Knowledge Economy


Is Cambodia Ready?

By Kim Natacha, Economics Today

More than 30 delegates from eleven countries were present in the most prestigious 5-star hotel in Seoul, South Korea to learn about knowledge as a factor of production and to place it at the heart of their development strategies to stimulate economic growth.

On February 22, 2008, among the 30 delegates, seven Cambodian delegates participated in a high level forum on knowledge economy organized by the World Bank Institute (WBI) and the Korea Development Institute School. The question remains: Can Cambodia become the next India and South Korea in sustaining long-term economic growth?

Many economic experts say it’s unlikely to happen soon.

According to the World Bank report, Cambodia remains a very poor country (per capita income is around US$ 500 annually). There is great disparity in incomes between city dwellers and the 85 percent of the population that remains in the countryside. While about 35 percent of Cambodia’s population is living with less than half a dollar a day, the poor people are concentrated in the countryside.

The bustling activities in Phnom Penh easily give the impression that Cambodia is developing rapidly. But it is important to note that only about 15 percent of Cambodians live in urban areas.

Currently, Cambodia is enjoying a measure of peace and stability it has not seen in more than a generation. With support from the donors, the government is making slow and uneven but discernible progress on reforms to institutionalize democracy.

Cambodia’s social indicators ranked among the lowest in Asia. Assistance from the international community and foreign direct investment led to a surge in economic activity, with real GDP growth peaking at 9.5 percent in 2007. But most international and domestic businesses cite the risks associated with an incomplete and inconsistently applied legal framework as the main barrier to investment and business growth.

Forum Participants

“Technological innovation and increasing of knowledge are fundamental to sustainable economic

growth,” said David Dollar, World Bank Country Director for China, in his welcoming remarks at the seminar in Seoul, South Korea.

Country representatives from various development organizations were selected, including a member of the Board of Advisers for the Commission on Higher Education in the Philippines, Information and Communication Technology (ICT) officials from Indonesia and Malaysia, as well as key government officials and innovative businesspeople from Cambodia.

Several representatives from the media institutions from Vietnam, the Philippines, Pakistan and Cambodia were also present.

“We invited the media from Asian countries, because they play a key role in knowledge economy,” Jean Eric Aubert, World Bank Institute Lead Specialist on knowledge economy, told Economics Today. “As a matter of fact, South Korea’s transition towards knowledge economy was started by the media.”

According to a WBI case study on South Korea, a major media group, the Maeil Business Newspaper (MBN), focused its attention on knowledge economy issues after a financial crisis occurred in Mexico in 1995. The MBN actually warned its readers against a possible crisis. The worst financial crisis in Asia actually happened in 1997.

The MBN published a compelling report in 1998 calling for a shift from large scale, capital intensive industries to knowledge-based economy. After a series of dissemination events, the Korean Government became committed to implement it.

Can Cambodia Apply the Four Pillars?

According to the 2007 WBI flagship report “Building Knowledge Economies: Advanced Strategies for Development,” there are four pillars related to the economic and institutional regime, education, innovation system, and information infrastructure.

The WBI and KDI School seminar aimed at informing Asian countries about the alternative of knowledge-based economy. And Cambodian participants carefully took note of the advices and experiences that were shared and discussed at the forum.

“Thanks to the forum I could identify the key factors to successful development,” said Seng Sochinda, Deputy Director, Project Monitoring Department, Cambodian Investment Board. “They came down to three points only: innovation, education and ICT.”

The experiences shared by other countries’ representatives were also instructive for Seng Sochinda. “I received information and creative ideas from other countries’ participants,” he said, intending to disseminate those new pieces of knowledge to young Cambodians through guest lectures, conferences, and workshops, and also to his institution’s senior officials upon his return to Cambodia.

South Korea, Ireland, and India are examples of successful transition to knowledge economies and it seems that they came at the right time for them to take the plunge. But what about Cambodia, asked a journalist? Can Cambodia follow the same path and successfully shift to a knowledge-based economy?

“Of course any countries including Cambodia can [become a knowledge economy],” said In Channy, President of ACLEDA Bank, one of the leading banks in Cambodia, who participated to the seminar, adding “as long as we have the clear will and we focus on quality education, by improving the education system to meet the international standard, or at least ASEAN’s standard.”

However, making the transition requires commitment from all stakeholders. “The public sector needs to have a clear political will towards knowledge-based economy,” said In Channy. “We must have ‘the will and the drive.”

Sometimes the private sector needs to push the public sector in a partnership manner to have required infrastructures in place, he continued.

Another participant to the highlevel forum believes the same. “I think it will not be difficult for Cambodia to become a knowledge-based economy like South Korea because our country is small and we have quite a lot of intellectuals and natural resources,” said Seng Sochinda, adding “But we do not have decided yet to take this step.”

For economic specialists, now is the time for developing countries to consider knowledge-based economy in their development strategies.

“It is urgent to put knowledge economy at the heart of your country’s development strategies,” said Jean Eric Aubert, team leader of the WBI report on knowledge economy, to the intention of the representatives of the eleven Asian countries.

“Achieving knowledge economy is a matter of will and determination. Vision is important!” he emphasized.

The Four Pillars

According to the WBI report on knowledge economy, four pillars are required: (1) an economic and institutional environment that provides incentives for creating, disseminating and using knowledge, (2) an educated and skilled population, (3) an innovation system to tap into global knowledge and create local knowledge, and (4) an efficient information infrastructure.

