PART ONE: INTRODUCTION

A. Product(s) covered under the survey with definition and or description, SITC and country's trade classification number.

The demand survey cover raw material inputs and end user imports related to the selected products which include all components and replacement parts (mechanical, electrical, electronic, hydraulic, rubber and rubber) pertaining to two and three-wheelers, motorcars, light and heavy commercial vehicles, farm and agricultural vehicles. The list of products is based on the following classification:

Cambodian country's trade classification number: 696

B. Significance of the product to the economy and foreign trade sector of the economy in term of sharing in total annual import for the country

Based on the 3 years average it is estimated that the total value of automobile parts and components accounted for about 6 % of the total national import.

C. Specific objective of the survey

The principal objective of the demand survey is to provide comprehensive information on the market for the above selected products in Cambodia, with a view to assisting potential suppliers of these products in taking advantage of existing trade opportunities at the Buyers/Sellers meeting on automobile components organized by the International Trade Centre UNCTAD/WTO (ITC) in October 2002 in Singapore.

The demand survey will aim in particular at:

1. Describing the characteristics and structure of the market, including details concerning individual importers/end‑users;

2. Assessing the potential for increasing demand and /or changing to new sources of supply;

3. Identifying impediments affecting imports;

4. Determining areas in which specific measures are required, with reference to customs procedures, payment arrangements, licensing and other rules and regulations.

In addition to describing market characteristics for the benefit of potential suppliers in Cambodia, the survey also aims at analyzing the existing constraints in the import sector concerned and at formulating recommendations for action the Government and other agencies having development responsibilities.

The guiding factor in the interpretation of the above objectives and in the formulation of research design for collection of information and analysis will be trade expansion possibilities between Cambodia and other participating countries.

D. Survey Methodology

The survey is done by a locally hired consultant, Mr. Sam Holl who reported directly and regularly to H.E. Sok Siphana. Secretary of State, Ministry of Commerce. The survey methodology consists first of collecting all available statistics and other relevant data from various sources followed by field surveys in a dozen major targeted markets in the capital of Phnom Penh. Several consultations were held with the Phnom Penh Chamber of Commerce and several car spare part companies and storeowners, workers and knowledgeable user groups.

The following ministries and institutions were consulted:

1.  Ministry of Commerce (MOC)

• Foreign Trade Department, Import and Export office

• Domestic Trade Department

• Camcontrol

• Export Promotion Department

• The ASEAN/WTO Department

2.   Ministry of Economy and Finance

• Department of Customs and Excise Tax

• Department of Taxation

3.    Ministry of Industry. Mines and Energy

4.    Ministry of Public Works and Transport

5.    The Council for the Development of Cambodia

Field Surveys

Interviews were conducted with car and spare part importers and distributors, car dealers, shop owners, second hand spare parts and components dealers in Phsar Depot market (the largest car spare parts and component market area in Cambodia), Phsar Touch market, along Kampuchea Krom street areas and other major car spare part and component spots throughout Phnom Penh capital. Conduct interviews with.

Documents reviewed

1. Custom Tariff of Cambodia 2000

2. Import‑Export Statistics 1998, 1999, 2000. Technical General Directorate, Foreign Trade Department.

3. Camcontrol Annual Statistics, 2000.

4. Productivity reports. Ministry of Industry, Mines and Energy.

5. Business and Investment Handbook, Ministry of Commerce, Editions 1996, 1997‑98, 1999‑2000.

6. Legal Aspects of Doing Business in Cambodia: 1998 Edition, Sok Siphana and Sarin Denora. CLRDC. Phnom Penh.

7. Legal System of Cambodia: 1998 Edition. English and Khmer version, Sok Siphana and Sarin Denora. CLRDC, Phnom Penh.

8. Cambodian National Transport Networks. Chreung Sok Tharath, Ministry of Public works and Transport, 2000.

9. Cambodia investment 2000 ‑ Conference Report, Data consult, US‑ASIAN Business Council.

10. Cambodia's Annual Economic Review 2001, Cambodia Development Resource Institute (CDRI).

11. Cambodia Memorandum of Foreign Trade Regime, Royal Government of Cambodia, 1999.

12. Cambodia ASEAN/CEPT Schedules. ASEAN and International Organization Department. 2000.

13. Trade Facilitation, Streamlining Trade Document, 2000, UN/ESCAP.

14. Who's Who in Cambodia, Cambodia Media Group, 2000.

15. Major achievements of the Royal Government of Cambodia in 2001.

16. Cambodia: Integration and Competitiveness Study, Ministry of Commerce, 2002.

17. Macro-Economic Management, Ministry of Economy and Finance, 2000. 

Research Constraints

One of the key constraints faced by the research team is the accuracy of the data. Numerous institutions produced trade related data. Custom data are available from the Customs and Excise Department of the Ministry of Economy and Finance. While they computerized in HS system they are difficult to obtain. The official statistics published by the National Department of Statistics were not detailed enough to be useful for this survey, except for some out of date data on industries. The Ministry of Commerce also compiles its own trade statistics through one of its agent Camcontrol although again not at the HS system. Some data for some years were not available at the HS system and therefore can't be compiled due to time and resources constraint.

