Document o f The World Bank For Official Use Only Report No: 32050-KH PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA GRANT INTHE AMOUNT OF SDR 6.62 MILLION (US$lO.OO MILLION EQUIVALENT) TO THE KINGDOM OF CAMBODIA FOR A CAMBODIA TRADE FACILITATION AND COMPETITIVENESS PROJECT MAY 4,2005 Poverty Reductionand EconomicManagementUnit East Asia and the Pacific Region This document has a restricted distribution and may be usedby recipients only inthe performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate EffectiveApril 11 2005 Currency Unit = CambodianRiels 4,015 = US$1 US$ = SDRl FISCALYEAR January 1 - December 31 ABBREVIATIONSAND ACRONYMS APEC Asia PacificEconomic Cooperation ASEAN Associationof Southeast AsianNations ASYCUDA Automated System for Custom Data CamControl Cambodia Import Export InspectionandFraudRepressionDepartment CAS CountryAssistance Strategy CATAF Cambodia-Australia TechnicalAssistance Facility CDC Councilfor Developmentof Cambodia CED Customsand Excise Department CFAA CountryFiduciaryAssessment CIB Cambodia Investment Board EMAF ExportMarketAccess Fund FDA Foodand Drug Authority FDI ForeignDirect Investment FIAS ForeignInvestment Advisory Service FMM FinancialManagementManual HRM HumanResources Management ICA Investment Climate Assessment ICT InformationandCommunicationTechnology ITC IntemationalTrade Center Geneva JICA Japan IntemationalCooperationAgency LJR LegalandJudicial Reform MAFF Ministry of Agriculture, Fisheries and Forestry MBPI Merit-BasedPay Initiative MEF Ministry of Economy andFinance MFA Multi-Fiber Agreement MFK Most-FavoredNation MIGA Multilateral InvestmentGuaranteeAgency MOC Ministry of Commerce MPDF MekongPrivateSectorDevelopmentFacility OECD Organizationfor EconomicCooperationandDevelopment PDS PrivateSectorDevelopment PFM Public FinancialManagement PPI PrivateParticipationin Infrastructure PPIAF Public-PrivateInfrastructureAdvisory Facility RGC Royal Govemment of Cambodia SITF Special Inter-Ministerial Task Force SLA Service-LevelAgreement TRIMS Trade RelatedInvestmentMeasures TRIPS Trade RelatedIntellectualPropertyRights WTO World Trade Organization Vice President: Jemal-ud-dinKassum,EAPVP Country ManageriDirector: IanC. Porter,EACTF Sector Director: HomiKharas,EASPR Sector Manager: KhalidA. Mirza, EASPR Task TeamLeader: MagdiM.Amin, EASFP CAMBODIA FOROFFICIAL USEONLY Cambodia Trade Facilitation and Competitiveness CONTENTS Page .4. STRATEGIC CONTEXT AND RATIONALE ............................................................................... 1 1. Country and sector issues ...................................................................................... 1 2. Rationale for Bank involvenient .......................................................................................... 7 3. Higher level objectives to Mhich the project contributes ................................................................. 7 B. PROJECT DESCRIPTION ............................................................................................................... 8 1. Lending instrument ............................................................................................. 2. Project developnient objective and key indicators .................................................. 3. Project components ................................................................................................. 4. Lessons leamed and reflected in the project design ........................................................ 5. Alternatives considered and reasons for rejection ............................................... C. IRIPLERIENTATION ...................................................................................................................... 11 1. Partnership arrangements ............ ............................... 11 2. Institutional and iniplementation arrangements ............................................ 12 3. Monitoring and evaluation of outcomes~results ............................... 13 3. Sustainability ................................................... . . ...................................... 13 5. Critical risks and possible controversial aspects .................................. 14 6. Grant conditions and covenants ................ ............................................. 14 D. APPRAISAL SUMMARY ............................................................................................................... 15 1, Economic and financial analyses (See Annex 9) ................................ .................15 2. Technical ............................................................................ . . . . . . . . ..!5 ............................................................................. ...................... 15 ............................................................................... ...................... 16 5. Environment.................................. ......................................................................................... 16 6. Safeguard policies ........................................................................................................ 16 7. Policy Exceptions and Readiness................................................................. ............................ 16 Annex 1: Country and Sector or Program Background ........................................................................ 17 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................................... 28 Annex 3: ResultsFrameworkand Monitoring ....................................................................................... 29 Annex 4: DetailedProject Description .................................................................................................... 31 Annex 5: Project Costs....................................................................................................,...,..,.........,........39 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. Annex 6: ImplementationArrangements ................................................................................................ 40 Annex 7: FinancialManagement and DisbursementArrangements ................................................... 42 Annex 8: Procurement Arrangements .................................................................................................... 45 Annex 9: Economic and FinancialAnalysis ............................................................................................ 50 Annex 10: Safeguard Policy Issues .......................................................................................................... 53 Annex 11: ProjectPreparationand Supervision .................................................................................... 54 Annex 12: Documentsin the ProjectFile ................................................................................................ 55 Annex 13: Statement of Loans and Credits ............................................................................................ 56 Annex 14: Country at a Glance ................................................................................................................ 58 Annex 15: Map .......................................................................................................................................... 60 CAMBODIA CAMBODIA TRADE FACILITATION AND COMPETITIVENESS PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASFP Date: M a y 4, 2005 Team Leader: Magdi M.Amin Country Director: Ian C. Porter Sectors: Other domestic and intemational trade Sector ManageriDirector: Homi Kharas (100%) Themes: Export development and competitiveness (P);Trade facilitation and market access (P);Technology diffusion (S) Project ID: PO89196 Environmental screening category: Not Required Lending Instrument: Specific Investment Loan Safeguard screening category: No impact Project Financing Data [ ] Loan [ 3 Credit [XI Grant [ ] Guarantee [ ] Other: For LoansiCreditsiOthers: Total Bank financing (USSm.): 10.00 Proposed terms: Financing Plan (US$m) Source Local Foreign Total BORROWEIURECIPIENT 0.00 0.33 0.33 IDA GRANT FORPOOREST COUNTRY 0.00 10.00 10.00 Total: 0.00 10.33 10.33 Borrower: Kingdom of Cambodia ResponsibleAgency: Ministryo f Commerce 20 A&B NorodomBlvd Phnom Penh Cambodia www.moc.gov.kh FY 06 07 08 09 Annual 2.33 4.00 2.00 2.00 Cumulative 2.33 6.33 8.33 10.33 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 [ No Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes IN0 I s approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective The objective o f the Project is to support the Recipient's strategy to promote economic growth by reducing transaction costs associated with trade and investment, introducingtransparency in investment processes, and facilitating access o f enterprises to export markets. Project description Component 1. Trade Facilitation Component will finance automation and reform o f trade facilitation agencies. Component 2. Export Market Access Fund will finance a technical assistance matching grant facility that would cover 50% o f the cost o f achieving market standards, or evidence o f compliance with those standards. Component 3, PPI and Investment Component, will finance a program o f capacity building to implementthe Law on Concessions and the Amended Law on Investment, to improve the organizational capacity o f key agencies to manage and deliver o f PPIs transactions that are conducted fairly, transparently, competitively and inthe public interest. Component 4, the Legal Transparency will finance the establishment and maintenance o f a website in the Khmer language to make readily available to the public the final judgments o f all cases in the Supreme Court and in the Court o f Appeal; and the establishment and maintenance o f a website to ensure the electronic publication o f all Cambodian commercial laws, related regulations and draft legislation. Which safeguard policies are triggered, ifany? Re$ PAD D.6, TechnicalAnnex 10 No safeguardpolicies are triggered. Significant, non-standard conditions, if any, for: Re$ PAD C.7 Board presentation: Loadcredit effectiveness: Covenants applicable to project implementation: Before December 2006 the Recipient shall provide to the Bank draft human resources policies and procedures, consistent with the principles applied inthe Government's MeritBased Pay Initiative, and implement the policies following consultationwith the Bank and other donors. A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Cambodiafaces a profounddevelopmentchallenge. Cambodia is among the world's least developed countries. According to the NPRS, 36 percent o f the total population o f 13.4 million lives below the poverty line o f US$O.46-$0.63 per day; less than a third o f this population have access to an improved water source; one third is illiterate; 45% o fyoung children are underweight. The legacy of conflict. Decades o f conflict, ruinous policies and embargo destroyed the institutional fabric o f civil society and commerce. Cambodia's challenge i s compounded by the legacy o f internal conflict that not only depleted the country's reserves o f human talent on which entrepreneurship i s based, but also disrupted the continuity o f social institutions and formal and informal rules that provide the framework for trade and investment. The economic landscape reflects this lack o f key institutions, most notably the rule o f law. It also reflects an attempt by the Government to fill the institutional vacuum through administrative measures that have largely not worked, and created opportunities for corruption. Basic public services and infrastructure are absent for much o f the population. Narrow growthbased on an extremely smallformal private sector. An estimated 80% o f the population i s rural, and linked to subsistence agriculture. Of these families who depend on agriculture, 80 percent are poor. Manufacturing employs less than nine percent o f the workforce. A large share o f the private sector operates informally, contributing minimally to the tax base and facing limited access to finance and trade. Extreme dependence on one export sector, and substantial risks. The remarkable growth o f the garment sector from 1997 to 2001 demonstrated the potential impact o f private sector development on poverty. Garment sector exports grew from $28 million in 1995 to approximately $2 billion in 2004, employing over 270,000. By the end o f 2004, Cambodia had become one o f the 20 largest garment exporters to the US. However, the quota system under which Cambodia's exports emerged has ended, giving way to a competitive marketplace in which China i s rapidly increasing its share. Cambodia now faces significant risksbecause its garments comprise 76% o f its exports. Poor infrastructure. Cambodia's infrastructure coverage i s the lowest in the East Asia region, contributing to high cost, poor quality services and limited access to markets. There i s no power grid, a lack o f adequate highway and rail service, and highport costs. Competition i s minimal in all sectors, lowering quality and raising costs. The services that exist are mainly concentrated in urban areas, and the rural population suffers from lack o f access to markets, from unsafe and unreliable water and dependence on traditional biomass energy. Future growth in such sectors as agroindustry and tourism are particularly sensitive to infrastructure. DecliningFDI over the past decade. FDIhas been on a secular trend downward since 1996, when inflows reached nearly $300 million. FDI inflows for 2003 were $87 million (WDI). 1 PolicyEnvironmentand InstitutionalPerformance To better understand the policy and institutional environment facing firms, the World Bank conducted an Investment Climate Survey in 2003 o f 802 enterprises. O f these 200 were rural, 100 urban informal, and 502 were urban firms in Phnom Penh, Siem Reap, Kampong Cham, Sihanoukville, and Battambang. These enterprises ranged from micro (fewer than 10 employees) to large (over 100 employees) and included both domestic and foreign firms. The key findings: 0 Excessive regulation and weak institutions contributed to low productivity levels. The Investment Climate Survey found that total factor productivity and labor productivity are low in comparison with Bangladesh, India, China, and Pakistan. Some key factors that contribute to low productivity include corruption, weak property rights, informal practices and complex and costly regulation. Cambodia's unique history has resulted in economic openness, and yet administrative controls that are a heavy and costly burden to Cambodia's private sector. Cambodia has the most annual inspections, the highest cost per capita to officially register businesses, and requires management time to deal with officials on par with China. A Bank-funded assessment identified that import processes require 45 documents, many o f which are associated with unofficial fees. 0 Institutionsvulnerable to corruption. A combination o f low salaries - average salaries in the Customs and Excise Department are less than $23 per month - and regulatory processes that create frequent interaction between public officials and firms create powerful incentives for corruption. In the Investment Climate Survey, 82% o f respondents reported that they pay bribes, and 71% o f large firms suggest such payments are frequent. These payments amount to a reported average o f 5.2% o f firm sales -twice the similar metric for Bangladesh - but increase with firm size and formality, exceeding 6% large firms. Constraining trade facilitation processes. Among Cambodia's regulatory processes, importing and exporting were identified as having the highest unofficial costs in the June 2003 survey. The Bank's 2003 Value Chain Analysis found that the cause o f high trade costs was not related to any one particular institution, but rather the cumulative impact o f overlapping institutions, each o f which required streamlining. As a result, clearance times are among the longest and unofficial costs among the highest among countries in which the Bank has completed ICAs. 0 Outside the garment sector, market and trade-supporting institutions are absent. There is a substantial gap both in trade supporting formal institutions and in firms with experience in exporting, including in complying with destination-country standards, and manage quality or resolve disputes. As the institutions are developed, there i s a gap in local understanding o f how to use these institutions to affect trade. 0 Weak governance of public-privatepartnerships and concessions. The private sector represents the best opportunity for infrastructure development given financial and human resource constraints and the need for efficiency. However, consumers will only accrue 2 the benefits o f private participation if there i s competition and transparency. However, private infrastructure transactions suffer from a lack o f clarity over roles and responsibilities within and between various government agencies with respect to PPI design, procurement, approvals and implementation, a general lack o f transparency inthe handling o f dealings between the public and private sectors, and specifically in the negotiation and management o f specific contracts between government and investors, from the initiation o f a potential project through the construction, implementation or transaction to the operation o f the project - few if any concession agreements or negotiated contracts have been made available for audit or public scrutiny. The consequences o f these problems include non-bankable projects, higher than necessary prices to consumers in the Cambodian economy, and a lack o f information on the value- for-money received by the public and the RGC from infrastructure projects, due to the inability to assess and allocate revenues, risks and profits in concessions. 0 A lack of a credible judicial system. Progress is being made in enacting commercial laws and adopting related regulations, but judicial system capacity, remuneration and integrity are not yet being addressed in any adequate way. The inability to enforce laws and contractual rights and obligations in a predictable, transparent and efficient fashion has restricted the ability o f the financial sector to expand services to even 10% o f the private sector, and continues to undermine investor confidence. Judicial decisions are seen inthe private sector as arbitrary and subject to capture. PolicyReformsin Support of Trade Facilitation& Competitiveness 1. Cambodia now faces an historicopportunity to change its growthpath. Cambodia is faced with a growing, stable, and integrating East Asian region, macroeconomic stability, and new market opportunities afforded by its successful bid to become the first Least Developed Country to be invited to join the WTO. Beyond WTO, the ASEAN Free Trade Area and China Early Harvest measures provide Cambodia with an increasing number o f market access opportunities free o f tariffs. This provides a good context to undertake a second generation o f reform focused on enabling broad-based growth. However, without also addressing "behind the border" investment climate constraints, the extent to which market access can be converted to employment gains i s sharply limited. 2. The Government has elaborated a private sector development strategy. In August 2004, the Government released its Rectangular Strategy, in which it committed to "broaden the base o f growth by strengthening governance to attract investment and ensuring competitiveness."' In February 2005, the Government further described its platform as (i)trade facilitation, by rationalizing government agencies that impose high costs and delays on the private sector and reducing transaction costs; (ii)promotion o f market infrastructure and deregulation; (iii)enhancing market access and access to information; (iv) institution building and enhanced Rule o f Law; and (v) promoting small and medium-sized enterprises. Key features o f this strategy are listed below: ' "Our Hope, Our Strategy, Our Actions" Keynote Address, Seizing the Global Opportunity Conf., Feb 11, 2005. 3 0 Implementing WTO commitments and promoting exports are cornerstones of the Government's strategy. Cambodia's Protocol o f Accession commits the country to low bound tariffs, phased implementation o f the agreements on Trade Related Intellectual Property Rights (TRIPS), Trade Related Investment Measures (TRIMS), the Telecom Reference Paper, and opening key service sectors, and use o f WTO-compliant trade measures (pricing, tariffs, fees, subsidies and customs measures inter alia) in exchange for MFN treatment by all members. To take advantage o f market access, a new National Export Strategy i s being developed with support o f the International Trade Center Gevena (ITC), which focuses on expanding the base o f exporters to include agro-industry, handicraft, aquaculture and organically-certified products. 