PricewaterhouseCoopers (PwC), one of the world’s largest accounting and financial advisory firms, first arrived in Cambodia in 1996. With the recent release of PwC’s APEC CEO Survey, Marius Kunneke, partner of PwC Cambodia, and Muny Samreth, director of tax and consulting, sat down with the Post’s Eddie Morton to talk about the Kingdom’s challenges in penetrating APEC economies’ value chains.
More than 65 per cent of the CEOs that responded to PwC’s 2014 APEC survey said they estimated growth in their investments. Which APEC industries could Cambodia capitalise on?
MK: The World Bank recently listed garments first, then real estate, tourism and agriculture as the four most promising areas for Cambodia’s economic growth. But there is still a misalignment between what the top industries are for Cambodia and what the top growth industries are for APEC economies. If you look at the consumer retail markets where APEC receives a lot of its growth from, Cambodia remains slow on improving its value-added production, which is a perfect example of that mismatch. I guess that’s where the opportunities are for APEC investors in Cambodia – value-added manufacturing.
Japan is regularly mentioned as a driver of value-added manufacturing in Cambodia. Is Japan the only country encouraging that mindset?
MS: China is also investing significantly in Cambodia. Looking at the APEC survey, it’s clear that China is continuing to grow and invest aggressively off shore. Therefore, it is worthwhile for Cambodia to keep the relationship with China so as to continue its own economic growth. But at the same time, Cambodia should diversify its investor nations – Japan, China, Korea, US, Europe and Australia, etc. And as the APEC economies grow, to be sure, Cambodia will also. But how each of those countries analyses the risks, such as corruption and political stability of the Kingdom, really depends on the restrictions imposed by each of their governments.
It is clear that the government has been doing their homework to make doing business easier. But it is also necessary for the government to really start addressing the issues identified in the global reports such as the World Bank’s Ease of Doing Business. They need to look at the specific areas that are listed as difficulties in these reports and improve on them to boost the country’s reputation. From the outside, it seems that there is still a mismatch between what the government is doing and what is on the minds of investors and businesses.
Is there frustration among investors for Cambodia to improve on these issues?
MS: There are complications for companies, say from the US, Europe or Australia, which have strict anti-corruption and anti-bribery regulations. This poses many limitations to the way they can do business in Cambodia. So yes, there are definitely frustrations in that context. As a result of many private and public sector discussions on these complications, the government installed measures such as an official service fee law and the ACU has started to sign MoU’s with companies regarding anti-corruption. But, as a matter of fact, this norm (unofficial payments) has been embedded into Cambodian culture for many years, so how fast this issue is resolved relies on the government’s resources to match the investors’ difficulties. If they continue to mismatch each other, it will be hard to move forward.
MK: There’s a huge difference between how an Asian firm and a Western firm looks at investment. When the West looks at investing, it is usually much smaller than Asian counterparts, and they put a high premium on anti-corruption efforts. There are many positives, however, such as the 100 per cent foreign ownership laws, a lot of land still relatively available and low labour costs. Cambodia’s challenges remain in education, infrastructure and advancing regulations to take the investment climate to the next phase of development. That all said, it’s the private sector’s responsibility to facilitate these changes.
Should regulation come after or before investment?
MS: If the government does not feel they are ready to install preliminary investment regulation foundations, then yes, maybe they do really need to keep a very open economy and attract investment to speed up the regulatory process.
MK: Most developed countries use the model of regulation following business. I think a challenge for a developing country, however, is to ask first what the strengths of their economy is, then work quickly and intensely with stakeholders to form those regulatory frameworks to make it competitive.
Which industries are PwC currently focused on growing?
MK: We are working with a lot of family businesses, trying to find partners for them to expand their operations. There is a missing GDP as a result of these SMEs not reaching their potential. It goes back historically to family businesses in Cambodia just seeing their immediate and local market and leaving it at that. SMEs are the guys that are going to drive the future growth of Cambodia. In larger territories, PwC does focus on large multinational firms, but here there aren’t too many big ones here.
This interview has been edited for length and clarity