World Bank: Cambodia Bad For Business

This year, Cambodia is an easier place to do business than Iraq. But there is little other good news for the government in the latest edition of the World Bank’s annual rankings of nations in terms of business competitiveness.

Instead of improving in the rankings, Cambodia slipped one place from 142 to 143 out of the 175 countries featured in the study.

War-torn Iraq moved lower than Cambodia, from 140 to 145.

The best place in the world to do business this year is Singa-pore, beating last year’s winner New Zealand in the “Doing Business 2007” report published Wednesday by International Finance Corp, the private sector finance arm of the World Bank. Behind New Zealand are the US, Canada and Hong Kong.

Thailand ranks 18th this year and Malaysia 25th—scores that place Cambodia’s neighbors ahead of many European countries, such as France, which ranks 35th.

Vietnam also slipped in the rankings from 98th to 104th, while Laos ranked 159th.

Report author Caralee McLiesh said Singapore’s top status was due to the speed with which Singapore has put its tax system on the Internet.

Cambodia’s business environment is worlds away from Sing-apore, McLiesh said.

“The story for Cambodia is there needs to be a lot more focus or attention on these reforms for there to be a real improvement,” McLiesh said in an interview.

“The pace of reform in Cam-bodia is not what we would like to see,” she said.

McLiesh said that such broad reform often requires political change.

“All the top reformers in the survey we’ve found all made 85 percent of their reforms in the first 15 months after election or re-election,” she said.

“They have got the political capital and the political will to spend it so you have across-the-board reforms after the change or renewal of a government’s mandate. Not every country is in that position, obviously,” she added.

Dragging Cambodia’s ranking down are its legal system, which offers weak legal rights to creditors, making enforcing a contract in the courts more expensive than the value of the contract. The report only addresses the official fees required of businesses without measuring the unofficial fees, or bribes, known to plague businesses here.

The report does commend Cambodia for two reforms in the last year: Limiting the time it takes to issue a business license and making it so that construction permits must be issued within 30 days for small projects and 45 days for large projects.

Because of the reforms, the time to get a license to build a warehouse in Cambodia dropped from 247 days to 181 days according to the study. But the cost of licenses is still the highest in Asia compared to the income of the population.

The permits required by a company to build a warehouse cost 1,640 percent of Cambodia’s income per capita, compared to just 84 percent in China or 11 percent in Thailand.

Another reform praised by the IFC was the reduction in the time it takes to export from Cambodia, which was reduced from 43 days to 36 days.  The time it takes to import also dropped from 55 days to 45 days. However, this compares to six days each way in Singapore.

According to the World Bank, such improvements are not enough to significantly boost Cambodia’s attractiveness to in-vestors.

To do that, the Bank said, will require breaking the “vicious cycle” of over-regulation caused by a large civil service looking for income in the absence of other jobs. Such harassment of business in turn perpetuates the lack of jobs.

“It is the developing countries that really set up obstacles for entrepreneurs even though they need entrepreneurs the most,” McLiesh said.

“If you have nine people processing a very simple document, that causes delays, that causes confusion and that ends up creating a bureaucracy that is difficult for the government to support.”

One technical reform open to the government would be setting up a credit bureau to give lenders information about potential borrowers and encourage them to lend more. Currently, Cambodia is No. 174 in the world in terms of how difficult it is to get a loan.

Last month the National Bank announced that a credit sharing system would begin this month among the 18 commercial banks.

Finance Ministry Secretary-General Hang Chuon Naron said the pace of reform has not slowed in Cambodia and that the country’s poor ranking was due to the list becoming longer, due to new countries being included.

“I think the speed of reforms is moving forwards not backwards,” he said.

According to the IFC, however, this year’s list included 20 new countries but the ranking of each country from 2005 was correctly recalculated to reflect the right position on this year’s list.

Hang Chuon Naron said the government is moving forward with setting up “one-window” services in towns and economic processing zones to further reduce paperwork delays caused by running from one government office to the next.

He also said a computerization plan has been set forth for the Finance Ministry.

“I think in the next two or three years, we would be able to see tax payments online,” he added.

Government spokesman and Information Minister Khieu Kan-harith said the government does have the necessary political will to undertake the required reforms.

“I think that the reforms are slow but acceptable,” he said. “The country lacks human resources and experts to make law.”

Asked if the government should be spending more time on important reforms rather than passing the much-criticized adultery law, Khieu Kanharith blamed the National Assembly.

“Those who say the government passed the adultery law were wrong, it was not the government but Assembly members,” he said. Of the 64 lawmakers who passed the adultery law last week, 63 were members of Prime Minister Hun Sen’s ruling CPP.

Phnom Penh Chamber of Commerce President Kith Meng declined to comment on the country’s business ranking.

Tann Monivann, vice president of the Mong Reththy Group of Companies, said reforms are slow but are moving forward.

“I think that the principle and the policy of the government are good but the big problem is the officials who are implementing the law,” he said.

“If you go to obtain the license at the ministry, you will know how difficult it is,” he said.

 

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