Subsequently, the existence of a strong and capable business association, GMAC, helped sustain support to the industry and create a sense of security given GMAC’s capacity to get things done with the RGC. This, for instance, is evidenced by the reduction in trade costs in this sector, at a time when these costs were still increasing for other industries (Figure 8).

**Figure 8: The garments industry was able to make trade cheaper and faster, but the rice industry was**

**not**

<!-- Start of picture text --> a/ Cost for a 40’ container of garments b/ Cost to export a 20’ c/ Time to clear at border (days)<br>($/container) container of rice ($/ton)<br>1200 1,126 60 57 10 8.4<br>1000 858 879 50 41 8<br>800 655 40 6 5.5<br>600 30<br>4 2.8<br>400 20 2.1<br>2<br>200 10<br>0<br>0 0<br>Import Export 2003 2007 Av. # days to clear importsGarmentAv. # days to clear exportsOther<br>2003 2007<br>Source: JDI, 2007b and World Bank (2008d).<br><!-- End of picture text --> 27. **The roles of international drivers, foreign investors, domestic collective action mechanisms, and high stakes seem to have been critical in these achievements** . External pressure was instrumental in creating the opportunity for growth in the sector. The Government’s response was probably driven by the high stakes, with a very labor-intensive sector (now employing 300,000 workers) and significant rents from the quotas. Coordination within Government (which is often challenging given its fragmented nature) was ensured through the dialog being monopolized by the Ministry of Commerce. Foreign investors helped sustain the Government’s focus on the sector. The business association created the vehicle to solve collective action problems and maintain the necessary close relationship with the Government. Its role was facilitated by the clustering of many factories, the homogeneity of the sector (most factories facing similar issues), and the strong pressure from global buyers.

28. **By contrast, many other sectors lack these arrangements** (Box 1). In livestock, returns are potentially high and there was significant interest among otherwise successful Cambodian investors and foreign investors. Even so, the sector remains stunted, incapable in particular of dealing with intractable issues of sanitary standards. Rice, as well, has been limited to small amounts of milled exports, despite the significant quantities of paddy exports.<sup>11</sup> 29. **This dimension shows that poor governance has a differentiated impact across sectors** . Poor governance acts a barrier to entry: it takes an active hand-in-hand relationship to break through this barrier and provide comfort to investors. Hence returns must be high to motivate this relationship. Alternatively, the nature of a sector may make it less vulnerable to poor governance: for instance, in tourism, small-scale operations have worked well (even though possibly not as well as if governance had been better) because they are often too small to be exposed to bad governance and the direct contact with tourists implies significant competitive pressures. Yet, in the same sector, very few more complex operations have worked (large operations, such as the management of large hotels or the site of Angkor Wat, exist but do not

> 11 This might however be gradually changing as the 2007/2008 increase in rice price has changed the economics of the sector.

12