* * * * *

PART II: SUMMARY OF CONCLUSIONS AND RECOMMENDATION

Cambodia’s limited industrial base was largely destroyed during the recent conflict. Industry has grown rapidly from a low base in recent years, with the share of industrial output (manufacturing, mining, construction, and energy and water supply) increasing from 13.9 to 35.6 per cent of GDP between 1995 and 2000. Manufacturing output increased from 8.3 to 18.4 per cent of GDP due largely to rapid growth in textiles and garments (from 1.9 to 12.4 per cent of GDP between 1995 and 2000). Garment manu­facturing has been a major source of growth in paid employment in recent years. Following a decline during 1997 and 1998, the share of construction in GDP has increased since 1999.

Presently, Cambodia does not yet have any manufacturing facilities producing automobile spare parts and components. There are a number of small processing enterprises of automobile parts and components, such as: automobile tires, radiators, side mirrors, rear view mirrors, door handles, batteries, nuts and bolts, and body shops.

The demand survey has shown that on the 3 years average it is estimated that the total value of food and processed food accounted for about 6 % of the total national import. The statistics shows that most of automobile spare parts and components for the last three years came from Japan, Korea, USA, Thailand, and Germany.

The Cambodian government continues to reform its tariff rate system. In April 2001 the number of tariff bands was reduced from 12 to 4 with the maximum tariff rate falling from 120 to 35 per cent. Tariff rate reductions covered several major finished goods as well as some inter­mediate goods and raw materials. One of the major tariff decreases under this reform package covered completely built up passenger cars (from 40 to 120 per cent to 35 per cent) and spare parts (from 50 to 35 per cent); tobacco products (from 50 to 35 per cent); and alcoholic beverages such as wines and distilled beverages (from 50 to 35 per cent).

Cambodia does not export automobile parts and components. 

There are no quantitative restrictions on imports on automobile spare parts and components in Cambodia. Cambodia has no licensing requirements related to the import of goods subject to the scope of this survey.

The following are factors limiting the production output of automobile parts and components:

Demand: Processing enterprises refurbished a certain amount of automobile parts only when there is a specific order from customers.  They could not produce a large quantity of parts and stock them.  For example, the nut scrapping shops may proceed their scrapping work unless there is a demand of certain type, size, and amount of nuts from the market. 

Equipments and Technology: Equipments and technologies used in processing enterprises are of low quality, the bulk of it were imported from the former Soviet Union or from neighboring Vietnam. In recent years, new machineries were imported from Thailand, China, and Korea. Molds for automobile parts and components are for the most part customised by Cambodian auto mechanics.

In a survey made by the IFC/MPDF managers were asked to list, in order of importance, the top three problems their firms face in the current business environment. Lack of access to working capital and the severity of competition came out on top.

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PART III: MAIN REPORT

A.    Market size

General Economic Performance

Three phases characterize economic growth in Cambodia over the nineties:

• Growth has been particularly rapid since the beginning of the decade, with a peak at 7.6% in 1995, and an average yearly rate of 6.6% over the first four-year phase;

• The drop was just as steep with growth rate of 3.7% in 1997 and 1.8% in 1998; but it does not seem to have deeply affected the high rate trend, since the average yearly rate for the six years between 1993 and 1998 remained at around 4.7%.  It is not unnecessary to recall that this rate did not go beyond 3.4% over the 1988-91 period, although growth in manufacturing have reached  6.3%;

• Then, Cambodia has experienced a clear upturn with economic growth rate bounced back to 5% in 1999; it is expected to reach 5.5% in 2000, and as high as 6.3% in 2002.

Even if the overall growth record has been good in the 1990s (with the exception of 1997-8 following the Asian financial cataclysm and domestic political problems), sectoral distribution of growth has been quite uneven.