0 The legal framework is evolving. Legal and judicial reform has been an area o f slow progress over the past five years, but there are indications that CY05 may see the development o f a more conducive regulatory framework. At the time o f writing, the following laws had either already been presented to Parliament or were in an advanced stage o f the drafting process: the Company Law, the Insolvency Law, Secured Transactions Act, Civil Code, the L a w on Commercial Arbitration, Sub-Decree on Economic Concessions and L a w establishing a Commercial Court. Drawing attention to the pressing issues o f transparency and reliability in the implementation o f the law, in March 2005, the Prime Minister took initial steps to crack down onjudicial corruption. 0 A Twelve-Point Plan of investment climate reforms was adopted as a cross-Ministerial, multi-donor platform. The Prime Minister appointed a Special Inter-Ministerial Task Force (SITF) to respond to the findings o f the Investment Climate Assessment. In June 2004, the SITF defined an integrated program of reform to reduce unofficial costs and clearance times, while increasing public revenue. This was articulated in twelve intermediate objectives. It determined, intev alia, to create a cross-agency Reform Team, consolidate inspection mandates across agencies, introduce selective inspections based on risk criteria, reduce documents to a Single Administrative Document, introduce a Single Window process, and reengineer and automate procedures. At present, five o f the twelve actions have been implemented, and the remainder are scheduled for completion by December 2005 (see B o x 1). Importantly, within the Twelve-Point Plan, the Ministry o f Commerce has substantially reduced the cost and time required to register a business. The cost has been reduced by over $400, while the MinimumDeposit Requirement reduced from US$5,000 to US$l,OOO. 0 Redefining the Role of CamControl. Cambodia Import Export Inspection and Fraud Repression Department (Camcontrol) has long been recognized as a source o f redundancy with CED. As part of the Trade Facilitation Reform program, the Government with EU support conducted a review to examine the role o f CamControl and how the Government can discharge its important regulatory responsibilities, while maintaining and/or further improving its contribution to the overall trade facilitation objectives. The main options considered are merging some or all of CamControl's functions with Customs, Ministry o f Industry, MAFF; or the Ministry o f Health; and (b) creating a new food and drug agency with a working title of Food Safety Cambodia. To the extent that these options eliminate routine trade inspections from CamControl's mandate, they would largely be acceptable, A decision i s expected inMay. 4 0 Customs reforms. As part o f WTO accession, Cambodia prepared a new Law on Customs consistent with the Revised Kyoto Convention that addresses a number o f discrepancies with modem intemational practices including in valuation, staff remuneration, inspection and audit. This L a w was forwarded to the National Assembly with a target passage date o f July 1,2005. The RGC's pace on delivering on WTO commitments has been mixed. 0 Streamlining trade documentation. The Govemment, with EU, and has completed technical work that would introduce an enhanced customs declaration to serve as a Single Administrative Document, replacing 45 documents that are currently involved in an import transaction. Streamlining documentation i s a proxy for reengineering the information flow, an essential prerequisite for ICT. This reform specifically included the following sub-steps: P Economic Police Permit, Export License and Import Permit eliminated P Consolidatedinspection, rather than multiple agencies inspecting independently P Certificate o f Origin now not requiredpre- shipment to be convertedto post-shipment P Single Administrative Document P Withdrawal of Officially Certified Invoice-no longer requiredon demiseofMFA BOX 1: TWELVE POINT PLAN: GOVERNMENT COMMITMENTS TO IMPROVETHE INVESTMENT CLIMATE AND TRADEFACILITATION JULY2004-DECEMBER - 2005 Action 1. Establish a Cross-Agency Trade Fachtation/Investment Climate ReformTeam Action 2. Establish Transparent Performance Measurement including Private Sector Monitoring. Action 3. T h e trade facllitation process, including all licenses, procedures and documents, will b e reviewed to remove overlaps and unnecessary approvals. Following the reengineering, a Single Administrative D o c u m e n t will b e implemented and other documents progressively eliminated. Action 4. Introduce an overall risk management strategy to consolidate and rationalize all examination requirements of the different control agencies Action 5. X strategic review of the role of Camcontrol wdl be launched to more productively deploy the organization's unique knowledge of quality control processes and make optirmzed use of inputs and resources from other agencies, such as the CED. Action 6. A Single Window process to manage trade facihtation will be piloted in the Port of Sihanoukville by December 2005. T h e Trade Facilitation process, once streamlined, udlb e automated. Action 7. The Government will introduce a WTO compatible flat fee for service, and the service will b e defined by a service-level agreement. T h e fee structure ~vdle public. b Action 8. Streamline the process and reduce the cost of incorporating with the Commercial Regster, which is maintained at the Office of the Clerk of the Commercial Court, and costs an average of $630 and 30 days. Action 9. Streamline the process notification of the Ministry of Labor to start hiring employees, which costs $250 and 30 days to complete. Action 10.Harmonize registration for VAT, income tax and company registration using the same form and resulting inthe same unique identifier. This would facllitate information sharing across agencies. Action 11.Implement a national award to promote good corporate citizenshlp in the private sector. Action 12. Monitoring and Reportingwill take place through the Private Sector Forum. 5 e A Policy on Private Participation in Infrastructure and Law on Concessions is being considered at the Council of Ministers. In the PPIhvestment climate area, the Government has defined a clear process for planning, approving, awarding, negotiating, and managing PPI investment, and has enshrined this revised process in a new Concessions L a w and subdecree which i s currently under review at the Council o f Ministers following extensive consultations with the private sector. OPPORTUNITY CONSTRAINT PROJECT COMPLEMENTARY GOALS RESPONSE REFORMS Fi 1 L o n g c l e a r a n c e T r a d e Facilitation: Customs Law Export-led A c c e s s Institutional Single Admin. Document (EU) CamControl Review (EU) H i g h c l e a r a n c e R e f o r m Risk Mgmt Strategy (AusAID) Diversification c o s t s 1 __c_ B I L A T E R A L C h i n a V u l n e r a b l e t o WTO Accession B r o a d e r j E a r l y Tariff Reform G r o w t h National Export Strategy (ITC) I E U E v e r y t h i n g Ag. Quality Improvement (AQll E m p l f y m e n t 1 B u t Arms- S u p p o r t Better Factories (ILO) 4. r-1 1 , A S E A N Gov't Concessions Law T r a n s p a r e n c y M a r k e t UNIDO Concessions a I n t e g r a t i o n G o v e r na nc e UNCTAD "Blue Book" I n v e s t o r U n c l e a r PPI Gov't Amended LO1 C o n f i d e n c e R e g u l a t o r y Electricity Law Water Law R E G I O N A L T r a n s a c t i o n s Commercial Court T r a n s p a r e n c y Company Law Insolvency Law Commercial Arbitration New investmentpromotion strategy. The Council for Development o f Cambodia (CDC)'s Cambodian Investment Board (CIB), as Cambodia's investment promotion agency, i s currently undergoing the process o f re-defining its role as a result o f the Amendment to the Law on Investment, which was approved by the National Assembly in February 2003. The Amended L a w on Investment explicitly moves the CIB toward serving as a facilitative and promotional agency, with many evaluative and regulatory functions replaced by automatic systems. FIAS and MIGA are currently helping CDC define a new corporate strategy including goals and objectives, the strategies and resources it will use to achieve these and the performance measurements by which it will assess its progress and success. Merit-Based Pay Initiative (MBPI). The Government is introducing, on a pilot basis, differentiated compensation based on performance and merit in the context o f Public Financial Management (PFM) in the Ministry o f Economy and Finance. A team comprised o f the Ministry o f Commerce, Customs & Excise Department and Port Authority has been tasked with proposing a framework, using the MBPI framework developed by MEF, by 20 M a y 2005. It will be funded, inpart by user fees. 6 0 Acceleration of the judicial reform process. The RGC's avowed Legal and Judicial Reform (LJR) Strategy2 outlines seven broad objectives that are aimed at improving access to, and the quality of, Cambodia's legal and judicial services. The third o f these objectives requires the "provision o f better access to legal and judicial information by promoting dissemination o f basic legal knowledge through official publications, electronic media and information folders and ensuring easy accessibility to all legal and juridical information for legal practitioners and any other interested party". And, in accordance with the LJR Action Plan formally adopted by the RGC in November 2004, acceleration o f the LJR process i s to occur in part by making "the improvement o f access to legal and judicial information" an "operational priority" o f the RGC in 2005-2006. 2. Rationalefor Bank involvement Trade facilitation reforms are positively associated with increasedtrade and GDP growth, while investment climate reforms more broadly are associated with decreasing corruption, increasing formalization of business, increased growth and public sector revenue. Wilson, Mann and Otsuki (2003) found that ifbelow-average APEC members could increase trade facilitation performance half-way to the APEC average, inter-APEC trade would increase by $254 billion. UCTAD (2001) found that a 1% reduction in the trade facilitation costs could increase Asian GDP some $3.3 billion. Given the end o f MFA, any cost reduction associated with trade facilitation would also have the effect o f making the garment sector more competitive, and in the long-term contributes to diversification. P The 2004 Investment Climate Assessment has played a key role in informing national policy, and placed the Bank in a leadership role on the PSD policy dialogue. The Bank leads the donor working groups on Trade Facilitation, Private Participation in Infrastructure and Investment policy, while the Asian Development Bank leads the donor working group on SME development. The Bank Group i s in a unique position to support the Government due to its integration o f the Foreign Investment Advisory Service (FIAS), the Mekong Private Sector Development Facility (MPDF), International Finance Corp (IFC) as Secretariat to the Govemment-Private Sector Forum, the Public-Private Infrastructure Advisory Facility (PPIAF), and relevant technical capacity drawn from throughout the Bank. Inthe view o f the counterparts, the integrated capacity has helped the government achieve more rapid results and convene a cross-Ministerial dialogue. P The operation supports Cambodia's results-based Country Assistance Strategy (CAS) The CAS includes a pillar on Private Sector Development which defines results in removing governance impediments to growth. The proposed operation i s aligned against three results. On 13 July 2004, the Bank received an official request for a project to finance the reform. 3. Higher level objectivesto which the projectcontributes The project contributes to the higher level objective of increasing growth through improved governance. The project builds on the country's growth strategy, WTO accession, and Rectangular Strategy by facilitating a fundamental shift in governance o f private activity * The Strategywas formally adoptedby the RGC's Council of Legal and Judicial Reform inJune 2003. 7 from institutional environment characterized by overlapping, discretionary and costly controls to an institutional environment that facilitates efficient and competitive markets through transparent and predictable processes. It responds to the finding in the Investment Climate Survey that the leading constraints to business are governance-related, and the specific findings in the earlier Value Chain Analysis, Integrated Framework and Country Framework Report that govemance- related constraints are most acute in trade processes and private participation in infrastructure. The reforms focus on using transparency, competition, regulatory streamlining and market-based standards to increase confidence, to improve private sector's capacity to make investment and trade decisions, and to increase the efficiency o f public service delivery. The reforms will help Cambodia convert WTO/ASEAN market access to jobs. Improvements in trade facilitation practices are strongly correlated with increases intrade and GDP. B. PROJECT DESCRIPTION 1. Lendinginstrument The operation will be delivered through a Specific Investment Grant (IDA Grant) that will disburseover four years - from September 2005 to December 2009. 2. Projectdevelopmentobjective and key indicators The objective o f the Project is to support the Recipient's strategy to promote economic growth by reducing transaction costs associated with trade and investment, introducing transparency in investment processes, and facilitating access o f enterprises to export markets. major or severe problem declines.by 10%. 2003 ICA (ICs) in 2006/2007 A 50% reduction in the number of documents required to 45 Cross-agency process map. clear imports. Performance Monitoring System. Share of export shipments that are physically inspected 100% Performance Monitoring System. less than 40% by December 2006. 50% reduction in time required to clear import shipments. 6.5 days Performance Monitoring System, ICs The enabling environment facilitates integration of new Zero Fund manager reports. firms into the global economy, as indicated by the number of firms preparing draft export development plans. 1Transparency / accountability introduced into PPI. Zero-few Gradual increase to all transactions by Number of PPI contracts publicly disclosed and subject to 11 11year 5, implemented sector-bv-sector: 1 competitive procurement processes. Number of judicial decisions publicly disclosed. 1 Zero-few I 50% of commercial cases in Supreme Court and Court of Appeals Response time on investor inquiries. 1 TBD I1 10% reduction per year 3. Projectcomponents Component 1. Trade Facilitation Component. ($6.15 million). The application o f appropriate IT to border management activities can significantly streamline operations, improve the level o f transparency and accountability and facilitate the achievement o f all border related government objectives. The project will finance (a) an electronic Single Window integrating all trade facilitation agencies, including the deployment o f ICT for automation o f Customs functions, linked to complementary improvements in systems, procedures and developments in 8 the organizations involved inproduct clearance (b) adherence to the Kyoto Convention including the adoption o f a risk management capacity; (c) a design o f a merit based pay system for Cambodia's trade regulatory agencies; and (d) the development o f an Integrity Action Plan for CEDbased on a self assessment. Component 2. Export Market Access Fund. ($2.1million). The component will finance (a) technical support to the Ministry o f Commerce's Department o f Export Promotion to establish the exporter technical assistance window, and (b) a technical assistance matching grant facility that would cover 50% o f the cost o f achieving market standards, or evidence o f compliance with those standards. The EMAF would offer its services solely in response to private sector demand on a nondiscriminatory and a first-come-first served basis. An initial survey suggests demand from at least 100 enterprises. The Garment Manufacturers' Association of Cambodia (GMAC) i s expected to apply for $600,000 cofinancing over three years to finance the International Labor Organization's Better Factories campaign in order to achieve Core Labor Standards. Component 3. PPI and Investment Component. ($1.2 million) The PPI and Investment Component will finance a program o f capacity building to implement the L a w on Concessions and the Amended Law on Investment. The objective o f the technical assistance i s to improve the organizational capacity o f the Ministry o f Economy and Finance, Council for Development o f Cambodia, National Audit Authority, infrastructure regulatory bodies such as the Electricity Authority o f Cambodia, and infrastructure line Ministries to manage and deliver o f PPIs transactions that are conducted fairly, transparently, competitively and in the public interest. The Investment Promotion sub-component i s aimed at supporting the CDC and CIB to adopt strategies that streamline the process o f foreign direct investment, and that enhance the attractiveness o f Cambodia as an investment destination through improvements in the regulatory environment as well as in factor markets. The program consists o f three distinctive activities: (a) appointment o f a local long-term resident advisor; (b) a series o f 5-days training workshops for 15-20 CIB staff on subjects like investment generation and facilitation; and (c) installation o f IT system. Component 4. Legal Transparency Component. ($0.4 million). This Component will finance (a) the establishment and maintenance o f a website in the Khmer language to make readily available to the public the final judgments o f all cases in the Supreme Court and in the Court o f Appeal; (b) the establishment and maintenance o f a website to ensure the electronic publication o f all Cambodian laws, related regulations and draft legislation in the commercial law field, broadly defined; and (c) training to utilize the established systems. A link will be established between this site and other relevant websites, including, most importantly, the website o f the Ministry of Commerce and to the legislation and the subsidiary legislation (i.e. decrees and sub-decrees), as referred to in the judgments. Publication o f such information will contribute to increasing confidence in the capacity o f the appellate courts to interpret, apply and enforce Cambodian laws generally and the commercial legal framework in particular in a fair and consistent manner. An increase in confidence in the transparency and predictability o f judgments will reduce the risk now associated with private domestic and foreign investment. 9 4. Lessonslearnedand reflectedinthe project design Demonstrate political will. The reforms financed by the proposed project have wide-ranging implications for both public institutions and private sector behavior, including a substantial decrease in opportunities to exploit public office for personal gain. As such, they require strong political will to be achieved. The project has incorporated these lessons through sequencing decisions that demonstrate such political will - such as passage o f enabling legislation, removing Camcontrol from routine inspections and streamlining documents - ahead o f project approval without using conditionality. The approach has also created venues for very broad dissemination and consultation inwhich the government has made measurable commitments. Take a cross-agency perspective. The key problems in trade facilitation presented themselves as issues - such as high unofficial payments - that could easily be interpreted as caused by the Customs & Excise Department, which has recognized the need to improve its performance and has developed a plan to that end. However, through a value chain analysis, the problem was recognized as involving both internal issues within departments, problems o f role clarity across agencies, and problems of information sharing and coordination both across agencies and in the interface with the private sector. Reengineer processes ahead of ICT investment. One o f the broad and enduringlessons from technology investments around the world are that much o f the efficient gain resulting from ICT investment i s from simplification and streamlining o f underlying process rather than from the technology itself. A corollary o f this point is that processes should be streamlined and information flows simplified before technology investments. The project has incorporated this point through mapping of the full process involving all relevant agencies, elimination o f process overlaps, and sharing a Single Administrative Document across all relevant agencies. Address incentives and financial sustainability. Many ICT investments have failed due to weak incentives to use the new system. The proposed project addresses this question through adoption o f the merit-based pay initiative funded through a WTO-compatible fee on transactions. Measurementto enable the "demand side." While much o f the project investments improve the delivery o f key public sector functions, a core lesson from the Bank's experience with service delivery (as particularly highlighted in WDR 2004) i s the need to enhance accountability to tax payers and beneficiaries of the service. In the PPI component, this is incorporated through enhancing accountability of PPI processes to the MEF and treasury, representing taxpayers, Overall, the project will utilize a citizen score card approach through which the media and general public can measure performance. The media itself will be consulted on the final design o f the scorecard to better facilitate their reporting. Use country systems. The recent work on donor harmonization and effectiveness has highlighted the need to use, wherever possible, the government's existing institutions rather than create new project implementation units. The project has integrated these lessons by utilizing management structures created by the Prime Minister in order to lead PSD efforts as the project's management structure. Other donors have endorsed this approach and will utilize the same structure. Procurement processes, however, will remain consistent with Bank guidelines. 