For Cambodia to grow its economy and reduce poverty, the Government needs to act immediately and decisively to improve the investment climate, according to a new study “Cambodia: Seizing the Global Opportunity (Investment Climate Assessment and Reform Strategy)” to be released on Thursday August 12 during a workshop at the Intercontinental Hotel in Phnom Penh, states a World Bank press release Wednesday.
With recent breakthroughs in global trade negotiations creating hope for better global market opportunities for developing countries, Cambodia has the opportunity to benefit from increased market access. But this access is only one side of the equation, according to the new report by the World Bank Group.
To benefit from this opportunity, the Cambodian Government must implement reforms to decrease corruption, strengthen the rule of law, and build the institutions that will attract businesses and allow them to flourish in the global economy. The report also notes that the Government has begun to demonstrate the kind of high-level will to take on the challenges raised in the study.
The study identifies a number of critical constraints facing local and foreign businesses operating in Cambodia, including:
– unofficial payments reported by the private sector that, as a share of their revenue, are over twice as high as the share paid by firms in Bangladesh, and by far the highest among a set of countries benchmarked in the report.
– costs to incorporate a business over five times GDP per capita and among the highest in the world relative to income levels;
– a minimum capital requirement over seventeen times GDP per capita, whereas many countries including Thailand, Nepal, Uganda and Vietnam have no minimal capital requirement;
– a process of clearing an import shipment that can require the completion of 45 separate documents;
– a lack of institutions to absorb risk, causing rural Cambodian firms to hold among the world’s highest inventory stocks as a share of sales.
As a consequence of these impediments, labor productivity of Cambodian firms surveyed is 62 per cent below China and 10 per cent below Bangladesh. The report notes that, as a consequence of these perceptions, foreign direct investment has fallen consistently since 1999.
The report was developed jointly by the World Bank, International Finance Corporation, the Mekong Project Development Facility, and the Public-Private Infrastructure Advisory Facility working with reformers in the Government.
Based on a survey of 800 urban, rural and informal firms, the study was designed to achieve three related objectives: to enable the private sector to lead growth, to help diversify the economy, and to increase the role of the private sector in delivery of public services such as infrastructure.
The study notes that the Cambodian Government, which was given the opportunity to review the draft findings, used the report as a springboard to develop a 12-point Action Plan to overhaul trade facilitation practices, reduce business registration processes and encourage the private sector to invest in a code of ethics.
The Prime Minister appointed a Special Inter-ministerial Task Force for Improving the Investment Climate and Trade Facilitation which is now working toward developing and implementing an integrated program of reform to undertake measures focusing on trade facilitation, reducing the burden of inspections and documentation, reducing the cost of registration, and encouraging ethics.
The report does find that Cambodias private sector growth over the past decade has been remarkable in light of the destruction wrought by years of conflict and that private investment can create jobs at wage levels that can reduce poverty.
In the period 1997-2001, industrial employment grew by an average of over 43 per cent per year, compared with less than 2 per cent growth of both agricultural and service employment. This growth was driven by the export performance of the garment sector, which has grown from 28 million US dollar in 1995 to over 1,35 billion dollar in 2002.
The report defines private sector development in Cambodia as a three-fold challenge:
– The Productivity Challenge: address the productivity gap with countries where key competitors in international markets are located;
– The Diversification Challenge: broaden the base of economic opportunity and jobs in new sectors such as agroindustry by raising their productivity levels, and addressing the constraint caused by fragmented markets which limit competition and productivity gains;
– The Service Delivery Challenge: improve access to efficient and affordable water, electricity, transport, and telecommunication services – all of which can have major impacts on Cambodian living standards and on the investment climate.
The report proposes a number of recommendations, with a particular focus on improving trade facilitation practices, integrating markets through institutions such as private value chains, and injecting competition and transparency in private participation in infrastructure – recognizing that the most important reforms are questions of political will, and as such are facilitated as much by frank, factual discussion as by technical recommendations.
Kilde: www.worldbank.org
