Cambodia has seen much progress in diversifying products and attracting more investors, but some reforms are needed, especially on electricity supply, financial payment structure and skilled workforce, according to a new joint World Bank Group (WBG) and Asian Development Bank (ADB) report.
Mr. Alassane Sow, World Bank Cambodia Country Manager, said Cambodia has made great strides in diversifying into new products and attracting more sophisticated investors. The joint report will help stimulate a healthy public debate leading to a better business environment for private sector development, he added.
The Investment Climate Assessment 2014 Report by the WBG and ADB, which was launched on October 28, urged Cambodia to build its new business investment by improving the reliability of electricity supply, formalizing its financial payment structure and building a skilled workforce.
“Those three areas pose the most serious constraints to Cambodia’s effort to attract new investments. Electricity in Cambodia not only more expensive than most neighboring countries, but the supply is intermittent—especially in the Special Economic Zones (SEZs). Informal payments are still viewed by registered firms as a major constraint to doing business as well as a skilled workforce,” it underlined.
Indeed, following a slowdown from the global financial crisis and more recent political uncertainty, Cambodia has seen a recovery in foreign direct investment, as it integrates more deeply into regional value chains for industries like garment and textiles.
The report endorses the government’s five-year Rectangular Strategy, which seeks further diversification and more value-added in production and makes it easier for firms to set up, operate, expand and diversify their business activities.
“Low wages, the ‘Everything-But-Arms’ access program to the EU that Cambodia has been granted, and tax holidays have all helped to attract investment,” said World Bank Senior Economist Mr. Julian Latimer Clarke, lead author of the ICA 2014 report. “Still, Cambodia can do more to address the most serious constraints seen by the firms.”
The ICA provides suggestions to tackle the high cost of electricity by looking into tapping other energy sources, and improving agreements with neighboring countries to ensure reliable electricity provision, particularly for firms in the SEZs and to push for automated government processes so as to minimize face-to-face interactions between investors and officials. To this end, Cambodia may wish to prioritize the swift passage of the e-Commerce Law and further expand ASYCUDA, which has already decreased time and cost for traders.
The ICA also suggested that the investors’ concerns in SEZs could be addressed through a series of “smart” incentives, better investment protection, a zero-corruption strategy for SEZs, convincing wary investors to opt for Cambodia. In addition, despite the gains already made, continued improvements in trade facilitation are vital, including streamlining and automation of cumbersome procedures, and the implementation of a National Single Window (NSW). Both would boost trade performance by cutting costs and sharpening the competitiveness of Cambodian firms.
“The joint report offers an invaluable contribution to policymakers and helps them build on the recent progress made in improving Cambodia’s attractiveness as an investment destination. If effectively implemented, many of the recommendations will have a major impact in achieving the RGC’s Rectangular Strategy III to diversify the sources of growth and continue to reduce poverty and vulnerability,” said Asian Development Bank Country Director Mr. Eric Sidgwick.