10 5. Alternatives considered and reasons for rejection Pure customs project, The Bank has undertaken a number o f projects around the world that focus on customs for reform, and often include institutional strengthening as well as automation. The project team considered this and rejected this option due to the fact that trade facilitation issues extended well beyond customs functions, and was effectively an interagency problem as described in the 2003 Value Chain Analysis and Investment Climate Survey. A customs project would have left key interagency problems and non-customs functions undressed. PPI Unit. The Project Team considered the establishment o f a dedicated PPI Unit inside o f the Cambodian Treasury or CDC, as has occurred inthe UK, South Africa, Pakistan, Philippines and Vietnam. While such units can concentrate expertise, this option was rejected because it ignores the underlying causes o f dysfunction - the lack o f role clarity, weak incentives to maintain transparency, and the poor integration o f competitive PPI into the functioning o f line Ministries. In preparing the capacity building plan, we also considered whether alternative delivery mechanisms might be preferable to those making up the proposed plan. Options considered included appointing one or more long-term advisors to work with individual ministries or agencies. This option was excluded as only benefiting a single RGC entity, while the capacity- buildingplan is focused on trying to reach all entities involved inthe PPI Framework, and being a high-cost solution, offering no certainty that ministries benefiting from long-term advisors are those that have most need o f them, as the demand for support will be partly driven by the pipeline o f suitable PPI opportunities. Social Safety Net. The project concept note included the possibility o f financing retraining o f workers or other safety nets for workers fired from the garment sector. However, this possibility was rejected due to a lack o f signals of net job losses, and due to other donor efforts. Legal and Judicial Reform. The possibility o f undertaking a stand-alone LJR has been considered by the country team, due to the need for judicial strengthening in light o f the large number o f laws being introduced currently. However, as indicated in the Country Assistance Strategy, the World Bank has chosen for the foreseeable future not to engage to any significant degree with the reform o f state institutions until credible evidence o f political commitment to reform i s demonstrated. C. IMPLEMENTATION 1. Partnershiparrangements Partnership with donors. The World Bank leads a donor sub-working group on trade facilitation. This working group includes seven other donors who coordinate policy and have achieved a division o f labor with respect to implementing the 12-Point Plan o f investment climate reforms. The European Union, with its Multilateral Trade Assistance Project, has supported the streamlining o f documentation necessary to introduce a Single Administrative 11 Document, as well as the review and redefinition o f the role o f Camcontrol. AusAID, with its Cambodia-Australia Technical Assistance Facility (CATAF) has provided important support to help implement a risk management strategy. The IMF and JICA have led the work o f reforming the Customs and Excise Department, while UNCTAD and UNIDO have been extensively involved in reform o f investment and PPI. Export diversification work has been led by the International Trade Center and GTZ. Partnershipwith the private sector. The private sector has played a critical role indemanding and defining the reforms financed by the proposed project. The Government-Private Sector Forum includes an Export Processing and Trade Facilitation Working Group, co-Chaired by the Sr. Minister o f Commerce and the Chairman o f the Garment Manufacturers' Association. It has been raising and discussing key issues throughout the duration o f the Bank's engagement. 2. Institutionaland implementationarrangements The project will utilize existing coordination structures established by the Government as its management structure. In August 2004, Prime Minister's Decision No. 12/2004 created a Special Inter-Ministerial Task Force (SITF) on Trade Facilitation and Investment Climate, Chaired by the Minister o f Economy and Finance and Vice-Chaired by the Minister o f Commerce. On 26 July, 2004, following the formal creation o f the new Government, the Prime Minister signed Decision44/2004, formalizing this as the Government's focal point for reformo f the investment climate, trade facilitation, SME promotion, and PPI - the Steering Committee on Private Sector Development. The Government established the Trade Facilitation Subcommittee, Chaired by the Sr. Minister o f Commerce, as well as the Investment Climate and PPI Subcommittee, Chaired by the Sr. Minister o f Economy and Finance. Executing Agency. Given that over 80% o f funds will be utilized to finance the Trade Facilitation and the Market Access Components, the Government has nominated the Ministry o f Commerce as the Executing Agency. Project ManagementUnits. In each key agency (Customs & Excise Department, Ministry o f Commerce, Council for Development o f Cambodia, and Ministry o f Justice) a project manager will be namedto supervise the daily implementationo fthe Project activities. ReformTeam (ProjectCoordinationUnit). The Government's Reform Team will be response for coordinating project tasks, executing all procurements and preparation o f Quarterly Management reports that the Executing Agency will provide to the Bank and other donors. Procurement:Particular attention will be given to procurement arrangements to ensure that the project i s executed in a timely, transparent, efficient and integrated approach. Procurement o f works, goods and services under the project will follow World Bank Guidelines. Details are given in the Annex 8. All procurement will be executed by the Reform Team which has successfully executed procurement processes for the Project Preparation Facility. This team's capacity will be strengthened to ensure that staff has adequate skills and competence. 12 Policy Guidance Role Executing Agency .All operational decisions success Role Project * Resolving cross-agency coordination ISSUBS ....Accounting .Preparation of Bid docs Unit Procurement Disbursement Preparation of Quarterly Management Reports Project Mgmt Cambodia - Units Single Window Fund H E Kem Sithan Roles: Customs IT One accountable official acts as component manager * Responsible for implementation of tasks on time, ....Reporting on quality target H.E KunNhem Achievement of project objectives Prepare TORS and guide consultants Arrange workshops and other project activities * Ensure sufficient and appropriate staff for activities progress monthly to Executing Agency * Referring problems to Executing Agency, and if unresolved, .toProvide PSD Steering Committee Monthly reports to Executing Agency 3. Monitoring and evaluation of outcomes/results The Govemment has asked for a second Investment Climate Assessment, on which many o f the indicators are based, in 2006/07, supporting the mid-term report for the project. This will provide an overall assessment o f progress toward the development objectives. To provide more immediate feedback the Government i s establishing a Performance Monitoring System. For trade facilitation, the agreed approach combines a simplified version o f World Customs Organization's Simplified Timed Release System, as well as a user survey based on the Investment Climate Assessment. Indicators will focus on Processing Time, Inspections, Steps, Perceptions (of the service provided by and the integrity o f six agencies), and costs (both official and unofficial). The indicators will be captured in a reform "Score Card" that will be publicly disseminated, including through public media. The PPI component will be monitored through the Ministry o f Finance and CDC's ongoing role in project approval, as well as the Government Private Sector Forum. The legal transparency component's websites will be readily observable by concemed staff. This monitoring data is expected to feed into group performance targets under MBPI. 4. Sustainability The sustainability o f the technical capacity financed by the project will depend on (a) the government's political will to enforce policies supported by the project through positive and negative incentives; (b) the ability to finance, after the project, maintenance o f the investments. Positive and negative incentives to maintain policies will be established through govemment's policy messages, enforced by sanctions placed on civil servants who violate policies, appropriate performance-based remuneration and promotion o f staff who promote policies. This will 13 require intensive, ongoing policy dialogue with and within government, a robust monitoring system whose results are available to the public, and donor collaboration. Financial sustainability o f technology investments will be assured through a WTO-compatible fee on a per-shipment basis sufficient to finance maintenance and salary incentives. 5. Critical risks and possible controversial aspects and anti-corruption not enforced. public monitoring through investor score cards, PS Forum. Poor Cross-Ministerial Coordination H Inter-Ministerial PSD Steering Committee, Reform Team maintained for duration, cross-agency performance measures. Unofficial fees remain more attractive H ICT systems reduce discretion and contact, Merit-based than the reformed system, causing lower remuneration, emphasis on political will and enforcement of level staff to undermine reforms. government policies, public monitoring and accountability. Project complexity. M Where possible performance-based turn-key contractors are used to minimize the managerial burden. Technological Risk. N Technology choices are limited to proven systems that have been in operation in developing countries. Failure to pass enabling legislation in a M Relevant legislation has passed the Council of Ministers. timely manner Implementing Sub decrees are conditions of disbursement. Fiduciary Risks S Action plan to improve capacity is being implemented. Bi- Annual audits required. Overall Risk Rating S 6. Grant conditionsand covenants The Recipient shall submit to the Bank a mid-termreview report by June 30, 2007. Conditions of Effectiveness: 0 The Executing Agency has selected, using a process agreed with and acceptable to the Bank, a Procurement Officer, a Project Accountant, and a DisbursementiFinancial Management Officer. 0 The Executing Agency has adopted the Government's Standard Operating Procedures and the Financial Management Manual to the project. 0 The Ministry o f Commerce has formally approved for its use and operations, and furnished to the Bank, an Operations Manual for the Export Market Access Fund. 0 The Recipient has made the initial deposit into the Counterpart Funds Account. Conditions of Disbursementof Component 3 (a) 0 Promulgation o f the Sub-Decree on the Implementation o f the Law on Investment and Implementing Sub-Decree on Law on Concessions. DatedCovenants Before December 2006 the Recipient shall provide to the Bank draft human resources policies and procedures, consistent with the principles applied in the Government's Merit Based Pay Initiative, and implement the policies following consultationwith the Bank and other donors. 14 D. APPRAISAL SUMMARY 1. Economicand financial analyses(See Annex 9) The Cambodia Trade Facilitation and Competitiveness Project supports four components whose common attributes are the use o f transparency, predictability, competition and market standards to improve the ability o f the private sector to make economic decisions and to conduct transactions. Some benefits o f improved confidence cannot be readily quantified. Examples o f such benefits are: Trade Facilitation Reduced smuggling, more competitive trade partner, reduced management time. Export Market Access Fund Job creation, value added, export revenue and tax collection from new exporters. PPI Increased PPI volume, higher quality of projects, impact of improved infrastructure. Investment Promotion Improved confidence in Cambodia as a destination for foreign direct investment. Legal Transparency Better economic decision making through better understanding of laws. However, it i s possible to justify the project on economic and financial terms if (a) society as a whole achieves a net economic gain from the project, excluding fiscal transfers, and (b) the project generates - ~ " , fiscal revenues that are higher than the project costs in discounted terms. Economic Analysis. The Economic analysis based on the reduction of time required to clear Economic Rate of Return I 216% imports. The expected reduction o f time over the II 1 course o f the project i s a 50% reduction from 6.5 Economic Net Present Value $44.0 million 1Ado/, I days as determined through the InvestmentClimate Financial Rate of Return I I I I" Survey, to 3.25 days by year 4. Global average monetary impact o f time savings is equal to the value o f 0.5% o f imports according to OECD calculations. Since other donors and officials are involved trade facilitation efforts, we only assume that 20% o f the benefits deriving from faster clearance can be attributed to the project. By projecting trade volumes conservatively, the investment costs, user fees, volume o f imports and the gradual introduction o ftime savings, a cost-benefit stream i s projectedwith an ERR o f 216%. Financial analysis. The financial analysis estimates the incremental increase in the taxes on imports that would result from the project. The provisions o f the project (technology, streamlining, performance- based remuneration, decreased opportunities for discretion) are assumed to change incentives facing traders and public officials in favor o f compliance with agreed tariff schedules and a shift from unofficial costs to official revenue (including the collection o f customs duties, excise taxes and penalties, but excluding VAT). This increase from the current baseline i s expected to be 2% per year, stabilizing at 10%. 25% o f this gain is attributedto the project. The IRR is 144%. 2. Technical The project is expected to be technically viable. Asycuda, a software system developed by UNCTAD essentially for developing countries, and the electronic Single Window are technically proven. The key technological risk is the integration of ASYCUDA with the Single Window, which has been investigated and found to be viable. Substantial investment by other donors is supporting technical capacity. Other technologies applied to the project, such as websites, are mature. 3. Fiduciary 15 Fiduciary risks are considered to be high due to high country fiduciary risk coupled with the lack o f an adequate project financial management system in place, inadequate capacities and experiences o f the agency and executing units in project financial management and the Bank's FM requirements. To ensure the proposed arrangements are adequate and ready for implementation, an Action Plan was developed in coordination with Bank Financial Management staff. The action plan calls for (i)the adoption of Standard Operating Procedures and a Financial Management Manual, recently prepared by the Ministry o f Economy and Finance, to the project; ii)assign a team o f staff with qualifications acceptable to the IDA to be responsible for overall project financial activities with supports from two local experts, hiring based on qualification and TOR acceptable to the Bank; iii)putting into place an acceptable accounting software package; and v) training project staff on financial management procedures. 4. Social To the extent the project improves core labor standards and competitiveness o f the garment sector, social risks arising from shedding o fthe largely female garment sector labor force will be mitigated. 5. Environment None expected. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o Environmcntal Assessnicnt (OPIBPIGP4.01) [I [XI Natural Habitats (OP/BP4.04) [I [XI Pest Management (OP 4.09) r.3 [XI Cultural Property (OPN 1 1.03, beingrevisedas OP 4.1 1) [I [XI Involuntary Resettlement (OPIBP 4.12) 11 [XI Indigenous Peoples (OD 4.20, beingrevisedas OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OPIBP 4.37) [I [XI Projects in Disputed Areas (OPIBP/GP 7.60) [I [XI Projects on IntemationalWaterways (OP/BP/GP 7.50) [I [XI 7. Policy Exceptions and Readiness The project results form a substantial policy dialogue arising from the Investment Climate Assessment, and culminating in a speech provided to the Seizing the Global Opportunity Conference that outlined the clear commitment to all o f the specific reforms and laws. Due to the substantial legislative agency requiredby WTO accession, a number o f laws requiredby the project are still in the legislative process. The key enabling policy decisions are (a) the decision on the future role o f Camcontrol (decision o f Council o f Ministers pending), (b) the Law on Concessions and implementing sub decree (both drafted, law at Council o f Ministers) and (c) the Sub decree on Amended Law on Investment (law passed, sub decree at Council o f Ministers). Decision (a) has been incorporatedas a condition o f negotiation, whereas (b) and (c) are conditions o f disbursement o f the relevant part o f Component 3. 16 Annex 1:Country and Sector or ProgramBackground CAMBODIA: Cambodia Trade Facilitationand Competitiveness Background on TradeFacilitation The design o f the project emerges from a sustained policy dialogue, starting from the Integrated Framework o f Trade Related Technical Assistance, the Protocol o f WTO Accession, the Investment Climate Assessment, and subsequent policy dialogue with donors. 1. IntegratedFramework. The policy matrix of the Integration and Competitiveness Study (2001) included the following actions: 0 Support computerization and automation o f procedures and information systems 0 Clarify roles and responsibilities o f several overlapping agencies involved inborder inspection. 0 Support professionalization o f officials with appropriate rewards, accountability and recruitment 0 Support computerization o frelated agencies. 2. Protocolof WTO Accession The Working Party Report, paragraph 97 states that "The Representative of Cambodia confirmed.. . Customs and Excise Department was reviewing all customs clearance procedures and processes with a view to simplification and modernization, and the application o f risk management techniques.. . H e expected automation o f the customs clearance process to result in further efficiency gains, and the new Law on Customs would provide the legislativebasis for this initiative." 