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Is Cambodia Ready To Dress Up The World?

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Gap, Adidas, and Giorgio Armani are some of the renowned fashion brands that manufacture their designs in Cambodia. As of 2014, Cambodia was the sixth fastest growing economy in the world and its textile production held a 1.2% share of the global market by volume in 2008. It is no coincidence that whenever Cambodia is mentioned, almost instantaneously, it is linked to a soaring apparel production sustained by a large number of factories as well as workforce in number only comparable to some of the world’s largest textiles producers such as Thailand or Vietnam. Is Cambodia ready to face this steep growth?

Accounting for 16% of the country’s GDP in 2012, garment sector certainly plays an important role in the Cambodian economy. It provided employment to 8.2% of the country’s population in 2014, while textile export accounted for 80% of Cambodia’s total exports in 2013. Moreover, Cambodia’s government has recently increased its focus on industry development with stress on garments. The country has not only set a long term Industrial Development Policy to spur its textile sector growth but it also has implemented initiatives seeking to organize the apparel production and become an even more appealing destination for international buyers as well as investors.

1-WHY INVEST IN CAMBODIA

In 2009, as a long term strategy, the country became part of the Association of South East Asian Nations community (ASEAN), a regional economic and political organization associating 10 member states. This allowed Cambodia to take advantage of several FTAs previously signed by ASEAN with developed countries, and benefit from many other betterments offered by this international community. After years of political stress and economic instability of the Cambodian’s economy, ASEAN membership helped Cambodia register a manifold increase in trade in the last five years, with stabilized inflation rate at about 4%, and an expected GDP CAGR of around 8-9% during 2015-2018.

Since declared a Least Developed Country (LDC) in 1991, Cambodia has been benefitting from quota-free and duty-free export to EU countries without having to comply with the rule of origin, a rule establishing that all manufactured goods must originate from the country of export. Fabrics may come from, i.e. China, but it is Cambodia that manufactures and exports all of the clothing and footwear to places such as UK (which accounted for 7.8% of total garment exports from Cambodia in 2013) or Germany (accounted for 6.7% of total garment exports in the same year). For a country as heavily dependent on raw material (57.2% of total imported garment raw material came from China in 2013) as Cambodia, this scheme is greatly favorable, allowing the country to export US$554 million worth of textiles and footwear during the Q1 2015 to the EU alone.

2-ADVANTAGES

For the past two decades, the country has been relying on FDIs with a strong focus on garment industry investment. Cambodia became an attractive investment destination in 1996, after receiving the status of Most Favored Nation (MFN) by the USA and launching an open trade administration with permissive investments and incentives for foreign investors. Due to open trade policies such as no price controls on products or services, free remittance of foreign currencies abroad, and full import duty exemption, favoring mostly foreign capital, Cambodia tripled its FDI in the last decade with a record of US$4.6 billion of cumulative approved FDI. As of 2014, about 28% of that FDI, or US$1.28 billion, focused on the garment and footwear sector production through foundation of new factories and implementation of high-tech manufacturing equipment rather than depending on low cost and low skilled labor as means of retaining international competitiveness.

Despite an increase in total export volumes buoyed primarily by textile and footwear export over the past several years, Cambodia’s government is yet to address internal problems that may obstruct both the country’s economy as well as apparel sector’s growth in the coming years.

3-CHALLENGES

EOS Perspective

During the last decade, Cambodia has strategically positioned itself as an attractive FDI destination for clothing and footwear companies to make their designs or to open new low-cost production facilities. However, since 2014, Cambodia’s internal conflict with garment sector workers has affected the country’s image causing a decline in purchase orders for the first time in a decade. The conflict has also negatively impacted foreign investors who are losing confidence in the country’s management of the apparel sector, and subsequently, Cambodia is registering a decline in FDI inflow, which it greatly relies on to aid its apparel industry development. Further, considering Cambodia’s textile industry is highly dependent on imported raw material and electricity, the apparel production cost is susceptible to possible increase in prices of imported fabric and unforeseen changes in electricity rates.

As a result, it does seem Cambodia is still unprepared to handle a possible steep growth of its textile industry. Although there have been several industrial development policies implemented to better organize the industrial setup, Cambodia is yet to build strong manufacturing industries to supply for its own apparel industry needs. Further, the ongoing lack of a fully-working power grid that feeds textile factories puts Cambodia in a weak position vis-à-vis its garment-oriented competitors. Therefore, in order to become a truly large player in the global apparel industry playground, Cambodia has to focus its efforts on developing self-sustainability and overcoming its ingrained internal conflicts.

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Universal Health Access in Southeast Asia – Bridging the Coverage Gap

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Affordable and accessible health care service is a common objective for governments across developed as well as developing nations.

Global trends suggest that generally countries, as they attain prosperity, tend to move towards a Universal Health Care (UHC)/ Social Health Insurance (SHI) regime, in which 100% population is provided with health care coverage (scope varies from country to country). There are some exceptions in the developed world, with the USA being an example.

