Better Regulation Needed to Boost Investment, World Bank Says

With no functional system for commercial arbitration and the time needed to start a foreign business taking 18 days longer than the regional average, Cambodia has ample room to make itself more attractive to foreign investment, the World Bank and International Finance Corporation said yesterday.

In a report on transnational investment, which provided data on laws and policies affecting foreign investment in 87 countries, the two institutions ranked Cambodia in 80th place for the time needed to start a foreign business.

While in Cambodia it takes an average of 86 days and 10 procedures to start a foreign business, in Singapore it only takes nine days and four procedures. Yet Cambodia outscored some major economies in East Asia. In Vietnam it takes 94 days and 12 procedures to start a foreign business and in China it takes 99 days and 18 procedures.

The regional average is 68 days and 11 procedures.

John Brinsden, vice president of Acleda Bank and the International Business Club of Cambodia, said the delays in setting up a business cited by the report did not reflect the reality for most companies looking to establish themselves here.

“Setting up a business is actually very quick and takes days. If you’re a small company you can be up and running very quickly,” said Mr Brinsden, who said he had advised firms of different sizes making inroads into Cambodia.

Mr Brinsden said that delays tended not to result from bureaucratic constraints so much as from larger companies’ needs to satisfy their own corporate strategies, which also takes time.

For businesses acting in strategic sectors, such banking, energy and telecommunications, more time may be necessary due to additional regulations and heightened risk, Mr Brinsden said.

“The figure can be awfully deceptive and can be skewed by a few companies who don’t know what they want,” he added.

In many cases, yesterday’s report said that doing business in Cambodia was easier than in neighboring countries.

Whereas for other regional economies surveyed in the report — China, Indonesia, Papua New Guinea, the Solomon Islands and Vietnam — foreign businesses need investment approvals from the government, Cambodia does not require this unless firms want to apply for incentives and tax exemptions with the Council for the Development of Cambodia.

Here, foreigners are allowed to own a company outright without the need of a local partner and most sectors in the economy are also fully open to foreign capital.

Only port and airport operators and companies targeting electricity transmission are prohibited from acquiring full ownership rights by law.

The report said that a lack of bona fide arbitration system in Cambodia was acting as a constraint to the country’s investment levels. It gave Cambodia a score of 48.6 out of 100 for the ease of going through the arbitration system compared to 66.1 for the region.

Still, the IFC and the Asian Development Bank signed a memorandum of understanding last year with the Ministry of Commerce to set up a National Arbitration Center to help resolve business disputes outside of the court system. Arbitrators are currently going through the training process and the center is on course to open by this time next year.

“There is no point in having a contract that can’t be enforced,” said Julia Brickell, resident representative for the International Finance Corporation in Cambodia. “Businesses might still invest but they will be more cautious than they might otherwise be.”

By next year arbitration in Cambodia “will be very much in line with best practices in the region” when the new arbitration center begins to function, she added.

On a more positive note, the report showed Cambodia to have some of the strongest lease rights in the world for foreigners on industrial land.

Lease contracts can span over an unlimited amount of time, a rarity in the region. It also takes an average of just 41 days to lease private land compared to a regional average of 66 days and a global average of 61 days.

Nonetheless, access to information on land is still lacking, with Cambodia scoring 52.5 out of 100 compared to a regional average of 67.5 in this category.

“[A] poorly functioning system is found in Cambodia, where the registry and cadastre are neither located in the same agency nor set up to share data,” the report said. “Cambodia, China and Solomon Islands make it particularly difficult to find land-related information such as documentation on land plot value, mailing addresses, environmental impact assessments, tax classifications and utility connections.”

Analysts say that land and property prices in Cambodia are heavily distorted with many owners unprepared to take a loss on the sale of their property.

“The best way to collect that information would be for the cadastral office, which registers new owners, to record the price that was paid for property at the point that the transaction took place,” said Daniel Parkes, country manger of CB Richard Ellis in Cambodia.

In developed countries, surveyors employ complex methods that consider issues such as the investment potential of land and surrounding land prices.

However in Cambodia, “prices are culturally sensitive especially in a market where people don’t want people to know that they bought it for one price and sold it cheaper,” Mr Parkes said.

 

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