by Masamichi Kono, Deputy Secretary-General, OECD

This first OECDInvestment Policy Review of Cambodia uses the updated OECD Policy Framework for Investment to present an assessment of the investment climate and to discuss the challenges and opportunities faced by the Royal Government of Cambodia in its reform efforts. The Review takes a broad approach to investment climate challenges facing Cambodia, with chapters on foreign investment trends and industrial structure, competitiveness and diversification challenges, business regulation, investor protection, investment promotion, good regulatory practices, infrastructure, responsible business conduct, investment in renewable energy, corporate governance, competition policy and the role played by development partners in improving the business climate in Cambodia.

Cambodia has demonstrated a strong capacity for rebirth and resilience. The Khmer Rouge period removed a generation of politicians, judges and other civil servants, technical experts and skilled workers, and many others. Land titles were completely destroyed. The civil strife which followed inflicted further damage on whatever infrastructure remained. Starting from the Paris Peace Agreement in 1991, Cambodia has been one of the fastest growing economies worldwide which has made Cambodia one of the best performers in terms of reducing poverty.

This chapter documents the overall development context in Cambodia since the Paris Peace Agreement in 1991, describing how far Cambodia has come since then and describing key challenges going forward. It summarises the key findings in each policy area and provides tailored recommendations.

This chapter reviews the investment trends and industrial structure in Cambodia. It describes the relatively strong performance of the Cambodian economy in attracting foreign investment but also the need to further diversify sources of FDI by sector and by country.

This chapter looks at the extent of diversification of the Cambodian economy and developments which might erode the competitiveness of the garments sector, which has been central to export-led development over the past two decades. It looks at various measures that can be taken to improve productivity and competitiveness in the manufacturing sector, notably by promoting linkages, strengthening firms’ absorptive capacity, addressing skills shortages, enhancing trade facilitation and improving infrastructure connectivity.

This chapter reviews the regulatory framework for starting and operating a business in Cambodia and the quality of implementation in terms of transparency, clarity, predictability and fairness, as well as the extent of corruption. The chapter also discusses the extent of public consultation in Cambodia when laws and regulations are amended. The last section benchmarks the relative openness to foreign investment, an area where Cambodia far exceeds many of its rivals.

This chapter reviews the provisions in both domestic legislation and Cambodia’s international investment agreements offering protections for covered investors. It looks first at the domestic regulatory framework in Cambodia, particularly the Investment Law, but also the protection of both intellectual property and land rights. It then discusses the national framework for dispute resolution. The second part looks at the evolving debate about international investment agreements and how Cambodia’s approach fits in with emerging trends in other countries.

This chapter looks at the institutional set up for investment promotion in Cambodia, along with the two central pillars of that platform: special economic zones and investment incentives. It looks at how the government could make better use of both zones and incentives to promote investment, diversify the economy and enhance the benefits to the local economy from that investment.

This chapter looks at steps taken by the government to implement good regulatory practice in Cambodia to improve both regulatory quality and government capacity. An important tool in the toolbox for improving governance is regulatory impact analysis (RIA). The chapter describes how the authorities are gradually introducing RIA into the legislative process.

This chapter considers how Cambodia could promote and enable responsible business conduct (RBC) as a strategic choice by mainstreaming RBC at a government level and clearly communicating RBC priorities and expectations. The chapter traces Cambodia’s success in the garment sector to the steps taken to promote safe sourcing beginning in the 1990s and looks at the growing importance of RBC within global supply chains. It also considers how multi-stakeholder consultations could be expanded and suggests that Cambodia could consider a National Action Plan for RBC.

This chapter looks at the improvements in Cambodia’s infrastructure over time and the continuing needs for new investment to keep pace with rapid economic growth. It suggests that the policy, legal and institutional frameworks governing private investment in infrastructure are ripe for reform and that, given a decline in donor-financing for infrastructure, private sector involvement will have to be increased from its current low level.

This chapter describes Cambodia's investment framework in these areas, providing an overview of the elements of the policy framework for green investment that have been instituted. It reviews the policy framework for improving the quality of investments in natural resources, examines in greater depth existing efforts and the potential to engage the private sector to scale up renewable energy and investment in climate friendly agri-business.

This chapter considers other aspects of the policy framework for investment of relevance to Cambodia, namely corporate governance, competition policy and the role of development partners in promoting private sector development. It documents improvements made recently in the corporate governance framework, as well as the challenges in its overall implementation. On competition policy, it discusses the absence of a general competition law in Cambodia and makes recommendations concerning what should be included in the draft law as it makes its way through the legislative process. And lastly, the chapter reviews what development partners are currently doing to promote private sector development in Cambodia.