sale.

The Camcontrol department of the Commerce Ministry prevents the distribution of unsafe, poor quality, adulterated, misbranded or contaminated products, including foods, Mak Soeun said. The Ministry of Industry oversees quality control in the manufacturing of industrial products, inspecting samples of processed foods and undertaking microbiological and/or chemical analysis in laboratories on a diverse of products such as bottled water, beers, wines, fish and soy bean sauce and vinegar, he added.

But only a few national standards have been so far approved by the Industrial Standards Technical Committee, and the Food and Agriculture Organization (FAO) and WHO have noted that Cambodia’s food control activities are "weak," with "many examples of failure to control unsafe, fraudulent and improperly labeled food."

There is no active program of food borne disease surveillance in Cambodia and outbreak response is often limited by a lack of available expertise. Also, Cambodian legislation does not stipulate training requirements for food inspectors and inspectors do not need degree level qualifications and receive minimal training in risk-based approaches to food safety, the FAO and WHO noted in a 2004 report.

Deadly Medicine

Chan Sopha, ISC’s deputy director-general

No-one could fail to notice the multitude medicine vendors claiming to be pharmacies lining the cramped streets of Phnom Penh. But the serpents sinuously coiled around the bowl of Hygeia and the rod of Asclepius—the universal symbols of pharmacy—may in Cambodia represent venomous toxicity more than their traditional regenerative associations.

In fact, the 1,300 legitimate legal pharmacies in Cambodia only just outnumber the 1,200 illegal operations, Yim Yan, the president of Cambodian Pharmacist Association told Economics Today. The approximately 150 medicine import and export companies that supply these pharmacies also supply around 2,000 private health facilities, he added, about half of them illegal.

Testing on 250 kinds of oft-used and easy-counterfeited medicines by the World Health Organization (WHO) and the Ministry of Health in 2004 in Phnom Penh and other six provinces revealed that 30 of the 250 medicines were fake.

Cambodia’s National Center for Parasitology, Entomology and Malaria Control surveyed 34 percent of the then 498 known facilities and medicine outlets in 2004, and collected 451 medicine samples across four provinces. Twenty-seven percent of samples failed the thin layer chromatography and disintegration tests. All were unregistered products.

Officially, counterfeit drugs are "any medicine manufactured with inadequate or poor quality active ingredients, any medicine without any active ingredient or the potency of which has deliberately been designed out of the limits specified by the pharmacopeia, any medicine with labeling or packaging deliberately imitating that of an existing proprietary drug, any medicine repackaged or produced by a non-authorized person." Under this shared Cambodian government and WHO definition, the percentage of illicit medicines would be even higher, as unauthorized repackaging is common even in legitimate operations.

Limited Implementation

Agricultural production is another issue. Under Cambodian law, MAFF has a key role in managing the safety and quality of agricultural products as they enter the food chain. Inspections of agricultural chemical residue, animal health and animal sanitation, and agricultural material inputs must be undertaken by MAFF officers. However, evidence suggests that products in markets throughout the country are not being fully tested and that the movement of animals is not always inspected.

Even safety helmets may not be as dependable as their name implies. Helmets imported from Vietnam, China and Thailand often do not meet international standards. Handicap International Belgium last November sent ten kinds of safety helmet sold in Cambodia to the US for quality tests. Only 40 percent of the helmets met US standards.

Chan Sopha, ISC’s deputy director- general, noted that the local standards have yet to be adopted, so "Cambodia has no standard to measure the helmets yet." Still, the ISC has prioritized standards for safety helmets, he added, so all helmets, whether produced in Cambodia or imported, will soon be obliged to up their quality.

Standards Response

While the current situation leaves much to be desired, just the creation of the ISC is a massive step forward. Chan Sopha said the ISC is working to establish standards and other technical measures based on international standards, guidelines, and recommendations.

So far ISC has set over 60 standards, ranging from rules on food safety to electronic equipment, he said, though he conceded that nonstandard products still make up "most of the products supplied in the Cambodian market."

A Barren Harvest

Falling prices have produced a glut of cash crops like corn

By An Channthla & An Sithav
Economics Today

For additional economic articles in Cambodia, please visit
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As Cambodia’s other sectors reel from the onslaught of the global economic crisis, the agricultural sector was initially seen as a safe haven. But waning agricultural exports and falling prices have left small holders and the barons of agro-industry alike hurting and worried about the future.

According to an International Labor Organization (ILO) report, commodity prices that are dependent on international market will inevitably fall during a downturn. In Cambodia, cash crops such as maize, cassava, and pepper sold to Thailand, Vietnam and China are at risk as the global economic slowdown reduces demand for manufacturing products from these economies, leading to fewer sales at lower prices for Cambodian farmers, the report said.

Though only a fraction of the kingdom’s agricultural output is exported (about 20 percent), the farm gate price-the price paid to farmers for their produce by buyers- changes in line with export prices. Thus a fall in export demand causes a drop in the export price, and a further drop in farm gate prices.

Dr. Theng Vuthy, program coordinator at the Cambodia Resource Development Institute (CDRI), said that the prices of popular cash crops have been savaged by the economic crisis. Comparing export crop values from November, 2007 with prices from November, 2008, total soybean exports lost US$8.1 million in value, maize lost US$4.1 million, rubber US$36.9 million and cassava lost a staggering US$95.1 million. Cassava and rubber are “severely affected by the crisis,” Dr. Vuthy added.

