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Assessment of the Capability of the Council for the Development of Cambodia (CDC) in Managing Foreign Direct Investment
Thesis Abstract:
This study was conducted to assess the management capability of CDC in managing foreign direct investment (FDI) in Cambodia. It aimed to (1) identify external factors that contribute to or constrain the FDI management capability by CDC, (2) describe the present government policies and institutional framework related to FDI, (3) describe and assess the management factors of CDC that influence FDI, (4) assess the contribution of CDC to the growth of FDI, (5) identify the problems encountered by FDI related or brought about by the management capability of CDC/CIB, and (6) assess the positive and negative impacts of FDI to Cambodia.
The framework of this study consisted of external factors, policies, and institutional framework influencing each other through a series of reciprocating flow. These factors contributed to the capability of CDC to administer FDI. Primary data were collected by surveying and interviewing government officials, foreign investors, and CDC/CIB staff. Secondary data were sourced from existing records and documents from the office of CDC, CIB, Municipality of Phnom Penh, Ministry of Planning, Foreign Embassy, the Internet, Asian Development Bank, World Bank, and related agencies. Formal and informal interviews were conducted among CDC/CIB staff and government officials to supplement the secondary data. The study used ranking, descriptive, qualitative, and quantitative methods for data analysis.
This study found out that external factors on the macro- and micro-levels had affected the capability of CDC to manage FDI. These factors were economic, political environment, infrastructure or support services, effects of FDI on regional development, FDI and industrial estates (all on the macro-level), land use policy, location consideration, employment utilization, technological transfer and motivation factors for FDI (all on the micro-level). They also affected the implementation of the FDI policy, institutional frameworks, and FDI growth. The legal and constitutional frameworks had not been clearly and sufficiently adopted. The study showed that foreign investors had a negative perception of the government’s FDI policy, which they found to be not transparent and too general, leading to confusion and delays.
CDC, which is still a young organization, needs to develop its capability in administering FDI. The study assessed capability by studying its mandate, leadership, standard operating procedures, manpower capability, support services, linkages, and incentives provided to FDI. The results revealed that CDC’s management needed to be improved. Its mandate should be clear, well defined and consistent with its purpose. The study also found out that CDC leaders had two or more positions in the government, making them unable to devote their full time to CDC. In addition, CDC had a highly centralized decision-making process related to FDI and the processing of documents.
CDC was found to lack standard operational procedures (SOPs). It should set up SOPs consistent with its objective and having detailed information on line, and staff activities and functions. It also lacked expertise and training programs to upgrade its staff’s skills which were still inadequate. Staff performance and staff training needed to be improved. Further, CDC/CIB lacked some support services such as FDI information, and promotion materials and guidelines for project evaluation. It had internal/external linkages but was poor in coordination because of its unclear role and functions.
The existing incentive schemes in the country had not been fully implemented. Incentives offered by CDC were liberal, but the incentive policy was too general, not clearly defined, and complicated, resulting in confusion among foreign investors. CDC should work for the enactment of a sub-degree that will clarify the provision on FDI incentives in the 1994 Investment Law.
In addition to the external factors and unstable political situation, the weaknesses in some management aspects of CDC/CIB operations had been found to cause the decline in FDI flow to Cambodia.
The study showed that FDI inflow to Cambodia reached about USD2.9B from 1994 to August 1997. Altogether, 752 investment applications were submitted but only 531 projects had been approved. However, only 178 projects were operating because of political, legal, economic, and social factors and by CDC/CIB administrative processes. Moreover, FDI had been concentrated in Phnom Penh City. Industrial estates and other facilities were not available in the provinces which had worsened regional disparities. Though there were remarkable positive FDI impacts on the economic aspects, there were a number of negative FDI impacts on the environment and sociocultural aspects.
Recommendations had been proposed for the government and CDC/CIB to improve the investment climate and capability of CDC in managing FDI in Cambodia. An action plan containing several projects was also proposed such as strengthening the institutional capability of CDC, the legal framework, and infrastructure support. However, these need to be adjusted and improved according to identified needs.