3. InvestmentClimate Assessment. In February 2004, the World Bank presented to the Royal Government of Cambodia (RGC) its draft Investment Climate Assessment, based on a survey o f 502 urban, 200 rural and 100 informal firms (documents and Aide Memoirs inProject File). Recommendation one (of eight) was as follows: Reform must start from a cross-agency perspective- rather than in agency silos. Currently, each agency pursues mandates independently and communication across agencies i s insufficient. Since the CED and Camcontrol have overlapping approximately the same powers and responsibilities, their activities should be better integrated or possibly mergedover time. Set quantifiableperformance goals - and measure progress. Agreement on a set o f regularly tracked metrics i s proposed, to (1) assess overall performance, (2) compare efficiency across departments and against competitors, (3) assess staff performance, (4) guide staffing and policy decisions by management, and (5) improve public relations with respect to process improvement. Reengineer the Facilitation Process while Introducing a Single Administrative Document, The current "real" trade facilitation process contains numerous steps that provide little or no value in facilitating trade and significant opportunities for rent seeking among government agents. As such, basic process streamlining i s required to drive cost and unnecessary processing time out o f the system by eliminating "non valued-added'' steps. The reengineering i s designed to support the move from independent dealing by each concemed agency with a single, rationalized process facing the customer, which i s the private sector export or importer. Such a process, based on improved information sharing across agencies, could usefully start with the replacement o f the current multiple documents with Single Administrative Document shared by all agencies. Initially, streamlining should focus on improving the 17 manual processes, but at the same time it will pave the way to automation. WTO entry requirements (valuation standards and the Harmonization System) should be incorporated. RationalizeRoles and Responsibilities Across RGC Agencies under a Single Window with Flat Fee for Service and Service Level Agreements To increase efficiency and accountability, trade facilitation processes should be consolidated into a Single Window. The implementation o f a Single Window i s a core step to improving overall customer service, reducing opportunities for rent-seeking and addressing the needs o f the legitimate private sector. The Single Window should consolidate all documentation and payment processing into a single customer interface for importers and exporters operating in Cambodia. Introduce a Risk Management System to Reduce the Inspection Rate per Container. Current discretionary inspections should be replaced by a system by which inspections are selectively inspected based on risk parameters. The development o f risk parameters would take into consideration historical performance, and the perspective o f the various agencies involved inthe TF process. Automatethe Process. To support the successful implementation o f other streamlining initiatives and to achieve the vast process efficiency improvements the technology has demonstrated, a comprehensive automation system should be deployed. An overall architecture across key agencies should be developed, followed by a phased implementationplan. HR Management Reform. Although it is unlikely that official salaries will ever match the full compensation that customs agents are currently making through official and unofficial payments, it i s important to increase compensation to reasonable levels. An effective, comprehensive compensation program requires restructuring o f salary scales to increase formal base compensation, restructure positiondgrades to provide additional promotion opportunities and development o f a system o f tangible performance goals. To pilot new processes and automation within the trade facilitation process and to increase customer service, an "elite unit" within Customs should be established. Establish a trusted, transparent, dispute settlement mechanism. Cambodia has committed to establishing a dispute settlement mechanism within its WTO commitment^.^ The mechanism should be independent, autonomous, and to the extent possible, include private sector participation. It should focus on specific technical issues such as nomenclature and valuation rulings, which have as their base, publicly disseminated information. Re-engineer process around Consolidate inspections under one automation and single window agency B create special unit Introduce SLA Eliminate Kamsab requirement Rationalize (Evaluate Privatization) Support Import Implement Risk Inbound Certification and Training PSI program, Management Clearance for CBlFF increase skill process Committee transfer and Introduce SLAsIFlat Fee technical Change AZ Reduce Port Service Formalize % of Unofficial Charges assistance; Group reimbursement Charges Establish "elite unit" within Customs transition to insourcing scheme (Evaluate Privatization) SuDDortina Infrastructure Establish Mlssion and Performance Taroets Rationalize Roles and Consolidate around customs Increase Staff Remuneration Increased Enforcement Mechanisms Establish Transparent Arbitration Process Tie Incentives to Achievement of Goals Working Party Report Para 99. 18 4. Twelve Point Plan: Government Commitments to Improve the Investment Climate and Trade Facilitation The Investment Climate Assessment was discussed in a series o f Cabinet-level meetings which resulted in Prime Minister's Decision No.1212004 dated March 22, 2004, to form a Special Inter-Ministerial Task Force o n Trade Facilitation and Investment Climate, Chaired by the Minister o f Economy and Finance and Vice-Chaired by the Minister o f Commerce. The Special Task Force was tasked, among other things, to improve investment climate and trade facilitation, with the responsibilities as follows: 0 Raise and put into implementation measures to reduce cash payments o n intermediaries related to export-import. 0 Raise and put into implementation measures to reduce procedures or cancel duplicating procedures inthe management o f trade process. 0 Raise and put into implementation measures to reduce time delays for goods export and import. 0 Raise and put into implementation all measures that would increase national budget. The Special Task Force defined an integrated program o f reform to address the most urgent impediments in trade facilitation and agreed upon a Twelve Point Plan: Government Corninitinelits to Improve the Investnzeiit Climate and Trade Facilitation. The reform measures agreed establishing a cross-agency reform team, consolidating inspection mandates across agencies and introducing selective inspections based o n risk, implementing a Single Administrative Document and Single Window process, automating information flows across agencies, streaming business registration procedures and recognizing ethical behavior inthe private sector - and are to be implemented o n an urgent basis by December 2005. TWELVE POINTPLAN: GOVERNMENT COMMITMENTS TO IMPROVE THE INVESTMENT CLIMATE AND TRADE FACILITATION Actions Agreed by Special Inter-Ministerial Task Force (SITF) Link to WTO Actions Agreed by WB on Investment Climate &Trade Facilitation Commitments 1. Establish a Cross-Agency Trade Facilitationllnvestment Climate Reform Team The TF agreed to form a team consisting of eight to ten members Working Party Report This is done representing the Ministries of Economy and Finance, Commerce, Para 39 defines inter- Agriculture, Labor and Social Welfare, Interior, industry, the CDC, ministerial coordinating and the Port Authority of Sihanoukville to oversee the change committee. measures in trade facilitation. 2. Establish A System Of Transparent Performance Measurement including Private Sector Monitoring The SITF agreed to establish a performance monitoring system to The original measurement system was monitor progress accurately, engender trust of all stakeholders in deemed to complex. A consultant has been the reform, and to report progress to the public. This system will selected and will begin work in February on a report the time and cost of importing and exporting product, and simplified system, include monitors from the private sector. 3. The trade facilitation process, including all licenses, procedures and documents, will be reviewed to remove overlaps and unnecessary approvals. Following the reengineering, a Single Administrative Document will be implemented and other documents progressively eliminated. Currently over 45 documents are required to export a shipment, Working Party Report Through the Sector Wide Approach, the each of which adds time and cost to the trade facilitation process. Table 7 Paragraph 93. European Union funded a consultant to To enhance sharing of information, to reduce cost and to pave the review documentation. The inception report way for automation, Cambodia will implement a Single suggested that the 45 documents can be Administrative Document by December 1, 2004, All other reduced to around seven immediately, with 19 progressively eliminated. The SlTF agreed that the reengineering automation. process shouid occur on an accelerated basis. 4. Introduce an overall risk management strategy to consolidate and rationalize all examination requirements of the different control agencies. The TF agreed a risk management strategy was necessary and Through the Sector Wide Approach, AusAID asked for the Bank's help in developing a TOR for this work. is providing technical assistance in this area 5. A strategic review of the role of CamControl will be launched to more productively deploy the organization's unique knowledge of quality control processes and make optimized use of inputs and resources from other agencies, such as the CED. The SlTF recognizes that the role of CamControl may need to be Through the SWAP, the EU has provided a modernized and updated in light of the maturity of the economy, consultant who has provided his the private sector's ability to determine quality and its trading recommendations in February 2005 As of relations, The Government will conduct the strategic review of May 2005, the Ministry of Commerce was CamControl including several options: retaining the existing preparing a recommendation to the Council of profile, merger with CED (following cross-training) or Ministers based on the principles and two establishment of a new entity such as a Food and Drug options of the Report Administration. 6. A Single Window process to manage trade facilitation will be piloted in the Port of Sihanoukville by December 2005. The Trade Facilitation process, once streamlined, will be automated by December 2005. The TF agreed to these timelines, and said that every attempt Working Party Report The Government has requested, and the would be made to complete this work by end 2005. The TF also Table 7 Paragraph 93 Bank is preparing, the Trade Facilitation and agreed that the Government will initiate a comprehensive Competitiveness Project, which will include automation project by October 2004. The process will start, as financing for the Single Window. A consultant soon as possible, with the design of an overall architecture that has been selected to design the architecture incorporates all agencies into a seamless network. Within this for the Single Window. overall architecture, implementation will be undertaken in phases. 7. The Government will introduce a WTO compatible flat fee for service, and the service will be defined by a service-level agreement. The TF agreed that the Single Window should be implemented The World Bank will provide assistance. in conjunction with a flat fee-for-service compensation mechanism that enables the private sector to pay once for all customs clearance processing. They also agreed that this fee should be tied to publicly stated and enforced SLAs that clearly outline the level of service provided to the customer in exchange for the fee paid, and a refund should be allocated to the customer should the agency fail to provide service within the terms outlined in the SLA. Licensing and Registration 8. Streamline the process and reduce the cost of incorporating with the Commercial Register, which is maintained at the Office of the Clerk of the Commercial Court, and costs an average of $630 and 30 days. The SITF endorsed the goal of streamlining licensing and Specific measures include a reduction in the registration to decrease the share of companies that operate minimum capitai requirement from KHR20 informaliy by making formal registration and hiring workers as million ($5,000) to KHR 4 million ($1,OOO), easy and inexpensive as possible. The SlTF noted that the The Legal Affairs Department of the Ministry changes proposed in Item 12 may require changing existing of Commerce reduced the cost of registration legislation and agreed that reform team would present proposals from $615 and 30 days to $177 and 10.5 after taking into consideration ongoing reform efforts. days. 9. Streamline the process notification of the Ministry of Labor to start hiring employees, which costs $250 and 30 days to complete. 20 I O . Harmonize registration for VAT, income tax and company registration using the same form and resulting in the same number. This would enable a unique identifier and facilitate information sharing across agencies. Private Sector Governance 11. Implementa nationalaward to promote good corporate citizenship and governance inthe private sector. Improving governance cannot rest on public action alone, Any At the request of and with guidance of the strategy to fight corruption, build better institutions, introduce Sr. Minister of Commerce, MPDF, with transparency in public contracting must also rest on efforts to FIAS support, has designed and managed strengthen codes of ethics and standards of governance in the first annual corporate citizenship private sector itself. The TF agreed that the Government will awards. Twenty four firms applied. The encourage, through the Government-Private Sector Forum, finalists and winners were announced on adoptibn of a Code of Ethics by the private sector, The 10 February 2005. Government also will try to introduce a national award for corporate governance, which will depend on an assessment against objective governance criteria. 12. Monitoring and Reporting The TF agreed that the private sector, through business Paragraph 217 There has been an effort to align the associations, will monitor and evaluate progress toward reform transparency on private sector forum with the Government's obiectives. Proqress reports will be provided to the Government- trade-related Private Sector Development Steering 5. Implementingthe Twelve Point Plan To achieve the objectives o f trade facilitation, the RGC has issued a Decision on the Establishment o f a Steering Committee for Private Sector Development, Decision No. 46 SSR, dated 11 August 2004. Three Sub-steering Committees have been established under this Steering Committee relating to Investment Climate and Private Participation in Infrastructure; Trade Facilitation; and Small to Medium Enterprises. The Sub-steering Committee on Trade Facilitation, which i s chaired by HE Cham Prasidh, Senior Ministerand Ministerof Commerce, is tasked with the following responsibilities: > Reduce all complex and lengthy processes at ministerial/institutionallevel related to import, export o f > companies; Abolish duplicated tasks of relevant ministriesiinstitutions in order to install effective examination > just inone place; > Strengthen the implementation o f "Single Window" mechanism at international gates; and Raise necessary measures to serve the enforcement o f laws and regulations on all negative aspects that impact business activities. The Trade Facilitation Committee has had the following achievements since its establishment: > A change from separate on-site inspections by Customs and Camcontrol to joint simultaneous on-site inspections from September 1,2004 where only one joint inspection document i s used. 9 From September 1, 2004 onwards: Issuance by the Ministryof Industry,Mines and Energy (MIME) Certificate of Processing, Certificate o f Origin by Ministry o f Commerce (MOC), Visa on Commercial Invoice and Export License are done based on joint inspection documentation of Customs and Camcontrol. After issuance o f these documents, officers of MIME and M O C undertake > post-export inspection. This replaces pre-shipment inspectionby MIME. The RGC has offered to establish a joint Customs-Camcontrol Focal Point/Office on a permanent basis in Garment factories with greater than 2,000 employees to facilitate and speed up the inspection and clearance process. 21 > The number o f steps in the procedure and processing application for Certificate o f Origin, Visa on Commercial Invoice or Export License at MOC has been reduced from 11 steps to 8 steps since May 12, 2004. The processing time for issuance o f application for Visa on Commercial Invoice, Certificate of Origin and Export license was reduced from 16 business hours (March 2002) to 12 business hours from M a y 12, 2004. 3 A strategic review of Camcontrol has been completed and recommendations currently under consideration by the RGC. With respect to a risk management strategy for inspection and clearance o f goods, the Government's Rectangular Strategy states: "Inthe area o f revenue collection by the Customs and Excise Department, the Ministry o f Economy and Finance will: "Implement forceful strategies andriskmanagement principles to reduce smuggling and illegal activities along borders. Strengthen the legal framework based on new customs law and its strict implementation including the development o f policy on customs and excise, formulating guidelines on customs procedure; and training officials. Promote computerization o f Customs and Excise Department. and develop short term measures to implement a customs automating program including a legal framework, and procedures related to training and project formulation." (p 78) AusAID has established a training program for senior officials, designed to result in a risk management strategy. Customs and Excise Department Modernization Strategy The CED has established a Work Programs on Reform and Modemization of Cambodia and Customs 2003-2008. Key areas o f the work plan include: > Strengthening o f the Legal Framework: A draft law on Customs has been prepared and i s currently with the Council of Ministers. Implementingregulations are being finalized. Policy and Procedures Operating Guidelines and under preparation for dissemination to Customs Officials and industry. 3 Tariff Restructuring. 3 Modernization and Simplification of Customs Procedures: This includes pre-shipment inspection to be phased out by 2007 and includes the introduction o f a risk management system in 2005. Customs have recently implemented an intelligence unit inthis regard. 3 Valuation and Post-Clearance Audit 3 Information Technology Systems and Automation 3 Improving Service and Trade Facilitation: This will include introduction of a dispute settlement mechanism. The IMFprovided technical support to help implement the Work Program, and JICA has aresident expert inthe CED to buildcapacity and support implementation. 22 Background on Export Diversification (Component 2) Along with trade facilitation issues addressed in component 1, access to markets and information on these markets are among key constraints to Cambodia's export diversification. For Cambodian firms, including those garment firms involved in subcontracting arrangements who want to be arms-length and independent exporters, finding and cultivating export markets involves significant investments -and often up-front investments - not only in financial terms but also in terms o f skilled and scarce managerial resources. A highly trained marketing staff i s required to obtain information and understand the needs of the market. A skilled technical workforce i s required to translate the market needs into appropriate production and quality assurance processes. These activities are information intensive and often require years o f understanding the market, and have to be undertaken in an environment where f i r m s already have to cope with existing problems such as poor infrastructure, inadequately trained work force, delays in securing inputs, complying with procedural requirements o f customs and Camcontrol, and accessing credit from an inefficient banking systems. TUNISIA EXPORT MARKET ACCESS FUND-EMAFTUNISIA T h e creation of export market access fund (F;IL\IES) in ;ipril 2000 marks an important shift of focus of export promotion efforts: away from a TPO model led by tlie government, to a public-private sector participative approach. I t s emphasis i s on iiidividual exporters and their associations, realizing that firms compete a n d not nations: it helps individual firms implement a systematic strategy to enter, sustain and expand export markets. T h e fund lias been set up by CEPE1 (the export promotion agency under the SLinistiy of Commerce) through Bank assistance, under private management coiisisting of international and local experts. I t encourages firms, especially S V E s , to enter export market by covering oii a temporary basis up to 50% of the cost of consultant services and by providing teclinical assistance. Services are offered by local consulting industry a n d international experts in collaboration v d i local consultants in response to private firms demand. Through i t s 5 years life, tlie F;lhlEX has assisted 700 firms to become exporters, export n e w products and services or enter n e w markets. Initial estimates indicate that each $1of ESL1F assistance lias generated m o r e than $20 of additional exports. ;irecent survey lias also indicated that 60% of firms that benefited from ELLIF assistance are now willing to pay full market price for export services. In addition, a small export consulting 1indust? has been created around tlie program wliicli can b e considered tlie m o s t important accomplishment of ELLIF Tunisia. International experience suggests that the relaxation o f the information constraint and market access bottlenecks faced by firms would create scope for further product and market diversification and that the benefits normally go beyond the exporting firm. Information spillovers arise on the exporter side, as export activities generate a better understanding o f how foreign markets work. Also, the export success o f a firm may generate demonstration effects for other firms, which become aware o f potential opportunities in foreign markets. In addition, exporters acquire valuable information regarding the functioning of customs administrations, foreign consumer tastes, shipping procedures and distribution networks, which could profitably be usedin future transactions with other countries. Resolving the market access constraint i s a challenge in Cambodia because o f the scattered structure o f the productive sector. Small and medium enterprises represent the bulk of existing and potential exporters in Cambodia. In several economic activities, including sectors with good prospects and potential for exports, firms do not have the minimum critical size to be competitive and to increase exports, This i s the case in the agro-processing sector, comprising o f a small number o f structured firms. most o f which o f small size. Consequently, not only small and mediumproducers but also large producers do not actively cultivate export markets especially large and sophisticated export markets. They cannot afford to add another area of demand on their limited cash flows. Further, they also recognize that their small size prevents them from making some o f the up-front investments in developing export markets. Even if they are willing, investments in export marketing may not be justifiable because they cannot achieve economies o f scale and scope. 