Within the past two decades, Cambodia has transformed from a post-conflict country to a small, open and vibrant economy, growing by more than 10% in 2004 and maintaining a double-digit expansion through 2007.  However, as it continued to have a narrow economic base, such a transformation has been accompanied by many challenges, including sustaining high economic growth, accelerating job creation, and continuing poverty reduction.  To address these challenges, the government set out to improve competitiveness and diversify the economy by moving exports away from garments and promoting agriculture, infrastructure, and private sector development. 

Against this backdrop, the Asian Development Bank (ADB) approved the Promoting Economic Diversification Program, which comprised a programmatic approach to help the government implement its private sector development agenda of enhancing competitiveness, reducing business cost, increasing institutional capacity, and developing an enabling environment for increased and diversified trade with major trade partners.  The program, which also supported the government’s Trade Sector-Wide Approach (Trade SWAp), was carried out through three subprograms, financed by three policy-based loans totaling $55 million and one program and two project grants aggregately amounting to $16 million.  Its expected impact was an expanded and diversified private sector, while its intended outcome was an improved business environment with a private sector that operates efficiently and effectively.  It had three  planned key outputs: (i) domestic competition and regulatory efficiency improved, (ii) investment climate strengthened, and (iii) trade policy and facilitation enhanced.

Under subprogram 1, approved in December 2008, fiscal policy was tightened, and anti-inflationary measures were implemented to maintain macroeconomic stability. Sanitary and phytosanitary (SPS) laws and regulations were adopted and national standards and testing capacity for certification of safety in food and agricultural products were improved.  Building on subprogram 1’s initial success, subprogram 2, approved in September 2010, focused on developing a competition policy, promoting regulatory efficiency, improving the investment climate, supporting market-based innovation, and enhancing trade policy and facilitation.

To complete the programmatic approach, subprogram 3, approved in September 2012, put in place and operationalized all the key measures to institutionalize the reform actions initiated by the program. The Economic, Social and Cultural Council (ECOSOCC) was elevated to a higher-level policy-making status, and an Office of Regulatory Impact Assessment was created within the ECOSOCC.  Line ministry regulatory impact assessment (RIA) capacity-building and pilot projects were undertaken.  A comprehensive trade and investment program, incorporating international best practices, and a policy framework for double tax agreements were adopted.  Reforms to lower the cost of doing business were institutionalized.  A pilot SPS technology matching grants program and a credit guarantee scheme to increase private enterprises’ access to finance were implemented.  A World Trade Organization (WTO) trade review, the first for a least-developed country, was completed. A nationwide automated system for customs data (ASYCUDA), was installed; and food safety management was strengthened and professionalized.

Accomplishment of the output targets, although with significant shortfalls, allowed the program to substantially achieve its intended outcome.  The number of registered enterprises increased by 55% before the program to 25,580 in 2011.  Cambodia’s competitiveness rank, as reported in the 2017 World Economic Forum (WEF) Global Competitiveness Report improved to 85, out of 140 countries, from a 110 baseline while its competitiveness score rose to 4 from 3.5.  Substantial reductions in the cost of starting a business were estimated by the WEF at 8% between 2010 and 2012 and 23% from 2010 to 2016.  Customs efficiencies and import-export approvals increased and strengthened SPS systems drove tangible achievements in economic diversification and ease of doing business.

The Ministry of Commerce was the executing agency for the program loan and grant.  Several ministries/agencies, including the Ministry of Industry, Mines and Energy; the Ministry of Industry and Handicrafts; and the ECOSOCC served as implementing agencies .