Report blasts builder burden

Photo by: Heng Chivoan
Cambodia’s highly bureaucratic licensing process is potentially behind delays in some building developments, according to a new UNDP report.

The Phnom Penh Post

Written by NATHAN GREEN and SOEUN SAY
Wednesday, 27 May 2009

But land management minister rejects UN agency findings that bureaucracy is holding up construction projects and causing some developers to pull out

Cambodia's highly bureaucratic licensing process for construction projects is potentially costing the country significant sums in foreign direct investment by lowering the sector's competitiveness, a new study by the UN Development Programme (UNDP) says.

According to the "Cambodia Country Competitiveness: Driving Economic Growth and Poverty Reduction" study, it takes approximately 710 days to get all construction permits required to complete a project in Cambodia, compared with 200 days in Thailand and about 150 days in Vietnam.

Each procedure takes 31 days to clear in Cambodia, the study found, compared with around 15 days in Vietnam and Thailand and just 7 days in Laos.

The report also said that construction companies often claim they need to resort to paying unofficial charges in order to shorten timescales for regulatory approval.

Uncertainty over the implementation of laws and regulations has also led to some investment plans being abandoned, the study found, citing foreign investors and chambers of commerce.

"The key is the opacity of rules and regulations," UNDP economist Brooks Evans said. "They may be clear at the top level, but the specifics are often unclear leading to a major obstacle to businesses setting up."

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I pay money in order to get permits on time otherwise it takes more than three months to get permission to build.
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Im Chamrong, director general of the construction department at the Ministry of Land Management, Urban Planning and Construction, rejected the report's findings.

"We follow Cambodian construction laws," he said. "It takes approximately 45 days to get all the construction permits required to complete a project in Cambodia, even large and small projects.

"I don't know where the UNDP report gets the information from, but it's not true because the UNDP does not know how complex the rules are to apply."

He added that mistakes in required documents could delay the process. "Some companies receive permits late because something is wrong with their documents, but it's not late like 710 days but perhaps one or two months," he said.

He also denied that construction companies had to pay unofficial charges.

"I don't know about that; I know that our charges only depend on the size of the project," Im Chamrong said.

However, Seng Thora, 53, a construction company manager, said he had complained to land management authorities about corruption. "It is very difficult to apply for a permit to build a house," he said. "I pay money in order to get permits on time otherwise it takes more than three months to get permission to build."

On hold
Evans said between 30 and 40 percent of construction projects were currently on hold, though he did not specify the proportion thought to have been derailed by regulatory uncertainty as opposed to other causes, particularly the effect of the global financial crisis.

Figures released by the Im Chhun Lim, the Minister of Land Management, Urban Planning and Construction, at the ministry's annual meeting last month showed the book value of major construction projects approved by the ministry fell just 1.14 percent last year to $2.96 billion from a little over $3 billion in 2007. In all, the ministry approved 181 projects last year, up from 167 the year before.

However, the ministry figures do not detail money actually spent on projects or the progress made.

A number of high-profile projects were abandoned or scaled back in the latter half of last year, many involving South Korean companies, after the US subprime mortgage crisis spiralled out of control last year into a global financial meltdown.

At the time, lawyers representing several South Korean developers told Prime Location that the global economic crisis was not the key factor in delays. Instead, they said, the botched implementation of new regulations controlling housing development deposits was responsible. If passed, the new rules would make it impossible for their clients to continue with projects due to concerns of financers at home.

The new rules, or prakas, were delayed amid the outcry and the Ministry of Economy and Finance has promised to redraft them in consultation with the private sector.

Message repeated
The UNDP findings were supported by a new study of Cambodia's investment climate by the World Bank and the International Finance Corporation (IFC). The Second Investment Climate Assessment, which surveyed 500 entrepreneurs in Phnom Penh, Siem Reap, Sihanoukville, Battambang and Kampong Cham, found that regulatory uncertainty was the fourth biggest concern of businesses in Cambodia. Corruption was ranked the highest concern, followed by macroeconomic uncertainty and anti-competitive practices.

World Bank Country Manager Qimiao Fan said at the report's launch Monday that the global financial crisis made it even more critical that business environment problems were addressed. "[N]ow 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," he said.

The IFC released a second report Monday, this time in conjunction with the Asia Foundation, that ranked Phnom Penh behind all of the country's 23 provinces in terms of the ease of doing business. Kampong Cham province was rated the top area to do business in the Provincial Business Environment Scorecard (PBES), which surveyed business owners across the country.

In an indication that reform could be successful in easing the regulatory burden on business, both Sihanoukville and Siem Reap town moved from near the bottom of the inaugural survey in 2006 into the higher ranks by making significant advances in four areas, including the time and cost of starting a business, property rights, and transparency of regulations.

Veronique Salze-Lozac'h, regional director of economic programs for the Asia Foundation, said it was critical government officials were aware of the problems businesses faced.

"Over the next two months, when PBES results are presented in a number of provinces, entrepreneurs will be able to compare their province with others and engage government on reform," she said.

"When the PBES and the ICA are repeated in a few years, officials and business people will be able to see whether their efforts have been successful."