23 The above discussion points out that, if Cambodian producers are to be encouraged to produce for export markets, mechanisms have to be found to bring the market closer to them. Mechanisms are also required to alleviate the producer from the burden o f having to undertake most o f the marketing tasks. If market development, marketing and selling, delivery and logistics management i s addressed, then producers can focus on the core basis o f competitiveness -low production costs, good quality, highproductivity and a skilled workforce. The solution i s not necessarily direct government intervention or subsidies but policies and strategies to actively court institutions and firms that have specialized marketing expertise. Backgroundon PPI Governance(Component3) Cambodia's poverty reduction strategy places an important priority on improving delivery o f public services, which were particularly weakened by years o f conflict and neglect. Because needs are so acute and resources so limited, we argue that the state should yield a substantial role for delivery o f public services to the private sector. Because o f its resource constraints, Cambodia has in fact been a center o f innovation in public-private partnerships for delivery o f services, including health, water, rural electricity provision, and even the introduction o f labor protection standards linkedto trade. Inthe water sector, the RGC undertook private participation initiative which involved the use o f competitive, output-based contracting o f connections to the public water system. The first batch o f four towns using the OBA approach was procured and the contracts signed by the RGC in March 2004, resulting in an average reduction in the cost per connection o f 30% compared with the historic cost o f public investments in similar systems. Local participation i s spread across almost all sectors, suggesting that there i s a local market to respond at least to some o f the PPI opportunities. In the power sector, for example, there is local ownership in one o f the independent power producers (Jupiter Power - minority Cambodian shareholding), and among the small-scale power producers that provide about 60 MW o f capacity, largely financed from their own funds. Inthe water sector, all the small-scale service providers inprovincial and district towns and rural areas (16 intotal) are locally owned and primarily internally financed. Increased private participation in infrastructure (PPI) in Cambodia, under an appropriate institutional and regulatory framework, i s likely to provide opportunities for augmenting budget resources and for improving efficiency. The benefits o f the latter can be substantial, particularly when accompanied by pro-competitive reforms (or even monopolistic activities operating under an appropriate regulatory framework). Public-private partnerships, including the use o f Build-Operate-and Transfer (BOT) arrangements or output-based contracting o f private providers o f public services, need to be seen as part o f a strategy to increase the efficiency o f service delivery. To ensure the best outcomes for Cambodia's citizens and to support service delivery goals, the Government would need to introduce the principles o f transparency, competition, accountability and rational design in all transactions with the private sector. Butthe practice ofprivate participation ininfrastructure inCambodiais frequently characterized by a lack of competition and transparency, which denies the country the efficiency benefits that are the most important reason to involve the private sector. Because o f the nature o f public services, most o f these efficiency gains can only be captured at the point o f transaction. To increase the impact o f the private sector in delivering infrastructure services, the report focuses on the framework for contracting with the private sector, and identifies a number o f legal gaps, institutional overlaps, and lack o f clarity at each stage. The process i s sufficiently "broken" as to require firms to circumvent it to secure transactions - a process that denies Cambodia most o f the benefits o f private participation. The practice o f PPI, however; does not reflect many o f these apparent advantages; and in the absence o f an appropriate legal. institutional, and regulatory framework, many o f the benefits associated with PPIhave not been secured. In2003, the Government launchedan effort to reform its governance o fpublic-private partnerships using technical support o f PPIAF, the World Bank and UNIDO. The key objective underlying the PPI Governance Study was to create an enabling framework for PPI that i s sufficiently flexible to allow for L4 unique sectoral requirements in contracting. A t the same time, the regulatory, procedural, and institutional framework should be sufficiently robust and inclusive to ensure that all PPI transactions - regardless o f the sector, source o f funding or size o f the transaction-are conducted fairly, transparently, competitively, and in the public interest. Strengthening governance for increased private participation in infrastructure and public service delivery rests on four principles that are cornerstones o f a sound, enabling environment for PPI: 3 improvingpredictability via improvements to the legaland institutional framework; 3 assigning clear lines ofresponsibilitywithin institutions; 3 ensuring accountability o f those institutions responsible for applying the procurement processes > according to the legal framework; and Improving the transparency and openness o f government procurement processes. Following a year-long effort, the Framework announced in the Investment Climate Assessment and agreed by Govemment includes the following elements: PPI Policy. The PPIPolicy sets out the roles and responsibilities o f the various parts o f government with respect to PPI projects, as well as specific policy proposals for managing the PPI process throughout the typical PPI project cycle, with various aims to address inter alia several serious concerns with respect to: the lack o f transparency in the handling of dealings betweenthe public and private sectors particularly in the selection, negotiation and management o f specific contracts betweengovernment and investors; more systematic control over the contingent and ongoing liabilities taken on by the public sector under PPI contracts; and improvements to supervision of the performance o f PPI concessions during project implementation and operation. Concession Law and Sub-decree on Concessions. These pieces o f draft legislation embed the key policy recommendations underlying the draft PPI Policy in the law. Prior to the Bank-supported PPI Governance Study, UNIDO was commissioned to assist RGC to develop a Law on Concessions, the intention of which i s to replace the BOT Sub-Decree and to supersede the relevant provisions o f Order 30BB on the Management of State Properties. The RGC asked the Bank team to work with UNIDO to ensure overall consistency with the approach beingproposed inthe PPI Policy. The effort resultedin: Policy Guideline Documents,dealing with: FinancialManagement of PPI Projects - setting out a range o f policy options and guidelines for managing government's fiscal exposure through PPP projects; Policy for Dealingwith Unsolicited Bids - setting out guidelines and suggestions for managing the trade-offs involved in balancing the advantages o f encouraging private sector initiative to come forward with sensible project ideas with the potential loss in transparency and efficiency gains o f a well-conceived competitive tender process; Contract Design Issues - setting out some recommendations for ensuring that contract design i s consistent with encouraging private sector participation; the parties responsible for management and monitoring are involved incontract negotiation; and that contracts transfer the appropriate risks to the private sector, while beingrobust to material changes to the context in which to operate; Policy for Contract Publication - setting out some recommendations on how best to make public the contractual terms for PPI projects, to maximize transparency and enhance public confidence and trust inthe integrity o f the procurement process; Policy on Decentralizationof PPI Project Governance setting out some guidance notes on how - to ensure that initiatives to improve the PPI governance that are appropriate to the requirements o f large national or large provincial-level projects do not have the undesirable side-effect o f suffocating small scale infrastructure development. 25 Capacity building program to implement the new PPI Policy, to be funded under the Project. The Framework establishes processes for the identification, appraisal, tendering and evaluation o f PPI projects, as well as the management o f unsolicited bids. Key to the framework i s the distinction drawn between those entities responsible for sponsoring and promoting PPI projects and those which act as `checks and balances', monitoring and approvingproposed PPIprojects. Awareness of the PPIFramework. The level o f awareness o f the PPIGovernance Framework i s mixed. Some ministries and agencies are preparing for the introduction o f the Framework, for example, the Ministry of Economy and Finance (MEF) has established a unit responsible for PPI while the CDC is supporting the introduction of the Framework. Other ministries appeared to have little understanding o f the Framework or their roles under it. No ministry appeared to have a developed strategy for identifying and developing potential PPIprojects. Instead, most appear to rely on unsolicited approaches. Access to skills. Ministries and agencies appear to generally have adequate skills in-house to develop and appraise the technical aspects of proposed PPI projects. However, all identified weaknesses in financial analysis and, particularly, legal skill areas. Typically, ministries and agencies have few lawyers and those they do have are only recently qualified. The general lack of financial and legal skills and the limited familiarity with PPI requirements encourages ministries to adopt a passive strategy towards PPI projects. There i s a strong tendency to wait for the private sector to propose projects on an unsolicited basis rather than actively developing and tenderingPPI opportunities. Ministries and agencies have access to extemal legal advisors during negotiations, the costs o f whom are recovered from payments by the selected private sector contractor. Such an approach i s suitable for individual transactions but does not assist ministries in the initial phases o f developing suitable projects. The lack o f legal, and financial, skills among ministries and agencies i s partly due to an overall shortage o f these skills within Cambodia, particularly among advisors with some familiarity with PPI requirements. The low salary levels within government service also mean that individuals who have acquired these skills and experience prefer to leave government employment to work in the private sector. The limited training and experience with PPI and the lack o f skilled staff at the level o f central ministries and agencies i s magnified at provincial and municipal level. Levels o f education are generally lower, for example, high school rather than university graduates, and foreign language abilities much weaker. Duringdiscussions, emphasis was placed on the need to include municipality and provincial governments in any capacity building program. Under decentralization measures, these governments will have responsibility for approving investments o f less than S2 million, which i s likely to represent a substantial proportion o f all PPIprojects in Cambodia. Backgroundon Investment Promotion FIAS has long supported the Government o f Cambodia to introduce the regulatory framework that i s more conducive to attract foreign investment,which resultedinthe Amendment to the L a w on Investment in February 2003. The Amended Law on Investment explicitly moves the CIB toward serving as a facilitative and promotional agency, with many evaluative and regulatory functions replaced by automatic systems. Inresponse to the request from the Secretary General o f the CDC, FIAS and MIGA organized a strategic planning workshop in Phnom Penh on March 2-3 2005. At the workshop, participants stressed the need to strengthen the CIB's capacity to promote, facilitate and retain investment in order to fulfill its new mandate. Their focus on capacity building was echoed in the results o f MIGA's institutional assessment (which preceded the workshop), in which CIB's score was found to be among the lowest for investment promotion agencies in the region. The strategy workshop particularly highlighted the 26 importance o f the following: (a) capacity building to implement the strategy; (b) skill building in investment promotion; (c) upgrading IT systems. Background on Legal and Judicial Reform 1. The RGC's avowed Legal and Judicial Reform (LJR) Strategy4outlines seven broad objectives that are aimed at improving access to, and the quality of, Cambodia's legal andjudicial services. The third o f these objectives requires the "provision o f better access to legal and judicial information by promoting dissemination o f basic legal knowledge through official publications, electronic media and information folders and ensuring easy accessibility to all legal and juridical information for legal practitioners and any other interested party". 2. On its adoption o f the LJR Strategy, the RGC also published a draft Action Plan listing numerous interventions it would consider implementing in the short-, medium- and long-term to achieve the strategic LJR objectives. Following a National Workshop on Legal and Judicial Reform, numerous intemal RGC deliberations and consultations among senior representatives o f the RGC`s Executive and Judicial branches, civil society and the intemational community, including the World Bank, a Short- and Medium-TermAction Plan for LJR (the "Action Plan") was formally adopted by the RGC on November 15, 2004. 3. As the Action Plan makes clear: "The Royal Government i s committed to accelerating the Legal and Judicial Reform process". Acceleration i s to occur inpart by making "the improvement o f access to legal and judicial information" an "operational priority" o f the RGC in 2005-2006. In this respect, the Government specifically seeks in the near-term"to collect and publishjudicial decisions". At least inrespect o f Cambodia's commercial law framework, the Ministryo f Commerce continues to do a remarkable job o f collecting and disseminating on a timely basis (both electronically and in print) all laws, decrees and sub-decrees dealing with, or touching upon, business activity in Cambodia. For Ministry o f Commerce purposes, the term "commercial law framework" i s properly given a broad definition. Still missing, however, i s the collection and wide dissemination o f the summaries and judgments o f any, let alone key, commercial cases in the courts o f Cambodia. As a result, Cambodia's business community, its judicial establishment, the Executive and Legislative branches o f Government, the Bar o f Cambodia, the Royal School of Magistrates, the Faculty o f Law and other institutions (as well as the public in general) remain ignorant o f how this commercial law framework i s being interpreted, applied and enforced. The Government recognizes it i s time to start the process o f ensuring that this essential information for the operations o f all commercial activities in Cambodia i s actually provided. Formally adoptedby the RGC's Council of Legal and Judicial ReforminJune 2003. 27 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies CAMBODIA: CambodiaTrade Facilitationand Competitiveness There has been no formal trade facilitation, private sector development, or automation projects financed by the Bank in Cambodia. There have been a number o f relevant donor-funded technical assistance projects inthe sector, as well as analytical and advisory work. The International Monetary Fund provided the Customs and Excise Department with resident technical assistance for two years in the context o f their Poverty Reduction and Growth Facility. This TA supported the development o f the Customs Law and related sub-decrees, as well as internal reorganization and reform plans referenced in Annex 10. A major recommendation o f the assistance was the automation o f customs processing. The IMF supported the development o f bidding documents, and an evaluation o f alternative providers o f such automation. A group o f six donors financed the Integrated Framework of Trade Related Technical Assistance (IF). The IF further found that the major issues with trade facilitation in Cambodia are cross- agency innature, including CED but also five other agencies operating without clearly distinct mandates and contributing to substantial delays and high levels of unofficial costs. The Integrated Framework included a number o f sub-sectoral studies that identified specific technical gaps that would constrain exporters. This has influenced the design o f Component 2. Beyond these past studies, the Bank i s working closely with ongoing projects o f donors: The European Union's Multilateral Trade Assistance Project (MULTRAP) is a multi-year technical assistance project for Cambodia and Lao PDR designed to support capacity to achieve WTO compliance. This has included reform o f trade facilitation. AusAID's Cambodia-Australia Technical Assistance Facility (CATAF) is providing a range of fast- disbursing technical assistance to achieve private sector-led growth. This includes support for the development of a risk-management capacity within trade facilitation agencies. UNIDO supported the drafting of the Law on Concessions. UNCTAD supported the Blue Book, which provides technical advice toward the development o f the investment facilitation function. The Bank is preparing, for FY06 delivery, a project financing the automation and reform o f public expenditure and financial management in Cambodia. 28 Annex 3: ResultsFrameworkandMonitoring CAMBODIA: CambodiaTrade Facilitationand Competitiveness ResultsFramework PDO Outcome Indicators Use of Outcome Information To promote economic growth by Investors perceive Cambodia to have a Jpdates of National Poverty Reduction .educing transaction costs associated more hospitable investment climate as F'aper, feedback to Prime Minister on Nith trade and investment, introducing measured thorough follow-up ICA (2006- ?esultsof Steering Committee on Private :ransparency in investment processes) 2007). Sector Development, feedback to public lnd facilitating access of enterprises to through dissemination workshops and 2xport markets through national media. Intermediate Results Results Indicatorsfor Each Use of Results Monitoring One per Component Component :omponent One: Trade Facilitation Component One: Component One: rime and cost to import and export A 50% reduction in the number of Public dissemination through national xoducts reduced and made more documents required to clear imports. media to enhance accountability. xedictable. Share of export shipments that are Internal discussion within donor physically inspected less than 40% by community on achievement of December 2006. Consultative Group benchmark PSRC benchmarks. 