Catalog

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p. 13 of 21 BACK | NEXT Executive Summary I. Background II. Overview of Development Issues III. External Development Assistance IV. Priority Sectors for ADB's Future Operations A. Strategic Thrust B. Guidelines for ADB Interventions in Cambodia C. Priority Area One: Rural Economic Development D. Priority Area Two: Human Resource and Social Development E. Priority Area Three: Private Sector Development V. ADB Strategy in Operation

Country Operational Strategy - Cambodia : IV. Priority Sectors for ADB's Future Operations

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C. Priority Area One: Rural Economic Development

94. The Government and ADB share the view that a top development priority for Cambodia is faster economic growth in the rural areas, particularly through enhanced agricultural productivity to reduce poverty and generate income. Operationally, ADB's strategy to assist the enhancement of agricultural productivity calls for investments to address critical and fundamental constraints to the broad expansion of agriculture. Specifically, the strategy includes investments in agriculture sector development, rural development, water resource management, and environmental management.

95. Key government policy support of planned ADB activities will include continued progress on improving land rights and budget support for extension services, development of a water resource management policy, development of an adequate rural road maintenance budget, strengthening of the Rural Development Bank (RDB) as a credit wholesaler, and commitment to improved resource management in the Tonle Sap area. An important consideration for projects in this priority area is employment generation through labor-intensive investments to the extent possible, and a focus on investments that provide support for labor-intensive activities.

1. Agriculture Sector Development

96. Agriculture, the main activity of the majority of the rural poor, suffers from low productivity. The Government's objectives for enhancing agricultural productivity include:

• improvement of food security through the expansion of rice and other food crops, especially through the promotion of private enterprise and competitive agriculture markets;

• added value to crop and livestock production by development of commercial agribusiness for export;

• enhanced income opportunities for farm households through crop diversification; and

• sustainable agricultural production, particularly in the important fisheries and forestry sectors, through sound resource management.

97. To accomplish these goals, the Government is targeting structural reforms to improve social stability in rural areas; enhance farmers' access to markets and market information; increase farmers' access to inputs, technical advice, and management expertise; and expand rural financial services. ADB provided support for structural reform through its Agriculture Sector Program Loan. Under this program, the Government took actions for (i) wider dissemination of agricultural marketing and technological information, (ii) liberalization of fertilizer pricing and marketing, (iii) formulation of a rural credit policy and strategy, (iv) divestment of the rubber subsector, (v) establishment of local rural development committees, and (vi) improvement of property rights through preparation of a new land law.

98. Continued improvements in access to productive land under a secure title are critical for the rural poor as well as for commercial development in urban areas. Several aid agencies, especially AusAID, have supported local capacity for mine clearance, which can increase the availability of productive land. However, governance problems arising from co-option of local mine clearance authorities by powerful interests are limiting the success of the program. Additionally, land disputes are becoming more common, characterized by reports of forceful appropriation, multiple claimants, and illegal land sales, as well as privatization of community property. Although the World Bank is proposing to assist in land titling, ADB can still play an important role by following up on its efforts to support passage of the land law. The Government is requesting assistance in land use classification and soil analysis.

99. The expansion of agricultural extension services is another important component of any plan to boost agricultural productivity. AusAID has taken the lead in this area with support for CIAP research on rice varieties in Cambodia. AusAID is also providing support for a pilot extension project, CAAEP, with eventual plans to extend it nationwide. These activities include large components of capacity and institution building, in part for MAFF. For example, CAAEP established the Department of Extension at MAFF. The World Bank is also offering support for capacity building at MAFF. Part of this assistance is rehabilitating agricultural research stations. However, the Government is seeking further assistance to ensure nationwide coverage.

100. An agriculture sector intervention is proposed in 2003 to sustain and continue progress in agriculture reform. The intervention is expected to continue to support market reforms, providing continuity in the program by following up on previous policy support. Although secure land rights, clear land usage regulations, and extension services are potential areas of assistance, an agriculture sector strategy for 2000 will further clarify priority unmet needs consistent with the overall strategy, ongoing program of assistance, and activities of other aid agencies.

