Nov – Dec 2016

CAMBODIA SYSTEMATIC

COUNTRY DIAGNOSTICPublic Engagement

Contents

• Objectives of the Engagement

• Country Context

• Main research questions

I. What are the challenges to sustaining economic growth?

II. What can be done so that the benefits of economic growth are more

widely shared?

III. What can be done to improve environmental sustainability?

• Identifying priority areas for development

• Next Steps

Objectives of the Engagement

World Bank Group in Cambodia

The current World Bank Group (WBG) support to Cambodia is guided by the

Country Engagement Note (CEN) for 2016-2017.

The focus areas of the CEN are:

Reducing

VulnerabilityImproved

Business

Environment

Enhanced

Connectivity and

Improved

Competitiveness

Improving

Service Delivery

Cross-Pillar Engagement: Setting Out WBG Medium Term Engagement

What is the Systematic Country

Diagnostic (SCD) ?

The SCD is a study conducted by the

WBG, based on empirical evidence, to

identify key challenges and

opportunities for poverty reduction

and inclusive, shared growth and

development in Cambodia (not limited

to areas of WBG engagement).

Country Context

Country Context

An overview over the past two decades of Cambodia:

Economic Growth

Status

Very strong

Evidence

3rd in the world in

1994-2014,

7.7% growth

Poverty reduction

Status

Very strong

Evidence

Extreme poverty declined

from around 7 million in 2004

to 1.6 million in 2013

Human Development

Status

Moderate gains

Evidence

Cambodia ranks 143 out

of 188 in the Human

Development Index

HDI increased from 0.386

to 0.555 since 1990

Country Context

Distinguishing features of Cambodia’s

development:

• Civil conflict left the country’s fragile

social, human, institutional, and physical

capital devastated

• Large share of rural population (79% of

total as of 2015, 14th in the world)

• Highly open and market oriented

economy (merchandise trade at 146% of

GDP in 2015, 8th in the world)

• High foreign aid, investment, and

financing. Substantial dollarization

I. What are the challenges to sustain

strong economic growth?

Changing winds affecting agriculture

Strong performance in agriculture up to 2011 was explained by three factors:

• International commodity price boom

• Land expansion

• Improvements in agriculture productivity

Going forward, Cambodia is expected to be able to grow largely due to productivity gains and cannot rely on further land expansion or a continued commodity price boom

Source: World Bank staff calculations using National Accounts.

0

1000

2000

3000

4000

5000

6000

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

20

09

20

12

Pa

dd

y Y

ield

Kg

/Ha

Rice Productivity gains

Vietnam Bangladesh

Phillipines Thailand

Cambodia

High export concentration in garments with some

nascent diversification…

• Over the last decade,

products and markets have

concentrated in textile and

clothing (representing 70%

of exports in 2014)

• Cambodia’s garment

exports are cheaper than

average

• Export sophistication is

low, although some value

addition and some

diversification beyond

garments is observed

0%

20%

40%

60%

80%

100%

1994 1999 2007 2014

Cambodia (% total merchandise exports)

Textiles & Clothing Footwear Vegetable

Transportation Mach/Elec Wood

Plastic / Rubber Other

Source: COMTRADE

0

10

20

30

40

50

60

70

80

90Starting a business

Dealing with construction

permits

Getting electricity

Registering property

Getting creditProtecting minority

investors

Trading across borders

Enforcing contracts

Resolving insolvency

Doing business in Cambodia, distance to frontier

Cambodia 2016 Vietnam 2016

Source: Doing Business, the World Bank Group

…but there are challenges to the business

environment

0%

5%

10%

15%

20%

25%

30%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

/p

Pe

rce

nta

ge

of

GD

P

Composition of investment Cambodia

Durable Equipment

Construction

Investment is gearing towards construction, & fast

credit growth poses macro-financial risks

• Capital formation averaged 18 percent of GDP in 1994-2014. Vietnam and Thailand have been in the 30-40%

• Capital has increased in recent years, but mostly going to construction

• The investment savings gap increased from 2 to 10 percent of GDP since 2009

• Credit growth booming at 30-40 percent growth rates, with MFI lending saturation

Source: National accounts of Cambodia

II. What can be done so that the

benefits of economic growth are

more widely shared?

Cambodia’s performance in shared prosperity has

been outstanding…

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2004 2007 2008 2009 2010 2011 2012 2013

Poverty incidence under national line

Source: WB Staff estimates from CSES 2004 – 2013 and the Global Monitoring report, 2016.

1.5%

1.7%

4.5%

4.7%

4.9%

6.5%

0.00% 2.00% 4.00% 6.00% 8.00%

2007-2012

2006-2012

2010-2014

2009-2014

2008-2013

2008-2012

Lao

PD

RP

hili

pp

ine

sV

ietn

am

Nic

ara

gu

aTh

aila

nd

Ca

mb

od

ia

Per capita consumption growth, bottom

40%

… but the economically vulnerable population

remains large.

• Poor and economically

vulnerable population

together still represent 65%

of the total population

• Slowdown in agriculture may

expose the economically

vulnerable

• At 70% of total health

expenditure, out-of-pocket

expenditure in Cambodia is

among the highest in the

World

16.7 14.4 4.2 2.7 1.7

35.0 31.9

21.4 19.6 17.8

31.7 32.5

41.6 48.5 46.2

15.7 19.0

30.4 27.8

32.6

0.8 2.2 2.4 1.4 1.6

0

10

20

30

40

50

60

70

80

90

100

2004 2007 2009 2011 2012

Sh

are

of

the

po

pu

latio

n

Economic mobility in Cambodia

Extreme poor Moderatetly poor

Economically Vulnerable Economically secure

Middle class

Source: WB Staff estimates from CSES.

