Sowing and sewing growth: The political economy of rice and garments in Cambodia

Ear, Sophal (2009): Sowing and sewing growth: The political economy of rice and garments in Cambodia.

Abstract

What explains Cambodia’s double digit growth in 2006, 2005, and 2004 of 11%, 13%, and 10%, respectively, despite relatively poor governance (162 out of 179 countries in the 2007 Corruption Perception Index, 151 out of 163 in 2006, 130 out of 158 in 2005 the year in which it was first ranked)? Why do some sectors thrive while others fail under such conditions? This paper undertakes a review of the relevant literature and analyzes the results of detailed semi-structured interviews with at least 50 firms/businessmen, government, and non-government officials to understand the dynamics of governance and growth focused around two types of sectors in Cambodia: 1) Successful sectors such as garments in which the chapter seeks to elucidate how firms have coped, and the “cover” mechanism that has allowed them to thrive in relative terms (e.g., is it connections to the prevailing government insiders?) has been to date; and 2) Less than successful sectors such as rice for which the chapter identifies emerging patterns of engagement among the Cambodian state, foreign investors and indigenous business. Not unlike what happened with garments exports to the US, an arbitrage opportunity is unfolding in rice. The European Union’s “Everything But Arms” initiative takes full effect in September 2009 permitting Cambodia, as a least developed country, to export rice to the EU tariff-free. Likewise in garments, the creation of the Garment Manufacturers Association of Cambodia (GMAC) in 1999 enabled manufacturers to interact with a single voice with the State, and to negotiate standard “payments”. At the same time, membership in GMAC is required for any garments manufacturer to export legally. Similar patterns have already emerged in the rice sector, where Green Trade, a state-owned enterprise, and the Cambodian National Rice Millers Association, were the only two entities licensed to export shipments of more than 100 tons of rice in 2008.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cambodia; growth; governance; trade policy
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development ; Role of International Organizations; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

References

Merilee Grindle, “Good Enough Governance: Poverty Reduction and Reform in Developing Countries,” Governance: An International Journal of Policy, Administration, and Institutions, Vol. 17, No. 4, October 2004, 525.

Merilee Grindle, “Good Enough Governance Revisited,” Development Policy Review, 2007, 25 (5), 554.

Sina Odugbemi and Thomas Jacobson, eds, introduction to Governance Reform: Citizens, Stakeholders, and Voice (Washington, DC: The World Bank, 2008), 1.

World Bank Sustaining Rapid Growth in a Challenging Environment: Cambodia Country Economic Memorandum, Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region (Washington, DC: The World Bank, 2009), available: http://www.worldbank.org/kh/growth

World Bank and IFC, A Better Investment Climate to Sustain Growth in Cambodia Second Investment Climate Assessment, Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region (Washington, DC: The World Bank, 8 January 2009 Draft for Discussion)

Geoffrey P. Oldham and Brett Delahunt, Cambodian decorations of honor (Auckland, N.Z.: Milymen Books, 2004), 59.

Hing Thoraxy, “Cambodia Country Report by Dr. Hing Thoraxy,” Foreign Direct Investment: Opportunities and Challenges for Cambodia, Laos and Vietnam, Hanoi, 16-17 August 2002 (Phnom Penh: Cambodian Investment Board, Council for the Development of Cambodia, 2002), 5. Available: http://www.imf.org/external/pubs/ft/seminar/2002/fdi/eng/pdf/thoraxy.pdf

Erik Wasson and Kay Kimsong, “Tax Holiday Extended, Bond Market Approved,” The Cambodia Daily, Saturday-Sunday, June 17-18, 2006.

World Bank and ADB, “Cambodia: Enhancing Service Delivery through Improved Resource Allocation and Institutional Reform. Integrated Fiduciary Assessment and Public Expenditure Review,” Report No. 25611 KH (Washington, DC and Manila: World Bank and the Asian Development Bank, September 8, 2003). Available: http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000090341_20030924104425

David Craig and Pak Kimchoeun, “The Politics of Party Finance,” in Caroline Hughes and Kheang Un, eds, Cambodia’s Economic Transformation (Copenhagen: NIAS Press, forthcoming)

T. Feyzioglu, S. Vinaya, and Z. Min, “A Panel Data Analysis of the Fungibility of Foreign Aid,” World Bank Economic Review, 121, (1998), 29-58.

Paul Collier and David Dollar, “Development effectiveness: what have we learnt?” The Economic Journal, vol. 114, issue 496, (2004), F263.

Sok Hach, “The Political Economy of Development in Cambodia: How to Untie the Gordian Knot of Poverty?” Political Economy of Development (Phnom Penh: Economic Institute of Cambodia, October-December 2005), 3. Available: http://www.eicambodia.org/downloads/files/ER10_politicaldevelopment.pdf

World Bank, Cambodia at the Crossroads: Strengthening Accountability to Reduce Poverty, Report No. 30636-KH, East Asia and the Pacific Region (Washington, DC: World Bank, November 15, 2004). Available: http://siteresources.worldbank.org/INTCAMBODIA/Resources/1-report.pdf

M. Calavan, S. Briquets, and J. O’Brien, “Cambodia Corruption Assessment,” Prepared for United States Agency for International Development (Phnom Penh: USAID Cambodia and Casals & Associates, May-June, submitted August 19, 2004).

MoC and MPDF, “Cambodia and the WTO: A Guide for Business” (Phnom Penh: Ministry of Commerce and Mekong Private Sector Development Facility, March 2005), 3. Available: http://www.mpdf.org/images/en/content/E3/Wed-Apr-20-03-16-11-CST-2005.pdf

EIC, Export Diversification and Value Addition for Human Development: Addressing the Impact of the Agreement on Textile and Clothing Expiration on Cambodia (Phnom Penh: Economic Institute of Cambodia, June 2007), 12.

