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G-PSF Boosts Cambodia's Investment Climate

By: Craig Guthrie and The Mekong Times Posted: February-13-2008 in
Craig Guthrie and The Mekong Times

Cambodia's outward image as a war-scarred, lawless backwater has been all but transformed in recent years to that of a strategically placed, business-friendly Asian tiger waiting to roar. The transformation has been partly attributed to the work of the Government-Private Sector Forum (G-PSF) which started work in 1999 when the post-war government had little business expertise and the nation's private sector was still nascent. James Brew arrived in Cambodia in 2002 to work as the forum's program manager for the International Finance Corporation (IFC). The program was last year lauded for creating vital communication channels between the once disparate spheres of government and business. Brew left Cambodia in December 2007 to concentrate on IFC projects in Africa. The Mekong Times' Craig Guthrie interviewed Brew by e-mail:

Cambodia now has quite a business friendly image. Was this the case when you arrived?
When I started work in 2002 the government had recognized the importance of the private sector and had already been acknowledging it as the 'engine of growth' but the reality was that there was a gulf between existing investors, both domestic and foreign, and government policy. With the exception of the early arrival investors, who had come in during the high risk early phase of garment sector development, little new investment was being earmarked by foreign investors. There was a 'wait and see' approach from investors. There was an impression that if the election of 2003 was stable, and if stability could be maintained at the same time that the legislative agenda could be implemented in line with the governments stated goal of joining the WTO then investors would begin to look more seriously at Cambodia. It was clear right from the start that the private sector and the government needed each other if the potential of the country was to be realized. Although the difficulties seemed insurmountable it is important to note that the government had a vision to improve Cambodia as a place to invest. The vision was shared by the private sector.

What were the breakdowns in communication between the government and the private sector before the forum was established? And what effect were they having?
As has been well documented the war broke down relationships and formal interactions throughout society. This was no different for those between the private sector and the government. The government was not used to interacting in any formal way with representative groups from the private sector. There was individual dialogue but it was limited and was rarely sector focused. The private sector was not familiar with or not willing to engage in the work of business associations. This meant that even if the government had been willing and open for dialogue the private sector was not in a position to engage. As the private sector were engaging, at best, on individual issues, this meant that, not only could the private sector not engage in any systematic or organized manner in policy level discussions, [but] they were [also] not aware of the process required before they could have a meaningful impact. From the government perspective there was suspicion of the private sector and a defensiveness in regard to the private sector being given a venue for unconstructive criticism. The challenge was to create a constructive process that was solutions- and outputs-focused. This is what has now materialized. A recommendations focused dialogue is constructive and broke down barriers that existed as a consequence of the criticisms. The government was or are aware of the problems - it is the solutions that are where the benefit lies.

Was it difficult to get the G-PSF off the ground?
The forum had started in December 1999 and I arrived in January 2002 just in time for the 5th Private Sector Forum. Although it had been established the obstacles to make it effective were substantial. The private sector was not organized. The relationship between the government and the private sector was so fraught that there was little realistic expectation in the market that achievements could actually be gained from a public- private dialogue. There was inertia in the market that required an almost physical effort to move. A fundamental issue was that most people from the private sector just did not want to be involved in a process of dialogue that was so open. It was understandable. Fortunately there were leaders in the private sector community who understood that the G-PSF provided a unique opportunity for the private sector to directly contribute to Cambodia's development. The G-PSF right from that time until the most recent[forum] in September 2007consistently placed issues of national significance on an agenda that have been, in turn, addressed directly by the highest levels of elected government in Cambodia. It still takes courage from all those involved but in the early days new ground was being broken and an entire mechanism was evolving based on the guidance and direction provided by all those involved. From a difficult position, the government and private sector time and again got back around the working group tables and worked on resolving issues. It was at times inspiring to see the work progress as it did. There were times when I would look around a table full of Cambodian business people and government officials discussing issues, resolving them, in Khmer and know that this was just not possible only a few years ago.

What benefits do you think the forum has brought to the country?
There have been tangible and intangible impacts that have resulted in improvements to the investment climate. Tangible ones are those where reforms to laws, regulations and procedures can be directly attributed to the process of public and private dialogue in the eight working groups. For example, in the newest working group, the Industrial Relations WG, the dialogue created an amendment to the Labor Law that has the possibility of creating thousands of new jobs in the future. The evaluation estimated that the overall return to the private sector could be as high as US$350 million. From a personal perspective the most gratifying result demonstrated in the evaluation was that amongst those interviewed there was an appreciation that the process contributes to peace and stability. The best result ultimately will be that the mechanism continues to grow and evolve. That this era is viewed as creating a firm foundation for a democratic and outputs-focused mechanism that directly impacts the lives of millions of Cambodians through private sector development will be a source of satisfaction to those people who have been so committed to the process in its early years.

How do you feel Cambodia's economy is progressing, and what needs to be done?
Cambodia's economy is moving forward at an appreciable rate. It is in a dynamic region and has access to ASEAN and global markets. Accessing these markets is a challenge and substantial efforts are required to close the technology gap for Cambodian producers so that they can be competitive whether in agriculture or manufacturing. Considerable strides need to be made in the field of settling commercial disputes in a timely and transparent manner. Judicial reform is significant because if investors have confidence then contracts can be enforced, reducing business risk and lowering the cost of doing business.

What do you think are potential impacts of this year's general election on the private sector?
Investors consistently nominate peace and security at the top of their investment criterion. With good reason the government consistently identifies the implementation of peace and stability as one of its main achievements. Stability, a young developing market and regional and global access are good investment ingredients. A stable election will continue to remove the issue of instability from the investment equation.

What do you feel was the most important project you worked on while in Cambodia and why?

The G-PSF. It was the reason that I was employed to work in Cambodia and, regardless of the other matters that I worked on along the way, it remained the most critical function that I could perform. The forum is a process that includes the Prime Minister at its apex, with senior ministers, their staff and the private sector all working together to achieve a shared objective - the development of Cambodia. It is the principle method for government and private sector dialogue in the country. It was clear to me right from the start that it was a tremendous privilege and challenge to work on this mechanism that had such high-level decision making access. I treated each G-PSF related meeting with respect as due to meetings between elected government representatives and members of the private sector representing entire business sectors. The more form and structure that was given to the process, the more the government and the private sector responded to it. It took time for everyone involved to build the model as it exists today but it was worth the effort. I cannot stress enough that it took courage and dedication from all involved to make it work.

Craig Guthrie is reporter at The Mekong Times

This article first appeared in The Mekong Times
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