How Pentagon Strategy will help develop Cambodia

Kang Sothear / Khmer Times Share:
Vongsey Vissoth (third right), MEF’s Permanent Secretary of State, and Jyotsana Varma (second left), ADB Country Director for Cambodia Resident Mission attending a forum on the Sector Policy Dialogue in Phnom Penh. ADB

Cambodia’s vision document to become an upper-middle-income economy by 2030 and a high-income economy by 2050 appears to have kickstarted. The Pentagon Strategy is the first step of the series to reach the ambitious goals. Khmer Times takes a look at Pentagon Strategy – a key roadmap for the government to define and implement its strategic directions and policy measures.


In what is believed to be a game changer and put Cambodia in a different league by 2030 and 2050, top officials of the Ministry of Economy and Finance (MEF) and the Asian Development Bank (ADB) discussed strategic directions and policy measures known as Pentagon Strategy Phase I to achieve far-reaching goals to upgrade the Kingdom to an upper-middle-income country.

The Royal Government of Cambodia (RGC) has commenced developing key socio-economic policy agenda from rectangular to pentagon strategies for the government to implement in its seventh legislature of the National Assembly after RGC has executed the rectangular strategies on four phases that essentially focused on ‘Growth, Employment, Equity and Efficiency.’

The Pentagon Strategy is a key roadmap for the government to define and implement its strategic directions and policy measures for the first phase of Cambodia’s journey to achieve its ambitious goals to become an upper-middle-income economy by 2030 and a high-income economy by 2050.

The Ministry of Economy and Finance (MEF) and the Asian Development Bank (ADB) led by Jyotsana Varma, ADB Country Director for Cambodia Resident Mission, on Thursday last week organised the sector policy dialogue at Garden City Hotel in Phnom Penh to collect inputs from stakeholders to formalise strategic directions and policy measures for the preparation of the draft of Pentagon Strategy Phase I.

The dialogue chaired by MEF’s Permanent Secretary of State Vongsey Vissoth was attended by senior officials from various ministries, government institutions, development partners and private sectors along with the Asian Development Bank, World Bank and French Development Agency, International Fund for Agricultural Development (IFAD) discussed four priority sectors including energy, agriculture, skill development and education to collect input for the preparation of the draft of Pentagon Strategy Phase I.

Vissoth, who is also Minister attached to the Prime Minister, told Khmer Times on the sidelines of the forum that MAFF would lead and facilitate the process of drafting agriculture policies and measures that would include inputs from relevant institutions in the preparation for the Pentagon Strategy Phase I for the next government.

“After the discussion, we have understood similar to them and our considerations are also similar. We still need to know what to work on and how to work on those things together. So, we need participation and set priorities and then we will be able to take actions together to develop a joint force that would create a synergy to achieve our main goals,” said Vissoth.

Vissoth further said Cambodia has developed its energy sector on a path to green energy and the country may be used as a showcase for the world in promoting this energy model and an agenda for major partners if the development partners and other stakeholders provide RGC with assistance in terms of technology, finance, policy preparation and institutional development.

On the sidelines of the forum, Victor Jona, Undersecretary of State of the Ministry of Mines and Energy (MME), also told Khmer Times that Cambodia needs at least $3 billion to execute its entire energy transition plan that covers three main areas including forecasting long-term demand for energy until 2040, additional supply such as hydropower, solar or LNG.

Cambodia would also need to develop energy connectivity countrywide as some installed or connected wires have been overloaded, which would need to be doubled in response to the rising consumed energy along with the implementation of the energy efficiency policy that requires clean or green energy such as renewable energy development.

“Actually, I think the total amount of costs of investment for energy production or power grids have not been estimated, but the costs depend on investment project production capacity. For example, how much a hydropower dam construction or solar panel farm would cost? And the energy transition would also include electric vehicle market development,” said Jona.

“The energy transition aims at fighting against global warming, which is currently about climate change,” said Jona, adding that “since 2015, the government has implemented an internal energy policy to reduce electricity tariffs from one year to another for all categories of consumptions—residential, commercial, industrial and agricultural—except 2021 and 2022.”

A new power development plan aims to address high costs and energy shortages in the Kingdom. KT/Chor Sokunthea

Jona went on to add that neighbouring countries such as Thailand and Vietnam have increased the electricity tariffs as they cannot respond to the rising costs of raw materials without raising tariffs for their consumers during the global economic uncertainties due to the ongoing war between Russia and Ukraine, while Cambodia’s consumption of electricity is still relatively less.

“These two years and this year, the government has kept the tariffs unchanged without increasing the tariffs to subsidise consumers to support the economy, but we are not sure how long more we can stand with this situation as the oil prices and coal are still rising. However, as of now, we are still able to manage the situation without raising tariffs,” he said.

Jona said a new power development master plan for Cambodia until 2040 has to be consistent with the government’s policy of energy transition, which has already been developed by ADB, and Japan International Cooperation Agency (JICA) has provided the government with additional technical assistance to work comprehensively on green energy.

According to Jona, Cambodia is unlikely to face potential challenges or difficulties on its journey to energy transition as the country has been more favourable in hydropower and solar energy and less use of gas or coal that have been used 90 percent of the developed countries. “We need financing from development partners to implement the proposed projects,” he said.

