Cambodia: Promoting Economic Diversification Program (Subprogram 2)

Sovereign Project | 38421-023 Status: Approved


ADB is helping Cambodia roll out measures to promote private sector development. The project will support efforts to increase market competition and regulatory efficiency, strengthen the investment climate, and enhance trade policy and facilitation.

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Project Name Promoting Economic Diversification Program (Subprogram 2)
Project Number 38421-023
Country Cambodia
Project Status Approved
Project Type / Modality of Assistance Grant
Source of Funding / Amount
Grant 0223-CAM: Promoting Economic Diversification Program - Subprogram 2
Asian Development Fund US$ 9.00 million
Grant 0224-CAM: Capacity Development to Support the Promoting Economic Diversification Program
Asian Development Fund US$ 5.00 million
Loan 2675-CAM: Promoting Economic Diversification Program (Subprogram 2)
Asian Development Fund US$ 10.00 million
Strategic Agendas Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Industry and trade - Small and medium enterprise development

Public sector management - Public administration

Gender Equity and Mainstreaming Some gender elements

1. I submit for your approval the following report and recommendation on (i) a proposed loan, and (ii) a proposed grant, both to the Kingdom of Cambodia for subprogram 2 of the

Promoting Economic Diversification Program (PED-SP2); and (iii) a proposed grant for capacity development for the Competition, Regulatory Efficiency, and Small and Medium-Sized

Enterprise Technology (CREST) Project. The design and monitoring framework is in Appendix1.

2. PED-SP2 will support the government's key reform priorities aimed at diversifying the sources of economic growth, supported by increased contribution of the private sector. The

reform priorities include efforts to enhance governance in the business climate by promoting competition policy and regulatory efficiency. PED-SP2 also aims to increase private sector

competitiveness through innovation and enhanced trade facilitation measures. The Development Policy Letter is in Appendix 3 and the Policy Matrix is in Appendix 4.

Project Rationale and Linkage to Country/Regional Strategy

3. Reforms to the business climate implemented under the National Strategic Development Plan 2006 2010 (NSDP) and sector strategies have helped Cambodia move up 15 places in the World Bank Group's Doing Business global rankings since 2006.1 Despite this progress, much needs to be done to attract investment and generate better jobs for a rapidly expanding labor force. As Cambodia's economy advances, new policy and structural challenges for the private sector need to be addressed. These include emerging competition policy issues in key sectors, the high business compliance costs of regulations (estimated at 3%-5% of gross domestic product), low levels of innovative activity in the private sector, and the relatively high cost in trade facilitation. Food safety is poor in Cambodia and this is a barrier to private sector growth and international trade in processed food products, which has huge growth potential. It is also a major risk to the human population and lowers productivity. With over 60,000 enterprises engaged in the food sector, reforming sanitary and phytosanitary standards (SPS) management systems is a critical part of the government's economic diversification strategy.

4. The PED cluster approved by the Board of Directors of the Asian Development Bank (ADB) in December 2008 comprises three subprograms from 2008 to 2012. 3 Under subprogram 1 (PED-SP1), financed by ADB ($19 million) in 2008, the government implemented a series of investment and trade facilitation measures that laid the foundations for a more competitive and diversified economy in the longer term. It also included the first SPS capacity development project (SPS-1 project) financed by ADB ($2 million). The current phase, PEDSP2, builds on progress made under PED-SP1 for investment climate, trade policy, and trade facilitation. It also responds to new policy challenges arising from the impact of the global financial crisis such as the need for competition policy, regulatory efficiency, and innovation to promote private sector competitiveness. These reforms are designed to promote economic diversification by (i) enhancing competition in domestic markets and lower cost regulation, (ii) strengthening investor confidence in the regulatory environment and promoting marketbased innovation, and (iii) strengthening trade facilitation measures along the entire supply chain. ADB technical assistance has been targeted to support the government accomplish the policy triggers under PED-SP2.4 The final phase, PED-SP3, is expected to be completed at the end of 2012. PED-SP3 includes 10 policy triggers building on progress made under PED-SP2.

