CAMBODIA'S slide of six places in the World Bank's latest annual ease-of-business report released Wednesday shows it is "all the more important" for the Cambodian government to press ahead with its economic-reform agenda, the bank's senior country economist for Cambodia, Stephane Guimbert, said Wednesday.
The fall to 145th of 183 economies surveyed worldwide in the bank's Doing Business 2010 report, prepared in conjunction with the International Finance Corporation (IFC), came after the country climbed 11 places in the rankings a year earlier.
The rise was at the time attributed to the passage of the Secured Transactions Law and the Law on Bankruptcy, as well as Cambodia's success in cutting import and export delays.
The reversal suggests that the pace of business-regulation reform has slowed in Cambodia even as other countries accelerated changes to remain competitive in a global market rocked by an ongoing economic crisis, the two agencies said in a media statement accompanying the report.
A record 131 economies worldwide and 17 of 24 in East Asia and the Pacific reformed business regulations between June 2008 and May 2009, the period covered by the report.
Guimbert warned that the survey captured key parts, "but not all" of the business environment and said that Cambodia has made over the past two years a number of economic reforms that were not reflected in its ranking.
These include the launch of an automated system of customs data (ASYCUDA) in May 2008, the creation of a National Social Security Fund, responses to challenges posed by the economic crisis, and the establishment of the National Arbitration Centre to improve commercial dispute resolution.
The eight working groups of the Government-Private Sector Forum are discussing a number of additional reforms, such as simplifying trade processes, inspections and licensing, and improving the country's legal framework, Guimbert said. "All these measures are very important to improve the business environment, even though they are not all reflected in the Doing Business report."
The IFC's resident representative in Cambodia, Julia Brickell said Wednesday that the arbitration centre will be a quicker and cheaper alternative to the courts.
"Effective commercial arbitration is crucial in helping businesses enforce contracts in ways that are less costly and time-consuming than is currently the case," she said.
According to the report, it costs a business 102.7 percent of the value of the claim to enforce a commercial contract through the courts in Cambodia.
The annual survey ranks economies in 10 categories related to the time and cost for domestic companies to meet business regulations such as starting and operating a business, trading across borders and paying taxes.
Cambodia fell slightly in almost every category, the most drastic being the ease of paying taxes, where it dropped 33 places to 58th as a result of the introduction of a National Social Security Fund contribution.
Government-private sector tax committee Co-chair Edwin Vanderbruggen brushed off the result, saying the introduction of a simplified tax return and streamlined registration procedures in 2008 meant the relative difficulty of paying taxes is actually "moving in the opposite direction".
Room for improvement
However, he added that although paying tax in Cambodia is "very simple", the country has room to streamline procedures further, for example by removing the requirement for a company representative to physically submit the return for approval at the tax department before taxes can be paid.
In other countries, companies can self-assess and remit taxes straight to the treasury, Vanderbruggen said. "This is of course time that we lose in Cambodia that we don't lose in other countries."
Guimbert said Cambodia's relatively high ranking in the tax category shows that the Kingdom remains "overall a country where the tax rates are attractive for investors".
Cheam Yeap, chairman of the National Assembly's finance and banking commission, rejected Cambodia's slide in the rankings, citing a range of initiatives the government had undertaken to help businesses.
These include improved access to business loans, tax reform, tax exemptions for the agriculture sector, reductions in the time taken to register a business and efforts to find new export markets, he said.
The report showed it takes 85 days to start a business in Cambodia, compared to 41 on average across East Asia and the Pacific and 13 across Organisation for Economic Cooperation and Development (OECD) countries.
The report also showed that despite the passage of the bankruptcy law, bankruptcy proceedings have not gotten off the ground in Cambodia.
ADDITIONAL REPORTING BY MAY KUNMAKARA