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Business rankings edge up

A man installs a new power line in Phnom Penh this year. In a new World Bank report, improvements were noted in the quality of the power supply, making it easier for businesses to operate in the Kingdom.
A man installs a new power line in Phnom Penh this year. In a new World Bank report, improvements were noted in the quality of the power supply, making it easier for businesses to operate in the Kingdom. Vireak Mai

Business rankings edge up

Cambodia improved its ranking for the ease of doing business from 133 last year to 127 in 2015, making marked progress in the number of days and procedures required to start a business, though it is still ranked well below the world average, according to a World Bank study released yesterday.

The Doing Business 2016 report ranks Cambodia behind most of its fellow ASEAN member states, save for Laos and Myanmar. The critical issue of ease of starting a business continues to register a dismal ranking of 180 out of 189 countries, only a slight improvement from the 184 it placed last year.

“It is true that Cambodia drastically reduced time and procedures to open a business, but the ranking is relative and other economies are doing better than Cambodia,” said Jean Arlet, who co-authored the annual report.

One of the most important metrics is the time required to start a business. While in Cambodia this took 87 days, the world average was just 20 days, and more than half of the 25 countries in the East Asia and Pacific region required 20 days or less to incorporate a business, according to the report.

Increasing Cambodia’s ease of starting a business has been a pet project of Commerce Minister Sun Chanthol, who earlier this year said that reforms, such as online registration of businesses, could rocket the Kingdom’s ranking to 21. However, Chanthol qualified that claim by saying the drastic improvement would only be possible if other countries do not make any progress.

The delay in starting up a company could up the costs for new business owners and at the same time eat away at incentives provided by the government, such as tax holidays and customs duty exemptions, said Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia.

Ease of business infographic

“The government should continue its effort to streamline the procedures and utilise more online internet systems [to complete these] procedures,” Suzuki said.

The World Bank report highlighted that the cost of starting a business and the minimum capital requirement as a percentage of income per capita were other factors that weighed down Cambodia’s ease of doing business.

Suzuki said Cambodia’s minimum capital requirement seemed high due to the country’s low per capita income figure, but this was not a deterrent to prospective businesses.

“The minimum capital requirement in Cambodia is not a big problem for foreign direct investment,” he added.

On the bright side, Cambodia performed well on the ease of getting credit, ranking 15, a notch lower than its 12th place finish last year. The ranking was boosted by a high score on the strength of protections for banks and customers alike.

Joe Farrugia, CEO of Hong Leong Bank in Cambodia, said apart from the ease of accessing credit, customers were also better prepared nowadays to fulfill bank credit requirements, though startups still faced some challenges.

“However, in general, banks do not offer lending facilities to completely new or startup companies for simple reasons – lack of business and financial data for sound assessment of their business viability and profitability,” he said.

While consumer and bank protections were in place, Farrugia said that enforcement was a whole different issue.

“I believe that whilst Cambodia scored well in this area, you should put it in perspective and look at the history of legal challenges and enforcements before suggesting we are actually in a very strong and safe legal position,” he added.

Prospective business operators are also concerned about securing a stable supply of electricity. While Cambodia’s ranking in getting electricity dropped from 139 to 145 this year, the World Bank said that improvements were seen in the quality of the power supply and reductions in the number and duration of power outages.

Singapore was ranked number one overall for the 10th consecutive year, with Malaysia being the other highly-placed ASEAN nation at rank 18. Vietnam was lauded for bringing in five major reforms, the highest in the region, which resulted in a small move up from 93 to 90.

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