2. Rural Development

101. Most of the poor live in rural areas with poor infrastructure and limited access to social, economic, government, and financial services. The strategy of the Government and many aid agencies and financiers for improving service delivery is adoption of an approach that emphasizes a decentralized process to improve the targeting of development projects to the needs of poor communities. This approach, meant to complement traditional top-down sector development, simultaneously provides needed investments in social and physical infrastructure and stimulates local management of development. In most rural development programs, the implicit strategy of reaching the poorest through support for the whole community can be successful if these programs are of sufficient size to have a significant impact on the village economy.

102. A number of important rural development programs are currently being implemented in Cambodia. The best known is the UNDP CARERE program, which began in 1996 by building on a program started in 1992. This program, supporting the national SEILA program and primarily concentrated in northwestern Cambodia, uses VDCs for decentralized, participatory planning of investments in rural infrastructure, extension services, health, and education.²² Other important programs include the EC's PRASAC in southeastern Cambodia, and that of the US-based NGO Partners for Development in northeastern Cambodia. WFP is also active in rural infrastructure improvement through its work-for-food program.

103. Ongoing ADB assistance complements the efforts of these programs by supporting small-scale investments in market centers, drainage structures, wells, irrigation canals, social services facilities, and particularly rural roads. Rehabilitation of these roads can provide the rural population with better access to income-generating employment and marketing opportunities. The poor state of the Cambodian rural road network resulting from decades of internal conflict makes distance from those opportunities as well as social and economic services a key indicator of socioeconomic status. Furthermore, these types of interventions can provide significant employment during implementation by using labor-intensive techniques for both road construction and road maintenance.²³ This offers tremendous potential for effective poverty-reducing income generation through the type of public works program that has had success in other countries.

104. ADB assistance to strengthen the national institutional mechanisms to support rural financial services is another important element of the efforts to sustain the activities of rural development programs. One of the major constraints to agricultural growth and rural development in Cambodia is the lack of effective financial services in the rural areas. At present, NGOs with microfinance operations are virtually the sole financial service providers, having reached an estimated 11 percent of rural households. NGOs' microfinance operations are significant both in (i) poverty reduction in rural areas since their group lending schemes provide an alternative to the existing high-cost borrowing from informal moneylenders, and (ii) rural development through the provision of loans for agricultural production and microenterprise activities. In addition, the operations include information dissemination on business opportunities, training in drafting business plans, skills training, and health education. Major NGO credit operators are local entities with assistance from international NGOs and aid agencies.

105. UNDP, EC, and numerous bilateral sources have actively supported the development of NGO-provided rural credit. The World Bank intends to provide International Finance Corporation assistance directly to a major financial NGO, Association of Cambodian Local Economic Development Agencies (ACLEDA). However, because of the large unmet need for credit, there is a consensus among major external funding agencies in Cambodia and the Government that effective rural financial services can be best established through nurturing and upgrading the existing activities of NGOs as licensed microfinance institutions (MFIs). The Government's policy promotes the expansion of rural credit and savings services (i) by building upon private initiatives of MFIs and commercial banks, and (ii) by strengthening the capacity of the NBC to support rural finance through licensing, regulation, and supervision of MFIs. The Government established RDB as a wholesaler to channel funds for rural credit. Complementing these efforts, the proposed 2000 Rural Credit and Savings Project of ADB and the accompanying TA²⁴ will promote effective rural financial services through provision of funds and institutional development.

106. Building on the foundations established under these two interventions, ADB will move toward support for participatory rural development, starting with a planned intervention in 2001. This intervention will focus on areas in which significant numbers of soldiers are demobilizing in support of the reintegration phase of the national demobilization program. It is expected that ADB's assistance in this area will continue to support labor-intensive rural infrastructure provision, as well as provide more targeted poverty-reducing community support.

3. Water Resources, Irrigation, and Drainage

107. The inability to manage water flows is likely the most serious constraint on agricultural growth in Cambodia. Typically, the rural poor are simultaneously more dependent on agricultural pursuits and more likely to have land vulnerable to frequent flooding and drought. For many of the rural poor lack of adequate water resource management lies at the heart of food insecurity. Moreover, without improved access to reliable water resources, subsistence farmers are less willing to borrow to invest in high-yield activities such as second crops.

