Cambodian businesses are facing the same challenges today as they were in 2009, according to a new joint World Bank and Asian Development Bank (ADB) study.
The results of Cambodia’s 2014 Investment Climate Assessment (ICA) were launched yesterday in Phnom Penh. Mirroring the results of the 2009 ICA, the latest report lists electricity prices, corruption, a lack of skills and financing as the biggest constraints to doing business.
“Despite the government’s effort at introducing reforms to improve the investment climate, the business environment continues to hamper the competitiveness of firms in Cambodia,” the report states.
Overall, 43 per cent of the 862 businesses surveyed for the ICA listed electricity prices and more than 30 per cent listed corruption as their as the biggest constraints.
Consequently, the World Bank and the ADB have jointly called on the government to prioritise reviewing Cambodia’s energy source strategy, passing a new e-commerce law to expedite automated private-to-public-sector payment systems and revise the current Investment Law to improve the attractiveness of special economic zones (SEZs).
“Low wages, the Everything But Arms access program to the EU that Cambodia has been granted, and tax holidays have all helped to attract investment,” Julian Clarke, World Bank senior economist and author of the report, said.
“Still, Cambodia can do more to address the most serious constraints seen by the firms.”
Among the ICA’s additional recommendations was a “Zero Corruption Strategy” for the Kingdom’s SEZs where more than 70 per cent of the firms listed corruption as their primary concern – almost double that of non-SEZ companies.
“Policing this strategy would be feasible in the controlled environment of the SEZs, and have a strong resonance in terms of building a positive image for Cambodia as an FDI destination,” the report states.
It’s hoped that a good example shown by SEZ firms in combating corruption would prompt a sector-wide improvement to informal practices.
However, the issue remains that a vast portion of the Kingdom’s private sector deliberately chooses to conduct their operations informally due to the cost of paying taxes, registrations and complicated regulatory processes imposed by government departments.
Some 70 per cent of the country’s small-size firms and 45 per cent of medium-size are still not registered with the country’s Ministry of Commerce, according to the ICA.
“Efforts of the MoC in the area of improving company registration procedures should be scaled up, building on the results achieved in the past decade when many firms have decided to register under the system,” the report adds.
Sok Touch, owner of a grocery store on Sothearos Boulevard in Phnom Penh’s Chamkarmon district, is one such informal business. He said yesterday he would be willing to register his business with the Ministry of Industry and Handicraft if no fee and no tax was charged.
“I can barely earn enough to support my family, let alone the money to spend for tax or the fee for registration,” he said.
“If the government wants us all to register, so they can monitor the number of small and medium businesses, I am happy to do it if no fee or tax is attached,” he added.
However luring informal small- and medium-size businesses to register with the government for legal and tax purposes might be more than just a question of cost.
“Another issue is that [informal] firms might lack the trust in the Government to operate formally,” the ICA report said.
The World Bank and ADB recommended the government engage the informal business sector in a dialogue to “build trust“ and ultimately improve business registrations.
Rami Sharaf, CEO of RMA Cambodia Group of Companies, welcomed the World Bank and the ADB’s study, however said improving the Kingdom’s business environment hinges on conversation and action from both private industry and the government, not only reports and data.
“None of these problems can be tackled by either sector alone. We need to have mandated task forces made up of private businesses, agencies and government who have the power to put these findings into action,” Sharaf, one of the speakers at yesterday’s launch said.
“If this coordination is not there, and we keep everyone playing his or her own tune, we will again see the same findings at the next ICA and we will again be repeating ourselves.”
ADDITIONAL REPORTING CHAN MUYHONG