Biz Study Looks to Address Obstacles

Cambodian businesses are facing the same challenges today as they were in 2009, according to a new joint World Bank and Asian Development Bank (ADB) study.

The results of Cambodia’s 2014 Investment Climate Assessment (ICA) were launched yesterday in Phnom Penh. Mirroring the results of the 2009 ICA, the latest report lists electricity prices, corruption, a lack of skills and financing as the biggest constraints to doing business.

“Despite the government’s effort at introducing reforms to improve the investment climate, the business environment continues to hamper the competitiveness of firms in Cambodia,” the report states.

Overall, 43 per cent of the 862 businesses surveyed for the ICA listed electricity prices and more than 30 per cent listed corruption as their as the biggest constraints.

Consequently, the World Bank and the ADB have jointly called on the government to prioritise reviewing Cambodia’s energy source strategy, passing a new e-commerce law to expedite automated private-to-public-sector payment systems and revise the current Investment Law to improve the attractiveness of special economic zones (SEZs).

“Low wages, the Everything But Arms access program to the EU that Cambodia has been granted, and tax holidays have all helped to attract investment,” Julian Clarke, World Bank senior economist and author of the report, said.

“Still, Cambodia can do more to address the most serious constraints seen by the firms.”

Among the ICA’s additional recommendations was a “Zero Corruption Strategy” for the Kingdom’s SEZs where more than 70 per cent of the firms listed corruption as their primary concern – almost double that of non-SEZ companies.

“Policing this strategy would be feasible in the controlled environment of the SEZs, and have a strong resonance in terms of building a positive image for Cambodia as an FDI destination,” the report states.

It’s hoped that a good example shown by SEZ firms in combating corruption would prompt a sector-wide improvement to informal practices.

However, the issue remains that a vast portion of the Kingdom’s private sector deliberately chooses to conduct their operations informally due to the cost of paying taxes, registrations and complicated regulatory processes imposed by government departments.

Some 70 per cent of the country’s small-size firms and 45 per cent of medium-size are still not registered with the country’s Ministry of Commerce, according to the ICA.

“Efforts of the MOC in the area of improving company registration procedures should be scaled up, building on the results achieved in the past decade when many firms have decided to register under the system,” the report adds.

Sok Touch, owner of a grocery store on Sothearos Boulevard in Phnom Penh’s Chamkarmon district, is one such informal business. He said yesterday he would be willing to register his business with the Ministry of Industry and Handicraft if no fee and no tax was charged.

“I can barely earn enough to support my family, let alone the money to spend for tax or the fee for registration,” he said.

“If the government wants us all to register, so they can monitor the number of small and medium businesses, I am happy to do it if no fee or tax is attached,” he added.

However luring informal small- and medium-size businesses to register with the government for legal and tax purposes might be more than just a question of cost.

“Another issue is that [informal] firms might lack the trust in the Government to operate formally,” the ICA report said.

The World Bank and ADB recommended the government engage the informal business sector in a dialogue to “build trust“ and ultimately improve business registrations.

Rami Sharaf, CEO of RMA Cambodia Group of Companies, welcomed the World Bank and the ADB’s study, however said improving the Kingdom’s business environment hinges on conversation and action from both private industry and the government, not only reports and data.

“None of these problems can be tackled by either sector alone. We need to have mandated task forces made up of private businesses, agencies and government who have the power to put these findings into action,” Sharaf, one of the speakers at yesterday’s launch said.

“If this coordination is not there, and we keep everyone playing his or her own tune, we will again see the same findings at the next ICA and we will again be repeating ourselves.”

Source: Phnom Penh Post | October 29, 2014 | By: Eddie Morton

Non-awareness of Businessmen on 2015 AEC

The lack of interest in ASEAN developments among business communities within ASEAN has been cited as a possible cause behind the slow progress of implementing the ASEAN Economic Community (AEC) 2015, said the Asian Development Bank (ADB).

The international financial institution conducted a survey to find out whether business firms within the region were aware of the AEC 2015. The survey’s findings are discussed in a recent online publication titled “The ASEAN Economic Community: A Work in Progress”.

“There is concern that part of the reason for the slow progress of implementing AEC 2015 may have to do with the ASEAN business community showing little or no interest in ASEAN developments,” a summary of the survey said.

The development bank said that a key finding in the survey was that there was a “general lack of awareness of AEC 2015 in the ASEAN business community.”

ADB gave as an example that it was more likely for respondent firms to be aware of the free trade agreements (FTAs) between ASEAN and the People’s Republic of China than of AEC 2015.

