Opening Remarks at the Launch of the Cambodia Equity Report 2007: Sharing Growth

Opening remarks

by

Nisha Agrawal, Country Manager for Cambodia
Phnom Penh, June 12, 2007

The World Bank

Samdech Prime Minister
Excellencies, Ladies and Gentlemen

Good morning. Today we are most honored to have Samdech Prime Minister Hun Sen here amongst us to deliver a keynote address to this joint conference to launch the Cambodia Equity Report 2007 entitled “Sharing Growth”. On behalf of the World Bank, I would like to extend my warm welcome to the Prime Minister, and to all the other distinguished participants, to this launch of the Cambodia Equity Report, which has been organized jointly with the Royal Government of Cambodia.

Last year, in February 2006, at a similar gathering, also honored by the presence of the Prime Minister, we launched the Poverty Assessment for Cambodia. The Poverty Assessment had very good news for Cambodia. It found that during the past decade, Cambodia had made significant progress in reducing poverty. The proportion of the population living below the national poverty line had fallen from an estimated 47 percent in 1994 to 35 percent a decade later. Poverty had fallen in the countryside as well as in the towns, though progress had been more rapid in urban areas. This improvement in the lives of poor people was also reflected in many other indicators of welfare: for example, schooling and health care had also improved significantly.

The Poverty Report, however, had also highlighted the fact that while poverty had declined, inequality had risen dramatically during the same period. It noted that, during the last decade, while the per capita consumption of the richest 20 percent of the population grew by 45 percent, the consumption of the poorest 20 percent grew by only 8 percent—in other words, the income of the richest group grew by about six times the rate of the poorest. This had led to a rapid rise in inequality in Cambodia. This finding raised concern in the minds of policymakers, and Senior Minister Keat Chhon, on behalf of the Government, requested the World Bank to focus the 2007 Report on equity issues, with a view to understanding what lay behind the rise in inequality in the last decade, and how to prevent further rises in inequality that could be potentially destabilizing.

This is what we have attempted to do in this Equity Report. And again, we have very good news for Cambodia. Drawing on survey and other data, and on research done by Cambodian and international researchers, this report concludes that the rise in inequality occurred primarily in the early part of the decade (circa 1994-97) and primarily within rural areas; and that there was no significant change in inequality during the second half of the period, i.e., between 1997-2004, or within urban areas. The findings suggest, therefore, that the current pattern of growth is not structurally destabilizing. In other words, there is nothing inherent in the current pattern of growth that would suggest that Cambodia could not also follow the same path in the future that has been taken in earlier decades by the East Asia Miracle economies—of high and equitable growth and rapid poverty reduction—provided, of course, that it also makes the same sound policy choices that its neighbors made in earlier decades.

The Report argues that Cambodia’s changing distribution of income and consumption is consistent with the process of transition from a planned to an open market economy and the accompanying growth of incomes. This transformation has promoted better resource allocation, expanded the range of gainful activities, and widened the distribution of earnings. Aided by robust economic growth and improved capacity for implementing public policies, Cambodia has seen most other indicators of welfare—for example, health and education—become more equal over time. While a radical shift of development strategy is not needed, improvements in public policies and public spending could lock in the gains that have been made so far and ensure that these gains are replicated in the future.

The findings of the Report, and the lessons from the East Asia Miracle economies, point to the following sets of Government actions:

First, continuing with the economic reforms necessary for creating high and diversified growth, resulting in expanding opportunities for young Cambodian men and women. The recent IMF Article IV mission confirmed that Cambodia continues to maintain prudent macroeconomic policy and generate high economic growth. The last three years have seen double-digit growth underpinned by an expansion of agricultural production and continued robust activity in tourism, garment exports, and construction. Services, particularly in the financial and telecommunications sector, are also increasingly contributing to growth.

In Cambodia, as in any other country in the world, the creation of well-paying jobs is necessary to move people out of poverty. This is especially important in Cambodia, however, given its very young population—in 2004, almost 40 percent of the population was below the age of 15 years. An estimated 300,000 young men and women are now entering the labor force as a result of the baby boom in the 1980s. This is roughly the same size as total employment in the garment sector. In other words, just to keep pace with the new entrants to the labor force, an entire garment sector needs to be created every year in terms of employment. Measures to improve the investment climate—especially for small and medium enterprises--need to continue to be taken to ensure that the youth do not add to the underemployment in the countryside or lead to even higher rates of urban unemployment, but instead contribute to growth and development through productive employment. In 2004, only 20% of workers in Cambodia were in a paid job (the rest were self-employed), and only half of those were in the formal economy. And despite the rapid growth of the manufacturing sector, in 2004, it still employed only 8% of the labor force of Cambodia.