Agriculture keeps accounting for over 40 % of GDP (42.6% over 1993-98) and is especially important for the poor.  The 93-96 period was satisfactory, but the intermediate period 97-98 was weak (1.4% in 1997 and -0.8% in 1998). In fact, the poor performance of this sector – along with tourism – is largely accountable for the low level of the overall growth in 97 and 98.  Rice production, a determining factor of the growth of the agricultural sector,  is often adversely influenced  floods and droughts.  Forestry, continuously plagued by much illegal logging, experienced a high growth rate of its value added in 1993-96, 20.8% on average, reaching a peak at 41.7% in 1994. A downturn seems to have begun in 1995 (2.4%) and continued in 97-98. However, the data is probably far from providing an accurate picture of the sector!

The industrial sector still displays a remarkable dynamism, which illustrates the country’s openness. The average growth rate was 8.9% in 1993-96 and continues until 1998 (7.0%), in spite of internal events in Cambodia and the financial crisis in the region. Construction – which accounts for more than third of the industrial sector – is the sub-sector with the highest growth, with an average annual rate of 13.1% in 1993-96.

Similarly, manufacturing, a fairly dynamic sub-sector even before 1992 - 6.3% average annual growth rate in 1988-91 - confirms its positive trend, with textile and garments reaching an annual growth rate close to 15.0% for the 1993-96 period.  Rapid development of the garment industry has a favorable impact on poverty, as it creates employment for female workers coming from the rural areas.  The average rate for 94-98 was nothing short of 19.6%. Yet, textile and garments are expected to slow down in 1999-2002 (8.3% average rate), following the introduction of quotas for the American market. These quotas may shrink even further unless a favorable response is given to external demands regarding the social rights of the factory workers.

Services follow the dynamic experienced by the country since 1992 - equivalent average growth in 1993-96 (7.1%) and 1999-02 (7.6%), against 1.8% in 1988-91. This sector includes tourism-hotels, transportation-communications, real estate and commercial activities.

In sum, the recovery phase started in 1999 can lead the country towards high, stable growth.

General Economic Conditions

The foundations of the Cambodian economy are household economic units which employ and provide incomes for the majority of the population. Cambodia is an agrarian economy with 80 per cent of the workforce employed in the agriculture sector. The production of rice, for household consumption and trade, is the major economic output for most of the 84 per cent of households located in rural areas. Households supplement rice production with other economic activities such as fishing, production of vegetables, fruit and other cash crops, the gathering of forest products, and off farm employment.  Some household members also earn incomes from: i) domestic private enterprise sector comprising mainly informal micro and small enterprises, but also a number of medium size enterprises are beginning to emerge; ii) foreign invested private enterprises engaged primarily in garments, other light industries, and tourism, and other services; and iii) the public sector, including a (declining) State enterprise sector. The domestic private sector is widely dispersed throughout the country, but employment by the larger private enterprises, foreign invested enterprises, and State enterprises is concentrated around Phnom Penh and other urban centres.

The most recent (1998) census estimated there were 11.4 million people (51.8 per cent female) living in 2.2 million households in Cambodia. Some 26 per cent of households are headed by females. The population is very young, with 42.9 per cent aged between 0-14 years of age. 

The level of human development is low by regional and international standards. Internationally, Cambodia was ranked 121st out of 162 countries in 2001 using United Nations Development Program’s (UNDP) Human Development Index. In Southeast Asia, only Laos was ranked lower. Infant and maternal mortality rates have declined in recent years, but remain amongst the highest in the region. Life expectancy at birth is 54.4 years for males and 58.3 years for females. Only 37 per cent of the population are functionally literate. Only 31 per cent of urban, and 13 per cent of rural, populations have completed school. Less than 5 per cent of the population has completed the equivalent of high school education. Analysis of export options and the formulation of export development strategies to Cambodia need to take into account the reality of low levels of human development.

Domestic Industry: Structure of the Enterprise Sector

Cambodia’s limited industrial base was largely destroyed during the recent conflict. Industry has grown rapidly from a low base in recent years, with the share of industrial output (manufacturing, mining, construction, and energy and water supply) increasing from 13.9 to 35.6 per cent of GDP between 1995 and 2000. Manufacturing output increased from 8.3 to 18.4 per cent of GDP due largely to rapid growth in textiles and garments (from 1.9 to 12.4 per cent of GDP between 1995 and 2000). Garment manu­facturing has been a major source of growth in paid employment in recent years. Following a decline during 1997 and 1998, the share of construction in GDP has increased since 1999.

The non‑farm private sector of today's Cambodia is a pool of enterprises fed from three streams: privatized state enterprises; foreign investments or joint ventures, and indigenous new entrants consisting of small and medium enterprises (SMEs) which are by far the largest in terms of number of enterprises and employment.