5. PED-SP2 has several features that draw on best international practice for a comprehensive trade and investment program. These include (i) supply-side incentives through

improving trade policy and taxation related to international norms, (ii) capacity development assistance to address constraints of SPS service providers to small and medium-sized

enterprises (SMEs), (iii) addressing SMEs' demand-side issues through a pilot SPS technology matching grants component, (iv) addressing issues of sustainability of reforms by establishing a permanent government body to oversee regulatory reforms, and (v) assisting Cambodia's global and regional integration efforts via support for Cambodia's World Trade Organization's trade policy review (TPR) and its participation in the Association of Southeast Asian Nations (ASEAN) regional trade agreements and ASEAN commitments to develop competition policy and law.

Impact Expanded and diversified private sector
Project Outcome
Description of Outcome Improved business environment where the private sector operates efficiently and effectively
Progress Toward Outcome --
Implementation Progress
Description of Project Outputs

1. Competition in the domestic market increased and regulatory efficiency improved

2. Investment climate strengthened

3. Trade policy and facilitation enhanced

Status of Implementation Progress (Outputs, Activities, and Issues)

(iii) MIME has 2 persons. MOE has 1 person.

(iv) new indicator

(i) 2 line ministries have RIA action plans (MIME and MOE)

(ii) MIME in process of posting RIAs on its website.

(v) Three additional investment agreements (chapters in FTAs) in 2009.

(vi) No double taxation agreement completed by mid-2010.

(vii) 85 days in 2010

(viii) Matching grants will be established in 2011Q1

(ix) 22 days in 2010 (40% reduction)

(x) 30 days in 2010 (35% reduction)

(xi) No change

(xii) Expected NATA accreditation for six tests in by end of 2010.

Grant 0224 comprises two subprojects. The first is the Sanitary and phyto-sanitary standards project (SPS-2) and the second subproject is the Regulatory Impact Assessment Project (RIA). Both subprojects are expected to be completed by September 2014.

Under SPS-2 project capacity development is being provided to the Institute Standards Cambodia (ISC), the Industrial Laboratory Center of Cambodia (ILCC), the Ministry of Health's food and drug agency for food safety standards in restaurants and catering establishments, and has launched a technology development fund for SMEs to access matching grants to upgrade food technology. We expect all grants (total of $800,000) to be awarded to about 30 SMEs by mid this year (2013).

Under the RIA subproject, the Office of RIA at the Office of the Council of Ministers has been established and operationalized. Four line ministries are piloting the RIA program. The Deputy Prime Minister launched the RIA program in October 2012. Each pilot ministry has has an annual work plan comprising of proposed RIAs to be carried out. Currently, about 11 preliminary RIAs have been completed. Another 4 are in the process of drafting.

RIA Subproject as of January 2014.

1. Expansion of ministries participating in the RIA project from 4 to 7. The additional three include the Ministry of Labor and Vocational Training (MLVT); the Ministry of Education, Youth and Sports (MYS), and the Ministry of Agriculture, Fisheries and Forestry (MAFF).

2. Decision by the Deputy Prime Minister, in consultation with the Prime Minister to draft a Prime Minister's subdecree mandating the practice of regulatory impact assessment across the whole of government.

SPS Subproject as of January 2014.

1. Out of 27 SMEs awarded grants under the Technology Devt Fund (TDF), two of these have withdrawn from the program, leaving 25 SMEs with grant projects. Awards to SMEs were made in three rounds of which the 3rd round was carried out in Dec 2013 (5 SMEs).

Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation

SPS-2 Subproject.

The ADB Mission's mid-term review of the SPS-2 Subproject has assessed the project as being successfully implemented at the mid-term point of project implementation (approximately May 2013). Significant regulatory changes have been approved by government that promotes better food safety standards. These include regulation on mandatory minimum food safety standards in restaurants and catering establishments and the voluntary standards and grading system for restaurants and catering establishments. The SPS Consultant is working closely with the Ministry of Health to draft a Government Food Policy providing general direction on the regulatory, surveillance and enforcement of food safety standards in Cambodia, with the intention to move to a food law in the future. The Food Policy will be submitted to the Prime Minster for approval before March 2014. Significant capacity development efforts have been made to improve the professionalism of the Industrial Laboratory Center of Cambodia (ILCC) including ISO accreditation for a range of test parameters, corporate governance and procurement of equipment. The MIME is currently drafting a decree to make the ILCC partially financially autonomous. At the Institute Standards Cambodia (ISC) efforts continue to have the ISC internationally accredited as a conformity assessment body. It is expected to achieve accreditation in 2013. The matching grants scheme (also known as the Technology Development Fund, TDF) providing SMEs with grants to upgrade food safety standards and technology has been progressing well. Almost three quarters of the grants (approximately $600,000 out of $800,000) have been awarded to 20 SMEs generating almost $2 million in additional investment by the 20 SMEs. An additional 10 SMEs are expected to be awarded in the third quarter of 2013 to complete the grants scheme awards. All 30 SMEs are expected to complete their activities by March 2014.