“Whether or not only hydropower is enough, or only solar farm is enough, or whether we will need to develop wind energy or rubbish energy or to employ hydrogen energy as additional sources to achieve the energy transition,” said Jona, adding that there is no potential concern about Cambodia’s starting its journey to the energy transition, unlike developed countries.

ADB approved a sector development program that combines a $50 million policy-based loan package with $23 million in project investments to support the energy transition of Cambodia in late 2022. The program supports the government’s energy transition agenda to mainstream renewable energy and energy efficiency while shifting away from fossil fuels.

“We are the long-term partner for the energy transition not only in Cambodia, but also in the entire region. So, we have the plan to bring in more,” Varma told Khmer Times.

Joao Aleluia, Energy Specialist for Southeast Asia Energy Division of ADB, said Cambodia’s national solar park project is a good example in the region of how a country can benefit from the declining prices of renewable energy technologies while emerging technologies such as offshore wind power and floating solar are becoming cost-competitive in Southeast Asia.

Aleluia pointed out that the carbon border adjustment mechanism is stimulating the adoption of low-carbon technologies in heavy industry facilities located in Southeast Asia exporting to the European Union (EU) and in the medium-term, the scope of mechanism could be broadened to other industrial sectors more relevant to the industrial base of Cambodia.

The energy specialist also said Cambodia’s power development master plan 2022-2040 is the country’s first long-term and comprehensive plan for the power sector, and it commits Cambodia into the first steps of an energy transition pathway to satisfy future load growth with reliable and affordable electricity and strengthen energy security through greater use of domestic energy resources.

“The master plan is also developed to maintain the government’s projects that have already been contracted and increase the percentage of clean energy including renewable energy and energy efficiency without compromising reliability and affordability, while at the same time addressing environmental goals and international commitments,” said Aleluia.

A three-country pilot involving Cambodia, Laos PDR and Thailand could better demonstrate the benefits and opportunities of regional power trade and lay the foundations for more ambitious projects involving the export of power to Singapore, said Aleluia, adding the energy transition is enabled by plans, policies, projects and partnerships.

Lower Sesan 2 Hydro Power dam in Stung Treng Province. KT/Chor Sokunthea

Chheng Kimsun, Secretary of State of MAFF, said the labour in agriculture has currently been reduced to about 32 percent of the total labour in the country from approximately 80 percent over four decades ago as 48 percent have left the sector for other industries, while MAFF has been working on the reduction of costs such as the costs of fertilisers used in the sector.

Agriculture in Cambodia still has potential for production expansion as farmers work for four-six months every year and the remaining time they rest due to limited resources such as lack of irrigation systems, processing facilities and investment in facilities for the production of fertilisers. Also new paddy seeds would enable them to produce paddies 3.5 times per year, said Kimsun.

Kimsun also pointed out that there would be a big space for the development partners and private firms to invest in large-scale industrial-agriculture parks in the four economic pole projects that Prime Minister Hun Sen plans to set in the northwest part of the country. “If there are no processing facilities, I think the plan would not be implemented successfully,” he said.

Out of over 3.4 million hectares of land for rice paddy production in Cambodia, 2.76 million hectares can be used to produce paddies once a year, while Pailin province—one of the four provinces of new economic pole — has over 6,200 hectares of land to produce about 80,000 tons of paddies per year.

“So, private sector participation is very important, especially foreign investment in building processing facilities after harvesting and production facilities such as fertilisers and animal feeds… We also hope that we would no longer import seeds of paddies from neighbouring countries as the new seeds we have recently found have good quality.”

Heng, Vice President of CCC, said both potential local and foreign businesspeople have faced high risks in investment in agriculture, which requires the government to provide more tax incentives to them to reduce risks of an investment in the sector as currently, they would have to pay 1 percent withholding tax and 15 percent withholding tax on services like transportation.

Heng further said that businesspeople in agriculture would also have to pay 10 percent of Value Added Tax (VAT) for milled rice. At the same time, they need to pay export duties on some agricultural products. “We would like to request for exemption of these taxes so that we will be able to compete fairly with unregistered individuals who are not taxable,” he said.

“More effective law enforcement on contract farming would also be needed for the agricultural development as we have not been able to enforce contract farming when we build agriculture community as members of communities do not comply with the contract, which results in losses for companies and they are reluctant to invest,” he said.

Farmers at work in the field in Kampong Speu’s Oudong district. KT/Chor Sokunthea

Seng Cheasith, Director of the Department of Legislation, Tax Policy and International Tax Cooperation of GDT, said the internal tax authority has considered agriculture as a sector that does not provide tax revenue to the government as GDT has offered tax incentives in many forms at both micro and macro levels as the new investment law has set more tax incentives for agriculture up to nine years and then pay just 25 percent until 100 percent for six years.

“The applicable regulations that we have stipulates tax incentives for agriculture businesses and the general department of taxation never expect to receive tax revenue from this sector as we have to provide incentives and even though the policies set limitation like that, actually, the validity of incentives would be extended,” said Cheasith.

However, Vissoth pointed out that there may be some points of misunderstanding between GDT and businesspeople in agriculture, which may result in issues, due to two main factors—out-of-date information used by the private sector to consider in their business decision and lack of in-person meetings between stakeholders in the implementation of tax policies of Cambodia.

“I have to listen to both sides regarding this point and I think there may be some gaps … as there are many updated tax rules or information. I suggest that tax officials and businesspeople meet each other again and find solutions on partnership spirits for the real problems … and there can be an arbitrator,” Vissoth added.

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