Nutrition problems are still prevalent across quintiles (42% stunting for children

under 5 for first quintile), and partly related to limited access to sanitation

Nutrition problems still prevalent…

0 10 20 30 40 50 60 70

Vietnam (2010)

Cambodia (2014)

Philippines (2013)

Bangladesh (2014)

Guatemala (2014)

Prevalence of stunting, height for age (% of children under 5)

Q5 Q1

Source: World Development Indicators.

• Cambodia secondary completion rates (45% for lower secondary) are inferior to

lower MICs (72% completion rate), partly due to access issues.

• Lack of human capital limits mobility and prospects for economic upgrading

… and secondary completion rates are low

0 20 40 60 80 100

Philippines

Vietnam

Nicaragua

Bangladesh

Guatemala

Lower-MICs

Cambodia

School completion, 2013

Primary Completion Rate Lower Secondary Completion Rate

Source: GIS and EMIS, from Ministry of Education, Youth and Sports, and JICA.

Governance challenges impair the quality of

public service delivery

Sources: World Governance Indicators, World Bank Group.

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Voice and

Accountability

Political Stability

and Absence of

Violence/Terroris

m

Government

Effectiveness

Regulatory

Quality

Rule of Law

Control of

Corruption

Governance indicators (-1.5 to 1.5 scale)

Cambodia 2014 Cambodia, 2005

L-MICs, 2014 ASEAN-5, 2014

• Low effectiveness of the

bureaucracy affects public

service delivery

• Corruption affects the cost of

firm operation, as well as access

to public services

• Weak rule of law has resulted

in disputes around land

• Lack of sufficient voice and

accountability could eventually

lead to social instability

Gender equality and social challenges

Sources: Enterprise Surveys, World Bank Group. Note: latest available year

• Cambodia is a country with one of the highest female labor force participation (85% in the garment sector)

• Cambodia stands out in % of firms with a female in top management, but only 18.8 percent of non-production jobs are done by women

• Women earned 22% less than men after controlling for all other socioeconomic and geographic characteristics

• Domestic violence and discrimination remain serious problems for women, LGBTI people, and people with disabilities

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Pe

rce

nt

Gender equality in the enterprise

Percent of firms with a female top manager

Proportion of permanent full-time production workers that are

female (%)

Proportion of permanent full-time non-production workers that

are female (%)

III. What can be done to improve

environmental sustainability?

Rapid natural resource degradation is heightened by

high exposure to environmental risks.

• Forest cover decreased by

28% between 2000 and

2014, driven largely by

agricultural development,

and 45% of original, natural

wetland area has been lost

• Climate change (a 2°C rise

by 2050) could reduce

Cambodia’s GDP by 1.5%

in 2030 and 3.5% in 2050

• Cambodia is ranked 145th

out of 178 countries on

the 2014 Environmental

Performance Index

0

10

20

30

40

50

60

70

80

90

100

Environmental

Health

Ecosystem

Vitality

Exposure Vulnerability

Environmental sustainability indexes

Cambodia Lower-MICs World

Source: World Risk Index, 2015. United Nations University –Institute for Environment and Human Security.

Identifying priority areas for

development

How can Cambodia achieve lasting strong, inclusive,

and sustainable growth?

I. What are the challenges to sustaining strong economic growth?

Fostering economic diversification by improving the business environment,

building infrastructure, and supporting public and private sector investment and

savings in a sustainable manner

II. What can be done so that the benefits of economic growth are more

widely shared?

Cambodia has lagged behind in some human capital dimensions, and would need

to enhance the provision of public services need to build human assets

III. What can be done to improve environmental sustainability?

Improved natural resource management and infrastructure to keep pace with

strong growth and rapid urbanization

Initial ideas: Competitiveness and

Diversification

To increase economic competitiveness and diversification, Cambodia can:

1. Reduce the cost to firm establishment

and operation

Including business environment, informal

fees, electricity cost...

2. Improve public investment

management

To boost infrastructure in an effective and

sustainable way

3. Boost domestic savings and private

investments

Into tradable sectors

Rationale: Sustain growth rates and create jobs

4. Modernize agriculture

To unleash its export potential

5. Strengthen regulation and

supervision of financial sector

1. Invest in early years

2. Foster attainment of

secondary education and

above

3. Build safety nets and

shield households from

shocksNutrition and pre-

primary education

Rationale: Facilitate economic mobility and shared prosperity

Initial ideas : Build Human Assets

4. Public administration

reform

For improved service

delivery

Initial ideas : Improved

natural resource management

2. Enhance forest and aquatic

ecosystem management

1. Mitigate negative

urbanization externalities

Rationale: Improve the sustainability of the economic model given increasing food and

energy needs

Next Steps

Results from the SCD is expected to help inform:

• Diagnosis of development challenges and selection of policy

priorities

• A wide number of stakeholders (government, private sector,

international donors, civil society, academia)

• The planned Country Partnership Framework of the World

Bank Group with Cambodia that will follows this SCD

Questions for discussion

• How do you see Cambodia's development achievements to

date and its development challenges and goals for the future?

• In your view, what are the three most important development

priorities for Cambodia to focus on and address over the next

5-10 years?

A summary of recommendations and participant list from this meeting will be sent to you

and posted on the WBG Website

Suggestions or comments should be sent to: cambodia@worldbank.org

There is an online survey available on the World Bank Cambodia website:

www.worldbank.org/en/country/cambodia

Thank you!