Doing Business 2008: Improving the Business Climate in Cambodia is Vital

Contacts: In Phnom Penh
Ann Bishop
Email: abishop1@ifc.org
Bou Saroeun
Email: sbou@worldbank.org

Phnom Penh –September 26, 2007 -- More businesses are starting up as a result of recent reforms of business regulations, finds the just-released Doing Business 2008 — the fifth in an annual report series issued by the World Bank and International Finance Corporation (IFC). The rankings are based on 10 areas of business regulation that track the time and cost to meet government requirements in business start-up, operation, trade, taxation and closure. These areas are: (1) starting a business, (2) dealing with licenses, (3) employing workers, (4) registering property, (5) getting credit, (6) protecting investors, (7) paying taxes, (8) trading across borders, (9) enforcing contracts, and (10) closing a business.  These indicators are not designed to cover issues such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, ease of access to markets or crime rates.

Only the Organization for Economic Co-operation and Development (OECD) high income countries and the countries of Eastern Europe and former Soviet Union ranked higher than the East Asia and Pacific region in the overall ease of doing business. The Eastern Europe and  former Soviet Union region reformed the most in 2006/07 while East Asia and Pacific ranks second-to-last among regions on the pace of business reform. China was a standout in regulatory reform in 2006/07, bucking the regional trend. The top reformer in the region and among the top 10 in the world, China introduced far-reaching protection of private property rights and a new bankruptcy law. 

In recent years, Cambodia has passed a number of key business environment reforms, however some have not yet been fully implemented. For this reason, the results do not show up yet in the Doing Business 2008 report. Also, because other countries are reforming more quickly, Cambodia’s comparative ranking remains low (145 out of 178).

Recent business reforms in Cambodia include the enactment of several key laws, such as the Law on Customs and the Law on Concessions. A draft Law on Insolvency was recently passed by the Council of Ministers and was submitted to the National Assembly. A computerized system for customs is about to be launched at the Port of Sihanoukville. A strategy has been developed to ease the burden on traders by using a “Single Administrative Document” and reducing the proportion of containers physically opened at the border.  As a follow-up to the Government-Private Sector Forum, the labor law has also been amended. Implementing these reforms is likely to improve future Doing Business indicators.

“While passing laws and adopting strategies is a necessary first step,” Stéphane Guimbert, Senior Country Economist, World Bank Cambodia, noted, “implementation must now accelerate. Improving the business environment is vital for Cambodia to diversify its production and exports. Recent economic growth, while remarkable, is vulnerable given its dependence on a few sectors, garments in particular.” He added that the World Bank and IFC, in close partnership with the government, have just launched the Investment Climate Assessment (ICA), an in-depth, nation-wide survey of businesses to measure whether the reforms are improving the business environment and enabling a diversification of the economy. Preliminary results of this analysis will be announced before the end of the year, and a comprehensive report will be finalized early in 2008. Further implementation of the reforms identified by the ICA, which IFC and the World Bank are willing to consider for focused assistance, will help to raise Cambodia’s rankings in future Doing Business reports.

Trang Nguyen, Head of Advisory Services for the IFC Mekong Private Sector Development Facility, listed several other initiatives that are also improving the business environment in Cambodia. These include the Government-Private Sector Forum which meets formally twice a year to review progress and resolve problems identified throughout the year by its eight sectoral working groups, and the Provincial Business Environment Scorecard (PBES).

“Beginning in 2006”, said Nguyen, “the PBES surveyed more than 500 businesses in ten economically active provinces and municipalities on key business environment issues, and based on the results, we ranked these against each other."  

At the request of the governor, we are now working with Siem Reap Province on reforms that will make it faster and cheaper to start a business and we are discussing reform work with other provinces as well. In 2008, in our ongoing partnership with the Asia Foundation, we will conduct another PBES survey but this time in all 24 provinces. The provincial level work is crucial because as worldwide research shows, unless laws and regulations are implemented effectively at the local level, there will be no improvement in the business environment and investors will be discouraged.” 

Doing Business 2008 ranks 178 economies on the ease of doing business. East Asia and the Pacific accounts for two of the top 10, with Singapore ranking first and Hong Kong (China) fourth. Other top-ranking economies in the region are Thailand (15), Malaysia (24), Fiji (36), Tonga (47), and Taiwan (China) (50).

Worldwide, the top 25 in the rankings are, in order, Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom, Canada, Ireland, Australia, Iceland, Norway, Japan, Finland, Sweden, Thailand, Switzerland, Estonia, Georgia, Belgium, Germany, the Netherlands, Latvia, Saudi Arabia, Malaysia, and Austria.

The top 10 reformers are, in order, Egypt, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 

“The report finds that equity returns are highest in countries that are reforming the most,” said Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development. “Investors are looking for upside potential, and they find it in economies that are reforming—regardless of their starting point,” he added. Large emerging markets are reforming fast: China, Egypt, India, Indonesia, Turkey, and Vietnam all improved in the ease of doing business. And, the report finds, as more countries simplify regulation to make it easier to do business, more entrepreneurs are going into business.