108. Despite its importance, water resource management is an area where there is no clear government strategy. There is still a substantial unmet need as well as a lack of agreement between aid agencies and the Government on appropriate technologies. The lack of food security resulting from single cropping of much of the rice area instills a sense of urgency. However, the potential for unwise investments leads to a need for a well-defined strategic policy that addresses the needs of poor farmers through sustainable irrigation schemes, flood control, and watershed management. The Government's goals in this sector are (i) to implement viable irrigation systems based on local cost recovery; (ii) to develop hydropower, focusing on multipurpose projects; and (iii) to increase the domestic technical capacity and databases needed for effective water resource management capacity.

109. Several government agencies are involved in the development of water resources. The new Ministry of Water Resources and Meteorology (MWRM), which is in the process of developing short-, medium-, and long-term goals, is responsible for irrigation, flood control and drainage, and multipurpose schemes. The Ministry of Industry, Mines and Energy is responsible for water supply and sanitation and hydropower development. The Ministry of Rural Development is responsible for small-scale water projects. MAFF is responsible for forestry management in the watershed areas, and the Ministry of Environment is responsible for environmental assessment of water resource development projects. Finally, the Cambodian National Mekong Committee coordinates with the Mekong River Commission (MRC) on water resource management issues of cross-border interest.

110. In response to a government request and a large unmet need, ADB will facilitate government leadership of sector development in water resource management. Other aid agency activity in this sector is relatively small. The Japan International Cooperation Agency (JICA) is providing a technical adviser to MWRM. The World Bank and the EC are funding schemes to rehabilitate small- and medium-scale irrigation systems. The World Bank is providing technical assistance to MWRM to draft a national water policy. France, through AFD, is rehabilitating seawalls. The key nongovernment agency with which ADB must coordinate for effective assistance is MRC. There is a natural division of labor in which MRC focuses on basinwide planning and monitoring of water use while ADB assists Cambodia in areas of primarily national interest.

111. In 2000, ADB is providing MWRM with TA in the drafting of a national water sector profile and to build operational capacity at the ministry. During the implementation of this TA, ADB will develop a road map for interventions that will identify key areas of policy dialogue, further institutional needs, and possible priority investments for ADB. The selection strategy to be developed should consider both appropriate technologies and cost recovery mechanisms. A water resource project is scheduled for 2000 and another is proposed for 2003.

4. Environmental Management

112. Natural resource management and environment sustainability are important elements of the rural growth-based poverty reduction strategy as well as key areas in which improved governance has become a litmus test of government commitment to development. Not only are poverty and environmental degradation often closely linked, but Cambodia's extensive renewable and natural resources, particularly its forests and fisheries, are potentially major contributors to economic development and poverty reduction. In the preparation of the National Environmental Action Plan (NEAP), the Government identified six critical areas for priority action: forest management, Tonle Sap ecosystem management, biodiversity conservation, coastal fisheries management, energy development, and urban environment issues.

113. Apart from water resource management, the Environmental Sector Strategy Note outlines three long-term core theme areas for ADB intervention. First, environmentally sound rural development will consist of improvement of resource management in the Tonle Sap area, agrochemical and pesticide use management, and support for community forestry. Together with appropriate TA, the objective will be accomplished mainly through the Integrated Natural Resource Management Project scheduled for 2002. This project will involve strategic policy dialogue on agrochemical use, and forestry and fisheries management.

114. Second, to strengthen the institutional capacity for environmental management, ADB will provide MOE with TA for human resource development and development of guidelines for hazardous waste management. The third core area recommended by the strategy note is support for protected area management through institutional support and possibly through investments in coastal zone environmental protection and ecotourism. However, ADB has limited resources. Moreover, the 2002 project described above will be the first environmental project for ADB in Cambodia. It is therefore recommended that planning of further projects wait until after ADB assesses Cambodia's willingness to effect natural resource management policy reforms under the 2002 project as well as under the IMF PRGF agreement approved in late 1999.

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