Investors Fault Power Costs, Weak SEZs in Report

High electricity costs are the main impediment to doing business in Cambodia, according to a new report that also finds many investors disappointed with the country’s special economic zones (SEZs).

The report, released Tuesday by the World Bank and the Asian Development Bank, draws on hundreds of face-to-face interviews with business owners across the country and World Bank data.

Respondents ranked electricity prices as the main obstacle to doing business in Cambodia, followed by macroeconomic uncertainty and corruption.

“Not only is electricity more expensive in Cambodia than in almost every other country in the region,” it says, “but the supply is intermittent.”

One way foreign and local investors can reduce their electricity costs is by setting up shop inside an SEZ. But according to the report, the zones are failing to live up to many of their expectations.

“The survey evidence suggests that the zones are not making a significant difference in improving the investment climate faced by investors, which may well explain why we observe no major performance advantage in the SEZ-based firms,” the report says.

As of 2013, there were 23 authorized SEZs concentrated in Phnom Penh, Sihanoukville and along the borders with Vietnam and Thailand, the report says. The industrial parks were first introduced to Cambodia in 2005 in an attempt to reduce bureaucracy and provide higher-quality infrastructure to investors.

But according to the report, companies operating inside the zones have so far not been significantly more productive than their counterparts outside.

Julian Clarke, a World Bank senior economist, said that could have a lot to do with their high expectations.

“Because investors are going into a zone, we feel they have higher expectations,” he said at the report’s official release in Phnom Penh. “They tend to exaggerate the problems.”

“Investors who have the highest expectations are Japanese, even   in other countries,” Sok Chenda Sophea, secretary-general of the Council for the Development of Cambodia, said on the sidelines   of the event.

While investors may not be satisfied with the SEZs, however, the report says they do offer some   advantages.

The cost of electricity inside SEZs is 15 percent lower, labor productivity is 20 percent higher and customs clearance is 16 percent faster, it says, recommending that still more incentives be offered to draw further investment.

But Mr. Chenda Sophea said that was unlikely to happen any time soon.

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