MULTI-YEAR EXPERT MEETING ON INVESTMENT FOR DEVELOPMENT

FOREIGN DIRECT INVESTMENT, DOMESTIC INVESTMENT AND DEVELOPMENT: ENHANCING PRODUCTIVE CAPACITIES 3-5 February 2010

Interaction Between Foreign and Domestic Investment in Agriculture in Cambodia

By Soken SOK Deputy Director of Investment Project Evaluation and Incentives Department Cambodian Investment Board / Council for the Development of Cambodia

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD

Interaction Between Foreign and Domestic Investment in Agriculture in Cambodia KINGDOM OF CAMBODIA Soken SOK Deputy Director of Investment Project Evaluation and Incentives Department Cambodian Investment Board / Council for the Development of Cambodia [email protected]

February 3-5, 2010 MYEM, Geneva, Switzerland

Outlines •

Introduction to Cambodia

•

Agriculture in Cambodia

•

Royal Government’s Policy

•

Priority sectors

•

Incentives

•

Investment trend

Cambodia’s history at a glace

•

Kingdom of Cambodia (1953-1970)

•

Khmer Republic (1970-1975)

•

Democratic Kampuchea (1975-1979)

•

People’s Republic of Kampuchea (1979-1989)

•

State of Cambodia (1989-1991)

•

Kingdom of Cambodia (1993-present)

Background •

Land area : 181,035 sq.km

•

Population: 14.2 Million (2009)

•

Labor force (young) : 7,053,398 (53%) (Female: 3,608,345)

•

Population growth rate : 1.54%

•

GDP growth : 10.3% per annum (2004-2008), 2.1% (2009)

•

GDP per capita : USD 739

•

Inflation rate : 5% per annum (last 5 years)

•

Exchange rate: USD 1 = 4,167 Riels

Agricultural sector –

Share of GDP: 30.1% (2006) – 34.2% (2009) Contribution to agricultural GDP (2009):

•

–

Crop 56%

Fisheries 21%

Livestock 14%

Forestry 9%

–

80% of Cambodians are living in the rural areas

–

Employ 60% (5million) of total labor force

–

Agricultural growth averaged at 4.5% per annum in the last ten years

Growth in Agricultural Sector in percentage (%) Year

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Growth

2.2

-1.2

4.5

-2.2

12.1

-0.9

16.6

5.5

5.1

5.4

Source: Adapted from MAFF Annual Report 2008-2009

Agricultural sector •

Paddy is the primary crop and a staple food.

•

Use 80% of the cropping area and account for 70% of crop production

•

67% of all households are involved in rice production.

•

At farm level, rice is an income generating and food security crop.

•

Paddy production reached self sufficient level in 1995 (3.5 million tons)

Cambodia: Paddy Production, Domestic Demand & Export (000’s tons), 2001-2009 Description

2001

2002

2003

2004

2005

2006

2007

2008

2009

Production

4,009

3,823

4,711

4,170

5,985

6,263

6,674

6,831

7,061

Domestic Demand

3,284

3,349

3,560

3,319

3,509

3,603

3,708

3,780

3,859

-Consumption

2,997

3,082

3,026

3,028

3,090

3,165

3,240

3,302

3,365

-Seed

287

268

330

292

419

438

467

478

494

Export

569

244

1,073

600

2,118

2,284

2,566

2,641

2,779

Export (Rice Equivalent)

364

156

687

384

1,355

1,462

1,642

1,691

1,778

Source: Ministry of Economy and Finance (domestic demand & export are estimated quantities)

Constraints •

Low productivity of agricultural labor –

Employ 60% of labor force yet only contribute 34.2% to GDP

•

Low yield – paddy cultivation average at 2.46 ton/ha (Vietnam: 4.6 ton/ha, Thailand: 4 ton/ha and Lao: 3.3 ton/ha)

•

Land titling – Land title issued to farmers 12% (2005), 24% (2010 target)

•

Technology transfer is not so active, low level of knowledge and farmers have limited access to farmer training services

•

Water resources are highly variable –

Wet season: cultivate 2.1 million ha (85%) of area planted

–

Dry season: cultivate 0.3 million ha (12%) of area planted

•

Limited access to credit

•

Inadequate rural infrastructure (rural road, rural electrification and irrigation)

Royal Government Policy •

The government plays a role in policy making and investing in area where private sector is not actively involved.

