SMEs policy and regulation

The Covid-19 pandemic has caused a major economic shock in Cambodia, having a spillover on Cambodian micro, small and medium enterprises (MSMEs) and small household farmers’ survival and business continuity.1 Digital technologies are crucial during the pandemic, in which the owners of SMEs should focus on learning these skills and take advantage of the benefits the digital technologies offer, said Oknha Te Taingpor, president of Federation of Associations for Small and Medium Enterprises of Cambodia.2

Law and policies on SMEs

Laws and policies on SMEs are needed to develop to national and international standards. The law serves to provide any needed support for SMEs and smoothen the process to reduce unfair competition and gain greater market opportunities and production chains.3 There was no specific law to govern SMEs though there was the Commercial legal framework from 2005 to 2010 under the Ministry of Industry, Mines and Energy and SME Sub-Committee (SCSME), a body responsible for formulating SME policy in Cambodia.4 In 2021, however, the Ministry of Industry, Science, Technology and Innovation​ (MISTI) planned to submit a draft law on SMEs to the Ministry of Economy and Finance to review after H.E. Mr. Cham Prasidh did a final cross-check.5

Industrial Development Policy 2015 – 2025 (IDP 2015 – 2025) was launched in March 2015 to strengthen the management and development structure related to SMEs and promote formal registration and good governance among the enterprises. The policy also aims to register 80% to 95% of SMEs, and 50% to 70% of them​ to have proper accounting records and balance sheets by 2025.6 Expansion and modernization of SMEs are one of the key policy measures that the Royal Government of Cambodia (RGC) has introduced to transform and modernize Cambodia’s industrial sector from labor-intensive to skill-driven industry, and are essential for the economic growth in Cambodia. It can be done through the improvement of institutional arrangements and incentives, registration and accounting practices, and promotion of agro-industrial development.7

National Strategic Development Plan (NSDP) 2019 - 2023 was formed to implement the Rectangular Strategy Phase IV and achieve the Cambodian Sustainable Development Goals 2016 - 2030. NSDP also listed down 13 main points for the development of SMEs, including the development of a policy framework and a sub-decree, acceleration of the registration, and provision of technical assistance and coordination.8

RGC through the Ministry of Commerce has formulated and examined E-Commerce Strategy through 10 components. SME regulations is one of the main areas in the strategy, which comprises four objectives.9

  1. Strengthening regulatory framework and adding the e-commerce firms’ specificity
  2. Strengthening the private sector and advocate coordination for sector growth
  3. Improving the capacities of enterprise-level to stay up to date of policy and regulatory changes
  4. Developing support tools for focused and specialized SME

There was no comprehensive SME development strategy, but the government through the MISTI started to develop a medium-term strategy called SME Development Policy. The draft of the policy was a part of the 2017 IDP implementation and focuses on five priorities, such as (1) enhancing policy and regulatory environment, (2) promoting entrepreneurship and human capital development, (3) promoting productivity, technology and innovation, (4) enhancing foreign market access and internationalization, and (5) increasing access to finance.10

Support for SMEs

Screenshot of the Ministry of Industry, Science, Technology & Innovation website, dated on 13 July 2022. Licensed not specified.

SCSME and the General Department of SME and Handicraft (GDSMEH) of the MISTI has been the main agency providing support and implementing SME policies by organizing policies, strategies, direction, and overall planning of SMEs and handicraft, supporting and promoting entrepreneurship, collaborating with other agencies to promote the development of SMEs and handicraft, and etc.11 Though its resources are limited, its local presence is strong since it has offices in all 25 provinces of Cambodia.12 There are also three departments under the general department:13

  1.  Department of Small and Medium Enterprises
  2. Department of Handicraft Affairs
  3. Department of SME Planning and Development Promotion

Screenshot of the Small and Medium Enterprise Bank of Cambodia Plc. website, dated on 13 July 2022. Licensed not specified.

Alongside the support from GDSMEH, Small and Medium Enterprise Bank of Cambodia Plc. (SME Bank) was officially licensed and supervised by the National Bank of Cambodia and guided by the Ministry of Economy and Finance on 27 February 2020.14 The bank has the mission to provide services to financial and commercial banking to support local SMEs enterprise to diversify the economy and expand export volume, aligning with the government’s policies. It also has launched an initial budget of $100 million to support agro-business and SMEs linking to foreign direct investments, tourism sector, and tech start-ups.15 To support SMEs, the bank has launched 4 schemes and Participating Financial Institutions:16

  1. SME Co-Financing Scheme (SCFS)
  2. Cambodia SME Scheme (CSS)​
  3. Cambodia Women Entrepreneurs Scheme (CWES)
  4. Cambodia Digital & Automation Scheme (CDAS)

Various support is available for Micro, Small, Medium and Enterprises (MSMEs), which can be in the form of fiscal incentives or programs at the national or regional level.17 In March 2019, Prime Minister Samdech Hun Sen made important recommendations to increase trade and competitiveness during the 18th Government-Private Sector Forum. Five new policies can be seen to support SMEs.18

SME digitalization

SME digitalization refers to the process of moving towards a digital business and using digital technologies by facilitating a business model, offering new revenues and value-producing opportunities, experimenting with new technologies, and embracing new and different markets. Digital adoption will contribute to the competitiveness of SMEs through reducing the costs, increasing revenue, and having a better understanding of consumer behavior and market.19

To minimize the threat from the pandemic and ensure that SMEs can participate in the digital economy, the United Nations Development Programme (UNDP), with support from the Australian government, initiated the “E-commerce Acceleration Programme” to support MSMEs and small farming households to go digital. UNDP, in collaboration with the Ministry of Commerce and Enhanced Integrated Framework, also developed “Go4eCAM” to support Cambodia’s e-commerce ecosystem and for MSMEs to digitalize and gain access to finance and export readiness for e-commerce uptake and business formalization.20

Under Cambodia’s e-commerce development project (Go4eCAM),21 in early 2022, the government also launched business-to-business-to-customer (B2B2C) e-commerce platform to open new pathways for SMEs in selling their products. After launching, 394 SMEs have already registered themselves on CambodiaTrade to sell more than 1,000 products on the platform. H.E. Pan Sorasak, Minister of Commerce, said that the e-commerce platform helps SMEs in Cambodia increase their economic opportunities to participate in domestic or cross-border e-commerce and digital economy.22

SME internationalization

SME internationalization can be achieved through different activities under six categories, such as direct exporting, direct importing, foreign direct investment, subcontractors to foreign enterprises, having foreign subcontractors, and cooperation with foreign enterprises in the form of licensing, franchising, collaboration, or joint-ventures. Internationalization in Cambodia, on the other hand, is limited since only a few local SMEs are in export markets and focus on a few sectors and products including garment industry, agro products (sugar, cassava, and rice), and some light manufacturing products (bicycles).23 SMEs in Cambodia face four key challenges including unfair competition, access to finance, bureaucracy, and human resources, which are barriers of SME internationalization in Cambodia.24

Related to SMEs policy and regulation

References

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