Rice, soybean, maize, cassava and rubber have indeed plummeted in price, confirmed Chhim Vichara, deputy director of the Department of Agriculture in Battambang province. These crops were aggressively promoted as a way out of poverty for farmers, leading many to plant them. But as the economic crisis broke, demand for agricultural fell markedly, he said, especially the cassava usually exported to Vietnam and Thailand. Farmers in Battambang could unload only half of their cassava harvest, he lamented, with little chance of a sale later on because of cassava’s short shelf life.

Heng Bonhor, the director of the Banteay Meancheay Provincial Department of Agriculture, said the situation is even worse in some areas of his province. The few exports to Thailand, such as the dry cassava sent from Malai district, receive only rock bottom prices, though other areas, such as Svay Chek and Thma Puok districts, cannot find buyers at all. Rice and cassava crops are the main income for Banteay Meanchey farmers who have become used to exporting to Thailand every year, he added, leading many to rely on the income from exports.

Pao Suy, representative of farmers from Thnot commune, Prey Veng province, was familiar with such a scenario. Farmers mostly sell to neighboring countries because Cambodia lacks infrastructure to process crops, and “anyway, [farmers] grow all their crops because of foreign demand [in Vietnam],” he told Economics Today.

“Increasing agricultural outputs is [in theory] … a good thing in terms of increasing rural income,” he said. “But the most pressing problem that farmers face is that there is no market for their agricultural products.”

Yin Kimly, representative of another farmer association in Kandal province, said that the lack of a market leads around 2,500 families to leave paddies fallow in the dry season, despite their potential to deliver more than just a single harvest. “The rest of the time … they grow some vegetables to just to survive,” he said.
Withering Demand
Source: Impact of High Food Price in Cambodia, CDRI, 2008; AMO Price Bulletin, 2007-Jan, 2009

Even major exporters like Mong Reththy and TTY Tapioca complain about a slump in demand for cassava and rubber.

The price of tapioca starch this year fell by about US$185 per ton, a far cry from the US$ 330-340 per ton of 2007, said Tan Kosal, administrative director of TTY Agricultural Plant Development. The price of tapioca starch continued to increase through the first half of 2008, he added, before fading at the end of 2008. In 2007 the company exported 10,000 tons, stopping tapioca starch production in 2008 to Farmers Hit by Falling Demand, Prices Falling prices have produced a glut of cash crops like corn 18 Economy & Business April 16-30, 2009 Economics Today increase production capacity with new plant machinery. The company projects only 5,000 tons of exports this year.

Vietnam is the largest export market for TTY’s tapioca starch, with China, Indonesia, Malaysia, Philippine, Korea and European countries smaller buyers. The far lower prices offered by Vietnamese buyers for tapioca starch, led Tan Kosal to voice concern over the amount of money lost. Future prices and market demands are unclear, he said.

Plummeting oil prices have caused a sharp contraction in Chinese demand for cassava used to produce ethanol fuel, said Chan Sophal, president of the Cambodian Economic Association (CEA). Most Cambodian cassava export to Thailand and Vietnam also ends up in China for fuel so these markets will also dry up, he added.

The crash in the automotive industry has sent the demand for rubber skidding downwards, so rubber exporters such as Cambodia should expect the industry to shrink, said Chan Sophal. Cheaper crude oil has also led many factories to use oil-derived raw materials instead of rubber, further reducing demand and driving down prices.
Sowing the Future
Source: AMO Price Bulletin, 2007-Jan 2009, MAFF

With around 80 percent of the population farmers and agro-industry hoped to be one of the few areas of Cambodia’s narrow industrial economy to survive the crisis, experts are concerned about the possible consequences of sustained low prices.

Many local farmers borrowed money from microfinance institutions (MFIs) to increase production and replant fallow land. Much of this year’s agricultural harvest has gone unsold, leaving many farmers with debts, said Heng Bonhor.

Unfortunately, Cambodia cannot intervene in the short-term to increase prices and boost agricultural exports because of its free market economy, where everything is driven by market demands, said economists.

The World Bank has advised that finding a “market for the crops is very significant while the other sectors (garments, tourism and construction) are affected from the global economic crisis.”

In the short-term, “developing countries have to seize opportunities for agricultural products in both ASEAN markets and other developing countries”, said the Sustaining Rapid Growth in a Challenging Environment report. “For the long-term, expand the range of options by upgrading [infrastructure and skills].”

For Dr. Vuthy, Cambodia’s underutilized, sparsely populated land holds great promise. “There is significant potential to expand production areas,” he said. “Like most developing countries, Cambodia’s endowment structure is characterized by a relative abun

dance of natural resources and unskilled labor and a scarcity of human and physical capital … Downturn in other sectors may provide labor for the agriculture sector so Cambodia now has potential to boost economic growth.” Finding additional markets through bilateral agreements with Middle Eastern and African countries, and nations in East Asia will also be crucial, he stressed.

Chan Sophal also cited the potential but said that irrigation, roads, affordable credit, machinery and know-how will be the necessary foundations for any agricultural revolution. Some projects already agreed upon are lagging, he continued. “Cambodia has … 65 land economic concessions with the total area granted are about 1 million hectares [but] most companies have not yet implemented their projects.”

In the medium- to long-term, Cambodia must expand its secondary industries so that crops can be refined and processed domestically, said Son Chhay, a parliamentarian for the opposition Sam Rainsy Party. The kingdom should try to avoid depending on neighboring countries in future, he added.

Farmers’ representative Pao Suy agreed. Markets in countries besides Thailand and Vietnam are needed before Cambodians will receive a fair price for their products, he said. Currently, he claimed, agricultural products are sold to Vietnam through Cambodian middlemen who pocket most of the profits.