•

Rectangular strategy

•

Strategy for Agriculture and Water

•

Agricultural Strategies Development Plan 2006-2010

•

Promotion of Investment (with priority to Agriculture) •

Law on Investment, 5 August 1994

•

Law on Amendment of the Law on Investment, 23 March 2003

•

Sub-Decree on Mortgage and Transfer of the Rights over an economic land concession, 29 August 2007

•

Law on Concessions, 19 Oct. 2007

Rectangular Strategy for Growth, Employment, Equity and Efficiency Phase II Royal Government of Cambodia’s Main Policy Improving productivity and diversifying agricultural sector

Land reform and mines clearance

Enhancement of Agricultural Sector

Fisheries reform

Forestry reform

Peace, political stability and social order

Further construction of transport infrastructure

Management of water resources and irrigation

Integration of Further Rehabilitation and Construction of Physical Infrastructures Cambodia into the Development of region and Development of Information and energy and the world power grids

Partnership in developmen t

Strengthening private sector and attracting investments

Private Sector Development and Employment Generation

Promoting SMEs

Communication Technology

Favorable macroeconomic and financial environment

Enhancing quality of education

Improving health services

Capacity Building and Human Resource Development

Fostering gender equity

Implementing Population Policy

Creating jobs and ensuring improved work conditions

Ensuring social safety nets

10 Priorities set by the Royal Government of Cambodia for the 4th term of Legislature (2008-2013)

1.

Agriculture

2.

Water & Irrigation System

3.

Transport Infrastructure

4.

Electricity

5.

Human Resource Development

6. Labor-Intensive & Export-led Industry 7. Tourism 8. Exploitation of Oil, Natural Gas and Other Minerals 9. Information and Communication Technology (ICT) 10. Trade

Royal Government Policy on Agriculture

•

Strategy for Agriculture and Water

•

Agriculture Strategic Development Plan 2006-2010

•

Ensure favorable pre-conditions and build on Strengths/Opportunities

•

Strengthen the enabling environment

•

•

Mobilizing natural resources

•

•

Mobilizing human and financial resources

•

Empowering people and communities

•

•

Apply a river basin approach to water and land

•

•

Increase productivity of agriculture

•

Extend Commercial agriculture

•

Food security, productivity & diversification Improvement and strengthening of agricultural research and extension Market access for agricultural products Improving institutional capacity and legislative framework Fisheries, forestry and land reform

Agriculture Areas of Focus •

Production •

Cooperative

• Credit Financial Assistance from the RGC to Rice Millers (in million USD) Agencies

2005-2006

2006-2007

2007-2008

2008-2009

MEF

2

3

13

18

RDB

1

1

2

5

Green Trade

0

0

4

3.7

TOTAL

3

4

19

26.7

Source: Ministry of Economy and Finance

•

Research & Development •

•

Cambodian Agriculture Research and Development Institute (CARDI)

Infrastructure •

Rice field irrigation •

•

10% in 2001, 20% in 2006 and should reach 25% (650,000 ha) by 2010

PPPs : Law on Concessions, 19 Oct. 2007

Government Incentives for 10 priorities identified

Priority in Agriculture Development •

Zero tariff on importing agriculture materials such as seeds, fertilizers, pesticide and agricultural equipments etc.

•

Royal Decree NS/RK/0609/009 dated 20June 2009 decided as follows; QIPs in Agriculture and Agro-Industry Sector shall receive the incentives of Priority period of tax holiday for 3 (three) years, which means Max.9years

•

Planned further incentives for investment in processing facilities, rice milling for exports and investment in irrigation

•

Sub-decree on Contract Farming is being drafted and it will serve as a tool to attract more investment entities to work with small farmers and contributes to bring the domestic and foreign investment to cooperate

Investment Activities Eligible for Incentives Quantity Agricultural Production

Quantity Timber and Tree Plantation

Paddy Farming

> 1,000 ha

Timber Plantation

> 1,000 ha

Cash Crops

> 500 ha

Tree Plantation

> 200 ha

Vegetables

> 50 ha

Wild Animal Farm

Livestock Production

Wild Mammal Husbandry

> 100 heads

Cattle Husbandry

> 1,000 heads

Wild Bird Husbandry

> 500 heads

Dairy Farm

> 100 cows

Wild Reptile Husbandry

> 1,000 heads

Poultry Farm

> 10,000 heads

Aquatic Production Fresh Water Aquaculture Farm

> 5 ha

Sea Water Aquaculture Farm

> 10 ha

Other Agriculture and agro-industry related investment activities as stipulated in the relevant law

Overall Approved Investment

Source: CIB/CDC

Investment in Agriculture •

Smallest investment commitment among all sectors

Source: CIB/CDC

Domestic and Foreign Investment in Agriculture

Source: CIB/CDC

Domestic and Foreign Investment Cambodia provides policy for foreign and domestic investment entities:

• •

to establish joint venture: …a joint venture may be formed between Cambodian Entities, between Cambodian entities and Foreign Entities…(Article 13, Sub-decree 111)

• to have opportunity for share holding …there are no limitations based on nationality or share-holding proportions of each shareholder, other than if the joint venture owns, or intends to won, land, or an interest in land…In such case, the maximum combined share-holding of all persons who are not Cambodian Entities must not exceed 49%.(Article 13, Sub-decree 111)

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Thank You