During the recent SPS-2 mid-term review, the EA requested additional consultants/assistants to advance the SPS-2 Project and sustainability of interventions. These include: (1) engaging an international social survey expert to oversee the household food safety survey; and (2) engaging four national research assistants to provide guidance to SMEs making applications under the matching grants scheme (see paras. 8 and 12(a) and (b)). The international social survey expert will design the questionnaire, set the sample frame, oversee implementation of the survey by the firm and report on statistical results of the survey. The survey frame would be designed to survey approximately 500 households in Phnom Penh to collect information on household food safety practices, buying behavior and views on food safety standards. The results of the survey will be used by the EA and the IA (Ministry of Health) as input into the draft Food Policy and its advocacy among community stakeholders, which is intended to be submitted to the Prime Minister for approval before March 2014.


The ADB Mission's mid-term review of the RIA Subproject has assessed the RIA project as being successfully implemented at mid-term of project implementation (approximately May 2013). The ORIA has been established and significant effort has been made to build capacity of the 18 staff at ORIA and the 21 staff assigned to the RIA units at the four IAs. The RIA business processes, manual, guidelines and preliminary impact assessment (PA) templates are in place. Two exposure visits to overseas offices of better regulatory practices were completed in the first semester of 2013, which provided additional inputs into the development of RIA system in Cambodia. About 39 government staff had on-the-job training for RIA and in drafting a PA. As a result, the four IAs have produced a total of 15 PAs and all are published in the ECOSOCC website. The IAs consider the improvements in transparency achieved from publishing PAs and more consultations with stakeholders as the most important benefits from RIA so far.

During the recent RIA mid-term Review Mission, the EA and IAs requested a number of changes to the RIA Subproject in order to make the RIA initiative sustainable in government. Most importantly, the EA is proposing to draft a Prime Minister's Decree to make RIA mandatory across the national government in 2014 requiring almost 20 ministries to comply with the RIA system. The OCOM has proposed a transition towards a mandatory system by expanding the number of ministries piloting RIA. Therefore, to support making RIA mandatory, the EA requested these changes to the RIA Subproject: (1) expand the number of ministries (IAs) implementing RIA from four ministries to seven ministries with capacity development provided by the RIA Subproject, i.e., increase the IAs by an additional 3 line ministries, which will require a reallocation of funds within the grant project to support capacity development of the additional three IAs participating in the RIA program; and (2) engage a national information and technology expert to advance the information systems at ORIA. The OCOM does not have staff with sufficient IT skills to enhance the current IT system. The ADB Mission agrees to these changes in the RIA Subproject.

Business Opportunities
Consulting Services -
Procurement -
Responsible ADB Officer Mohd Sani Mohd Ismail
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Ministry of Commerce
20 A/B Preah Norodom Blvd
Phnom Penh, Cambodia
Concept Clearance 12 Mar 2011
Fact Finding 17 May 2010 to 12 Mar 2011
MRM 12 Mar 2011
Approval 30 Sep 2010
Last Review Mission -
PDS Creation Date 18 Feb 2010
Last PDS Update 31 Mar 2014

Grant 0223-CAM

Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Sep 2010 22 Oct 2010 11 Jan 2011 30 Apr 2011 - 30 Apr 2011
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 9.00 Cumulative Contract Awards
ADB 9.00 30 Sep 2010 9.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 30 Sep 2010 9.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - -

Grant 0224-CAM

Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Sep 2010 22 Oct 2010 11 Jan 2011 30 Sep 2014 31 Dec 2015 -
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 5.00 Cumulative Contract Awards
ADB 5.00 30 Sep 2010 4.61 0.00 92%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 30 Sep 2010 4.52 0.00 90%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - -

Loan 2675-CAM

Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Sep 2010 22 Oct 2010 11 Jan 2011 30 Apr 2011 - 30 Apr 2011
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 10.00 Cumulative Contract Awards
ADB 10.00 30 Sep 2010 10.18 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 30 Sep 2010 10.18 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - -

Safeguard Documents

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Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

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Evaluation Documents

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Related Publications

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