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High risk seen in Kingdom’s business environment: report

High risk seen in Kingdom’s business environment: report

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Corruption, a weak judicial system and the potential for complicity with human and labour rights abuses are key risks for firms looking to invest in Cambodia, a new report analysing investment risk in the Kingdom says.

The most recent quarterly Cambodia Country Risk Report was released on April 22 by UK-based global risk and strategic consulting firm Maplecroft.

It compares Cambodia negatively with its neighbours Vietnam and Thailand in most risk indices, with poor business practices, heavy bureaucracy and corruption said to undermine a government that is otherwise sympathetic to foreign investors.

“Cambodia has a long distance to travel in . . . offering robust investor protections and rule of law,” the report says, despite international investment streaming into the Kingdom’s booming economy.

According to the report, Cambodia presents “extreme” risks in its business environment, labour rights and protection, and climate change vulnerability, with “high” risks for civil and political rights, its macroeconomic environment, poverty and human development, and the regulatory framework.

But Peter Brimble, deputy Cambodia country director at the Asian Development Bank, said business indexes of this kind need to be carefully interpreted.

“The recent very rapid inflow of Japanese investors into Cambodia perhaps indicates that certain elements of such indexes may not reflect the reality on the ground, “Japanese investors are known to be sensitive to governance and transparency, and have shown their confidence by voting with their investment dollars,” he said.

The report asserts that although businesses can expect “a stable regime with predictable policymaking”, conflicts of interest, bureaucratic ineptitude and a lack of civil rights are likely to persist under the current government.

“Endemic corruption in public institutions, their agencies and associates means that foreign investors face an extreme risk of exposure to corrupt activities, posing the risk of reputational and legal damage,” the report says.

According to Brimble, recently implemented legislative and policy reforms to improve economic governance are yet to take effect, “resulting in an index that lags reality to some extent”.

Access to credit, investor protection and ease of paying tax are some of the few positives highlighted in a business environment rated better only than Myanmar in the region.

The lack of effective dispute resolution mechanisms is also identified as a key challenge, with the recently established National Arbitration Centre “yet to prove its worth”.

Poor infrastructure, though a “high risk” area, does represent potential investment opportunities, according to the report.

The government’s use of forced evictions as part of its controversial economic land concessions scheme also presents a “serious reputational risk to investors”, the report says.

The case of Tate and Lyle, a British sugar giant facing a multi-million pound high court lawsuit from Cambodian farmers who claim their land was illegally seized as part of a joint venture, is cited as an example.

Cambodia’s labour rights risk is worse than neighbouring Thailand and Laos, according to the report, but outperforms Vietnam, the Philippines and Indonesia.

Mass fainting incidents at garment factories supplying European retailers such as H&M and Puma are cited as examples of “tarnished brand reputation as a result of the poor enforcement of labour standards”.

According to Brimble, emerging challenges facing investors include skills shortages and mismatches, the cost of logistics and trade facilitation, and a lack of technological innovation.