50% Reduction in time required to clear export shipments. Component Two: Export Market Component Two : Component Two: ~~ ~ Access Fund Number of firms preparing draft export An input to WTO monitoring reports, The enabling environment facilitates development plans. ASEAN, and Private Sector Forum, all of integration of new firms into the global which regularly discuss Cambodia's sconomy. Number of new exporters created, export diversification strategy and Volume of new exports. progress. Component Three: PPI & Investment Component Three: Component Three: Transparency / accountability introduced Number of PPI contracts publicly Consultative Group benchmark. into PPI. disclosed and subject to competitive Public knowledge of terms of contracts procurement processes. increases demand for specified services, and thereby increases accountability to Response time on investor inquiries. perform and, thereby creating a disincentive for corruption. Component Four: Legal Transparency Component Four: Component Four: Final judgments of Cambodia's Supreme Number of final judgments of the Public and private discussion, analysis Court and Court of Appeal are well appellate courts that populate the and application of Cambodian appellate reasoned, based on law and widely website and number of 'hits' on this court jurisprudence, including by judges, disseminated electronically. website. judges-in-training, lawyers, law students, and by businesses. 29 0 i! c 3 i b 3 n c 2 $ 5 L ..-r_ 2 0 V, C r $ d 3 0 m Annex 4: Detailed ProjectDescription CAMBODIA: Cambodia Trade Facilitation and Competitiveness Component 1:Trade Facilitation Sub-Component 1.1($5.95 in). Automation of Custom and TradeRegulatory Agencies. Unlike most countries throughout the world, Cambodia i s one o f only a small number o f countries managing its border-related regulatory functions without the benefit o f appropriate Information Technology (ICT) support. To achieve the project objectives described above it i s critical that priority attention be paid to identifying and implementing an appropriate suite o f purpose built ICT solutions that can undertake core border management related functions. The application o f appropriate ICT to border management activities can significantly streamline operations, reduce the risk o f errors, improve the level o f transparency and accountability and facilitate the achievement o f all border related government objectives. The project will ensure the effective and efficient deployment o f IT in support o f Customs and other border related agency operations. Specifically, the project will fund implementation o f new I C T systems and the establishment o f a community network linked to complementary improvements in operational procedures and developments in the organization and institutional arrangements addressed under the trade facilitation component. The sub-component will result in: P enhanced control over imports, exports and transit goods; 4 improvedcontrol ofexemptions, concessions andduty suspension regimes; 4 reducedcargo clearance times; P closer cooperation and rationalization o f activities betweenkey border control agencies; 4 uniform applicationofborder-related legislation; P increasedtransparency, predictability and lower transaction costs for the business sector: 4 reducedopportunity for inappropriate exercise ofofficial discretion; 4 enhanced management information; 4 more efficient revenue collectionand accounting; 4 more accurate andtimely trade statistics; P more effective deployment o f human and technical resources; and P More accurate information for risk management and post clearance audit purposes. Implementation o f the sub-component will proceedthrough two parallel, complementary parts: Electronic Single Window. The component will finance the development and implementation o f information technology to integrate and automate the trade regulatory and facilitation functions o f all key agencies through a shared electronic trade network (tentatively called "CamTradeNet"). This system will allow direct trader input o f Customs declarations and other informationrequired by the regulatory agencies in an integrated electronic form. It will facilitate the sharing o f this entered information electronically by the Government, thereby (a) eliminating the need for multiple, often duplicative requests for information and the associated time and resources; (b) increasing the speed and accuracy o f the disposition o f regulatory functions, and (c) reducing opportunities for unofficial charges. The resultant electronic "single window" for all border processing and clearance related formalities will make a significant contribution to the achievement o f the government's trade facilitation objectives by lowering transaction costs and reducing clearance times. Ensuring 31 appropriate interconnectivity between core govemment agencies and private sector traders (to allow direct trader input o f declarations and associated documentation) and banks (to facilitate the payment o f duties and taxes) i s an essential element o f the sub-component. The Single Window will integrate, inphases: Customs and Excise Department; Ministry o f Commerce; Camcontrol and its successor; The Autonomous Port o f Sihanoukville; Dryportsicontainer parks; Ministry o fAgriculture, Fisheries and Forestry; Ministryo fHealth Financial institutions. Procurement and implementation of UNCTAD's ASYCUDA automated Customs processing system in the Customs and Excise Department. The system will provide the IT support necessary to introduce a range o f modem approaches to Customs administration including risk management and post clearance audit. The ASYCUDA systemhas been deployed ina number o f countries throughout the world and the latest version of the product is designed to support selective examinations, trader compliance incentives, effective management o f Customs clearance, payment schemes to facilitate trade and secure duty and tax collection, and the production o f more accurate and timely trade statistics. The Sub-coriiponent willfinance the procurement and effective irnpleinentation of the ASYCUDA system in Custom iricluding theprovision of appropriate technical assistance to ensure effective implementation of the systenz and its seamless integration with non-autonzated system and procedures. The Sub-coniponent will also finance the developinent and inzplenientation of a coniiizunity network to provide an electronic Single window' to ensure traders are able to discharge all their regulatory responsibilities through one gateway. As a part of this development, a numbe~of sinal1 agency-spec@ systems will need to be developed and irnpleinented to ensure all key iniport/export related processes are able to be undertaken electronically. Sub-Component 1.2. ($40,000). Building capacity of trade regulatory agencies to adopt modern border nianagement practices, including selective inspection approaches based on risk management tools in line with the provisions of the revised Kyoto Convention on the Simplification and Izarinonization of Customprocedures. While the Revised Kyoto Convention i s specifically designed to meet the requirements o f a modem Customs environment, its key principles are equally relevant to all border management and clearance agencies. The key principles that underpinthe Convention include: Improving transparency, accountability and predictability; Enhanced cooperation between all border related government agencies; Balancing facilitation with control based on risk management; Use o f post clearance audit based controls; Simplification and standardization inline with internationally agreed standards; Cooperation and partnership with the private sector; Compliance management and improvement; Effective deployment o f ICT. 32 Modern border management operations imply predictability for private sector operators, and that procedures should be applied in a uniform manner throughout the country. Under international best practice, traders must be able to obtain advice from Customs, for example on how goods should be classified and valued. The sub-component will help build capacity to implement an advanced ruling system, with the corresponding legislation, procedures, and control mechanisms. Likewise, the right to appeal against decisions made by border management agencies i s embodied inthe RevisedKyoto Conventionand current WTO commitments. It is animportant element that limits the discretionary power of decision makers and increases accountability and transparency. Another key capability deriving from the Kyoto Convention i s the building o f key `value added' functions and activities within Customs that are considered essential to the implementation o f modern risk-based approaches to customs administration, such as the strengthening o f the risk management capacity throughout the organization; The establishment o f an Intelligence BrancWUnit with responsibility for the collection, analysis, storage and dissemination o f information and intelligence; Strengthening o f the post clearance audit capacity; and the development of a comprehensive compliance managementhmprovement strategy. Activities associated with this sub-component will be closely aligned with the activities o f other donors and the Private Sector Forum. > The activity will finance ongoing capacity building through the development o f international cooperation, including through mutual assistance agreements; 3 the exchange ofdata; P Externalpartnerships, notably interms of training and dissemination of information; and 3 The preparation and introduction o f sound performance indicators covering all key areas o f border management, as well as the design, introduction, monitoring and reporting o f client service standards together with a robust system for ongoing performance monitoring. Buildiiig on the work of other donors supporting trade facilitation, the Sub-conzponent will Jiiiance trainiizg, international cooperation and exchange of information to support: P Advance rulings systems for tariffclassificationand valuation; P Administrative appeal mechanisms; 3 Enhancedcooperation at the national, regional and international levels; 3 SoundPerformance indicators androbust monitoring systems, P Client service charters; 3 Enhancedcapacity for riskmanagement, intelligence, andpost clearance audit; and > Comprehensive compliance managementhmprovement strategy. Sub-Component 1.3 ($100,000) Implementation arid cross agency integration of appropriate, merit arid incentive-based human resource management policies arid a Iiumaii resource development strategy Recent research undertaken by the World Bank into the long term success o f previous Customs and trade facilitation projects has highlighted the need for adequate attention to be devoted to improving a range of supporting HRM policies, procedures and incentive systems. As such the CTFC project includes a sub-component to address: P Recruitment, selection, promotion and advancement P Mobility androtation o fofficials P HumanResource Development and Training 3 Remuneration and conditions o fservice P Performance managementlstaff appraisal 33 In line with complementary work beingundertaken by the World Bank and other donors on the adoption o f merit-based incentive and remuneration schemes (including the Merit Based Pay Initiative), the project sub-component will focus on the effective integration o f these schemes in all relevant border management agencies and will ensure the concept o f `merit' adequately addresses the objective o f trade facilitation. Likewise, where appropriate, the sub-component will focus on reviewing and redeveloping existing bonus schemes to ensure the incentives provided through such schemes are aligned with the long term objectives o f the project. Special attention will be paid to the training and development needs o f Customs and Camcontrol officials. This will involve the conduct o f a national training needs analysis, the provision o f advice on the development o f a new and comprehensive national curriculum designed specifically to meet the current and future needs o f new staff and existing officials who require job-specific training to adapt to the changing roles and responsibilities they will be expected to perform. The sub-component will finance the review o f existing practices and the development o f a new human resource management strategy which will include, at a minimum: > a recruitment component setting out in clear terms the standards expected for appointment to relevant agencies including examination results and objective selection criteria; P a clear set of requirements for selection, transfer and promotion o f staff together with robust means o f measuring staff performance; 3 a remunerationand conditions o f service regime that encourages and adequately rewards high performance and the maintenance of a decent standard of living for all officials, including the possible development of a flat fee system that removes incentives to increase the frequency o f activities that are fee-generating; and P A human resource development strategy aligned to the strategic plan and the future competency needs o f the GDC. Sub Component 4. ($60,000). Design and implementation of an Integrity Action Plan Given the vitally important role Customs. CamControl and other border-related agencies play in revenue collection, trade facilitation, national security and the protection o f society, it i s important that a comprehensive integrity/anti-corruption program be developed and implemented. To assist Customs administrations to establish such programs the World Customs Organization has prepared the Revised Arusha Declaration on Integrity in Customs. The Declaration consists o f ten distinct but interrelated elements considered essential to a sustainable anti-corruption and integrity enhancement program: 1. Leadership and Commitment 2. Regulatory Framework 3. Transparency 4. Automation 5. Reform and Modernization 6. Audit and Investigation 7. Code o f Conduct 8. Human Resources Management 9. Morale and Organizational Culture 10. Relationship with the Private Sector The Sub-conzponent will finance technical assistance to conduct a self assessmerit and gap analysis of thepeifornzance of the Custonzs and Excise Department relative to the Revised Arusha Declaration and the developnzeiit of an Integrity Action Plan based on this assessment. 34 Component 2: Export Market Access Fund The Export Market Access Fund complements a number o f ongoing initiatives, particularly the Intemational Trade Center's National Export Strategy arising from the country's Pro-Poor Trade Strategy articulated in the PRSP. It will focus extensively on providing technical assistance to firms and organizations that need to achieve market standards. Such standards will include product quality standards, core labor standards, organic product standards, safety or environmental standards. The main instruments o f the EMAF would consist o f (a) technical assistance to clients o f the program in the preparation o f their export plan: and (b) nonreimbursable matching grants (50 percent o f expenditures), payable to beneficiaries o f the EMAF for eligible activities undertaken withinthe framework of an export plan. Sub-Component 2.1 ($0.5 million). Teclznical support to the Ministry of Coninzerce's Department of Export Promotion to establish the exporter technical assistance window. The component would finance a management team for the Export Market Access Fund, reporting to the Ministry o f Commerce Department o f Export Promotion. The EMAF management team would have the responsibility (and would therefore have the relevant skills and experience) to actively help firms and associations prepare export plans, including support with market research on export market standards and compliance needs, and coordinate access to sources o f technical assistance to implement such plans. Subcomponent 2.2 ($1.6 million). Export Market Access Fund (EMAF). The EMAF would be a technical assistance matching grant facility that would cover 50% o f the cost o f achieving market standards, or evidence o f compliance with those standards. The matching grant, combined with the applicant's resources, would be used to hire technical support from a pre- qualified list o f market providers o f the required assistance. In doing this, the EMAF would also stimulate use o f business and export development services. The EMAF would co-finance: (a) enterprise diagnostics in view o f developing export plans; and (b) consultant services, acquisition o f information (including software and reference material), trips by entrepreneurs to explore specific export opportunities and buyers, mailing o f samples, promotion material, and other miscellaneous expenses required to implement the export plans. It i s expected that the commitment o f firms to their projects would be significantly increased by virtue o f their contribution to the cost. The EMAF would offer its services solely in response to private sector demand on a nondiscriminatory basis. The EMAF would not co-finance investments, equipment purchase, or operational costs o f the beneficiary enterprises. The EMAF i s consistent with the new framework o f the World Trade Organization (WTO). The grants are nonactionable subsidies as defined in Article 8 o f the Agreement on Subsidies and Countervailing Measures. They are non-actionable because they are not specific, as provided in Article 8, paragraph 1 (a): specificity under the WTO rules typically involves a targeting o f geographic regions or economic sectors and paragraph 2 of Article 8, principally the exception for research activities carried out on a contract basis for industrial research and for pre- competitive development activity. In accordance with Article 8.3, WTO would be notified o f the program. The EMAFwould be subject to a quarterly review. Based on a partial survey of enterprises conducted during project preparation, at least 100 small and medium firms producing tradable goods across the country and a few associations are expected to benefit from an EMAF. The Garment Manufacturers' Association, representingover 200 exporters, is expected to submit an application for $0.2 million per year to co-finance (with the GMAC, the Government, and labor unions) the Cambodia Better Factories Campaign. Better Factories engages the Intemational Labor Organization to support Cambodia's adherence to core labor standards, which are a requirement o f a segment of the market that Cambodia serves. 35 Component 3: Private Participationin Infrastructure and Investment Promotion Subconiponent 3.1. ($1.0 dllion) Technical Assistance to Irnplernerit Law on Concessions (See Annex 5). The overall objective o f the PPI sub-component o f Component 3 i s to improve the institutional capacity o f relevant Cambodian government agencies to effectively manage, deliver and implement PPI transactions that are conducted fairly. transparently, competitively and in the public interest. The PPIcapacity building program has three related objectives, namely: > Creating a common understanding of the PPI Governance Framework across sectors and spheres of government, and o f the roles and responsibilities o f individual institutions; 3 Equippingline ministries and other contracting authorities with the appropriate capacities to design, award and implement PPI projects in the context o f sound sector planning strategies; 3 Enabling the entities that act as checks and balances on PPI processes to function effectively. The key intermediate indicator i s that the revised PPI process articulated in the L a w o n Concessions and in the Sub-decree o n Implementation o f the L a w o n Concessions (i.e. the implementing regulations) will be implemented. The key indicator i s that the L a w and implementing regulations will be enforced, as evidenced by the RGC having completed all PPI transactions subsequent to the promulgation o f the Law in full compliance with the revised PPI Govemance Framework (as defined inthe Law) - resulting inimproved PPIdesign, transparent and competitive procurement, and the attainment o fvalue for money to RGC and consumers o f infrastructure services. Core training course on general PPI principles and processes. This will provide a basic understanding o f PPI, agreed terms and definitions and the PPI process. The course will be delivered at both central and provincialimunicipal level. Raising awareness of the PPI Governance Framework. This will describe how the Framework will operate, the legislation implementing the Framework, the role o f each ministry and agency under the Framework and will be used to disseminate model contracts. Support to specialized agencies involved in the PPI process.This will focus on helping those agencies with roles promoting or providing checks and balances on sector ministries developing PPIprojects. Support in the identification, preparation and negotiation of pilot PPI projects. This will provide advisory services to sector ministries at the central level to pursue promising projects. It will help with the development and documentation o f processes, which can subsequently be introduced into other ministries and agencies, as well as providing on-the-job training to ministries involved in the pilot projects. Within each component we have identified high and secondary priority elements. Those elements designated as high priority are the most important for the successful implementation of the PPI Governance Framework and should be funded under the TFCP. They are pre-requisites for the establishment o f a successful program o f pilot PPI projects, which will provide a means o f testing the framework inpractice and for dissemination o f the Framework and the benefits o f PPI to stakeholders. 