Investing in a Green Cambodia

by Nadia Urriola Canchari, 26 July 2018

Cambodia is characterized by a large rural population, in factit represents 78.8% of the total population (FAO, 2017). The majority of them depend on agriculture for their subsistence, but this has two negative consequences. For one, there is a continuous reduction in the land area available for the forests (which decreased by 27% from 1990 to 2015); additionally COemissions from land use are on the rise (an increase of 42% between 1990 to 2015). In economic terms, the primary sectors of Cambodia, including the forestry sector, have low annual growth and barely make a contribution to the Gross Domestic Product (GDP). The forestry sector also shown a prolonged low annual growth of the Gross Fixed Capital Formation [1], revealing only a marginal investment in the sector. To reduce COemissions, and as a major step towards embracing the Sustainable Development Goals (SDGs), the Cambodian government approved the “National Forestry Program” in 2010. Under this program, the government has paid more attention to the forest demarcation, classification andregistration – all important to clarify forest tenure – as well as the forest law enforcement and community forestry. The program also strives to increase foreign investment in the sector through decentralization of forest governance giving more power to local authorities. The national investment in the forestry sector has largely focused on two main areas: the first is the transition from human labor to human capital labor [2] through the technical assistance and the implementation of local forestry projects, and the second is the improvement of the sustainable forest management through the inclusion of rural livelihoods and biodiversity conservation. As for the increase of the private investment, in the last economic update for Cambodia (2017) the importance of regulating land concessions of private enterprises was recognized. Until recently, 2’142,588 ha of land (which represents the 23% of the total forest land) are under land concessions. Of the total 274 concessions, 43% (113 of them with an extension of 923,696 ha.) belongs to Cambodian ownership, and the 57% (161 concessions with an extension of 1’218,892 ha) belongs to other economies including Vietnam, China, Malaysia, Thailand, Korea, and Singapore. The main purpose of land concessions is the production of rubber, sugar, paper pulp, cassava, palm oil, and other extractive products. There are three important drivers of economic development – 1) the trade position [3], 2) the domestic investment and 3) the Foreign Direct Investment [4] – which must be improved through the implementation of conducive policies and an active participation in international agreements such COP and REDD+.Otherwise, there isn’t an appropriate environment to incentive the investment in the country. But what else is needed to maximize the domestic and private investment in the forestry sector of Cambodia?

Private sector investment
Private investment is necessary for the further development of the forestry sector; more so for achieving sustainable forest management in the long-term. To attract more private sector investment, it is essential to have a positive business environment supported by favorablepolicy environment and political stability (or macroeconomic stability); this can be achievedthrough the following measures:

  • Provision of financial incentives such as tax exemptions
  • Transfer of roles and responsibilities from national to local authorities. Those local authorities should formulate policies in alignment with the reality on the ground.
  • Development and expansion of basic infrastructure such as roads, which facilitate the connectivity between urban and rural areas, and mobility in rural areas, which (in terms of economic development) will attract foreign investment in rural areas.
  • Promotion of “Joint Ventures” between foreign and domestic firms to facilitate the technology transfer and improved productivity.
  • Implementation of “Political Risk Insurance[5]”to provide a coveragefor different kinds of political risks.
International donors
According to FAO (2016), to attract international donors and receive funding from them, the following measures are essential:

  • Active participation of the country in international alliances to achieve cooperation in the improvement of the financial environment.
  • The support of “crowd funding” initiatives that bring small amounts of funds from a group to small projects with specific objectives.
  • Promotionof “corporate social responsibility” for partnership facilitation between government and forest enterprises.

In conclusion, there are important measures that the government of Cambodia has done already, but it’s important to continue with the implementation and improvement of their plan to achieve their objectives in a long-term for the forestry sector. Furthermore, it’ll be alsonecessary to create a guideline on Environmental Impact Assessment (EIA) and a grievance procedure for affected people in case of possible negative effects from the activities of international enterprises.

[1] Gross fixed capital formation (GFCF) is used in macroeconomic accounting. GFCF shows how much of the new value added in the economy is invested rather than consumed, but it’s not a measure of total investment, because it excludes financial assets, as well as stocks of inventories and other operating costs (the latter included in intermediate consumption). [2]While human labor is the work that people do in any area that is also denominated as workforce, human capital labor refers to the knowledge, competence and ability of people to perform labor. [3]It makes reference to the existent international commercial trades with countries around the world that increase the incomes of the country, and in the current international context is needed for the improvement of the economy in a long-term. [4]Foreign direct investment (FDI) is an investment made by a firm or an individual in one country into business interests located in another country, in which the investor establishes foreign business operation or acquire foreign direct investments. [5]This insurance is against problems linked with the confiscation, expropriation, nationalization and deprivation of any assess as consequence of political problems in the country.