In the Southeast Asian region, each country is at a different phase/stage regarding the implementation of universal health access. Several of these countries, such as Indonesia, Philippines, and Thailand, have implemented UHC (as a policy). The remaining countries in this region have various types of health insurance schemes to cover certain sections of the population, and are experimenting with some schemes to judge their effectiveness. It is expected that these countries will eventually work towards the common goal of achieving 100% UHC.

The following illustration captures the current health care sector situation (from UHC/SHI perspective) in four Southeast Asian countries (Cambodia, Indonesia, Philippines, Vietnam), and highlights few areas that require immediate attention in order to successfully manage universal health access for their citizens.


ASEAN UHC



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Details on country-specific social health insurance design and infrastructure:

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Cambodian Healthcare – In Need of Strong Government Support

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Cambodia is a low income country (GNI per capita US$880 as of 2012) with a population of about 15 million (67th most populous country as of 2012). Though the country has witnessed concentrated efforts towards better healthcare infrastructure and services since gaining independence in 1953, the major push came only in 1993 after the establishment of a dedicated Ministry of Health (MOH). The MOH has been consistently working to overcome major healthcare-related challenges, such as widespread malnutrition, high mortalities from communicable diseases, and low access to healthcare. MOH’s Health Sector Plan (HSP) (2008-2015) focuses on developing healthcare infrastructure and ensuring that healthcare services reach the entire population.


This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, VietnamIndonesia, and Thailand.


Social Health Insurance (SHI) is still in early stages of implementation, and will take some years before it is firmly established. The SHI Master Plan was launched in 2003 with an aim to develop a stable financing system, and to promote equity in healthcare access. Currently, people from poorer sections of the society and informal sector are covered through Health Equity Funds (HEF) and Community-based Health Insurance (CBHI) Plans. The government plans to introduce a single health financing system by 2015.

Cambodia UHC

About 2.5 million poor and more than 500,000 individuals from the informal sector are covered by HEF and CBHI plans, respectively.

When implemented fully, SHI is expected to provide healthcare protection to urban and rural poor (among others). The success of SHI would depend on the government’s ability in establishing healthcare infrastructure in places where it is currently unavailable, devising a suitable taxation/financing mechanism to support it, and in ensuring an optimum coverage of health conditions. The current design and support infrastructure would determine the long term success of SHI.

 

INFRASTRUCTURE
Key Stakeholders
  • The Ministry of Health (MOH) is responsible for health policy and planning, coordinating among various sectors within the healthcare sector, and for securing external aid
  • The Provincial Health Department (PHD) connects the MOH to operational districts (OD) through the implementation of policies in the HSP via the annual operations plan (AOP)
  • OD is the primary entry point of the population into the health system; Each OD, comprising a network of health centers and a referral hospital, covers a population between 100,000 to 200,000; health centers are geographically located so as to serve a catchment area of between 8,000 and 12,000 people
Healthcare Service Delivery
  • Public healthcare service delivery is designed to offer services at two levels — a) minimum package of activity, available at health centres; b) complementary package of activity (CPA), available at referral hospitals
  • Minimum package includes (among others) initial consultations, primary diagnosis, emergency first aid, chronic disease care, and maternal and child care
  • Based on the CPA offered, referral hospitals are categorised into:
    • CPA1: Basic obstetric services, provided mostly by district hospitals
    • CPA2: Basic obstetric services, large scale surgery, ICU facility, and other specialized services, such as ENT, dental, etc.; services are primarily provided by district hospitals and a few provincial hospitals
    • CPA3: More advanced than CPA2 with a wider range of specialty services; all national hospitals and most provincial hospitals come under this category
  • Current hospital infrastructure:
    • Health Centres: ~1,100
    • CPA1: ~33
    • CPA2: ~ 31
    • CPA3: ~ 26
    • Private Clinics: ~ 1,500
KEY CHALLENGES
Lower Adoption of Public Healthcare Services

  • Despite an established referral system with primary care facilities, private clinics are the first point of contact for Cambodians. Poor access and inadequate service delivery have been major issues affecting the adoption of the public healthcare system
    • Level of expertise is still low among public sector healthcare workforce; this is one of the key focus areas for the government if it intends to improve adoption of public facilities
    • Cambodia has successfully experimented with the outsourcing of healthcare services; this can be continued to achieve efficiency at primary and secondary level, while investing public resources on tertiary level services

Less Efficient Procurement System

  • SHI may not serve the purpose if medicines covered under it are not available and patients continue to rely on private pharmacies; the procurement system needs to be overhauled with better demand estimation and/or more autonomy for purchase at the OD level
  • Bringing in technology into the procurement system should help in developing an efficient system

 

