Cambodia Toward a national employment strategy for sustained

Cambodia: Toward a national employment strategy for sustained poverty reduction Validation workshop on review and appraisal of the studies of employment and social protection Phnom Penh, 07 -08 November 2011 Sukti Dasgupta, DWT for East and Southeast Asia and the Pacific Makiko Matsumoto, Employment Policy Deparment, ILO Geneva

Outline • What can be the framework of a National Employment Strategy (NES) in Cambodia’s context? – Context, achievements, and challenges • How to ensure better fit of a NES with the Rectangular Strategy II and its implementation plan (NSDPs)? – Some issues for further consideration

The objectives of NES • Objectives of NES: – To provide support to policy makers, the social aprtners and other stakeholders to formulate an integrated framework of policies and programmes to achieve full employment with full respect for workers’ and employers’ rights. • A forward-looking policy document: – Set employment-related objectives for the medium term – Assess key employment challenges and identification of priorities – Details of concrete policy measures that could be taken to address the priority challenges – Budgetary implications and (social) returns to policy/institutional investments.

The context: Past policy achievements (1) • Strong real GDP growth rate (%) 14 45 40 12 35 30 8 25 20 6 15 4 10 2 5 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Poverty rate 2004 2005 2006 Real GDP growth 2007 2008 2009 2010 2011 2012 2013 Poverty rate (%) Real GDP growth rate (%, MEF) 10

The context: Past policy achievements (2) CMDGs – achievements CMDGs – observations and remaining challenges Goal 1: eradicate extreme poverty & hunger 1. 1 Income poverty: Significant reduction in poverty : 39% (1993) to 30. 1% (2007), target 19. 5% (2015) 1. 2 Achieve full and productive employment and decent work for all, including women and young people: under consideration • Goal 1: 1. 1 Rural poverty still very high (35%) and Rise in inequality (Gini) • - Decrease propotion of working children (5 -17 year olds): 16. 5% (1999) to target 8% (2015) 1. 3 Halve the proportion of people suffering from hunger: - Food poverty headcount ratio: 20% (1993) to 18% (2007), target 10% (2015) - Underweight, stunted and wasted children (<5 years old): tremendous progress, but recent slowdown (reversal) Area 1993/94 1997 2004 2007 Rural 0. 27 0. 33 0. 34 0. 36 Cambodia 0. 38 0. 42 0. 30 0. 43 1. 2 There are 4 ILO indicators, more useful for monitoring (and not for targeting); and for working children: no data => no assessment possible 1. 3 Some foreseen difficulties in achieving the targets: - The rates of decrease in malnutrition indicators need to be accelerated substantilly.

The context: Past policy achievements (3) CMDGs – achievements CMDGs – observations and remaining challenges Goal 3: promote gender equality and empower women 3. 2 Eliminate gender disparities in wage employment in all economic sectors • Goal 3: 3. 2 Significant achievements in agriculture and industry, but slow progress in service sector. • - 75% of female wage employment is in agriculture. - the share of informal employment needs to be gauged.

The development challenges: • Structural change and broad-based growth: Sectoral composition of real value added and employment 1998, real GDP composition (%) 2008, real GDP composition (%) 26. 5 36. 3 39. 1 42. 8 27. 5 16. 8 Agriculture Industry Services 1998, Employment shares (%) Agriculture Industry Services 2008, Employment shares (%) 18. 3 19. 3 4. 2 8. 6 72. 1 77. 0 Agriculture Industry Services

The development challenges: A re-think in the post-crisis period • A significant shift in the RGC’s development strategy towards rural development: – NSDP update 2009 -2013: a move away from a narrowbased export oriented growth strategy. – Cambodia has a comparative advantage in land-intensive growth and exports. – Acknowledgement that binding constraints on broadbased growth are not simply eased through stability and liberalization: major efforts are needed toward structural change, skills development and employment generation. – Broad-based growth may be further enhanced by the ongoing deconcentration and decentralization policy efforts.

