Some of the key Challenges faced by the SMEs in Cambodia.
One of the primary challenges faced by small and medium-sized enterprises (SMEs) is accessing financing. Many banks hesitate to provide loans to SMEs due to a lack of collateral and insufficient credit history. This difficulty in securing capital makes it challenging for SMEs to start and expand their operations.
Additionally, there is a notable shortage of skilled workers. Cambodia’s education system often does not produce graduates with the technical and interpersonal skills needed by SMEs. Business owners frequently report challenges in finding employees with essential skills such as critical thinking, problem-solving and language proficiency.
Addressing these challenges is crucial for fostering a more conducive environment for SMEs in Cambodia, enabling them to thrive and contribute to the country’s economic development.
Strategic Policies by The Royal Government of Cambodia (RGC) and Incentives for Growth of Small and Medium Enterprises
Recently Prime Minister Samdech Moha Borvor Thipadei Hun Manet emphasized the importance of promoting micro, small and medium enterprises (MSMEs), calling them the engines of the national economy that play a critical role in nation building. The Royal Government of Cambodia (RGC) has prioritized supporting and facilitating private sector businesses, especially MSMEs, which make up 99% of all businesses nationwide.
During August 2023, Prime Minister Samdech Moha Borvor Thipadei Hun Manet officially launched the Pentagonal Strategy – Phase I and the key measures for the Royal Government of Cambodia (RGC) to be implemented in the next five years to transform Cambodia into a high income nation by 2050. It states that the RGC has set out the Pentagonal Strategy which is a long-term master plan for the socio-economic development of the Kingdom which will be implemented in five stages for the next 25 years while maintaining the four priority areas of the ‘Rectangular Strategy’ previously laid out and implemented by Samdech Akka Moha Sena Padei Techo Hun.
The government’s policy is to promote a sustainable, resilient economy aimed at generating ample employment opportunities with good compensation, which is key to becoming an upper middle-income country by 2030 and a high-income country by 2050. MSMEs remain central to this goal, so strengthening the private sector at all levels is necessary.
RGC Incentives and Supports for SME Growth
Income Tax Reliefs
The Royal Government of Cambodia grants income tax reliefs for small and medium enterprises, particularly in the initial years of operations. This tax reduction enables these enterprises to reinvest more earnings into their operations during the vital startup period.
Export Tax Exemptions
To encourage SMEs to export their goods and services, the RGC waives export taxes including value added tax and special tax. This incentive makes Cambodian SME products more competitive in foreign markets by lowering costs. SMEs engaged in export activities are also given priority in obtaining loans and other government supports.
Customs Duty Exemptions
The RGC exempts SMEs from paying import duties and value added tax on machinery, equipment, raw materials, and intermediate goods used for production or agriculture. This saves SMEs money that can instead be used to upgrade technology, improve productivity and create more local jobs.
Access to Finance
The Royal Government of Cambodia (RGC) set up the SME Bank of Cambodia with the goal of giving SMEs increased access to credit. This bank provides SMEs with low-interest loans, loan guarantees, and other financial services customized to their requirements. Additionally, the RGC motivates commercial banks to expand SME lending by implementing risk-sharing programs and partial loan guarantees.
Business Development Services
The Royal Government of Cambodia (RGC), with assistance from foreign partners, offers training, advising, and other business growth services to enhance the abilities of small and medium-sized enterprises (SMEs). These services assist SMEs in boosting productivity, product quality, management practices, and accessing new markets. The RGC seeks to encourage micro, small and medium enterprise (MSME) expansion through policy incentives and business supports to promote entrepreneurship and motivate innovation. With governmental incentives and help, Cambodian SMEs can persist in propelling economic expansion and employment generation.
Key Government Ministries Providing Assistance to SMEs
To cultivate a vibrant SME sector, the Royal Government of Cambodia (RGC) established several ministries and government agencies tasked with providing resources and support. Three of the leading organizations assisting SMEs in the country are the Ministry of Economy and Finance (MEF), the Ministry of Industry, Science, Technology and Innovation (MISTI), and the Ministry of Commerce (MOC).
Ministry of Economy and Finance (MEF)
For SMEs, the MEF offers tax incentives like exemptions or reductions on profit tax, patent tax and import duties for raw materials and machinery. The ministry also provides SMEs loans and credit guarantees through partner banks and microfinance institutions. These financial assistance programs aim to increase SME access to funding to start or expand their businesses.
Ministry of Industry, Science, Technology and Innovation (MISTI)
MISTI supports industrial and technological development in Cambodia. The ministry established business incubators and innovation centers across the country to nurture startups and SMEs in strategic sectors like ICT, tourism, and agriculture. MISTI also offers funding, training and mentorship for SMEs with innovative products or services. The goal is to build a knowledge-based economy by promoting entrepreneurship and helping enterprises adopt new technologies.
Ministry of Commerce (MOC)
The ministry also organizes trade fairs, exhibitions and trade missions to help SMEs find new domestic and international markets. MOC’s Commercial Arbitration Center also gives reasonably priced conflict resolution services for small and medium-sized enterprises (SMEs). By making trade easier and reducing business costs, the Ministry of Commerce (MOC) allows SMEs to grow and be more competitive.
With the combined support from the Ministry of Economy and Finance (MEF), Ministry of Industry, Science, Technology and Innovation (MISTI) and MOC, SMEs in Cambodia are ready to prosper and promote economic diversity and job creation. The motivation and help from these government ministries are clearing the path for SMEs to achieve their complete potential.
Conclusion
Finally the Pentagon 3 Side 2 as part of Pentagonal Strategy – Phase I, focuses entirely on “promotion of micro, small, and medium enterprises, startups, entrepreneurship and development of informal economy”. The strategic objectives are to further promote the development of an enabling environment for micro, small, and medium enterprises and startups to grow and to be resilient and innovative, contributing to economic growth and job creation as well as promoting the transition of informal economy into formal economy. With the favorable strategic policies, priorities and action plans currently underway and planned for the future, there is immense optimism for the SMEs to flourish in Cambodia and globally.
