Pervasive corruption, a suffocating bureaucracy and weak law enforcement are crippling the growth of private businesses, rendering them uncompetitive globally, according to a long-awaited World Bank report released on Thursday.
“Investors have spoken,” said Magdi Amin, a World Bank expert who oversaw the report. “There’s a lack of confidence in Cambodia.”
Drafts of the report, which the bank completed late last year, were leaked to the media in the past few months as the government devised a response to its grim findings. The final version released Thursday contains an additional chapter—added at the government’s request—that outlines specific commitments the government made to improve the business climate.
As the report shows, much work needs to be done. Roughly 80 percent of 800 firms surveyed in the report acknowledged “the necessity of paying bribes,” which eat up an average of 5.2 percent of total sales revenue—more than double the amount paid by their counterparts in Bangladesh, Pakistan and China.
It takes 94 days to start a business in Cambodia—30 days longer than in Vietnam and 52 days longer than Thailand, the report said. In addition, firms are subject to an average of 16 inspections by various government bodies every year, a number the Bank regards as “unusually high.”
“Trade facilitation practices in Cambodia stand out in having high official and unofficial costs, delays, uncertainty and discretion—a critical problem for a country that must rely on exports for growth,” the report said.
The dismal assessment of the investment climate comes as the year-end elimination of garment quotas for World Trade Organization members quickly approaches, forcing the country’s factories to compete directly with those in China.
In a similarly bleak economic assessment released last week, the International Monetary Fund forecast that economic growth would retreat to 1.9 percent next year from an expected 4.3 percent this year, arguing that preferential market access has masked the overall competitiveness of the garment industry.
Though the garment sector has boomed in the past five years, foreign investment has dropped each year since 1998.
Firms here are less productive than those in many countries, including Asian competitors China, India, Pakistan and Bangladesh, the World Bank report found.
In addition to corruption fees, the report found, firms also pay in time wasted through bureaucratic delays.
“The complaints of businesses regarding overlapping and time-consuming governmental procedures need to be thoroughly examined, and, when these complaints are justified, corrected,” Minister of Commerce Cham Prasidh said Thursday. “Corruption needs to be attacked, and not just verbally.”
But Cham Prasidh downplayed the importance of having government officials reveal their assets or passing an anti-corruption draft law that has been tossed around since the mid-1990s, saying it would be too difficult to enforce.
“Here you pay cash, so nobody knows if you buy a car,” he said. “We have to be practical.”
He suggested that the government could fight corruption by requiring officials to process export-import documents within a set period of time, therefore eliminating payments made to expedite the process.
As a response to a draft of the report presented to the government in February, Prime Minister Hun Sen created a task force in March charged with reducing cash payments and time delays related to import-export, canceling duplicate trade procedures and increasing revenue to the national budget.
The government also included in the final report 12 commitments to improving the investment climate, such as reviewing all licenses, procedures and documents related to trade.
“There are many good reasons for people to be skeptical of the commitments made” by the government, Amin said. “We know things won’t be perfect and will take time, but when slippage occurs, we will not let it pass and accept that.”
Ken Loo, secretary-general of the Garment Manufacturers in Cambodia, said that the reforms would help the industry, but he said past studies produced little change.
“This time we look forward to seeing results,” he said.