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 February 3-5, 2010 MYEM, Geneva, Switzerland Soken SOK Deputy Director of Investment Project Evaluation and Incentives Department Cambodian Investment Board / Council for the Development of Cambodia soken_sok@hotmail.com
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
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) 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 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 Further Rehabilitation and Construction of Physical Infrastructures Development of energy and power grids Development of Information and Communication Technology Integration of Cambodia into the region and the world Partnership in developmen t Strengthening private sector and attracting investments Promoting SMEs Creating jobs and ensuring improved work conditions Private Sector Development and Employment Generation Ensuring social safety nets Favorable macroeconomic and financial environment Enhancing quality of education Improving health services Capacity Building and Human Resource Development Fostering gender equity Implementing Population Policy
10 Priorities set by the Royal Government of Cambodia for the 4 th 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 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 Agriculture Strategic Development Plan 2006-2010 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 Quantity Agricultural Production 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 Sea Water Aquaculture Farm > 5 ha Other Agriculture and agro-industry related investment activities as stipulated in the relevant law > 10 ha
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) 19
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