The employment challenges (1) • ‘Open’ unemployment rates are not really the issue in Cambodia: Unemployment rates (%), 1998 and 2008 14. 0 12. 2 12. 0 10. 0 8. 0 1998 6. 0 5. 8 5. 3 3. 3 4. 0 2008 3. 3 2. 9 1. 8 1. 6 3. 6 1. 3 1. 1 0. 0 Both sexes: 15 -24 Both sexes: 25+ Female: 15 -24 Female: 25+

The employment challenges (2) • Employment-to-population ratios (%) 100. 0 91. 8 86. 6 90. 0 80. 0 93. 3 77. 0 77. 4 82. 2 79. 6 81. 0 74. 7 73. 0 74. 5 69. 2 70. 0 61. 2 58. 1 60. 0 55. 1 53. 3 57. 1 49. 3 50. 0 1998 2008 40. 0 30. 0 20. 0 10. 0 M/F M 15+ F M/F M 15 -24 F M/F M 25+ F

The employment challenges (3) Employment status (% of employed), 1998 and 2008 Real average daily earnings of vulnerable workers (11. 2000=100) 16000 70. 0 61. 5 60. 0 Rice field workers 14000 62. 1 60. 6 12000 Garment workers 10000 54. 5 8000 6000 45. 9 0. 1 0. 2 0. 1 0. 0 Total, 15+ Male, 15+ 1998 2008 Female, 15+ 1998 2008 40210 40118 40026 39934 39845 39753 2006 39387 10000 Porters 8000 Vegetable traders 6000 Scavengers 4000 Waitresses 2000 0 Motor taxi drivers 40210 0. 2 Cyclo drivers 40118 6. 3 12000 40026 10. 0 14000 39934 14. 0 12. 3 Skilled construction workers 16000 39845 Unpaid family worker 39387 18. 6 20. 7 Own-account 39753 24. 5 17. 3 Paid employee 25. 3 2006 30. 0 2005 31. 0 0 2005 2000 Employer 20. 0 Unskilled construction workers 4000 2004 40. 9 40. 0 42. 9 39. 6 2004 50. 0

The employment challenges (4) Working poverty ($1. 25 a day) by education (ILO estimates) Working poverty ($1. 25 a day) by status (ILO estimates) 45. 0 41. 6 41. 1 40. 0 39. 0 37. 1 38. 8 40. 6 39. 9 40. 2 40. 0 35. 3 33. 5 35. 0 30. 0 35. 0 32. 7 36. 9 29. 5 30. 0 35. 7 28. 4 26. 2 26. 1 24. 1 25. 0 34. 2 33. 8 25. 0 20. 7 20. 0 15. 0 10. 0 8. 0 10. 0 6. 8 4. 0 5. 0 3. 7 5. 0 2. 8 0. 0 Less than primary Primary Male Secondary Female Tertiary Total Other Wage and salaried workers Employers Male Own-account workers Female Total Unpaid family workers

The employment challenges (5) • Average annual growth rates of real value added per worker (%), 1994 -2008 1994 -1997 1998 -2004 2005 -2008 Period avg 1994 -2008 Total 1. 8 1. 6 6. 9 2. 9 Agriculture -2. 2 -0. 9 3. 9 0. 6 Manufacturing 16. 1 -8. 0 11. 3 2. 8 Mining 0. 0 6. 5 10. 5 7. 2 Others 8. 9 -3. 4 5. 2 0. 9

The employment challenges: In summary…. • Growth of paid employment and/or formal sector jobs across sectors. • This is linked to the structural transformation of the economy. • Productive employment generation for the working poor beyond the sectors (garments, construction, hotel & tourism) where formal jobs grew during 1998 -2008.

The employment challenges: Further issues…. • Real wages and earnings across the labour markets reflect the demand supply of workers -> needs further monitoring. • Physical mobility of workers is often pushinduced: A high incidence of internal migration -> large share end up in informal economy -> and in some instances, link to international migration. • Difficulties and group-specific constraints faced by women, youth and other vulnerable groups.

The link bewteen NES and eocnomic & sectoral development policies • Macroeconomic policy, growth and employment critical for raising aggregate demand employment – To boost employment, a degree of fiscal space needs to be created. – There is need for I/GDP ratio to expand further – foreign I was 48 percent of GDP in 2008, which is already large, and declined since 2009, poses on a whole an investment constraint for Cambodia. – Non increasing public investment to crowd in private I.

