Abstract/Summary

Poverty in Cambodia is one of the highest in Asia. Despite the country’s very impressive GDP growth in the last decade or so, poverty remains pervasive specifically in the rural areas. The food and economic crises along with the idiosyncratic shocks of the recent years put the plight of the poor and near-poor at even greater risk. The Poverty Dynamics Study (PDS), as a longitudinal monitoring exercise, helps shed light on the extent, determinants, and nuances of the face of Cambodian poverty against the impacts of major macro and micro developments. Employing a mixed methods approach, the quantitative aspect involved statistical analyses of the panel data on 897 households from nine villages representing different geo-climatic regions in the country. This data was generated from CDRI’s Moving Out of Poverty Study (MOPS) in 2001, the MOPS in 2004/5 and the PDS survey in 2008, with financial and technical support from the World Bank. The qualitative aspect, on the other hand, drew upon analyses of the results of focus group discussions (FGDs) and semi-structured interviews (SSIs) with households and individuals from the same nine study villages. Based on the results of the PDS presented in this report, policy recommendations have been formulated in the hope of helping tailor the government’s poverty reduction policies and advance their implementation.

Addressing Poverty Remain the Top Priority of Development Policies

Poverty is a multidimensional phenomenon. It is an outcome of interlocking problems that operate at different levels and contexts. In Cambodia, the incidence of poverty has been consistently high albeit this has been decreasing in recent years and can be explained by countrylevel, sectoral and micro-level factors. At the national level, Cambodia’s legacy of conflict, repression and isolation stands as a central explanation to why the country has become one of the world’s poorest. This legacy lingers in key broad determinants of poverty, particularly the low levels of physical and human capital and poor governance. The impressive growth period between 1998 and 2008 also witnessed the impact on poverty of economic and non-economic shocks. At the sectoral level, the narrow economic base of growth and the under performance of the agricultural sector highlight poverty in Cambodia as a mainly rural phenomenon. At the micro-level, poor asset ownership, limited access to public goods and finance, low levels of education and nutrition, and idiosyncratic shocks jointly resulted in communal, household and individual poverty.

 Cambodia achieved a successful economic and social restructuring between 1998 and 2008 that spurred economic growth and poverty reduction. In time, the Royal Government of Cambodia (RGC) declared poverty alleviation as its single most important long term goal, recognising that poverty reduction is integral to social reconciliation and key to maintaining political stability. The fulfilment of this mission rests on what has been formally called the Rectangular Strategy. This strategy’s core component is improvement in governance and its four pillars are as follows: enhancement of agriculture; private sector development and employment generation; human resource development; and infrastructure building. This strategy has borne fruit, sustaining the progress in expanding the economy and diminishing poverty. However, poverty reduction has not matched the pace of economic growth, suggesting gaps in the translation of policy into action.

Poverty Dynamics and Socio-economic Trends: Community Perspectives

The rural study villages have different experiences in changing poverty headcount and income. This demonstrates that income growth may have been a necessary but certainly not a sufficient condition for poverty reduction. The PDS suggests that poverty headcount declined in many rural villages between 2004/5 and 2008, a period that had substantial increases in average real per capita income and consumption. Average real per capita income rose significantly for almost all the study villages but this did not hold for consumption. Ultimately, using the consumption approach, some villages experienced a decline in poverty, but its incidence in some villages increased. Income growth appeared to be strongly, positively related with asset ownership and other welfare improvement. However, the experience of the nine study villages varied greatly in terms of sustainable food and non-food consumption and depended on their starting base in 2001. It is important to note that most study villages experienced consumption deficits in relation to the 2008 village poverty line. Successful agricultural villages have experienced significant reduction in poverty headcount or low poverty incidence. Land sales and transaction was viewed as a key factor in improvements in well-being and poverty reduction in some village.

