Cambodia had another poor showing in the World Bank’s annual Doing Business report. The Kingdom ranks 131 out of 190 countries this year, dropping four places in the index in what economists said was an indication that the country was struggling to keep up with the pace of reforms in more advanced economies.
New Zealand and Singapore occupied the top two spots of the global ranking report released yesterday, which measures the business regulatory environment worldwide. Malaysia and Thailand ranked 23 and 46 respectively, while Laos came in slightly lower than Cambodia at 139, and Myanmar occupied the last spot in the region at 170.
The data show that starting a business remains a challenge in Cambodia, with the Kingdom ranking 180 – the worst in the region – in the category due to onerous startup procedures. The report said the average time to complete all the steps necessary to start a legal business had grown to 99 days on average, 12 more than needed a year ago.
“Cambodia made starting a business more difficult by increasing the time required to register and by requiring companies to submit evidence of capital deposit after registration,” the report said.
The low ranking in the category comes as a blow, given former commerce minister Sun Chanthol’s boast late last year that recent reforms, such as the roll out of online business registration, could rocket the Kingdom’s ranking in this year’s World Bank index to 21, provided other countries do not make any progress.
The report’s authors noted yesterday that this new online registration system had actually made it more cumbersome for companies to register, which resulted in a lower ranking this year.
“With the new legislation that was passed in 2015 requiring all companies to register through the online portal already registered companies have to go through a new process,” said Joanna Nasr, one of the report’s leading researchers. “This adds a lot of congestion to the registration process, so we can see an increase in the time it takes to go through the registration procedure.”
Laura Diniz, another researcher for the report, pointed out that this congestion was not uncommon for new systems and likely temporary.
“These types of reforms can take a while to be effectively implemented and will require time before we can see the results in practice,” she said.
Cambodia’s lowest score in this year’s index was in the dealing with construction permits category, where it ranked a lowly 183, down two spots compared to last year. The report showed that building a mid-sized warehouse in Cambodia from start to finish requires 652 days on average and involves 20 regulatory procedures. The regional average is 134 days.
The one category where the Kingdom appeared to shine was access to credit, where it secured seventh place worldwide and the top ranking for the region. The high score was attributed in part to work done by Cambodia’s independent credit bureau to improve credit reporting.
“In Cambodia, the credit bureau started to provide credit scores to banks and financial institutions, improving access to credit information,” a press release for the report read. “This makes it more likely for small businesses in Cambodia with a good financial history to get credit.”
In Channy, CEO of Acleda Bank, emphasised that access to credit was crucial for economic growth, noting that despite the country’s small market size, its citizens had access to a large selection of financial services from dozens of banks and microfinance institutions.
“Easy access to credit allows for businesses to expand and increase their income when they start a business and it is a key factor for economic development,” he said.
World Bank researchers stressed yesterday that rankings were relative to all the countries included in the report and that despite worsening rankings, regulatory improvements in places like Cambodia still take place.
In Cambodia’s case, they noted a slight improvement in its distance to frontier (DTF) score, which measures how far a country lags behind the best performance among all economies over time.
Hiroshi Suzuki, CEO of the Business Research Institute for Cambodia (BRIC), said the annual World Bank index demonstrates the high level of competition that exists among rival economies, and the challenge in attracting new investment.
“It is challenging for many developing countries to improve its ranking drastically . . . [as] now many countries are improving their procedures to attract FDI,” he said. “It is essential for Cambodia to continue the effort to improve its investment environment through good communication with private sector.”
However, he expressed confidence that reforms, including online business registration, would result in a better showing in next year’s index.