Implementation of the RBSA Project "Promoting the transition to formalization through integrated approaches in Cambodia": First-Year Progress Update.

As the project "Promoting the transition to formalization through integrated approaches in Cambodia" reaches its first year of implementation, this update includes a summary of the activities undertaken and the prospects for its final year.

In its first year of implementation, the project has focused on strategic activities to advance formalization and extend social protection to workers and enterprises in the informal economy. Notably, the project launched the ILO-UNDP report "Understanding the Paths to Formalization in Cambodia: An Integrated Vision". This report examines the context and challenges associated with formalizing enterprises and employment in Cambodia, and provides a range of policy options to be examined by constituents for inclusion in an integrated strategy for formalization. The report focuses on micro and small enterprises and their employees given their higher likelihood of informality compared to other enterprises or workers.

The project has also welcomed the government’s development strategy “Pentagonal Strategy-Phase I”. Among the six priorities for the years 2023 and 2024, the government committed in enacting the National Informal Economy Development Strategy 2023-2028 (NIEDS), launched in October 2023, and aiming at facilitating the transition to the formal economy. The NIEDS promotes a range of measures that can directly and indirectly support the process, such as the organization and establishment of e-business registration, tax incentives, expansion of social assistance programs, and provision of skills training. The NSIED has been transferred to the Ministry of Industry, Science, Technology and Innovation (MISTI) in anticipation of its implementation.

The team, comprising colleagues from MLVT, MISTI, MEF, GS-NSPC, NSSF, ILO, and UNDP, had the opportunity to visit several Singaporean agencies. These included NEA, MAS, ACRA, CPF, MoM, and WSH. The purpose was to learn about the historical development of the formal economy in Singapore. The team got acquainted with strategies and policies implemented by the Singaporean government to achieve its current status. They also discussed options for registering MSEs through digital solutions, compliance mechanisms, and incentives to participate in the formal economy.

2023 also saw the conclusion of the first of a series of sectoral studies on the topic of formalization. The report “Social Protection and Childcare Services in Cambodia’s Garment Industry” aimed at understanding garment workers’ needs and perceptions on (i) their social protection entitlements, and (ii) their childcare preferences. In particular, the study sought to understand how garment workers in informal factories may decide to seek formal employment and/or social protections, and how the childcare needs of workers in both formal and informal factories may shape their work preferences. The findings from this study are expected to be part of the evidence body that will advance better policies in the Cambodian care economy, as well as fostering workers retention in the formal sector.

As the project enters its second year of implementation, significant efforts are still underway. In the area of combining formalization of enterprises with the extension of social protection, several key activities are ongoing and planned. A feasibility study is being conducted to evaluate the potential role of Employers and Business Membership Organizations (EBMOs) in facilitating the transition to formality. This study aims to assess the interest and plans of Cambodian EBMOs to support enterprises in formalization processes and to identify strategies for leveraging their involvement effectively. Additionally, analysis is being carried out to explore options for increasing incentives for formalization, with particular attention to gender-responsive and inclusive measures. This analysis involves examining existing incentive mechanisms and identifying opportunities to enhance their effectiveness in promoting formalization among various demographic groups, including women and vulnerable populations.

In the area of adopting sectoral approaches to formalization, diagnostic studies are currently underway in key sectors such as construction, agri-food (cassava and cashew-nut industries), and tourism. These studies aim to provide a comprehensive understanding of the specific challenges and opportunities for formalization within each sector. By conducting sectoral diagnostics, the project seeks to identify sector-specific barriers to formalization, such as regulatory constraints, access to finance, and market dynamics. Moreover, these diagnostics aim to uncover potential entry points and interventions to promote formalization within each sector, including targeted capacity-building initiatives, policy reforms, and stakeholder engagement strategies.

Overall, the ongoing activities in reflect the project's approach to formalization, which seeks to address the multifaceted challenges of informality and extend social protection to workers and enterprises in the informal economy. By combining targeted interventions with sector-specific strategies, the project aims to lay the foundation for sustainable formalization and inclusive economic growth in Cambodia.

Building upon the groundwork laid in the previous year, we are committed to advancing our initiatives. Collaboration with the Ministry of Industry, Science, Technology, and Innovation (MISTI) will signify a crucial milestone in our efforts to enhance the monitoring and evaluation framework for the national formalization strategy. Concurrently, the development of a comprehensive training package for women micro and small entrepreneurs will pilot the transition to the formal economy for specific target groups.

Further, the project will engage in several results sharing sessions with tripartite stakeholders seeking to provide a platform for meaningful dialogue and collaboration and facilitating informed decision-making. Additionally, the project will seek engagement with regional peers to promote learning and sharing best practices.

In conclusion, as we move forward into the second year of implementation, our commitment remains steadfast in advancing formalization efforts and extending social protection in Cambodia.

For further information please contact:

Mr Giulio Bordon
Technical Officer
Promoting the transition to formalization through integrated approaches in Cambodia