The study villages were grouped into six strongly and three poorly performing villages based on the ability and capacity of each to exploit social, economic and political developments for the purpose of augmenting income and consumption, especially between 2005 and 2008. Chief of these developments included (1) agricultural growth; (2) enhanced access to common property resources (CPR) for subsistence and commercial purposes; (3) food price escalation in 2007 and then deflation by the middle of 2008; and the (4) real estate boom between 2005 and July 2008. These developments had direct and indirect positive impact on household welfare in the study villages. However, some gains tended to be unsustainable for such reasons as the illegal nature of the CPR access and the landlessness caused by real estate transactions. For example, increased CPR access as a result of the fisheries and forestry reform and its political implications before the national election in July 2008 contributed greatly to the remarkable rise of total average per capita income and helped boost agricultural growth in the CPR villages. These villages however experienced uneven change in poverty headcount. That is because increased income in the natural resource development villages stemmed mostly from the illegal conversion of forest and flooded forest for cultivation between 2004/5 and 2008, but such an increase cannot be sustainable. Wage labour became an important source of income for landless households and some villages, but this income tended to sustain improvements in livelihoods and the mitigation of poverty.

The sample rural households seem to have benefited from infrastructure development and increased availability of microcredit services. However, this improvement was not enough to raise the capacity of rural households to cope with social and economic shocks or to sustain their consumption above the village poverty line to avoid sliding into poverty. Consumption and poverty reduction also proved unstable in those villages where most households depended heavily on the cultivation of wet season rice, wage labour and access to CPR. There were increased efforts to grow more cash crops and raise livestock in addition to rice production but the lack of know-how and inadequate extension services undermined progress. These findings highlight the need to speed up infrastructure development, provision of adequate effective extension services, and agricultural diversification.

Empirical Analysis: Chronic and Transient Poverty in Nine Villages

The empirical analysis uses three separate years of unique panel data on 827 households to measure transient and chronic poverty based on real total expenditure per capita as a welfare indicator. The results show that 44 percent of the sample households experienced transient poverty while chronic poverty affected 15 percent. There are high levels of chronic and transient poverty in the Tonle Sap and Plateau regions. Using multinomial logit regression to identify the causes of transient and chronic poverty, the econometric evidence shows that transient poverty is associated with household composition, the gender of the household head and marital status. Household composition, number of dependent household members, males aged 15–64, education of the household head and ownership of non-land assets are important factors in chronic poverty but are not significant in transient poverty. The number of females aged 15–64 increases both chronic and transient poverty.

The asset approach to measuring chronic and transient poverty found that the largest numbers of households were transient poor, consistently with the findings of the consumption approach; however, the asset measure offers new important and more telling insights into the key determinants of chronic and transient poverty. Households experiencing transient poverty account for 40 percent of the sample and chronic poverty for 30 percent. The Tonle Sap and plateau regions have lower chronic poverty and higher transient poverty than the coastal region. Male adults aged 15–64 years, household head characteristics such as educational level and occupation, agricultural land, non-land assets and livestock are important factors for chronic poverty but are not significant determinants of transient poverty. Transient poverty is negatively associated with non-land assets. Using either of the consumption or asset approach, the empirical results suggest that different policies will be needed to address chronic and transient poverty and for each agro-climatic region.

Policy implications

A number of pro poor policy directions can be drawn from the key findings of this micro study. These policies are advanced to support both community growth and poverty reduction and respond to transient and chronic poverty through support for both farm and non-farm employment for poverty reduction. These policies need to be integrated into an agricultural and rural development policy framework and upcoming development interventions. Such policies and interventions can be effective if they harness existing synergy of community growth and economic opportunities generated along with structural change in order to build the capacities of the poor. This will not only increase productivity but also pave for stronger capacity to cope with socio and economic shocks/crises. Coordination of pro-poor policies and interventions has to be done through strategic sectoral planning and define the roles of national and sub-national bodies within the D&D reform structure. The private sector and civil society have important parts to play in highlighting major technical, administrative and political challenges to policy design and implementation. However, promoting structural change from an agricultural to a non-agricultural-based growth requires large-scale and long-term investments.