DESIGN
Beneficiary Classification
  • At the launch of SHI Master Plan, following four groups were envisaged:
    • Wealthy (5% of the population)
    • Urban Formal Sector (10% of the population)
    • Urban and Rural Near Poor (50% of the population)
    • Rural and Urban Poor (35% of the population)
Healthcare Insurance Financing
  • The expenditure on public healthcare services is provided through taxation revenues and external aid; MOH also funds (partially) the HEFs and CBHI schemes
Payment System
  • Cambodia follows a user-fee model for the payment of healthcare services; all public healthcare facilities charge user-fee for the provision of services
  • In case of HEFs, user-fee has been standardized across all ODs where the scheme has been implemented
  • CBHI pays to health centers/hospitals on either case per basis or on the basis of capitation system, depending on the arrangement with local OD
Benefits
  • Current health insurance schemes cover minimum and complementary packages offered by the public healthcare system
Co-payment (Reimbursement) System
  • The government subsidizes minimum and complementary packages (for equipment, facilities, and staff salaries) and medicines (covering essential medicines); service users have to pay for the consultation and treatment fee, and out of stock medicines
  • HEF covers partial or full costs of access to services for poor, including user-fees and cost of transportation
  • CBHI covers full cost of access to services for the informal sector population under coverage, including user-fees, cost of transportation, and the cost of referral and admission in provincial hospitals
Reimbursement System for Drugs
  • Drugs specified under the reimbursement list managed by the MOH are reimbursed; MOH is responsible for the procurement and distribution of drugs to the referral hospitals and health centers at operational districts
  • Drugs mostly covered are for in-patient services; for OPD patients, there is no such provision, except for the prescription of a cost-effective generic formulation
KEY CHALLENGES
Lack of Funding Mechanism to Ensure Long-term Viability of SHI

  • Success of the SHI would largely depend on its funding mechanism, which at present depends on taxation revenue and external aid; the government will have to look for increased funding for SHI, which may be in the form of a) increased healthcare budget allocation (from current 1% of the GDP), b) SHI-specific tax/surcharge, c) introduction of premium for top 15% (income-wise) of SHI beneficiaries
  • Participation of informal sector (with no fixed income) is crucial for the success of SHI – a review is required to assess what additional incentives that can be added to the current CBHI scheme (for informal sector) to encourage participation; this may be helpful once a unified financing system is implemented in 2015 (as planned)

Opportunities for Healthcare Companies

Healthcare Service Providers

  • Outsourcing healthcare services has proven to be an effective way to improve the performance of the healthcare system in Cambodia. Therefore, the outsourcing of services may continue in the future as well, providing opportunities to healthcare service providers

  • Experienced service contractors help in fulfilling the goals set-out in HSP (2008-2015, especially the Millennium Development Goals) where the country appears to be lagging

Medical Device Manufacturers

  • There is severe lack of medical devices, such as MRI, tomography scanners, mammography, etc. in public hospitals. SHI aims at providing such facilities, even if outsourced to private players

  • Increased in-patient coverage is likely to result in demand for devices such as patient monitoring equipment

Pharmaceuticals Companies

  • SHI implementation may not bring any additional benefits to pharmaceutical companies, as OPD drugs are not included as part of the benefits

  • Demand for in-patient drugs is likely to increase; the focus of pharmaceutical companies would remain on the inclusion of their drugs in the reimbursement list

A Final Word

The SHI system is still in early stages of development in Cambodia and the government needs to work on both infrastructure and design to ensure success of the scheme. SHI will be effective only if the people under coverage avail healthcare services through it, for which government healthcare services need to be at par with the private system. Provision of OPD services under SHI coverage will also help in greater adoption of the scheme.

Participation of the informal sector population is key to the success of the scheme from a financial perspective (ensuring adequate funds and lower reliance on foreign aid), and for meeting the key objective of ‘healthcare to all’.

From the perspective of healthcare industry participants, Cambodian healthcare service providers are likely to gain the most if the government expands services to a larger set of population (based on positive outcome from previous experiments). On one hand, lack of adequate equipment provides a strong opportunity for medical devices companies, while on the other hand, the expansion of in-patient services (as more people are covered by SHI) should provide an impetus to pharmaceuticals companies. For pharmaceuticals companies, the growth potential may not be fully realized unless OPD services are also covered under SHI.

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Notes:

  1. Health Equity Fund (HEF) are schemes to support vulnerable groups, supported by the Health Sector Support Program and funds from various development partners and the national budget
  2. Community-based Health Insurance is a voluntary, community-based and not-for-profit health insurance
  3. About 35% of the total population lives below the poverty line, earning US$0.45-0.60 per day
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The ASEAN Pharmaceutical Market – Measure of Attractiveness

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The ASEAN region, home to more than 600 million people, has historically been an attractive market for international pharmaceutical companies. With the exception of Indonesia, all other countries in the ASEAN region rely heavily on pharmaceutical imports, with Myanmar importing up to 80% of its annual demand. Relative attractiveness of each country in the region also depends on several other factors, as highlighted in the following illustration.


Market Attractiveness of ASEAN Region Countries for International Pharmaceutical Manufacturers

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