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Transport framework inadequate, OECD says

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Improving transport infrastructure in the Kingdom would seem essential in order to reduce logistics costs, which remain relatively high when compared to other ASEAN member states, according to the latest study by the Paris-based Organisation for Economic Cooperation and Development (OECD). Heng Chivoan

Transport framework inadequate, OECD says

Despite significant investment and improvements in recent years, Cambodia’s transport infrastructure is still “inadequate” in terms of quantity and quality.

Improving transport infrastructure in the Kingdom would seem essential in order to reduce logistics costs, which remain relatively high when compared to other ASEAN member states, according to the latest study by the Paris-based Organisation for Economic Cooperation and Development (OECD).

The OECD Competition Assessment Reviews: Logistics Sector in Cambodia released on July 28 was conducted in consultation with the Cambodian authorities and local stakeholders, and with the support of the ASEAN Secretariat and the ASEAN Economic Reform Programme under the Foreign, Commonwealth and Development Office, the department that spearheads the UK government’s effort to combat global poverty.

The OECD said road transport is the main mode of transportation in Cambodia, representing about 90 per cent, while water transport represents a smaller proportion of the freight transportation sector.

At the same time, rail transport for passengers and freight is “negligible” in the Kingdom compared to road transport, it said.

“Similarly to other ASEAN member states, Cambodia is suffering from the socio-economic impact of the Covid-19 outbreak. The pandemic has resulted in the disruption of supply chains and limited the flows of trade and investments.

“Logistics companies have been affected by operational constraints and are facing financial distress. According to the Cambodia Freight Forwarders Association, about 10 to 15 per cent of logistics providers were heading for bankruptcy as of June 2020,” said OECD.

Ministry of Commerce secretary of state Cham Nimol told a seminar on July 13 via video link that Covid-related border closures, travel restrictions and other trade rules had hampered the economic liberalisation process, and that 38 World Trade Organisation (WTO) member states notified 106 Technical Barriers to Trade (TBT) and 65 sanitation and phytosanitary (SPS) measures to the UN agency last year.

“These measures adversely affect the transportation of goods by sea, land and air, slowing down the global supply chain, an ordeal that had a hand in causing the global merchandise trade in 2020 to decline by 5.3 per cent,” Nimol said.

She highlighted that logistics and supply chain management have a significant bearing on competitiveness and participation in the global value chain.

According to OECD, gross domestic product (GDP) from the Cambodian transportation and storage sector amounted to 8.618 trillion riel ($2.1 billion) in 2019 and has been constantly increasing.

It said the transportation and storage sector represents 7.8 per cent of the Kingdom’s economy. In 2018, logistics costs over sales in Cambodia were estimated at 20.5 per cent, with transport accounting for the greatest share at 9.0 per cent, followed by warehousing (3.7 per cent), inventory carrying (six per cent) and logistics administration (1.9 per cent).

“Logistics costs are higher in Cambodia compared to some ASEAN countries, such as Thailand and Vietnam, and compared to the global average of 10-12 per cent.

“However, Cambodia’s logistics costs are lower than other ASEAN countries, such as the Philippines and Indonesia. Informal logistics charges levied by government agencies remain significant, estimated at about 48 per cent of the logistics administration,” the OECD noted.

Concerning regulatory quality matters for competition, OECD pointed out that a clear and easily accessible regulatory framework is essential for new entrants that are not necessarily familiar with the national legal framework, and for small competitors, for which compliance costs and administrative burdens are relatively more important than for larger companies.

“To improve regulatory quality, the OECD recognises the need for governments to undertake a comprehensive programme that includes systematically reviewing existing regulations, to ensure their efficiency and effectiveness, and to lower the regulatory costs for citizens and businesses, integrating Regulatory Impact Assessment [RIA] into the process for the formulation of new regulatory proposals, and employing opportunities of information technology and one-stop shops for licences, permits and other procedural requirements,” the OECD recommended.

In 2018, Cambodia ranked 98 out of 160 countries in the Logistics Performance Index (LPI), slipping from 73 in 2016, according to the OECD.

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