Worsening Corruption Hampers Businesses: Studies

By Reporters, VOA Khmer
Original report Phnom Penh
01 June 2009

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.

Garment orders plunge 40 percent

Employees leave a garment factory in Phnom Penh on Thursday. (Photo by: AFP)

Monday, 16 March 2009
Written by Chun Sophal
The Phnom Penh Post

PRODUCTION DECLINE

• 40pc decline in garment production orders for the first two months of 2009
• Drop by more than two thirds in January exports, from $250m to $70m, said Commerce Minister Cham Prasidh
• More than 50,000 laid off since the downturn began last year
• About 70 factories closed since crisis began

Industry says that falling overseas orders could lead to more factory closures and layoffs, but hope remains for second-quarter recovery.

GARMENT orders were down 40 percent in the first two months of 2009 compared to the same period last year, Van Sou Ieng said Sunday after re-election as president of the Garment Manufacturers Association of Cambodia.

The latest figures suggest more layoffs and factory closures could be on the way for the already battered sector even if they paint a more positive figure than government data. Last week Minister of Commerce Cham Prasidh said exports had declined from US$250 million in January 2007 to just $70 million in the same period in 2008.

About 70 factories have shut their doors since the economic crisis started to hit Cambodia last August, and more than 51,000 workers have lost their jobs or seen their contracts suspended, say industry officials.

"We have received only 60 percent as many orders as last year, and that figure may continue to decrease without urgent measures," said Van Sou Ieng.

"I will encourage buyers to increase orders of textiles from Cambodia because they have already recognised the reputation of our country for respecting labour standards," he added.

He said local factories were improving their quality standards and were capable of competing with producers in Bangladesh and Vietnam.

GMAC, which represents the majority of the country's factories, said it plans to meet with buyers from Hong Kong on March 26 to press for orders.

"We must help garment factories to increase quality so that they are able to compete with other countries. That means improving transportation and reducing bureaucracy," he said.

The GMAC president said he hopes the industry will recover this year.

"I think in the second quarter we will be able to maintain orders at the current level if we make factories more competitive," he said.

The sector has been hit hard by the global economic slowdown and is heavily dependent on the crisis-hit American and European markets.

Garment makers have had limited success diversifying into the Middle East, Japan and Eastern Europe. The Commerce Ministry said export sales were down $60 million in February compared with last year, with $337 million in sales in 2009.

The monthly payroll for January and February was down $1.1 million from last year.

"In the second quarter, we will ... maintain orders at the current level."

Commerce Minister Cham Prasidh said he is optimistic that tourism and agriculture will stay strong, but added construction investment had fallen 40 percent.

From 2004 to 2008, total investment was $1.96 billion, with $1.17 billion in foreign investment and $7.880 million in local investment.

Mean Sophea, director of the Trade Preferences System Department of the Ministry of Commerce, said Sunday that the government has been encouraging more investment in the garment sector.

Union strikes

But a Commerce Ministry spokesman said worker unions and GMAC could help stimulate the sector.

"I think that GMAC can help make buyers feel confident in buying garments from Cambodia," Mean Sophea said.

Van Sou Ieng called Sunday for the country's 1,000 unions to limit their activities while the sector faces problems.

"Some union activities are leading to fewer orders and are leading to thousands of job losses, so [unions] must be careful with their actions," said Vann Sou Ieng. "I would like to publicly announce to the world that no matter what obstacles we face, Cambodia will not die. I will try to look for new markets and new buyers."

Chea Mony, president of the Free Trade Union of Cambodia, rejected the GMAC accusation, saying that many of the factories closing down were simply avoiding taxes.

"This is just GMAC's accusation," he said. "GMAC cannot blame strikes - there have been no strikes in the first two months of 2009, but 70 factories closed."

Cambodian Economy To Contract 0.5% - IMF [-But, our Dr. Hun Xen said that Cambodia will not be impacted, was he wrong all along?]

Friday March 6th, 2009

PHNOM PENH (AFP)--Cambodia's economy will shrink by 0.5% this year, the International Monetary Fund said Friday, lowering its earlier prediction as the country is hit by the global financial crisis.

In a press statement the IMF said the poverty-stricken country wouldn't make the target set late last year of 4.8% growth in 2009.

"The global economic contraction and financial crisis are increasingly affecting Cambodia's economy," the statement said.

Cambodia has seen sharp declines in garment exports to the U.S. and Europe as well as fewer tourist visits, the financial institution said.

It added that there has been a rapid slowdown in construction and foreign investment as the country's economy is doused after enjoying several years of double-digit growth.

The statement recommended that the Cambodian government help stimulate growth by allowing its budget deficit to rise to around 4.75% of gross domestic product - a significant increase from its 2% deficit last year.

Despite recent growth, underemployment, where someone's work earns only a meager return, remains high in Cambodia, one of the world's poorest countries.

Some 35% of the country's 14 million people live on less than $0.50 a day.

Low garment sales, poor tourism to hit Cambodia-IMF

PHNOM PENH, March 6 (Reuters) - A slowdown in garment exports and a drop in the number of tourists could cause Cambodia's economy to shrink 0.5 percent this year, the International Monetary Fund said on Friday.

That is a big turnaround from the 4.8 percent growth the IMF had forecast in November.

"Garment exports are under pressure due to sharply lower retail demand in the United States and European Union," it said in a statement after an IMF team ended a mission to the Southeast Asian country. Garments are Cambodia's biggest export earner.

Construction activity and foreign investment were also slow as external investors cut back, the IMF said said.

The World Bank projected foreign direct investment of around $800 million in 2008 and has said it could fall "probably to below $600 million" in 2009.

(Reporting by Ek Madra; Editing by Alan Raybould)

Cambodian FDI inflows may weaken in 2009-World Bank

PHNOM PENH, Jan 7 (Reuters) - Foreign direct investment in Cambodia probably fell in 2008 and, given the dire state of the world economy, may drop again in 2009, but it could pick up the following year, the World Bank said on Wednesday.

Cambodia's investment agency said projects worth nearly $6 billion were approved last year but the value of actual inflows will not be known for some time.

Many of the approved projects were island resorts and construction projects largely invested in by Chinese and South Korean firms, said Soun Siththy, Deputy Director of the Council for the Development of Cambodia (CDC).

The World Bank has projected FDI inflows at around $800 million last year and World Bank economist Huot Chea said they could fall further, 'probably to below $600 million', in 2009.

Cambodia said foreign investment of some $2.667 billion was approved in 2007 but the World Bank said the actual inflow was only $866 million.

The widespread economic slowdown, 'not political risk', was the main factor behind the drop in foreign investment, Huot Chea said.

However, the Bank expected inflows to recover in 2010 if the global economy bounced back.

China, Cambodia's biggest aid donor, has also been the leading investor in the country, followed by Malaysia and South Korea, according to World Bank data covering 1995 to the first half of 2008.

(Reporting by Ek Madra; Editing by Alan Raybould)