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Cambodia Behind in Investment Improvement

World Economic Forum annual meeting held in Switzerland, in 2010.
World Economic Forum annual meeting held in Switzerland, in 2010.

Cambodia has made less improvement in its trade environment than other countries that are competing for investors in the global marketplace, a new report has found.

The World Economic Forum’s 2010 trade index report found that Cambodia slipped to No. 102 of 126 countries, down nine places from the year before.

The index measures overseas ease of doing business, including market access, border administration, transport and telecommunications and the general business environment.

The World Economic Forum, based in Switzerland, did find that Cambodia had made improvements in market access, but it said the country faces major challenges in other aspects, including corruption in border administration—one of the highest rates in the world—and poor infrastructure and transportation.

These caused longer export times at higher costs, making Cambodia less desirable to investors.

Adding to the nation’s woes is a climate that is not friendly to trade. There are low levels of domestic competition, weak property rights and limited openness to multilateral trade rules, the report said.

Poor physical security is another problem, where police service is unreliable and levels of crime and violence are rising, the report said.

“Cambodia is not progressing enough to compete with other countries,” the report said. “The most critical shortcoming is the infrastructure,” including poor port facilities, poor roads and poor customs.

“So when clearing customs, there is room for irregular payment, some sort of bribery, and it creates very low transparency and it creates huge delays and is very costly,” Thierry Geiger, an economist for the World Economic Forum, said in a phone interview.

Immediate, tough measures in combating corruption and improving infrastructure would improve the country’s trade environment in the next five or ten years, he added.

Cambodia is one of the world’s most corrupt countries, according to Transparency International, and loses an estimated $500 million a year to graft. Meanwhile, trade facilitation could help export competitiveness, attract foreign direct investment and boost economic growth.

Good trade facilitation has helped Singapore’s economy rank among the highest for years. Its border administration is one of the least corrupt in the world, and public servants provide fast, effective service, according to the report.

Vietnam has significantly improved its trade facilitation, while Thailand has become the best country in the region in implementing a Asean “single window” initiative, which supports free trade within the bloc.

Ros Khemara, an economist for the Cambodia Economic Association, said Cambodia can hardly operate the single window initiative.

“Operation within the administration in Cambodia always consist of informal fees, which occur at every [trading] process, especially regarding export and import,” he said. “If we want to reform to be better and faster, we have to eliminate some of the processes that will also reduce the chance for people who are used to receiving the informal fee. So it is hard to reform on this.”

In recent years, Cambodia has put many policies in place to help reduce the complexities of trade here, including improved registration and border administration. But the implementation of those policies is lagging.

“The policy framework and the legal framework in Cambodia is very strong to help encourage the development of the private sector,” said Joshua Morris, an emerging markets consultant. “Typically, what you find is enforcement and the implementation of those policies sometimes are not as well maintained as you would like with respect to the judicial and legal environments for business, key of business registration, transparency, taxation across all organizations, to further improvement in the processes in timing for import and export.”

Mao Thura, secretary of state with the Ministry of Commerce, said weak enforcement comes from a lack of tough measures to control implementation. But he said his ministry and the Ministry of Economy and Finance are organizing a workshop to find measures to bring the policies into practice.

Meanwhile, the International Financial Corporation will organize a workshop to train a group of arbitrators for the National Center for Commercial Arbitration. The independent center will be the country’s first dispute resolution mechanism and could attract more investors.