Cambodia urged to improve business environment

Photo by: Tracey Shelton
The UNDP said Monday that Cambodia needs to widen its skills base beyond labour-intensive industries such as textiles.

The Phnom Penh Post
http://www.phnompenhpost.com/

Written by Nathan Green AND Chun Sophal
Tuesday, 26 May 2009

UNDP, World Bank and International Finance Corporation reports call on Kingdom to address underlying weaknesses in economy to fight downturn.

CAMBODIA urgently needs to improve its business environment and reform its education system to boost its competitiveness and sustain economic growth, said three reports released Monday.

Qimiao Fan, country manager for the World Bank, which released an assessment of Cambodia's investment climate with the International Financial Corporation (IFC), said the global economic crisis had increased pressure on Cambodia to address "chronic" problems in its business environment.

"When the economy was growing at almost 10 percent per year between 1998 and 2007, business environment problems did not seem as serious as they do now", he said. "But now with the global economic crisis significantly impacting Cambodia, continued problems in the business environment may force firms to go out of business and investors may choose to postpone investment or move to more business-friendly countries."

The World Bank's second Investment Climate Assessment showed that corruption was the most pressing concern among 500 entrepreneurs in Phnom Penh, Siem Reap, Sihanoukville, Battambang and Kampong Cham provinces, as it was for a similar survey released in 2003.

Macroeconomic uncertainty ranked as the second-biggest concern, higher than in 2003 because of deteriorating conditions in the global economy.

Anti-competitive practices were the next most pressing issue, followed by economic and regulatory uncertainty.

The report offered five key lessons for improving the business environment. Firstly, it said reforms succeeded when driven by government leaders, international commitments and private sector demand.

Secondly, reforms needed to be tested as pilots, monitored and evaluated, and - if successful - scaled up.

Thirdly, reforms required careful planning, deadlines, coordination and evaluation.

Next, reform of the civil service, which has proven successful in small pilots, should be scaled up. Finally, through the Government-Private Sector Forum, the private sector can play a major role in identifying needed reforms.

The IFC also released its second Provincial Business Environment Scorecard (PBES), published in conjunction with The Asia Foundation, which surveyed business owners in Phnom Penh, the capital cities of Cambodia's 23 provinces and other selected urban areas.

The report showed Kampong Cham province had the best business environment, as was the case in the first PBES survey in 2006, while Phnom Penh ranked last. Sihanoukville and Siem Reap moved from near the bottom in 2006 to the near top in 2009 by making significant advances in the time and cost to start a business, property rights, transparency of regulations and crime prevention.

"Overall, PBES 2009 results show that firms are more likely to expand their businesses if provincial administrators reduce informal charges, prevent crime more effectively, make it easier for entrepreneurs to start businesses and also make it easier for business owners to pay their taxes," said Julia Brickell, IFC's resident representative in Cambodia.

Speaking at the launch of the reports, Finance Minister Cham Prasidh acknowledged that the global economic crisis had increased the importance of providing better access to finance, information on regulations and procedures, export opportunities, reliable dispute resolution procedures, and efficient and transparent government services. "We need to build a conducive environment for business so that businesses can compete in international markets," he said.

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It is now imperative for these changes to be made; it is not a choice.
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The UN Development Programme (UNDP) also focused on Cambodia's competitiveness in a report released Monday that ranked the country near the bottom among southeast Asian countries.

More skills required
Brooks Evans, an economist in UNDP's Insights for Action Initiative (IFA), which authored the report, said one of the recurring themes was the need for an urgent overhaul of Cambodia's human-resource policy.

"The lack of skills or a highly trained workforce is one of the most commonly cited constraints by businesses," he said. "In terms of higher education and training, Cambodia is the biggest laggard in ASEAN. It has a serious lack of highly trained workers and this is something that requires urgent prioritisation."

While the global economic crisis had not affected the policy changes required, it had increased the stakes, he added.

"The focus of the study is on the medium- to long-term policy options Cambodia needs to provide for economic and human development growth, but the economic crisis means the country needs to act now," he said. "It is now imperative for these changes to be made; it is not a choice."