B.E. Assessment

Assessing Cambodia's Business Environment for Value Chain Development, IFC-MPDF, 2004

    The government of Cambodia has identified growth of the private sector as critical for developing the economy in order to alleviate the country's high levels of poverty. However, it is widely recognized that Cambodia's private sector is largely uncompetitive, both domestically and internationally. Various studies attribute the lack of competitiveness to a number of constraints that greatly add to the cost of doing business. The document draws on a World Bank study using value chain analysis to discuss constraints facing the producers of a number of agricultural and manufacturing products.

    There is potential for the clothing manufacture, motorcycle assembly and production, canned milk, and rice milling sectors to expand and stimulate growth in other forms of light manufacturing, but there also are significant barriers constraining their growth. While these products and commodities represent only a segment of the Cambodian economy, they suggest challenges that producers in other sectors are likely to face as well.

    The document focuses on the four challenges most often cited in everyday discussion: customs clearance, red tape and bribery, smuggling and high energy costs.

    Methods for info gathering
    Secondary source research

    Summary of results
    The lack of regulatory enforcement not only reduces sector revenue flows from legitimate business transactions, but more importantly, discourages private sector investments in the economy. In the absence of good governance, investments that deepen the supply chain and stimulate horizontal integration are unlikely to take place. The major constraints identified are:

    - High official charges in importing raw materials;

    - Cumbersome customs clearance procedures that are time consuming and provide officials an opportunity to extract bribes for faster clearance;

    - High input import costs that affect competitiveness of businesses producing goods for the domestic market and force some to stop local production, while also discouraging local investments in support industries; and

    - High government fuel tax that increases transportation and electricity costs, resulting in 30-40% higher prices in Cambodia than in other countries in the region.

    These constraints to the products included in the analysis result in potential sector revenue losses of up to $27.93 million and GDP losses of $226 million. As they are only part of the Cambodian economy, similar hinderances to competitiveness can likely be found elsewhere.

    Associated Activities and Documents
    Synthesis documents
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