Cambodia is likely to miss its deadline to establish a stock exchange by 2009, a top finance ministry official said, adding that the country’s nascent business sector is still too chaotic and dominated by secretive, family-run business groups to support a transparent bourse.
“There are many who are urging us to have a [stock] market soon … but there are many challenges in terms of laws that we are lacking, as well as the performance and management of companies,” said Kao Thach, head of the financial markets unit at the Ministry of Economy and Finance.
One of the biggest obstacles, according to Thach, are the private companies that might eventually list on an exchange.
Most operate in a shadowy world of back rooms and closed bids, and are not likely to submit to the rigorous auditing required to go public, he said.
“The ministry wants [these companies] to prepare themselves” to list, he said.
“I urge business people to think about international financial reporting standards – this is the common language for publicly listed companies,” he said.
“Right now is the time for those who want to be publicly listed to change the way they manage their companies … and put their businesses in control of members of a board,” he said.
In September, the government began requiring some 400 businesses to submit their financial statements to independent auditors in one of a series of steps it says is necessary to open a stock market.
Cambodia last year also approved legislation on the issuance of bonds and partnered with South Korea, which provided the country with $1.8 million in assistance with the hopes of opening a bourse next year.
The aim, according to government officials, is to attract foreign capital – Cambodia attracted only $483 million in foreign direct investment in 2006, compared to billions of dollars in neighboring Thailand and Vietnam – and broaden Cambodia’s prohibitively narrow economic base.
Despite an average of 11 percent growth over the past three years, the impoverished country’s is small and heavily reliant on only the garment sector, which accounts for nearly 80 percent of all exports.
Private sector officials agree that Cambodia has many hurdles to overcome before establishing a stock exchange, saying that financial laws in particular need to be strengthened.
“The stock market is not a place where businesses can cheat each other – it is a place for public enterprises to make a fair profit,” said Key Kak, chairman of the accounting firm Morison Kak & Associes.
“The question is … can the authorities monitor and crack down on people who intend to cheat others in business,” he added, also urging companies to agree to open their books to scrutiny.
“Right now is the time for those who want to be publicly listed to change the way they manage their companies.”
“We are no longer an isolated market,” he said. “We can no longer operate using different business practices from other countries in the region – we have to meet certain standards.”
According to Kim Ju Kyung, chief operations officer with the Cambodian Development Specialized Bank, Cambodia has significant potential for capital market growth, but that depended on companies’ participation in the stock market – something that could be severely impacted by the corruption that continues to plague the country’s business sector.
“Corruption creates a bottleneck for financial market development,” he said.
“Surely, corruption is one of the obstacles facing investment here – it will slow down business activity,” he added.
Cambodia consistently ranks near the bottom of the list in the German organization Transparency International’s annual corruption index of.
In 2007 it was listed 162 out of 179 countries, the group said.