opposed to investment in manufacturing or innovation). Finally, the experience in SRG countries also highlights the importance of increasing savings and investment to 25 percent of GDP or more. Most of these countries also show a marked increase in these two rates between the first and second decades of sustained rapid growth.

# **Sector-Specific Governance**

25. **Cambodia has achieved rapid growth even while firms complain about poor governance** . In surveys such as the Investment Climate Assessment (ICA), firms report high levels of corruption (Figure 16), and register complaints about the quality of the public services that usually underpin growth. Cambodia rates low on most international governance scores, even compared to countries at the same level of development (Figure 7).<sup>89</sup> A more specific question for understanding this growth paradox is therefore: “ _Why have successful sectors been able to thrive even with such apparently_

**Figure 7: The perception of corruption is high, even compared to countries at the same level of development**

<!-- Start of picture text --> R 2 = 53% 2007<br>3.00<br>2.50<br>2.00<br>1.50<br>1.00<br>0.50<br>0.00<br>-0.50<br>-1.00<br>-1.50<br>Cambodia<br>-2.00<br>100 1,000 10,000 100,000<br>Source: WDI for GDP per capita (2005 PPP US$ per capita); World Bank<br>Institute for Control of Corruption (index on a<br> -2.5+2.5 range, higher means less corruption).<br><!-- End of picture text --> _poor governance conditions?_ ” Beyond the role of governance arrangements that ensured political and macroeconomic stability (see above), there must be arrangements that are specific to the sectors that are growing. A comparison of sectors that are growing (the “camels” in the desert, see Box 2) and those that are not is instructive (Box 1).

26. **The garment industry is an example of “hand-in-hand governance”** , where the Government (in particular the Ministry of Commerce) and the firms (coordinated by the Garment Manufacturers Association of Cambodia, GMAC) worked together to create an environment that generated growth.<sup>10</sup> The strategic vision developed by the RGC, with the US Government, helped align expectations for investors. There was a clearly identified and dynamic market for exports. The link to export quotas and the supervision by the ILO helped establish the credibility of these higher expectations. The rents for Government from managing quotas (which ended in 2005 as the Multi-Fiber Agreement was dismantled) increased incentives.

> 8 In the most recent versions, Cambodia ranks in the 20-30th lowest percentiles for four dimensions of the World Bank Institute governance indicators, and 14<sup>th</sup> lowest for rule of law and 8<sup>th</sup> for control of corruption; it ranks 166<sup>th</sup> out of 181 countries in the Transparency International Corruption Perception Index; it ranks 135<sup>th</sup> out of 181 in the World Bank’s Doing Business indicators and 110<sup>th</sup> out of 131 in the World Competitiveness Indicators.

> 9 There is ample evidence that governance and development are tightly linked (although the link between growth – as opposed to the _level_ of development – and governance continues to be debated).

> 10 Another example of collective action arrangement is the Government-Private Sector Forum (G-PSF). This Forum, established in 1999, has been instrumental in giving the private sector a sense of security regarding Government responsiveness. The Forum, which meets twice a year under the chairmanship of the Prime Minister and has eight working groups meeting regularly, provides a vehicle for the private sector to raise its concerns and for the RGC to be held accountable for its decisions by the private sector (it has also been used for consultation on legislation).

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