Supporting Community Growth for Poverty Reduction

1. Pro-poor strategic development framework should be integrated and coordinated in development interventions in order to build the capacities of the poor. These should focus on rural infrastructure; generating labour demand; technical changes for productivity gains; and, access to stable input, output and financial markets to support such technologies. These factors should enable the poor to benefit from widespread technology adoption in response to labour markets and the need to diversify in the face of risks of falling grain prices. The process encompasses structural change that requires careful targeting of policies, strategic planning and coordination mechanisms to address the different endowments and needs of the poor in rural areas and the differences between the chronically and transient poor.

2. Pro-poor agricultural development policy for poverty reduction should enhance the capacity and productivity for income generation of small landholding farmers. Strategic mechanisms should be in place for the small farmers to address their problems and needs so that they can increase productivity and diversification. Intensifying and diversifying agricultural activities to increase income of small farmers has been supported by recent market developments in both strongly and poorly performing villages. This development, however, has been constrained by a lack of know-how, ineffective agricultural extension services and inadequate savings and irrigation systems. At the same time, migration has become an alternative coping strategy for the growing labour force while the agricultural landless and land concentration has risen.

3. Pro-poor agriculture should address the needs of poor, rural agricultural households, especially existing conflicts over land and water access for small farmers. Conflicts over CPR access (land and water) for subsistence and commercial agricultural and related activities remain unresolved and have further inhibited agricultural development and employment creation in rural areas. This should be addressed through land distribution and security, agricultural modernisation and diversification and public goods (infrastructure and agricultural extension services) delivery for small farmers. A key priority should speed up land titling processes and social land concession to address inequality in land ownership and target frontier areas that are prone to land and water conflicts or conflict between subsistence and commercial interests. Agricultural mechanisms, infrastructure, irrigation, reliable agricultural loans and extension services for small farmers must be set in place to improve land productivity and promote agricultural intensification and diversification to induce investments in modern equipment and systems. With such policy interventions, small farmers gain a better capacity to cope with shocks and exploit opportunities generated by increased market connections.

4. Bolster crisis response that protection schemes are required for ex-ante and ex-post crisis responses that should establish and build the community capacity of crisis responses as part of poverty reduction strategies. The government is in the process of establishing a comprehensive social safety net system. Three aspects of this are particularly important: funding sustainability; programme design (targeting and type of schemes, with public work programmes and cash transfers vital); and unified administration. Ex-ante strategies, which seek to enhance income sustainability, are longer in term that can diversify economic base.

5. Enhance advanced community-based CPR management to secure pro-poor property rights access for fisheries and forestry. Increasing community ownership of the commons not only formally entitles local villagers to the benefits of CPR access but also formally endows them with the responsibility to ensure resource sustainability. Collective action has been shown to sustain successful CPR management, but is subject to the satisfaction of several conditions. First, it has to be based on a well-defined and context-appropriate property rights regime, with the boundaries under management both clearly laid out and also congruent with the ecosystem and local administrative structures. Second, cost-benefit sharing arrangements must be as equitable as possible, as key factors in the sustainability of participatory resource management are the distribution of dividends and decision-making power. Third, the success of CPR management hinges on the quality of local governance. Reneging on obligations and free-riding and cheating the system can occur, and it is important to devise cost-effective monitoring, enforcement and sanctioning systems. Fourth, capacity building is a prerequisite for the success of participatory schemes, and technical assistance to enhance the capacities of local communities should be provided. Sustainable natural resource use requires a blend of modern and indigenous knowledge of conservation and utilisation. This should be supported through consultative discussions to avert conflict and through technical assistance to communities.

6. Continue aggressive implementation of educational strategies and effective pro-poor scholarship schemes. Human capital for both transient and chronic poor through higher educational attainment and appropriate life skill levels can be promoted by simultaneously increasing education budgets (a priority sector) and enhancing the quality of spending. Access to primary education, already widespread, can be further improved through targeted spending on education quality. Problematic areas also include low teacher competencies and school retention rates. At the secondary and tertiary levels, low enrolment ratios must be improved, and budgets for secondary education must be increased to make access more affordable. In terms of workforce skills, there is a mismatch between present levels of skills and the requirements of the private sector, which prevents labour movement into more productive sectors. The lack of management skills is an oft-cited reason for the limited number of Cambodians with managerial positions in the garment sector. The private sector has to be encouraged to take up the slack in offering and funding vocational and technical training opportunities.