Investment: drivers of growth and structural diversification • Public and private investment (% GDP) 25 20 15 10 5 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Public investments (% GDP) 2004 2005 2006 2007 Private investment (% GDP) 2008 2009 2010 2011 2012 2013

Need to review macro framework both with regard to goals and policy instruments for improved employment and SP outcomes • Current constraints: – Limited role of NBC with regard to control over policy rate – Inflation targeting not through controlling rates of interest buying and selling dollars – Currently donor support to meet fiscal deficits but ODA falling globally – Dollarisation imp – recent depreciation of dollar has raised import costs.

Sectoral policy and structural change • There has been a shift out of agriculture towards industry and services, but sectoral employment shares have moved slowly, still mostly agricultural. • Agricultural pdty (measured by crop production per hectare) still small compared to other Asian countries. • Current policy emphasises agriculture – welcome, but need to ensure balance so as not to become food insecure,

Sectoral policy and structural change Value of crop prodcution per hectare, Cambodia and other Asian countries

Need for broad based industrial growth for sustained employment growth • Industrial growth led by garment sector – partly due to a number of fortuitious conditions, and by construction and tourism • Heavy reliance on FDI and foreign markets meant severe impact of economic crisis in garments • Need to re think a broad based industrial strategy, with enhanced sectoral linkages and a training system that responds to market needs • Need also to develop productivity and decent employment in the SME sector – address their liquidity constraint. • Potential for Tourism sector – but supporting employment and productivity measures required. • Investment in hotel and restaurant sector has increased rapidly, but sustained growth will depend on growth of supporting sectors.

Labour market policies – Skill development will drive future employment growth • Employability and skills developmentsubstantial progress but remaining constraints. – A WB study estimates that 63 percent of cambodia’s youth never attended school or completed it – Need to raise skill profile, reduce skill mismatch – Proper LMIS required to address the skill and other needs of growing economy

Labour policy - Migration • Many Cambodians going abroad to work, especially to Thailand, but information on them is patchy • Need to have a clear migration policy to better manage migration – pre departure training, how to manage remittances etc • Could be a source of jobs since many Asian countries aging rapidly whereas Cambodia still a young population.

Labour Policy – the labour regulatory framework • Industrial Relations critical to job creation • Existing instruments need to be reviewed to adjust to Cambodia’s changing circumstances • Key is to improve protection of workers along with industry competitiveness.

Social Protection and Employment • Low coverage currently • RGC fully committed, as enshrined in Constitution, a NSPS recently introduced, but to be implemented – nevertheless a bold framework • An employment oriented growth strategy and expansion of domestic fiscal space critical for sustained social protection – growth of formal jobs will expand contributory schemes • Social protection through cash transfers and their link to ALMP will enhance the employment outcomes

Some concluding remarks • This study analyses the current employment challenges and lays out the broad policy areas that need attention, and an input into the formulation of a NES • A more detailed analysis of projections needed to understand the quantitative challenge, and to place employment outcomes at the heart of macroeconomic policies • Useful to review Cambodia’s true comparative advantage and identify priority sectors as this would promote sustained decent employment • Given its largely rural nature, a careful analysis of factors that will make the rural sector more dynamic needed to improve productivity and employment in the rural sector • Measures to promote skills in a sustained manner, improved IR and managing migration all critical to employment generation • Since employment creation would require coherence between different policy areas and implementation of the NES would require coordination between several ministries, the setting up of an Interministerial Committee is critical to the development of a NES for Cambodia.

Thank you!

Policy issues: Appendix Fiscal deficit Fis c spa al ce Fiscal revenue ODA Public expenditure Development priorities (NSDP)

Policy issues: Appendix Social safety net Development priorities (sectoral priorities) Skills and employability • Balance between contributory and non-contributory schemes Employment interventions • Self-employment • Wage-based employment Aggregate demand Sustained demand for labour Infrastructure spending • Private and public investment Employment, , wage, and income from work Enhanced fiscal space