Second, focusing on the rural economy. Samdech Prime Minister, as you said at the recent Second Cambodia Economic Forum entitled “Development of the Rural Economy is Key to Poverty Reduction”, “improving Cambodia’s rural economy and livelihoods remains a daunting challenge for the Royal Government due to many complex structural constraints and weaknesses of market infrastructure.” We were very pleased that you suggested to the Supreme National Economic Council (SNEC) that the Forum should try to address the challenges facing rural Cambodia and we had a very lively debate and discussion on this topic at that Forum.

This Report focuses on one of the most critical issues raised in the Forum—land management. The Report notes with concern that without off-farm employment or self-employment alternatives, over half a million landless poor find it hard to improve their situation or participate in the economy. Levels of inequality in land ownership are high in Cambodia, and significantly higher than most other countries of Asia. We believe that the necessary policy framework for land management is now in place and needs to be implemented more vigorously: systematic land titling to improve tenure security could be accelerated; the Economic Land Concessions (ELC) Subdecree could be enforced to ensure that ELCs are actually being used for investments, growth and job creation rather than being held idle for speculation; and the Social Land Concessions (SLC) Subdecree could be implemented to improve access to land for poor landless households.

Third, building upon progress to date with further improvements in the quantity, quality and affordability of schooling and healthcare. The Report argues that access for all to basic education and basic healthcare is the best way to ensure shared growth by ensuring that families don’t get stuck in poverty traps for successive generations. In recent years, measures of education and health outcomes have shown a broadly positive trend towards greater equality over time. Gains in education in recent years are notable for their pro-poor, pro-girl bias. Primary enrolment has increased fastest amongst these traditionally under-represented groups, resulting in shrinking urban-rural, male-female, and rich-poor gaps in literacy rates amongst the younger cohorts who have more recently left the (improving) schooling system.

Nevertheless, significant differences remain between urban and rural populations and rich and poor households in access to services and outcomes. While access to primary schools and, to a lesser degree, health centers has become more equal over the last decade, poor households still live significantly further than the rich from secondary schools and hospitals. And despite progress over the past years, access to improved water supply and sanitation facilities is virtually non-existent in most of the countryside. Efforts will need to be made to ensure equitable access to these services.

The Report also argues that while some progress has been made, gender-based inequalities remain significant. Positive trends towards greater equality include increasing girls’ enrolment in primary education (and resulting rise in female literacy rates) and expanded employment opportunities for young women provided, in particular, by the garment sector. However, women lack significant voice in social or political affairs, with limited representation in Government or policy-making processes, from the local to the national. In this context, the recent sharp increase in the proportion of women commune councilors--from 8.7 percent in the 2002 elections to 15 percent in the 2007 elections—is especially welcome and noteworthy. We very much hope to see this success replicated at national levels in the forthcoming National Assembly elections to be held in 2008 and in senior positions in the new Government that is formed subsequently.

Fourth, and finally, underpinning service delivery reforms with stronger and more responsive state institutions will be critical. The experience of East Asia suggests that to establish their legitimacy and win the support of society at large, East Asian leaders established the principle of shared growth, promising that as the economy expanded, all groups would benefit. Explicit mechanisms were used to demonstrate the intent that all would have a share of future wealth. Korea and Taiwan, China, carried out comprehensive land reform programs; Indonesia used rice and fertilizer price policies to raise rural incomes; Malaysia introduced explicit wealth-sharing programs to improve the lot of ethnic Malays relative to the better off ethic Chinese, and so on. Whatever the form, these programs demonstrated that the Government intended for all to share the benefits of growth.

International experience from other regions also suggests that state institutions that reflect the interests of the poor and promote equality of opportunity foster more stable politics and more sustainable long term growth than those which concentrate power and wealth. Building such institutions is often hard in post-conflict states. Cambodia is undertaking important reforms in public financial management that need to be sustained and surveys also indicate that citizens find local governments to be increasingly responsible and responsive. At the same time, however, surveys identify informal fees as a critical burden on firms, and reveal corruption and lack of trust in state institutions as major problems—for example, in a survey carried out for this Report, only 18% of the respondents felt that judges were honest and only 29 percent felt that the police were honest. Reforms in these areas—as well as in building a meritocratic civil service—need to be initiated urgently.

In conclusion, I would like to say that the Poverty Assessment was an important report, which changed widely held perceptions that poverty had not declined in the last decade in Cambodia. This Equity Report is also an important report that we hope will similarly change some widely held perceptions about trends in inequality. Both Reports highlight the importance of basing analysis and policy prescriptions on sound data—both quantitative and qualitative. They highlight, in particular, the important work of the National Institute of Statistics, and the need for producing high quality and regular household surveys in the future that can be used to track progress in poverty and equity issues in the future.

Finally, I would like to say that we are pleased to launch this report today and we would like to thank all those in Government--in particular the SNEC team who gave generously of their time as always--research institutes, NGOs and other donor agencies who have provided excellent inputs and feedback during the drafting process. Once again, I would like to thank you for your participation in this workshop, and I look forward to a stimulating discussion today.

Source: http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21368954~pagePK:34370~piPK:34424~theSitePK:4607,00.html