HBS, “Worker Rights and Global Trade: The U.S.-Cambodia Bilateral Textile Trade Agreement,” Case Study 9-703-034 (Cambridge, MA: Harvard Business School Press, Revised 4 November 2004)].

Better Factories Cambodia, “Twentieth Synthesis Report on Working Conditions in Cambodia’s Garment Sector,” (Phnom Penh: Kingdom Of Cambodia International Labour Organization Better Factories Cambodia, 30 April 2008), 1. Available: http://www.betterfactories.org/content/documents/1/20th%20Synthesis%20Report%20Final%20(EN).pdf

Sophal Ear, “Change and Continuity in Cambodian Human Rights and Freedom of Expression: Learning from Experience,” Report for Pact Cambodia Final Draft Revised 26 May 2006. Available: http://csua.berkeley.edu/~sophal/pact/pact.pdf

AP, “Cambodia Gives Garment Cos. Tax Holiday,” Associated Press, 16 June 2006.

Better Factories Cambodia, Twentieth Synthesis Report on Working Conditions in Cambodia’s Garment Sector, 3.

Chun Sophal and Hor Hab, “Mong Reththy Group aims for one million pigs per year by 2015,” The Phnom Penh Post, 8 January 2009.

Mushtaq Khan, “The state and economic development: what role, what risks?” An ODI Poverty and Public Policy Group Event, (London: Overseas Development Institute, November 22, 2006), 18. Available: http://www.odi.org.uk/events/states_nov06/ODI%20State%20and%20Development.pdf

Van Sou Ieng, “BIOGRAPHY OF MR. VAN SOU IENG” e-mail from an informant November 9, 2008.

MoC, “Estimated Cambodian Export Data Under GSP/MFN Scheme to the Main Markets,” Ministry of Commerce, May 2008.

Martin Godfrey, “Youth Employment Policy in Developing and Transition Countries - Prevention as well as Cure,” Social Protection Discussion Paper Series No. 0320, Social Protection Unit, Human Development Network, (Washington, DC: The World Bank, October 2003). Available: http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/Labor-Market-DP/0320.pdf

World Bank, Cambodia at the Crossroads; IMF, “Cambodia: 2004 Article IV Consultation,” Country Report No. 04/328, (Washington DC: International Monetary Fund, October 22, 2004). Available: http://www.imf.org/external/pubs/ft/scr/2004/cr04328.pdf

RGC, “Address by Samdech Hun Sen on the “Rectangular Strategy” for Growth, Employment, Equity and Efficiency: First Cabinet Meeting of the Third Legislature of the National Assembly at the Office of the Council of Ministers,” (Phnom Penh: Royal Government of Cambodia, July 16, 2004). Available: http://www.car.gov.kh/relatedtopic/rectangular%20strategy.htm

Sciaroni, Bretton, “The State of the Private Sector,” Remarks made at the Consultative Group Meeting, December 5-7, 2004. Available: http://www.cdc-crdb.gov.kh/cdc/7cg_meeting/7cg_document/the_state_private_sector.htm

NGO Forum, “NGO Statement to the 2002 Consultative Group Meeting on Cambodia,” Phnom Penh, June 19-21, 2002. Available: http://www.ngoforum.org.kh/Development/Docs/ngo_2002/ngo_2002.htm

Jehan Arulpagasam; Francesco Goletti; Tamar Manuelyan Atinc; and Vera Songwe, “Trade in Sectors Important to the Poor: Rice in Cambodia and Vietnam and Cashmere in Mongolia” in Kathie Krumm and Homi Kharas, eds, East Asia Integrates: A Trade Policy Agenda for Shared Growth, (Washington, DC: World Bank, 2004), 199. Available: http://lnweb18.worldbank.org/eap/eap.nsf/Attachments/Chapter+9/$File/chapter+9.pdf

AKP, “Guinea to Import Rice from Cambodia,” Agence Khmer de Presse, Phnom Penh, July 3 2008.

Xinhua, “Cambodia grants sale of 6,000 tons broken rice to Senegal,” www.chinaview.cn, April 23, 2008. Available: http://news.xinhuanet.com/english/2008-04/23/content_8036128.htm

Ros Soketh and Paul Vireze, “Green Trade Plans Venture With Indonesian Firm,” The Cambodia Daily, 15 August 2008, pg. 29.

DPA, “Kuwaitis to return to Cambodia for rice talks—Summary”, Deutsche-Presse-Agentur, 6 August 2008.

Raphael Minder, “Cambodia holds land deal talks,” The Financial Times, 20 November 2008. Available: http://www.ft.com/cms/s/0/2506f3c6-b72e-11dd-8e01-0000779fd18c.html

Nick Paton Walsh, “Cambodia farm land sold to wealthy nations,” Channel4 News, January 29, 2009. Available: http://www.channel4.com/news/articles/politics/international_politics/cambodia+farm+land+sold+to+wealthy+nations/2914582

Nicolas Miesel and Jacques Ould Aoudia, “Is “Good Governance” a Good Development Strategy?” Working Paper 58, Agence Francaise de Developpement (Paris: AFD, January 2008), 38. Available: http://www.afd.fr/jahia/webdav/site/myjahiasite/users/admirecherche/public/DT/WP_58_GB_pour_mise_en_ligne.pdf

Sophal Ear, “The Political Economy of Pro-Poor Livestock Policy in Cambodia”, Pro-Poor Policy Livestock Initiative Working Paper No. 26, (Rome: Food and Agriculture Organization of the United Nations, August 2005), 16. Available: http://www.fao.org/ag/againfo/projects/en/pplpi/docarc/wp26.pdf