36 3.2 Investment Promotion ($0.2 million). Teclinical Assistance to inzplemeizt Amended Law on I nvestment. The objective o f the o f the Investment Promotion sub-component of Component 3 is to support the implementation o f the Amended Law on InvestmentRGC through the adoption o f strategies that streamline and make more predictable and transparent the process o f foreign direct investment, and that enhance the attractiveness o f Cambodia as an investment destination through improvements inthe regulatory environment as well as in factor markets. The introduction o f the Amended Law on Investment and proposed implementingsub-decrees move CIB away from a regulatory function and towards a more facilitative and promotional role. The proposed project is to support the implementationo f the Amended LO1by building capacity within the CIB so that it can assume the role of investment promotion and facilitation more effectively. The program consists o f three components: appointment o f Khmer-speaking consultant to support implementation; a series o f 5-days training workshops for 15-20 CIB staff on subjects like investment generation and facilitation; and installationo f IT system. Khmer-speaking consultant: to support the Secretaries General o f CDC and CIB in implementing the action plan. Stafftrainingworkshops:a series o f workshops would be facilitatedby internationalconsultants on the fundamentals o f investment promotion, facilitation, and retention. The workshops will cover understanding private foreign investment flows, image building, investment generation and investment facilitation. IT Systems: installation ofhardware and software will be complemented bytraining for the use and maintenance o f the systems. The systems shall consist o f a website, investor tracking system and supporting hardware. The abovementioned program is complemented by other technical assistance programs that are currently under preparation by FIAS and MIGA. These other areas o f assistance consist of: Long term technical assistance: appointment o f an internationally experienced long-term resident advisor for institutional capacity building. The advisor will prepare an initial (12 month) action plan from the strategic plan developed in the preceding project, and assist with the implementation o f that action plan, by helping with the organization o f promotional activities, providing mentoring inputs for staff through on the job training and identifying and coordinating capacity buildinginputs from other sources. Administrative procedures: identify and eliminate counterproductive business procedures, and streamline the necessary regulationsthat remain. Component4. LegalTransparency Component ($0.4 million) This Component will assist in financing the collection and electronic publication of final judgments o f the Supreme Court and o f the Court o f Appeal. It will start as a pilot project in these courts, with a view to extending such collection and publication to final judgments as well o f the Municipal and Provincial Courts as quickly as possible. 37 The Component will finance the establishment and maintenance o f a website within the Ministry o f Justice o n which these final judgments will be placed in Khmer. A brief synopsis o f these judgments will also be placed on the site in English and in French. A link will be established between this site and other relevant websites, including, most importantly, a website containing all commercial legislation. The transcriptions will be in UNICODE Khmer or some other Khmer font which, in time, will allow robust, on-line, key word indexing, as well as a sophisticated search capability. Electronic links will also be made to the law as referred to in the judgments and, ideally, to an equally searchable site. In addition, this Component will provide training in utilizing the system for all 120 existing judges o f Cambodia. Training will take place at the Royal School o f Magistrates in Phnom Penh ina total of 10 sessions lasting one week each. Each session will have approximately 20 judges in attendance and each judge will attend two sessions. The project will cover trainer and participant expenses o f attending the training. Finally, this Component will finance the electronic publication of Cambodian commercial legislation, broadly defined, including all relevant decrees and sub-decrees. 38 Annex 5: Project Costs CAMBODIA: CambodiaTrade Facilitationand Competitiveness Project Cost By Component and/or Activity Local Foreign Total U S $million U S $million U S $million Trade Facilitation Component 6.150 6.150 Export Market Access Fund 2.100 2.100 PPI / Investment Component 0.800 0.800 Legal Component 0.400 0.400 Replenishment of Project Preparation Facility 0.580 0.580 Training, Workshops, Incremental Operating Costs 0.100 0.100 PrCiiAudits - 0.200 0.200 Total Baseline Cost 10.330 10.330 Physical Contingencies Price Contingencies Total Project Costs' 10.330 10.330 Interest during construction Front-end Fee Govemment Contribution (.330) (.330) Total FinancingRequired 10.000 10.000 Note: At the time of Appraisal, only $0.180 MM of $0.580 in the Project Preparation Facility was utilized. Following replenishment, S0.400 will remain unallocated. This balance of $0.400 i s expected to be utilized to finance the Component 3, bringing the total to $1.2 million as per Annex 4. 39 Annex 6: ImplementationArrangements CAMBODIA: Cambodia Trade Facilitationand Competitiveness Policy Guidance H.E. Keat Chhon. Chairman Role: -Project Design Executing Agency Ministry of Commerce/ -All operational decisions Trade Facilitation Committee -Responsibility for project success Role: Project * Resolving cross-agency coordination issues Coordination ---- -Preparation of Bid docs Unit Procurement * Disbursement Accounting Preparation of Quarterly Management Reports I I I I Cambodia Units Single Window Fund Promotion H.E. Sok Siphana H.E. Kem Sithan H.E. Vattana Roles: Customs IT One accountable official acts as component manager - Responsible for implementation of tasks on time, on quality target H.E. Kun Nhem * Achievement of project objectives ---Prepare TORS and guide consultants Arrange workshops and other project activities Ensure sufficient and appropriate staff for activities Reporting progress monthly to Executing Agency Referring problems to Executing Agency, and if unresolved, to PSD Steering Committee Provide Monthly reports to Executing Agency Use of Government Institutions. The project management structure relies to the extent possible on existing systems and institutions established in Cambodia by Prime Ministerial decisions. Implementation arrangements will be as follow: Executing Agency. The Executing Agency on behalf o f the Govemment will be the Ministry o f Commerce. This i s in accordance with the Prime Minister's Decision No.46 SSR dated 11 August 2004, which named the Sr. Minister of Commerce to lead trade facilitation. The Executing Agency will be responsible for all operational decisions and will be accountable for project success. ProjectManagement Units. Five Project Management Units will be established. PMUs will be established in the Ministry o f Commerce, to implement the Single Window ICT system, the Customs and Excise Department to implement the Asycuda World software system serving as back-office software for CED, the Ministry o f Commerce Export Promotion Department to implement the Market Access Fund, the CDC to implement the PPI capacity building and investment promotion capacity building, and the Ministry o f Justice to jointly implement the legal transparency component with the Ministry o f Commerce. Within each PIU, the Govemment will nominate one official, as described above, to be accountable for implementing the project on a day-to-day basis, including achievement o f target objectives, preparation o f Terms o f Reference, guiding consultants and contractors, ensuring sufficient and appropriate counterpart staff, and referring progress as well as implementationproblems to the Executing Agency. Problems which cannot be resolved at the level o f the Trade Facilitation Sub-committee will be referred to the Private Sector Development Steering Committee. Each P M U will provide a brief monthly report to the ExecutingAgency including operational progress as well as financial disbursements. 40 Project Coordination Unit/ReformTeam. Supporting the executing agency will be a Project Coordination Unit, which i s the Reform Team as defined by Prakas No. 2289/04CDC, dated August 19, 2004. This PCU will be responsible for executing all project procurements and disbursements, including preparation of bidding documents, disbursement, project accounting, andpreparationof quarterly management reports. 41 Annex 7: FinancialManagement and Disbursement Arrangements CAMBODIA: Cambodia Trade Facilitationand Competitiveness Summary of the FinancialManagementAssessment The review o f financial management arrangements for the project was carried out in January 2005. The assessment concluded that the risk was considered to be high due to high country fiduciary risk coupled with lack o f adequate project financial management system in place, inadequate capacities and experiences o f the agency and executing units in project financial management and the Bank's FMrequirements. Country Issues and Risk Analysis. The Country Fiduciary Assessment CFAA was carried out in M a y 2003 and it was noted that the overall country fiduciary risk in Cambodia i s considered to be high. In spite of the multiplicity of controls and the centralized nature of the Public Expenditure Management (PEM) system, weak financial management practices pose serious fiduciary risks. The fundamental problems result from a weak control environment, severe weaknesses in National Treasury (NT) operations, especially in the area o f cash management, inadequacies in the public accounting system, and weak intemal and extemal auditing capacity. These problems are so serious that the Govemment's budget and reporting systems cannot be relied upon to expend resources in an accountable manner. The system i s cash based and most receipts and almost all payments do not pass through bank accounts. These systemic weaknesses thus raise concerns about fiduciary malfeasance and create the potential for misuse o f funds or corruption. In order to mitigate the risk and to ensure that the project would have the adequate system in place before project starts, the agency needs to establish an appropriate financial management system for the project with adequate number o f skilled staffs. The capacity in project financial management and reporting to meet the Bank's requirements need to be established and strengthened. Training needs to be provided to staff responsible for the project. Financial Management Arrangements. The project financial management arrangements will include the following features: Implementing Entitv. A reform team will be set up within the Ministry o f Commerce (MOC) to coordinate overall implementation of the four components and responsible for overall project management including procurement, financial management and disbursement. Funds Flow. All disbursements for the four components will be managed by the reform team. Disbursement of the Grant proceeds will be made through direct payment from grant account for major consultant contracts, goods and from a Special Account for small payments i.e. local consultants, sub grants, training and workshop with reimbursements made based on full documentation or against Statement o f Expenditure (SOE) depending on procurement prior review threshold. Staffing. Currently, there are totally 38 officials in accounting department o f Ministry o f Commerce to handle accounting, budget, finance and procurement. Staff education background i s mostly bachelor degree in accounting but English proficiency i s low. Four o f them were nominated to be responsible for accounting (2) and disbursements (2). Since the proposed staff lack o f experience in the Bank's procedures and requirements, there i s a need to hire two local consultants to support the team: one in accounting, another in disbursement and financial functions. The TOR and the process o f recruitment o f the two consultants are required to be 42 agreed and acceptable to the Bank. The reform team's capacity will be strengthened to ensure that staff has adequate skills to implement and monitor the financial management activities. Accounting Procedures. Recently the Ministry o f Finance has uniformed project management procedures and issued three standard manuals to be adopted for all external fund projects in Cambodia. Those manuals include 1) Standard Operating Procedure (SOP), 2) Project Financial Management Manual (FMM) and 3) Project Procurement Manual (PMM). As for the financial and accountingprocedures for the project, the standard FMM, which elaborated procedures, shall be adopted. The staff assigned and the consultants selected to work on project should be familiar with the manuals and the project's reportingrequirements. The current accounting activities are mainly related to maintaining budget records according to budget line item. The role o f payment processing and payments still rest with National Treasury. The unit has no capacity to deal with bank accounts, disbursement and payment processing. The computers have been used to keep simple records and facilitate reports with four sets o f computers available. Audit arrangement. An independent auditor acceptable to the Bank shall be appointed to audit the annual financial statements according the TOR acceptable to IDA. Reporting and Monitoring. The project shall provide the Bank with regular reports on fiduciary aspects including annual financial statements and Financial Monitoring Reports (FMRs). The reporting system will be in accordance with the Financial Monitoring reports; Guideline to Borrowers issuedon November 30,2001. The FMR reports shall include: (1) Discussion o f Project Progress, (2) a Balance Sheet (3) Sources and Uses o f Funds Statement (4) Uses o f Funds by Project Expenditures (5) Output Monitoring Report and (6) Procurement Report. The formats will be agreed at Negotiation. The chart o f accounts and the reporting module of the accounting package will be customized appropriately to facilitate the reporting needs. The reports are required to be submitted quarterly to IDA within 45 days after the end o f each quarter. The annual financial statements are required to be submitted annually within 6 months after the end o f fiscal year. The format o f annual financial statements will be agreed before the first audit. Action Plan To ensure the proposed arrangements are adequate and ready for implementation, the following actions should be taken before project starts. Those include i)apply and adopt the SOP, FMM to the project; ii)assign a team o f staffs with qualifications acceptable to the IDA to be responsible for overall project financial activities with supports from 2 local experts, hiring based on qualification and TOR acceptable to the Bank; iii)putting into place an acceptable accounting software package; and v) training project staffs on the Bank's requirement and project financial management procedures. Supervision Plan The supervision of the Project will include close monitoring o f the FM related aspects. Quarterly FMRs are to be submitted to IDA within 45 days after the end o f each quarter. IDA supervision i s planned at least three times a year for the first year and twice a year subsequently. 43 Audit Arrangements The MOC will be responsible for ensuring that the annual financial statements are audited and forwarded to IDA within six months o f the end o f the preceding year. The audit would be carried out by an independent auditor appointed under terms o f reference satisfactory to IDA with an option that selection could be bundledwith other IDA projects inportfolio handled by MOEF. DisbursementArrangements 1. Allocation o f Grant Proceeds. The proposed Grant will be disbursed against expenditure category as shown inTab le 1. It i s expectedthat the proceeds o f the Grant will be disbursed over a period o f four years (September 2005-December 2009). Table 1 - Allocation o f Grant Proceeds ~ Expenditurecategory Amount inUS$ 1 Goods S 5,800,000 2(a) Consulting Services ($1,450,000 less Government contribution o f $330.000) $ 1,120,000 2(b) Consultant Services under Component 3 o f Project $800,000 Training, Workshops and IncrementalOperating Costs $ 100,000 $ 1,600,000 5 Replenishment o f Project Preparation Facility $ 580,000 Total $10,000,000 The financing percentage for each category will be at 100%. 2. Use o f Statements o f Exuenditures (SOEs). Some o f the proceeds o f the Grant are expected to be disbursed on the basis o f Statements o f Expenditure as follows: (a) service contracts for individual consultants costing less than $50,000 equivalent each and service contracts for firms costing less than $100,000 equivalent each; (b) purchases o f goods costing less than $5,000 each; (c) sub-grants; and (d) trainings and workshops. Disbursements for services exceeding the above limits will be made in accordance with respective procurement guidelines and provisions in the Grant Agreement against submission o f full documentation and signed contracts. The documentation supporting SOE disbursements will be retainedby the MOC duringthe life o f the project and one year after the receipt o f the audit report for the last year in which the last disbursement was made. These documents will be made available for review by the auditors and IDA supervision missions. 3. Special Account. The Special Account (SA) will be established at a commercial bank on terms and conditions acceptable to the Bank including appropriate protection against set off, seizure and attachments. The accounts would be denominated in U S dollars. with a SA ceiling o f USD 200,000. The Special Account (SA), which would cover the IDA share o f eligible expenditures in all disbursement categories, would have an authorized allocation o f US 200,000. The Special Account should be replenished on a monthly basis to assure liquidity o f funds or when the account i s drawn down by 20 percent o f the initial deposit, whichever comes first. All replenishment applications will be accompanied by reconciled bank statements from the depository bank showing all transactions inthe Special Account. 44 Annex 8: ProcurementArrangements CAMBODIA: CambodiaTrade Facilitation and Competitiveness A. General Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure categories are described below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement of Goods (US$5,800,000): Goods procuredunder this project shall be one package o f hardware and software installation o f a cross agency trade network to be procured through International Competitive Bidding procedures using the Bank's Standard Bidding Document - Supply and Installation o f Information Systems (Two-Stage Bidding). Procurement o f Automated System for Custom Data (ASYCUDA) would be procured by Direct Contracting to UNCTAD, with Bank's prior agreement. Hardware such as computer and accessories to be used for development o f website estimated to cost less than $5,000 shall be procured through shopping procedures. Licensed or proprietary software may be procured through Direct Contracting with Bank's prior agreement. Selection of Consultants (US$2,250,000): Consulting services for all four components including audit and advertising, and survey execution services and staff for the PIU would be procured through: (a) Quality- and Cost - Based Selection (QCBS) method and Selection Based on Consultants' Qualification (CQS) for firms, and (b) Selection o f Individual o f Consultant (IC). Sub-Grants (US$1,600,000): Matching grant paying 50% o f cost o f provision o f technical assistance to exporters. Average size of grantifinn i s $20,000 and estimated 80 firms. Project Implementation Manual will be prepared by the P N . Training, workshop and incremental operating expenses [US$lOO,OOO]: Training, workshop and incremental operating expenses would be procured using the procedures acceptable to the Bank with due consideration to quality, efficiency and cost-effectiveness. B. Assessment of the agency's capacity to implement procurement Procurement activities will be carried out by the Project Coordination Unit established within the Reform Team in the Ministry of Commerce. The procurement unit in the Accounting Department i s staffed by 5 existing procurement officers (two o f them are tentatively selected to assist in the project) and an additional local procurement staff with Bank's procurement experience will be recruited to work in the P I U for 36 months. Procurement will follow the Bank's Guidelines for both Goods and Consulting Services. Standard Bidding Documents for Supply and Installation o f Information System will be used. 45 An assessment o f the capacity o f the Reform Team to implement procurement actions for the project has been carried out by Ms. Oithip Mongkolsawat o n January 5: 2005. The organizational structure for implementing the project was not yet established at the time o f the assessment but the mission assessed the Accounting Department o f the Ministry o f Commerce. Most o f the issuesirisks concerning the procurement component for implementation o f the project have been identified in the Procurement Capacity Assessment Report (available in the project file) and included lack o f Bank's procurement experience o f the existing procurement staff. The corrective measure which i s to recruit a local consultant with Bank's procurement experience to work in the PIU for 36 moths was agreed and reflected inthe procurement plan. The overall project risk for procurement i s HIGH C. ProcurementPlan The Borrower developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team at Appraisal and i s available in SAP. It will also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequency of ProcurementSupervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended three times a year for the first year and later o n twice a year supervision missions and post review. 