“By relating the likelihood of the firms’ awareness of AEC 2015 to their exposure to the ASEAN economic integration, we find that the awareness of AEC 2015 increases to the extent that the firms are affected by regional, cross-border economic issues,” said ADB. The actual process of integration is what drives the business community’s interest in AEC, it added.

“We can infer from this (survey) that the lack of awareness of AEC 2015 in the business community can be attributed to the lack of actual economic integration,” ADB said.

These results support the argument that the top-down approach to ASEAN economic integration has its limitations, especially when the business communities’ engagement in cross-border economic activities lags behind the visions of ASEAN politicians, the regional bank added.

The primary concerns of the respodent firms were non-tariff barriers, including different regulatory standards, excessive regulation and lack of information about foreign business environments.

The survey was carried out in nine ASEAN member states, with a total 381 firms, said ADB.

Overall, more than half or 55 per cent of the respondents said they were not aware of AEC 2015.

Most of the questionnaires were filled out by senior management members in the respondent firms.

The survey was designed according to the various firm characteristics, their operating environment, and in particular the extent to which they were engaged in ASEAN economic integration.

Source: The Cambodia Herald | December 18, 2013

Cambodian Economy Defies Global Trend But Challenges Remain

Some of the world’s leading economies are seeing a slowdown in growth – dragging down the global economy with them.

But here in Asia, Cambodia – which goes to the polls on 28 July in a general election – is one country that has been defying the trend.

The South East Asian economy saw its growth pick up speed in 2012 and the Asian Development Bank (ADB) has forecast “further robust growth, with trajectory expected to steepen slightly in 2014”.

According to the ADB, Cambodia’s economy expanded at an annual rate of 7.2% in 2012, up from 7.1% in 2011 and 6% in 2010.

Cambodia, like many other countries in Asia, has for many years relied on its export sector to be a key driver of growth.

Low cost of labour has seen the country become a key manufacturer and exporter of garments and footwear to markets such as the US and European Union (EU).

Economic problems in those markets have dented consumer confidence, and in 2012 Cambodia saw the pace of growth of its exports decline – but , according to the ADB, domestic consumption jumped by 9.5% and is expected to rise further in the coming years. And as conditions in the US and EU improve, exports are likely to rebound.

“European demand for Cambodian garments and footwear is expected to maintain good growth, supported by duty-free access to the EU,” the bank said in a report on the Cambodian economy published in April.

“Shipments to the US will likely be subdued this year but should pick up after that,” it added.

‘Destination of choice’

Another key driver of Cambodia’s growth has been the surge in foreign direct investment in the country, which jumped by 75% last year to $1.5bn (£1bn).

Along with traditional sectors such as garment manufacturing, foreign money has also been used to help fund new industries such as auto-parts manufacturing and agricultural products processing.

Low labour costs and Cambodia’s proximity to key markets such as China and other emerging economies in South East Asia are attractive to foreign investors.

And with wages in countries such as Thailand and China on the rise, Cambodia is likely to become even more attractive.

“This trend is only going to get stronger with more companies looking to set up operations in Asia,” says Rajiv Biswas, chief economist for Asia-Pacific at IHS Global Insight.

“Given its competitiveness and the current economic environment, Cambodia is going to increasingly become a destination of choice for foreign investors.”

‘Skill mismatch’

But there have been protests in recent months with workers demanding an increase in their wages.

And critics say for the country to take the next step in its growth cycle, it needs to diversify into high-end manufacturing on a bigger scale.

But Cambodia may find it tough to do so, not least because of the skill level of the majority of its labour force.

“A key restraint to growth is the skill mismatch, or the lack of adequately skilled labour in the high-end industries,” says Srinivas Madhur, director of research at Cambodia Development Resource Institute.

“The enrolment rate in tertiary education is only 14%, which means the pool of skilled people is very small.”

Mr Biswas says that the inability of Cambodia to move into advanced manufacturing is a “great vulnerability”.

“What is crucial now, is that they need to develop their education sector and they need to build partnerships to bring more advanced education into the country, especially vocational training,” he says.

Poverty concerns

Another key area of concern is that Cambodia remains one of the poorest countries in Asia.

Its per capita income in 2012 was $946, according to the World Bank. That compares with $5,474 in Thailand and $3,557 in Indonesia.

The ADB has quoted the World Health Organization as saying vitamin and mineral deficiencies alone cost Cambodia’s economy $146m each year.

The bank says 55% of under-fives were anaemic in 2010.

And malnutrition and poor health stunt the growth of up to 40% of Cambodian children.

Economic growth has seen poverty levels come down – but critics say the country needs to do much more to ensure the benefits trickle down to the poor.

“Inclusive growth”, they say, is a much better claim to fame than “robust growth”.

Source: BBC News | July 25, 2013 | By: Puneet Pal Singh