The latest World Economic Forum Competitiveness report ranks Cambodia 110th out of 131 countries.

This reflects hindrances for investment and businesses to extract the full potential of the country’s factors of production: labor, capital, and knowledge.

1. Economic and institutional regime – As a post-conflict and former socialist country, Cambodia is still building its market economy and adjusting to the aggressiveness of economic liberalism. Its economic and institutional regime is in construction.

Several key reforms are under progress. Some reforms such as the Public Financial Management Reform made significant steps forward, according to the Economic Institute of Cambodia (EIC) latest monitoring report. But others advance at a slow pace – it is the case of the legal compliance to the WTO requirements and the central administration reform.

2. Education – A step-by-step progress in education system must be made first. While South Korea and Ireland – two examples of knowledge economy – could focus on enhancing their tertiary education, Cambodia still has to improve the literacy rate of its population.

“Education is key to improve living standards, and the Cambodian Government gives high priority to education,” said Dr. Aun Porn Moniroth, Secretary of State, Ministry of Economy and Finance, during a group session dedicated to education issues at the seminar.

“But Cambodia comes out of conflict, and although we achieved peace and national reconciliation, there remain several priorities. So the Government’s current focus is on primary and secondary education.

Its goal is education for all,” Dr. Aun Porn Moniroth explained to a small audience consisting of key stakeholders in Cambodia, the Philippines, Mongolia, Laos and Sri Lanka.

Also access to and level of education is not the only problem Cambodia faces. The weak quality of high education and overlooking national long-term needs hinder the economic potential of the country.

The private sector universities are very receptive and sensitive to the market because they are driven by profit to survive, said Dr. Aun Porn Moniroth. Thus, higher education take more into account the market’s short-term needs than the country’s long-term needs, he explained.

These concerns are echoed by the private sector. “The improvement of education system is a must,” said

In Channy of ACLEDA Bank. “But not just higher education. From elementary all the way up to university level. We don’t need quantity anymore; we need only quality of education,” added ACLEDA Bank President. The bank currently employs 4,677 staff.

3. Innovation system – Innovation is another key pillar in the knowledge economy theory. But innovation and creativity are not given. They have to be fostered. “For knowledge economy to take place there is a need to change mind sets, cultures, in nations, firms, banks, and so on,” said Jean Eric Aubert during his presentation on knowledge economy.

But just how can people change their mindsets? “I believe the more you have freedom, the more you can

be innovative,” replied the WBI lead specialist on knowledge economy. “There must be an openness to facilitate experiencing, which starts from kindergarten to adulthood.”

Concretely, fostering experiencing from the early age is a long-term process. In the more medium term, organizing innovation workshops, designing good incubator workshops, and bringing business people together are other means to stimulate innovation and creativity, said Jean Eric Aubert.

For many businesses, innovators are not just in the private sector only.

“The public sector should be creative and innovative, too,” said In Channy, taking the example of Daeje Chin, former Minister of Information and Communication in South Korea, and former President of Samsung Electronics who was present at the forum too.

“He [Daeje Chin] was allowed to explore, and his innovative ideas on moving South Korea with high technology and promoting e-government have been accepted,” summarized In Channy.

The key point is that the country should invest in people to have quality human resources, make use of them after they return to the country, and allow them to apply what they have learned, he concluded.

4. Information Infrastructure – ICT is a key part of knowledge economy, but knowledge economy is not ICT-based economy, warned Jean Eric Aubert. The information infrastructure should facilitate the effective communication, processing, and dissemination of information.

ICT is the sector that enabled South Korea to revive its growth and boost its GDP per capita to US$ 20,000 in 2007.

“GDP per capita in South Korea was only US$ 300 in the 1970’s,” said Daeje Chin, former Minister of

Information and Communication.

“Now 4 percent of GDP per capita is coming from the ICT industry. To reach our target of US$ 30,000 per capita in 2015, new growth engines must be identified,” said the outspoken former minister.

However Cambodia is currently far behind in terms of ICT infrastructure, services and education.

Internet connectivity throughout the country is limited and is extremely slow and expensive. Thus, this slows down the dissemination of knowledge and information.

Knowledge and Technology, Key Factors of Production

Developed countries are becoming more based on the creation of knowledge to sustain their growth. More than 50 percent of the GDP in major high-income countries is knowledge-based, estimated the Organization for Economic Cooperation and Development (OECD). This is shown by the increasing capital investment in high-technology industries and the need for highly-skilled labor force.

This led economists to analyze and design new theory for growth which include knowledge and technology in the production process. Knowledge-based economies are directly based on the production, distribution, and use of knowledge and information.

But according to its proponents, knowledge economy should be at the heart of any country’s development strategy, regardless of their level of development.

“Knowledge and innovation-based policies are spurring growth and competitiveness around the globe,” explained Jean Eric Aubert at the seminar in Seoul. “And there is a need to think of the future under a Knowledge Economy heading for all countries.”

South Korea was a showcase of knowledge economy because of its successful story in overcoming the 1997 financial crisis and since then Korea became a working model of knowledge economy.

“Korea has been successful in its transition to knowledge economy,” remarked David Dollar, taking the Asian Tiger as a model. “And it is important for developing countries to now create the foundations of knowledge economy.”

Building knowledge economies worked for Koreans, stimulating and sustaining growth since the Asian financial crisis. But for a developing country like Cambodia, building the four pillars of knowledge economy is put on hold for now.

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