About 1.6 million people are estimated to be involved in informal sector/micro enterprise activities and in small businesses nationwide, many on a part‑time basis. Because the Cambodian private sector was entirely decimated, new SMEs probably are the indigenous private sector. There are no aggregate statistics that convey the size or composition of this sector, and estimates are based on limited evidence. One such estimate, defining Cambodian SMEs as businesses with more than 3 but fewer than 50 workers, put the total at not more than 50,000 enterprises. Since the vast majority of registered companies are SMEs, the 26,000 companies registered by the Phnom Penh municipality should approximate the number of SMEs in the city. A recent industrial survey indicated that 40 percent of industrial establishments were in Phnom Penh. The majority of them were engaged in production, followed by trade and other services. The goods manufactured were similar to those made by SMEs in almost all developing countries: food products and beverages, building materials, fabricated metal products, and wood products.   

Characteristic of Production Process (Automobile spare parts and components)

Presently, Cambodia does not yet have any manufacturing facilities producing automobile spare parts and components. There are a number of small processing enterprises of automobile parts and components, such as: automobile tires, radiators, side mirrors, rear view mirrors, door handles, batteries, nuts and bolts, and body shops.

Factors limiting the development of the industries

In a survey made by the IFC/MPDF managers were asked to list, in order of importance, the top three problems their firms face in the current business environment. Lack of access to working capital and the severity of competition came out on top. The hypothesis that graft and corruption would be a pervasive response was not born out in the final data.

The following are some barriers to the development of the industries:

Lack of human resources:  Up to now, Cambodia only has one institution, Technology Institute of Cambodia, which offer students an engineering curriculum or high tech on auto mechanic.  Enrollment in the school are limited.

Lack of foreign direct investment: Due to the limited skilled labor and a small market size, Cambodia was not able at the present time to attract FDI in the automobile industry or spare parts and components.

Lack of domestic investment capital: Cambodian entrepreneurs named their lack of working capital as a major problem, with many of them saying it was the number one obstacle facing their business.

Unfair Competition: There were complaints about acts of unfair competitions resulting from pervasive smuggled imports.

Lack of Market information: There are few sources of high‑quality, current market information in Cambodia. Managers noted the lack of information on key technologies, commodity prices, industry trends, and domestic and foreign markets. Information on domestic markets is largely non‑existent whereas few managers knew how to access in formation on foreign markets.

Factors limiting the development of the automobile spare parts and components industries

The following are factors limiting the production output of automobile parts and components:

Demand: Processing enterprises refurbished a certain amount of automobile parts only when there is a specific order from customers.  They could not produce a large quantity of parts and stock them.  For example, the nut scrapping shops may proceed their scrapping work unless there is a demand of certain type, size, and amount of nuts from the market. 

Equipments and Technology: Equipments and technologies used in processing enterprises are of low quality, the bulk of it were imported from the former Soviet Union or from neighboring Vietnam. In recent years, new machineries were imported from Thailand, China, and Korea. Molds for automobile parts and components are for the most part customised by Cambodian auto mechanics. 

B.  Imports

Imports of automobile spare parts and components for the last three years (1998-2000) by volume and value,);

Prior to 2000, Cambodia trade statistics were collected only in two-digit HS. For the purpose of this survey, we will present data based on the aggregation at the two-digit HS level. The statistics shows that most of automobile spare parts and components for the last three years came from Japan, Korea, USA, Thailand, and Germany.

Table 1: Foreign Import (aggregation at the two‑digit HS level)

(in value and percentage) in 1998

in 1999

in 2000

in 2001

Sources of imports, specifying aforementioned and other countries;

Table 2: Foreign Import (By Country) in 1998

(aggregation at the 2‑digit HS level)

JAPAN  

GERMANY

FINLAND

CHILE

CHINA

FRANCE

AUSTRALIA

BELGIUM

CANADA

DENMARK

HONG KONG

INDIA

INDONESIA

IRELAND

ITALY

87

Vehicles & parts 

178.00

813.21

84,310,395.00

0%

Table 3: Foreign Import (By Country) in 1999

JAPAN

SOUTH KOREA

87

Vehicles & parts

15,800,656.41

19,878,073.94

74,633,042.75

27%

USA

THAILAND

TAIWAN

CHINA

MALAYSIA

UNITED KINGDOM

FRANCE

RUSSIA

SINGAPORE

GERMANY

INDIA

Australia

BELGIUM

CANADA

Denmark

FINLAND

HONG KONG