Economic Institute of Cambodia Inaugural Conference

October 29, 2003

Speech by Lisa Chiles, USAID Mission Director

 

Mr. Sok Hach, Director of EIC, Mr. Bob Hagemann, Nancy Hopkins of TAF, distinguished guests, ladies and gentlemen:

I am delighted to be speaking with you this morning.  First on behalf of USAID, I would like to congratulate Sok Hach and the Economic Institute of Cambodia for bringing together such a distinguished group for its inaugural conference.  I also congratulate you on the first edition of the economic review, focused on WTO, which I read thoroughly.  As I read through the review, it is clear that WTO membership, and regional trade agreements, make competitiveness a key issue for leaders and workers.  Put another way, the issue is how can Cambodian companies compete when faced with worldwide competition? 

And, let me add, what is the role of a research institution such as EIC, in answering that question?  

Let’s look first at competitiveness.  What are some of the indicators of competitiveness?  When we look at countries around the world, these are some of the questions we ask people:   

1.      How “wired” is your country?  In other words, how many computers are there? How many are using the Internet?
2.      How fast/responsive is your country?  Cambodia has experience with this in the garment industry and the pressure to meet deadlines.
3.      Is your country harvesting its knowledge?  In other words, are people using what they know, or their hands and backs?
4.      How much does your country weigh?  Weight of total exports is less as
competitiveness increases.  Logs for example weigh much more than software.
5.      Does your country dare to be open?  The private sector in Cambodia is fortunate that its leadership has pursued openness.  WTO is a good indicator of openness.
6.      Does your country’s management get it?  Seeking WTO membership is an
         indicator that they do.
7.      How good is your country’s brand?  What is it known for?
8.      How transparent is your country? 

These are some of the indicators, but what is competitiveness?  Let’s first examine what it is not:  It is NOT abundant natural resources, cheap labour, and cheap currency.

Natural resource dependence rarely leads to wealth.  Countries with a high percentage of their exports in natural resources, such as agricultural raw materials, metals and ore, tend to have a low GDP.  The reason for this is that global commodity prices since 1960 have trended down, including rice.  Depending on such exports means that workers remain poor.

What about cheap labour and low costs?  Low cost strategies based on low cost wages provide an unsustainable competitive advantage.  As the EIC points out in its review, there is always another country that can lower its wages even further.  As many have pointed out, such strategies are a race to the bottom.

Instead, the focus should be on the productivity of labour, not on how hard are people working, but the value added per person employed.

So what is a good definition of competitiveness?  The one we use is this:  Competitiveness is sustainable growth in productivity driven by:

1.      Quality of Business strategy and operations
2.      MICRO-economic environment
3.      MACRO-economic environment 

Let me explain that a bit further by turning to my second question:  what is the role of research organizations in promoting competitiveness?

Michael Fairbanks and Stacey Lindsay, authors of Plowing the Sea, Nurturing the Hidden Sources of Growth in the Developing World, have made a point that is relevant here.  They point out that research and academic institutions are often remote from the business community.  Most are not as action-oriented and risk-taking as they need to be to play the historic role of initiating real changes in difficult environments.  Academics, they say, have to “roll up their sleeves and get their hands dirty.”  They have to create value for the private sector now, and leave behind the attitude that by working in the private sector, they are sacrificing academic freedom. 

We expect EIC to “roll up their sleeves and get their hands dirty.”  The Cambodian private sector needs a research organization like EIC to be tuned into their environment.  Macro-economic initiatives are crucial, such as keeping inflation under control, and other fiscal, trade and foreign exchange measures.  But private sector response is not automatic to macro-economic reforms.  We have learned that micro-economic reforms are equally important to competitiveness.  These can range from the efficient provision of key services, such as the gasoline pricing issue examined in the review, to telecom and IT readiness, to private provision of infrastructure and commercial law. 

Prioritising the long list of possible micro-economic reforms is essential for both governments and the private sector.  Governments can’t afford the costs of doing every possible reform at once, and the private sector can’t afford to wait for those particular reforms that are critical to its ability to compete.  Through its program of action-oriented and risk-taking research, EIC can play a very important role here.  EIC can be that crucial link bringing together public policy and business strategy, for small and medium enterprises as well as more established industries in Cambodia.

We congratulate EIC again on this inaugural conference and the review, and we look forward to our continued partnership.

 

Thank you.