Lawyer Lauds Growth, Warns Against Complacency

American lawyer Bretton Sciaroni says he had only intended to stay in Cambodia for two months in 1993, but that turned into 15 years.

“Sometimes life takes funny bounces,” he said recently at the Phnom Penh offices of his well-know law firm Sciaroni and Associates.

Beginning his work in Cambodia as an international lawyer hired by the government before the Untac elections, he now works with foreign investors interested in coming to Cambodia.

Sciaroni, who was recently reappointed to a fourth term as chairman of the International Business Club, spoke with The Cambodia Daily’s Tim Sturrock about foreign investment, the law, and other commercial issues.

Q: Do you think the government is moving fast enough to improve infrastructure such as roads and power grids?

A: We’ve made tremendous strides on infrastructure. And I can say that because I’ve been here 15 years and I saw what it was like 15 years ago. When I first came to Phnom Penh and lived in government housing it was totally dependent on city power…. And I’ll tell you we had power outages everyday and we didn’t have a generator. We didn’t have water. We had to haul our water upstairs to the apartment that I was in. We’ve come a long way in infrastructure. The roads are far better today than they have been-the national routes and the city roads.

We’ve had a lot of progress here. We still need obviously a lot more.

The biggest problem for investors regarding infrastructure is power generation. The cost of power is more expensive here than anywhere in Asia, maybe the world, I don’t know. It’s too expensive. This is a constant problem.

If the government could get that right, it would be a huge step in the right direction. And that would be a win-win for everybody because everybody is affected by the high price and the availability of power.

Q: What economic issues does Cambodia need to be aware of over the next five or ten years?

A: I would say that the recent growth rates that we’ve experienced are great and it gives us breathing room. But the government cannot afford to rest on its laurels. We have to get the fundamentals in place. And we’re slowly getting the fundamentals…. And we should be using this time when things are going well to get all the fundamentals in place and do the kinds of things that are going to help sustain us when the cycle turns down, which it will sooner or later, hopefully much later.

We need to become competitive in the region. We need to carve out a niche in the region for Cambodia. We need to keep our eye on the ball, that’s why power prices for example are very, very important. Because we’re competing with the other countries for business…. There should be a sense of urgency in the government to get these things done. So, there’s no room for complacency in Cambodia today. But I’m afraid there are a lot of complacent people because things seem to be going so well and they are going well. But we ought to be thinking about the day when things aren’t so well.

Q: Do you think there is a property price bubble in Cambodia?

A: Not in a sense that a lot people talk about a bubble because…usually a bubble occurs when there’s so much debt involved.

A bubble happens when everyone is borrowing to buy the land or finance it and all of a sudden the whole thing collapses. It implodes because they can’t make their payments, and so on and so forth. But here I have the impression that so much of the acquisitions are 100 percent equity. It’s cash transactions.

I keep on thinking about what happened after Untac. When the UN came in here, they needed housing. Everyone needed housing. And they were willing to pay top dollar and there was nothing here. This was really a different city in 1993, 1992.

And so all kinds of people were getting unbelievable amounts of money for their property and then the UN left. And all that money, all the millions and millions of dollars left too. And what happened? Did people lower their prices? In many cases, no. They figured “no, we’ll let it go empty. Sooner or later someone is going to pay that price the UN was paying.”    ….So, let’s say people stop buying. They say, “Okay I’m not going to put any more money into land.” Are [owners] then going to put a fire sale on their property and slash the price and take a loss? Or are they going say “I’ll sit on it, and sooner or later someone is going to come along and pay me what I paid or pay more than what I paid.”

With the image of a bubble-I’m not sure it’s applicable here.

Q: Do you think that the judiciary is in a good position to protect foreign investments?

A: The problems of the judiciary are well known and a lot of the aid donors have been [providing] a lot of technical assistance to try to upgrade the judiciary and make it more professional. But still today a lot of investors are looking for alternative means of dispute resolution. And so that’s why the current emphasis we’ve had in the private sector is on trying to get a national arbitration center.

Right now the government has had a number of consultations with the private sector on a sub-decree on a national arbitration center-it’s being considered by the government. The consultations are over. The government was very easy to work with on this. We haven’t seen the final draft however, but we need an alternative means to have disputes resolved. Too often in Cambodia what were strictly commercial disputes have turned into criminal matters. So that really needs to be changed.

Q: Can you give an example?

A: Breach of trust. For years the private sector has been trying to get a change of the judicial reading of article 46 of the Untac criminal code which is called “breach of trust.” And there is a criminal action which would be a breach of trust. But, the way courts have interpreted it here, it’s so elastic, it can be applied in almost any commercial dispute. So, when people litigate over a commercial dispute if they can turn it into a criminal matter they will, because it gives them leverage and this is wrong. And in a lot of cases there’s no element of criminality involved. It’s a contractual dispute or some other kind of commercial dispute, yet they turn it into criminal charges rather than civil charges and we’ve been strong advocates of changing that for many years.

Q: What types of corruption in Cambodia do you see inhibiting economic growth?

A: The type of corruption that would keep blue chip companies from coming here. I’ve had good success with having good international standard companies coming here without have to engage in corruption.

There’s no question it exists. It’s pervasive and it’s an issue that’s going to continue to be of concern. I think that the concern has been less obvious in recent years because we’ve had strong [economic] growth rates.

I think a lot of people are living in a fool’s paradise as it were, that you can have high corruption and high growth, and so therefore the corruption doesn’t really hurt Cambodia.

Actually, the corruption will always hurt Cambodia because that dichotomy of corruption plus high growth rates begs the question: “What would have been the growth rates and who would have come that otherwise were deterred by the corruption?”

That’s a great, otherwise unanswered, question.

I’m happy to see today that there are a lot of international standard companies coming to Cambodia. I’m happy to see that when we’ve worked with helping getting them here, when we deal with senior government officials, they understand the need of getting these companies here. It helps establish Cambodia’s credibility in the world. We’ve got some very, very good companies coming to Cambodia now-GE, DuPont, Cargill. These are international standard companies.

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