46 Attachment 1 Detailsof the Procurement Arrangementinvolvinginternationalcompetition Goods : (a) List o f contract Packages which will be procured following ICB and Direct Contracting: 1 2 3 4 5 6 7 8 9 Ref. Contract Estimated Procurement P-Q Domestic Review Expected Remarks No. (Description) Cost Method Preference by Bank Bid- (yeslno) (Prior I Opening Post) Date 1 Supply and $3,600,000 ICB no no Prior Feb 1,06 Installation of Hardware and Software for Electronic Single Windowl Community network. 2 ASYCUDA World $2,200,000 Direct no no Prior Aug 15, Package for Contracting 05 Customs and Administration. (b) All ICB and Direct Contracting shall be subject to the Bank'sprior review. Consulting Services (a) List o f Consulting Assignments with short-list of international firms. Component 1:Trade Facilitation 1 2 3 4 5 6 7 Ref. No. Description of Estimated Selection Review Expected Duration Assignment Cost Method by Bank Proposals (PriorlCost) Submission Date 1 TA for risk $200,000 QCBS Prior Jan. 1: 06 36 months management, HR, Integrity development program, valuation, intelligence. 2. Project Implementation $150,000 QCBS Prior May 1, 05 36 months Support (Support evaluation of bids and oversight of project implementation). 47 Component2 :ExportMarket Access Facilitv Ref. No. Description of Estimated Selection Review Expected Duration Assignment cost Method by Bank Proposals (Prior/ Post) Submission Date 1 Export Market $500,000 QCBS Prior Nov. 1, 05 24 months IAccess Facility Manager Component3 :PPIDnvestmentPromotion ConsultingServices. 1 1 2 1 3 1 4 1 5 1 6 1 7 Description of Estimated Selection Review Duration Assignment Cost Method by Bank Proposals ~ ~ (Prior / Post) 1 Private Participation $200,000 QCBS Prior Nov.1, 05 36 months in Infrastructure 2. Pilot PPI Projects $400,000 QCBS Prior Nov.1, 05 36 months 3. Strategy $35,000 IC Post Oct. 1, 05 24 months Implementation 4 Capacity Building $ 165,000 QCBS Prior Nov. 1, 05 24 months (IT and Training) Component 4: Legal Transparencv v- 1 1 ConsultingServices. 2 1 3 4 5 6 1 7 Ref. No. Description of Estimated Selection Review Expected Duration Assignment Cost Method by Bank Proposals (Prior / Post) Submission Date Development of $320,000 QCBS Prior Dec.1, 05 24 months system to publish commercial decision on web Training of judges $80,000 IC Prior Dec.1, 05 and key staff 48 PIUStaff,Audit and Operations Consulting Services. 1 1 2 3 4 5 6 7 Ref. No. Description of Estimated Selection Review Expected Duration Assignment cost Method by Bank Proposals (Prior/ Post) Submission Date 1 Procurement $28,800 IC Post August 1, 05 36 months Officer 2. Disbursement $28,800 IC Post August 1, 05 36 months Officer 3. Accountant $28,800 IC Post August 1,05 36 months 4. Bi-annualAudit $56,000 QCBS Post December 05 5. Monitoring surveys $50,000 IC Post Auaust 1, 05 36 months (b) Each contract for consulting services exceeding $100,000 in case o f firms and $50,000 in case o f individuals; and each contract involving single source selection, irrespective o f value, shall be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than $100,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines. 49 Annex 9: Economic and FinancialAnalysis CAMBODIA: CambodiaTrade Facilitation and Competitiveness The objectives and components o f the Trade Facilitation and Competitiveness Project are united by the use o f transparency, competition and market standards to support private-led growth in Cambodia. Many benefits o f the project cannot be readily quantified. Examples o f such benefits are: Trade Facilitation Reduced smuggling, better valuation, lower unofficial costs, reduced management time Export Market Access Fund Export revenue and tax collection, job creation PPI Increased PPI volume, higher quality of projects, impact of improved infrastructure 1Investment Promotion lmrxoved confidence in Cambodia as a destination for foreian direct investment Legal Transparency IBetter economic decisionmaking through better understanding of laws. However, i t i s possible to justify the project on economic and financial terms if (a) society as a whole achieves a net economic gain from the project, excluding fiscal transfers, and (b) the project generates fiscal revenues that are higher than the project costs in discounted terms. The attached analysis indicates that the project i s justified using a small subset o f the expected benefits. Economic Analysis The Economic Analysis i s based on one expected benefit, the reduction of time required to clear imports. The expected reduction o f time over the course of the project i s a 50% reduction from 6.5 days as determined through the Investment Climate Survey, to 3.25 days by year 4. As indicated in the monitoring table, this will take place gradually over the course o f four years. According to a quantitative analysis o f historical data by Organization for Economic Cooperation and Development (OECD), each day saved on average results in an economic gain equal to the value o f 0.5% o f imports. By projecting the investment costs, user fees, import volume and gradual introduction o f time savings, a cost-benefit stream i s projected. A model o f GDP and trade growth i s constructed using the provided assumptions. GDP growth i s projected at 4%, and the import to GDP ratio is held constant at 58% (to be conservative, although the rate has increased over time). The value per declaration i s held constant at $42,800. A number o f donors and government officials are involved trade facilitation efforts, and there is a natural process o f institutional improvement that we expect to take place in Cambodia. Therefore, we only assume that 20% o f the benefits deriving from faster clearance can be attributed to the project. Financial analysis The financial analysis estimates the increase in the taxes on imports that would result from the project, and compares them with taxes that would have been collected under the status quo. The project i s assumed to have a positive impact on official revenues because it changes the incentives facing traders and public officials in favor o f compliance with agreed tariff schedules. I t makes compliance easier, since the previous array o f officials and agencies would be replaced by an online system requiring single entry o f required information, introducing performance-based remuneration, and decreasing opportunities for discretion, direct interface, and corruption. Coupled with public messages and enforcement actions, the net result i s expected to be a gradual increase in official revenues. The expected rate of growth of revenues (including the collection o f customs duties, excise taxes and penalties, but excluding VAT) i s two percent per year over five years, stabilizing at a ten percent increase in public revenues. 25% is attributed to the project (Prime Minister's messages, other donors, CED). 50 o o o c 0 0 0 0 09 0 z'4m'4 0. 0 0 0. 0. "mN m-? -? m -m c1 in 7 a, ln - 3 v, h 2 cL 0 Q U ._0 .-E L L a, 0 Annex 10: Safeguard Policy Issues CAMBODIA: Cambodia Trade Facilitation and Competitiveness The following i s a summary o f decisions on safeguards policies. OP 4.01 EnvironmentalAssessment (EA). Environmental considerations are integrated into the TA component o f the project, and other donors are supporting several relevant programs. No formal EA i s required. OP 4.04 Natural Habitats,The project will not finance activities that would significantly convert or degrade any protectedareas, known natural habitats, or established or proposed critical natural habitats as defined under the policy. N o action i s requiredunder this policy. OP 4.09 Pest Management. The project will not procure any pesticides nor will it result inan increased use of pesticides . NOaction i s requiredunder the policy. OPS 11.03 / OP 4.11 Cultural Property. The project will not finance activities that will adversely affect sites with archeological, paleontological, historical, religious, or unique natural values. No action i s required under this policy. D4.20 (being converted to OP 4.10) Indigenous Peoples (IP). The project will not finance activities affecting Indigenous Peoples as defined inthis policy. No action i s required under this policy. OP 4.12 Involuntary Resettlement. The project will not finance land acquisition or involuntary resettlement as defined under the policy. No action i s required under this policy. OP 4.36 Forestry The project will not finance activities that would involve significant conversion or degradation of critical forest areas or related critical natural habitats as defined under the policy. N o action i s required under this policy. OP 4.37 Safety of Dams. The project will not finance any dams and dam construction or repair i s not anticipated in the project investment. N o action i s required under this policy. OP 7.50 International Waterways. There are no known project components involving international waterways as defined under the policy. N o action i s required under this policy. OP 7.60 Disputed Areas. The project i s not located inany known disputedareas as definedunder the policy. No action is required under this policy. BP 17.50 Public Disclosure. The IntegratedSafeguard Data Sheet will be publicly disclosed. 53 Annex 11: ProjectPreparationand Supervision CAMBODIA: Cambodia Trade Facilitationand Competitiveness Planned Actual PCN review 712212004 7/22/04 Initial PID to PIC NIA Initial ISDS to PIC NIA Appraisal 412012005 412112005 Negotiations 412812005 51412005 BoardlRVP approval 61212005 Planned date of effectiveness 810212005 Planned date of mid-term review 612112007 Planned closing date 121112009 The following institutions o f the RGC were responsible for Project preparation: 0 Private Sector Development Steering Committee o f the Royal Government o f Cambodia 0 Trade Facilitation Committee 0 Ministryo f Commerce 0 Ministryo f Economy and Finance 0 Council for Development o f Cambodia 0 Customs and Excise Department 0 Ministryo f Justice Bank staff and consultants who worked on the project included: Name Title Unit Magdi M. Amin, TTL Sr. Private Sector Development Specialist EASFP Hamid A. Alavi Sr. Private Sector Development Specialist MNESP Gerard McLinden Senior Trade Facilitation Specialist PRMTR Ramesh Siva Sr. IT Specialist ISGIF Michael Schur Sr. PPI Specialist PPIAF Maiko Miyake Investment Officer MIGOP Eric Haythorne Sr. Counsel LEGPS Huot Chea Economist EASPR Eric Sidgwick Sr. Economist EASPR Otihip Mongkulsuwat Procurement Specialist EACTF Nipa Sribhibudhas Financial Management Specialist EACTF Maria Lourdes Pardo Lawyer LEGEA Teck Ghee Lim Social Safeguard Specialist EASSD Priya Mathur Environmental Specialist EASES Laura A. Mitchell Team Assistant EASPR Hans Korb IT Specialist Bank consultant Bank funds expended to date on project preparation: 1. Bank resources: 242,8 57 2. Trust funds: 60,000 3. Total: 302,000 Estimated Approval and Supervision costs: 175,000 1. Remaining costs to approval: 60,000 2. Estimated annual supervision cost: 90,000 54 Annex 12: Documentsin the ProjectFile CAMBODIA: CambodiaTrade Facilitationand Competitiveness World Bank 2004: Seizing the Global Opportunity: An Investment Climate Assessment and Reform Strategy for Cambodia. Washington, DC: The World Bank. . 2003a. Canibodia: Legal and Judicial Sector Assessment. Washington, DC: The World Bank. . 2003b. Towards A Private Sector -Led Growth Strategy for Cambodia - Volume 1: Value Chain Analysis. Washington, DC: The World Bank. International Labor Organization. 2002. "Second Synthesis Report on the Working Conditions Situation inCambodia's Garment Sector." World Bank and Asian Development Bank. 2003. Cambodia - Enhancing Service Delivei.)i through Improved Resource Allocation and Institutional Reforni: Integrated Fiduciary Assessment and Public Expenditure Review. Washington, DC, The World Bank. World Bank and the Public-Private Infrastructure Advisory Facility. 2002. Private Solutions for Iieastructure in Cainbodia: A Country Framework Report. Washington, DC, The World Bank. Trade Facilitation and Econoniic Developnient: Measuring the Impact. John S. Wilson, Catherine L. Mann, and Tsunehiro Otsuki. World Bank Policy ResearchWorking Paper 2988, March 2003. European Union Multilateral Trade Assistance Project for Laos and Cambodia (EU MULTRAP), Strategic Review of CaniControl Digby Gascoine, PhnomPenh, February 2005. European Union Multilateral Trade Assistance Project for Laos and Cambodia Final Report: Review and Rationalization of Trade Docuiizeiitary Requirenients, Ian James Scott, February 2005. Streanilining Trade Facilitation: A Reconmendation for Comprehensive Trade Facilitation Reform iii Cambodia. SMS Cambodia, Consultant to World Bank, October 30th, 2003. Project Concept Note Aide Memoirs Royal Government of Cambodia Prime Minister's DecisionNo. 1212004: Special Inter-Ministerial Task Force (SITF) on Trade Facilitation and Investment Climate. Prime Minister Decision 4412004 SSR dated 26 July 2004. Steering Committee for Private Sector Development, dated26 July 2004. Decision 46 SSR, 11 August 2004. Establishes Three Sub-steering Committees relating to Investment Climate and Private Participation inInfrastructure; Trade Facilitation; and Small to Medium Enterprises. Draft Law on Concessions, Draft Customs Law, Draft Sub decree to the Amended Law on Investment 55 Annex 13: Statement of Loansand Credits CAMBODIA: CambodiaTrade Facilitation and Competitiveness Difference between expected and actual Original Amount inUS$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel.Undisb. Orig. Frm. ID Rev'd PO64844 2004 KH-Rural Electrif. & 0.00 40.00 0.00 0.00 0.00 40.89 5.33 0.00 Transmn PO71207 2004 KH-P~ov. & Rural 0.00 20.00 0.00 0.00 0.00 19.34 2.34 0.00 Infrastructure Project PO70542 2003 KH-Health Sector Support 0.00 17.20 0.00 0.00 0.00 25.74 -4.44 0.00 Project PO71146 2003 KH- RURAL 0.00 22.00 0.00 0.00 0.00 18.76 2.16 0.00 INVESTMENT & LOCAL GOVERNANCE PO73311 2003 KH-PROV & PERI-URB 0.00 16.90 0.00 0.00 0.00 20.83 1.93 0.00 WATER PO71445 2002 KH - Demobilization and 0.00 18.40 0.00 0.00 6.27 10.61 -3.95 0.00 Reintegration PO71247 2002 KH - Eco. & PS Capacity 0.00 5.50 0.00 0.00 0.00 6.14 3.38 0.00 Building Project PO70875 2002 KH-Land Management and 0.00 24.30 0.00 0.00 0.00 23.70 4.48 0.71 Administration PO73394 2001 KH-Flood Emergency 0.00 35.00 0.00 0.00 0.00 2.90 -1.76 0.00 Rehabilitation Proj PO52006 2000 KHBIO& PROT AREA M 0.00 0.00 0.00 2.75 0.00 1.57 3.77 1.57 PO65798 2000 KH-BIO & PROTEC 0.00 1.91 0.00 0.00 0.00 1.02 0.44 0.92 AREAS M PO60003 2000 KH-Forest Concession Mgt 0.00 4.82 0.00 0.00 0.00 1.48 1.1s -0.11 & Control Pilot PO04030 1999 KH-Road Rehab. 0.00 45.31 0.00 0.00 0.00 9.04 9.17 -0.69 PO50601 1999 KH-SOCIAL FUND I1 0.00 25.00 0.00 0.00 0.00 0.24 -8.84 0.00 PO04033 1997 KH-AGRICULTURAL 0.00 27.00 0.00 0.00 5.22 5.15 10.69 0.57 PRODUCTIVITY IMPROVEMENT Total: 0.00 0.00 2.75 11.49 187.41 25.85 2.97 303.34 56 CAMBODIA STATEMENT OF IFC's Held andDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Company Loan Equity Quasi Partic. Loan Equity Quasi Partic Approval 2003 Amansara 1.04 0.00 0.00 0.00 1.04 0.00 0.00 0.00 2005 CanadiaBank 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SCA Cambodia 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000104 SEF ACLEDA Bank 6.00 1.10 0.00 0.00 1.00 1.10 0.00 0.00 Totalportfolio: 22.04 1.10 0.00 0.00 2.04 1.10 0.00 0.00 Approvals PendingCommitment FY Company Loan Equity Quasi Partic. Approval 2000 SEF ACLEDA Bank 0.00 0.00 0.00 0.00 Total pending 0.00 0.00 0.00 0.00 commitment: 57 Annex 14: Country at a Glance , CAMBODIA: Cambodia Trade Facilitationand Competitiveness Cambodia at a glance 411105 East POVERTY and SOCiAL Asia& Low. Cambodia Pacific income Development diamond* 2003 Population, mid-year (millions) 13.4 1,855 2,310 Life expectancy GNI per capita (Atlas method. US$J 300 1.080 450 GNi (Atlas method, US$ biiiionsl 4 0 2,011 1,038 - Average annuai growth, 1997-03 Population (%J 2.4 1.o 1.9 Labor force (%j 2 5 1.1 2.3 GNi ~ Most recent estimate (latest year available, 1997.03) Poverty (% of population below nstionaipoverty IineJ 36 Urban population (% of total populationi 15 40 30 Life expectancy at birth iyearsi 56 69 58 1 Infant mortality (per 1,000 live biiihsj 84 32 82 I Child malnutrition (% of children under 5) 45 15 44 I Access to improved water source Access to an improved water source (% ofpopuiationj 30 76 75 I illiteracy (% ofpopulation age ?5+J 30 10 39 Gross primary enrollment (% of school-a~epopuiationJ 118 111 92 Cambodia Male 124 112 59 Low-income group Female 112 111 85 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1983 1993 2002 2003 Economic ratios. GDP (US5 bilifonsl 2.5 4 0 4 1 Gross domestic investmentIGDP 11 2 22 2 24.9 Exports of goods and serviceslGDP 16 4 55.1 62.2 Trade Gross domestic SavingSIGDP -5.1 14 0 15 3 - Gross nationai savingslGDP 0.5 20.5 22.4 Current account balancelGDP -4 2 -1.4 -3.0 Domestic Interest paymentslGDP 0.0 0.1 0.2 + Investment Total debtiGDP 73.4 72.4 75.5 savings Total debt servicelexports (cash basis) 9.9 0.9 0.9 Present value of debtlGDP 61.2 Present value of debtiexports 97.1 I Indebtedness 1983-93 1993-03 2002 2003 2003-07 (avsrage annuai growth) GDP 6.6 5.5 5.3 4.8 Cambodia GDP per capita 3.4 3.6 3.5 3.1 I Low-income o r o u ~ Exports of goods and services .. 20.8 19.2 9.4 STRUCTURE of the ECONOMY 1983 1993 2002 2003 Growth of investment and GDP ( O h ) I f% of GDPj 1 Agricu iture 47.3 35.0 36.0 60 - I IndJstry .. 12.9 28.0 27.7 40 - Manufactunng 8.6 20 2 20.2 Services 39.8 37 0 36.2 Private ConsumDtion .. 100.5 80.2 78 7 . i o1 I GDI W G D P 1983.93 1993-03 20a3 1 Growth of exports and imports (Oh) (average annual growth) Agriculture 3.1 -3 2 5 6 150 - Industry 14.7 17.7 6 6 Manufacturing 17 4 15.1 10 2 Services 54 2 5.8 4 3 2 1 Private consumption 4 3 3.2 0 7 General government consumption 7.7 7.8 6 8 10 1 98 99 30 C 1 02 03 Gross domestic inveslment 12 8 13.4 22 7 Exoorts d l m o o r t s imports of goods 2nd services 14 7 16.9 8 7 Note 2003 data are preliminary estimates * The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are mlssing, the diamond wili be incomplete 58 Cambodia PRICES and GOVERNMENT FINANCE 1983 1993 2002 2003 Domestic prices Inflation (Oh) h (% change) Consumer prices 3 7 0 5 Implicit GDP deflator 2 1 -0 5 Government finance (% of GDP, excludes current grants) Current revenue 4 6 11 1 10 4 Current budget balance -1 0 1 1 -0 2 GDPdeflator ""CL'CPI I Overall surplusideficit -4 5 -6 7 -7 1 TRADE I 1983 1993 2002 2003 (US$ millions) Export and import levels (USS mill.) Total exports (fob) 284 1,750 2,046 3 000 Rubber 63 98 Logs and sawn timber 41 23 Manufactures 1,440 1,700 Total imports (cifl 422 2,314 2,596 Food 75 80 Fuel and energy 353 413 Capital goods 648 758 97 88 99 c0 01 c2 Export price index (2000=100) 1 Import price index (2000=100) 1 Z Exports Imports Terms of trade (2000=100) BALANCE of PAYMENTS 1983 1993 2002 2003 1 (US$ miliions) Current account balance to GDP (%) Exports of goods and services 348 2,354 2,572 Imports of goods and sewices 592 2,687 2,990 Resource balance -244 -333 -417 Net income -16 -169 -183 Net current transfers 156 447 475 Current account baiance -104 -55 -125 Financing items (net) 154 191 Changes in net reserves -99 -66 Memo: Reserves including gold (US$ miliions) 663 737 Conversion rate (DEC. /ocal/US$j 2 689 0 3,917 0 3,980 0 EXTERNAL DEBT and RESOURCE FLOWS 1983 1993 2002 2003 (US$ miilions) :omposition of 2003 debt (US$ mill.) Total debt outstanding and disbursed 9 1820 2,900 3,139 IBRD 0 0 0 0 IDA 0 0 306 400 Total debt service (cash basis) 0 34 22 25 IBRD 0 0 0 0 IDA 0 0 2 2 Composition of net resource flows Official grants 25 176 180 188 Official creditors 0 5 146 155 Private creditors 0 0 0 0 Foreign direct investment 0 70 139 77 Portfolio equity 0 0 -8 -8 World Bank program Commitments 0 63 30 76 IBRD E - Bilaleral Disbursements 0 0 47 63 Principal repayments 0 0 0 0 Net flows 0 0 47 63 Interest payments 0 0 2 2 Net transfers 0 0 45 60 Development Economics 4/1/05 59