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Bribe tax main barrier to business growth

Bribe tax main barrier to business growth

Eight hundred businesses questioned in a Government-commissioned survey have identified

corruption as the leading constraint to doing business in Cambodia.

Weak laws, bureaucratic costs, unfair competition from well-connected rivals and

unnecessary inspections, were also cited as barriers and discouragements

Cambodia's "bribe tax" was more than double that found in a parallel survey

in Bangladesh, which rated last out of 102 countries in the 2002 Transparency International

Corruptions Index. (Cambodia is not assessed by Transparency International.)

The survey and summary report were completed by the World Bank Group, comprising

staff and consultants from the World Bank, International Finance Corporation, Mekong

Project Development Facility and the Public-Private Infrastructure Advisory Facility.

The survey was part of the development of a private sector growth strategy for the

Cambodian Government.

A total of 802 firms were surveyed, comprising 502 urban, 200 rural and 100 urban

"informal" (unregistered, undeclared). Eighty-two percent said they paid

bribes, and 71 percent paid frequently.

"The theme emerging from the survey is one of weak rule of law, bureaucratic

costs and corruption," the report says. "Cambodia firms identify corruption

as their leading constraint to operation and growth."

Using an average of 5.2 percent of sales paid in the form of bribes in the manufacturing

and services sectors, and multiplying this by the sectors' contribution to GDP, "a

rough estimate of bribe payments for these sectors amounts to around $120 million

[annually].

Assuming this was spread evenly to 160,000 public sector employees, the average would

be $62 per month.

"Overall, businesses' view of agency integrity is alarmingly negative, with

the Judiciary and Customs viewed the most negatively. Staying in the 'informal' sector

appears to be a rational response, because informal firms pay less tax and fewer

bribes," the report says.

"In many countries bribes are seen as a mechanism to avoid the rules of the

legal system, or to expedite delivery of services. In Cambodia this doesn't appear

to be true. The larger and more 'formal' the enterprise, the higher the bribe tax.

Bribes are routinely required for connection to public services, including power

and telephones."

Dealing with trade facilitation, the report says that on average imports take 6.5

days to clear Customs, while exports take 4.5 days. However, firms reported that

in the past year they had waited over 11 days for at least one import shipment and

16 days to clear an export shipment. 'Documentation problems' were reported in 56

percent of imports and 41 percent of exports.

Procedures were unclear and superfluous. Customs clearance at the port of Sihanoukville

involved 12 steps, which mainly consisted of visiting, sometimes repeatedly, key

officials.

More than 70 percent of businesses surveyed viewed "dominant firms or conglomerates

in key sectors", and individuals or firms with close personal ties to political

leaders as wielding substantial influence over national laws and regulations.

The report says the growth of the private sector in the past 10 years has proven

that private investment can create jobs that can reduce poverty. It notes that the

central objective of the Government's national poverty reduction strategy is to "promote

broad-based sustainable economic growth with equity, with the private sector playing

the leading role".

The challenge for Cambodia, building on its World Trade Organization membership,

was to broaden the base of growth and diversify the economy, by removing impediments

and insitutionalised transaction costs.

Due to Cambodia's destructive past, the economic landscape reflected a lack of key

institutions that provided the framework for trade and investment, most notably the

rule of law. It also reflected an attempt by the Government to fill the vacuum through

administrative measures that had largely not worked, and created opportunities for

corruption.

"Cambodia is bordered by Thailand and Vietnam, each growing rapidly. Cambodia

has a small domestic market, and had wisely chosen the route of globalization [rather

than a regulated, protected economy].

"WTO represents an opportunity to reap gains from integration with the global

economy."

Cambodia would become one of the first least-developed countries to join the WTO,

but it required endorsement from the National Assembly. This and many other listed

legal and judicial reforms required for full WTO membership remained in the National

Assembly and constituted a large pipeline of pending legislation, until a new government

was formed.

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