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Worsening Corruption Hampers Businesses: Studies

High corruption, worsening “informal” charges, low transparency and crime remain concerns for business and investment expansion in Cambodia, especially in the downturn, two recent studies conclude.

A World Bank survey of 500 companies in the cities of Phnom Penh and Siem Reap and the provinces of Preah Sihanouk and Kampong Cham show that even with good performance in the economy, corruption remained their top concern. The second-highest worry was macroeconomic uncertainty due to deteriorating conditions in the global economy. The third-highest was anti-competitive practices.

“If business owners have concerns about the business environment, it reduces their willingness to take production risks and constrains growth,” the World Bank found.

A study by the International Finance Corporation and the Asia Foundation, meanwhile, found that informal charges have worsened, with 75 percent of more than 1,200 business owners surveyed claiming bribery was regularly required to win government contracts.

Furthermore, transparency of business documentation declined, the study found, as fewer firms have access to basic business documentation.

“Transparency is critical for small business,” the study said. “Without such information, firms avoid expansion for fear of experiencing unanticipated problems due to change in laws and other factors that impact the business climate.”

When Cambodia’s economy was growing, as it has for a number of years, such problems didn’t seem as serious as now, said Qimiao Fan, the World Bank’s Cambodia representative. But the global downturn has had a significant impact on Cambodia, so continued problems in the business environment could force some companies out of business, while potential investors look to other countries.

“I urge you all to take an active part to prepare Cambodia to a new level of initiative investment climate,” he said. “So that we can ensure Cambodia’s businesses are very competitive, not just in the country, not just in the region, but across the world.”

Commerce Minister Cham Prashidh agreed, promising to push local authorities to build up a better investment climate.

“The global financial crisis has made Cambodia’s economy worse,” he said. “At this time we have to make a better investment climate, such as transparency, and reduce corruption as much as possible.”

“Despite continued rapid growth, Cambodia is still regarded as a country where doing business is difficult,” the World Bank said its study.

Cambodia was ranked 135 out of 181 countries in the World Bank’s “Doing Business Rankings” and scored 110 out of 131 on a world competitiveness index.

The two studies found Cambodia lacking in large-scale investment, while small businesses increased dramatically.

Foreign direct Investment to Cambodia fell from $886.5 million in 2007 to $786.5 million in 2008, according to National Bank figures.

The studies did show some progress in Cambodia’s business climate, including lower entry cost, lower time cost for regulatory compliances, and an improvement in tax administration.