References:

  1. Bunte, J. B., Desai, H., Gbala, K., Parks, B., & Runfola, D. M. 2018. Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia. World Development, 107, 151-162. doi:10.1016/j.worlddev.2018.02.034.
  2. Climate Focus. 2017. Progress on the New York Declaration on Forests: Finance for Forests – Goals 8 and 9. Assessment Report. Prepared by Climate Focus in cooperation with the New York Declaration on Forest Assessment Partners with support from the Climate and Land Use Alliance.
  3. Food and Agriculture Organization of the United Nations (FAO). 2017. Emissionsfrom agriculture (total annual growth). Retrieved 2018, from FAO.
  4. Food and Agriculture Organization of the United Nations (FAO). 2017. Credit to Agriculture, Forestry andFishing (total value US$). Retrieved 2018, from FAO.
  5. Food and Agriculture Organization of the United Nations (FAO). 2017. Credit to Agriculture, Forestry andFishing (% annual growth). Retrieved 2018, from FAO.
  6. Food and Agriculture Organization of the United Nations (FAO). 2017. DFA Commitment to Agriculture, Forestry andFishing (total value US$). Retrieved 2018, from FAO.
  7. Food and Agriculture Organization of the United Nations (FAO). 2017. DFA Commitment to Agriculture, Forestry andFishing (% annual growth). Retrieved 2018, from FAO.
  8. Food and Agriculture Organization of the United Nations (FAO). 2017. Emissionsby sector (%). Retrieved 2018, from FAO.
  9. Food and Agriculture Organization of the United Nations (FAO). 2017. Land use (total land area). Retrieved 2018, from FAO.
  10. Food and Agriculture Organization of the United Nations (FAO). 2017. Rural and urban population (%). Retrieved 2018, from FAO.
  11. Food and Agriculture Organization of the United Nations (FAO). 2017. Value added from Agriculture, Forestry and Fishing (total value US$). Retrieved 2018, from FAO.
  12. Food and Agriculture Organization of the United Nations (FAO). 2017. Gross Fixed Capital Formation from Agriculture, Forestry and Fishing (total value US$). Retrieved 2018, from FAO.
  13. Food and Agriculture Organization of the United Nations (FAO). 2017. Gross Fixed Capital Formation from Agriculture, Forestry and Fishing (% annual growth). Retrieved 2018, from FAO.
  14. Food and Agriculture Organization of the United Nations (FAO). 2017. Value added from Agriculture, Forestry and Fishing (% annual growth). Retrieved 2018, from FAO.
  15. Forests Trends. 2015. Conversion timber, forest monitoring, and land-use governance in Cambodia. Forest Trends Report Series: Forest Trade and Finance. https://forest-trends.org//wp-content/uploads/2015/07/Cambodia20Concessions20Report20small20size.pdf
  16. Keovilignavong, O. & Suhardiman, D. 2018. Characterizing private investments and implications for poverty reduction and natural resource management in Laos. Dev Policy Rev. 36: O341–O359. https://doi.org/10.1111/dpr.12302.
  17. Mayer, H. 2018. Political risk insurance and its effectiveness in supporting private sector investment in fragile states. LSE-Oxford Commission on State Fragility, Growth and Development.
  18. Ministry of Agriculture, Forestry and Fisheries and Food and Agriculture Organization of the United Nations. 2010. National Medium-Term Priority Framework (2011–2015). http://www.fao.org/3/a-bp576e.pdf
  19. Pascual, U., Eneko, G., Phelps, J. & Ojea, E. 2013. Leveraging Global Climate Finance for Sustainable Forests: Opportunities and Conditions for Successful Foreign Aid to the Forestry Sector. WIDER Working Paper Series 054. World Institute for Development Economic Research (UNU-WIDER). https://doi.org/10.1007/978-981-10-5379-5_8.
  20. World Bank. 2017. Cambodia economic update: Cambodiaclimbing up the manufacturing value chains (English). Cambodia economic update. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/628341511277852360/pdf/121519-WP-PUBLIC-NOV21-7PM-October-2017-Cambodia-Economic-Update-Final.pdf

 

Cambodia National Forestry Program

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