Pro-Poor Policy Responses to Chronic and Transient Poverty

Two different sets of specific policy responses are needed for the chronic and transient poor, groups which encounter different livelihood problems.

Policies for the chronically poor:

The chronically poor have been inactive participants and beneficiaries from the recent growth and developments. They lack financial and productive assets. They have weak human and physical capital, with low education levels and chronic health problems. Most chronically poor are self-employed or daily wage workers within the village, which are opportunities that are mostly insecure and with lower wages. A number of key strategies should be specifically created to improve the capacity of the chronically poor to move out of poverty.

7. Expand pro-poor scholarships and free health care services to target the chronically poor. All poor households have benefited from pro-poor health services in recent years through the ID Poor card from the Ministry of Planning. However, only some households have benefited from the universal education policy and the school feeding programme; other households have had to force their children to withdraw from school at an early age to help in earning incomes or foraging for food. This study supports the expansion of the pro-poor scholarship programme and free health care services along with non-farm income generation programmes for parents as paths out of poverty for the chronically poor.

8. Cash transfer programmes for small business creation and non-farm activities are an effective tool to help the chronically poor. The strategic design of these kinds of interventions should be linked to the broader market demand and appropriate vocational training and understanding of market chains in order to maximise profits. Special arrangements for cash transfer programmes supported by vocational training and saving schemes or rural credit for small business creation is the best option for this section of the chronically poor, especially for female-headed households without male labour.

9. Enhance support for development services for both chronically and transient poor. Single female-headed households often consider alternative income generation activities such as poultry and pig rearing but suffer from lack of knowledge as to how to protect their animals from infectious diseases. This problem is not specific to the chronically and transient poor but relates to livestock production in both strongly and poorly performing villages. It can be addressed by increasing and strengthening agricultural extension services for the poor.

Policies for the transient poor:

Transient poor households have a different set of problems compared with the chronically poor, often relating to their inability to cope with income shocks. They have assets for sale to cope with shocks, but during the recent crises the demand for and price of assets fell and, without formal credit, they became more vulnerable to sliding into poverty. This group of the poor could benefit from formal insurance and social protection schemes. The following strategies are worth considering in helping the transient poor.

10. Formal protection schemes are needed in response to crises, such as food for work and employment creation programmes to provide work for the unemployed and/or dismissed workers on labour-intensive government projects.

11. Build community risk reduction mechanisms such as saving groups. Saving schemes and rice banks were made available to the poor by NGO-led development initiatives to sustain their consumption in times of need, but these community based efforts have not been strong enough to cope with the magnitude of the impact of income shocks. The transient poor have often had to rely on traditional coping strategies such as loans from moneylenders with high interest rates and sales of farm outputs to merchants/traders who willing to offer them credit in times of need but for lower than normal farm-gate prices. This has further eroded their capacity to recover from income shocks. The traditional buffer of CPR used for coping with food shortages is no longer available; the only alternative has been migration to secure earnings elsewhere. This is possible with households that have a labour surplus but less so for single female-headed transient poor households, which are left with limited options.

12. Promote linkages between social protection and pro-poor agricultural development. Agricultural productivity can be supported by well-designed social protection programmes. Productive capacities can be enhanced through the expansion of quality public services for technical transfers to the poor, and such social protection can enhance resilience in the face of threats, limit disinvestment, reduce risk and promote investment by the poor. Crop and livestock insurance schemes through market interventions by the government are important in times of economic crisis, and agriculture should be subject to more social protection, and protection which is sensitive to impacts on production. The experience of the recent economic crises shows that allocations of national insurance funds need to be well-planned and implemented. For the purposes of poverty reduction, however, this study suggests social protection interventions be given priority in the plateau, Tonle Sap and coastal regions, where concentrations of transient poor are highest, particularly since the recent economic crises.