A Change of Guard

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Sunday 11 January 2015

ASEAN Integration: An Opportunity for Business in Cambodia

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I just returned to Cambodia after a short vacation to the United States to spend the holidays with my family.  While I thoroughly enjoyed my time with them, I made sure to keep up with the latest news in Cambodia and speak with several people about what the U.S. Embassy is doing to strengthen the partnership between our two countries.Now that 2015 has arrived, we are prepared to work with the Cambodian people to face new challenges and find new opportunities this year.With this in mind, I hope that my “Ask the Ambassador” column will remain a productive channel for engagement with the Cambodian people.  With your support, the column will continue to address several questions and comments concerning a wide range of topics.  I look forward to responding to each of your questions but I will begin with Heng, who asked, “How will ASEAN integration affect business investment or expansion in Cambodia?”
On balance, ASEAN integration will be a net positive for Cambodia as the country works to attract more business.  With the reduction in tariffs and the creation of a single market, investors will look for countries with a favorable regulatory environment to serve the ASEAN market.  Cambodia already has this environment, as well as a proven track record of working with businesses. However, many challenges remain that could prevent the country taking full advantage of the potential opportunities coming with ASEAN integration.   Every business has a choice about where to invest, and Cambodia should expect that their ASEAN neighbors will also be pushing for regulatory changes to attract new investment.  Fortunately for Cambodia, the government has recently undertaken several reforms to improve the economic and commercial environment.
The onset of the ASEAN Economic Community in 2015 presents both a substantial challenge and a significant opportunity for Cambodia.   In order to continue its strong record of growth and create jobs for the country’s youth, Cambodia needs to attract and encourage new investment, both domestic and foreign.  Through its pro-business regulatory framework, the country has done very well over the past decade, with an average growth rate of more than seven percent.  Despite its efforts, however, the country has struggled with its image among investors who focus on Cambodia’s challenges instead of the opportunities.  
What these investors fail to realize is how well Cambodia’s business environment compares to its neighbors.  Unlike many other countries in the region foreign companies in Cambodia can own 100 percent of their businesses, easily repatriate profits, enjoy one of the lowest corporate tax rates in ASEAN, and receive longer corporate tax exemptions than most other ASEAN countries.  Cambodia needs to continue to educate investors about the country’s opportunities.  
However, getting to the next stage of development – particularly following greater ASEAN integration– will still require more action to address the concerns that investors have about Cambodia.  The country’s economic future hinges upon protecting worker rights and improving labor conditions in order to foster a stable business environment.  Failing to adhere to international labor and business standards – along with tolerating corruption and impunity – create an atmosphere of fear that drives potential investment away.  If further improvements are made, Cambodia could be a destination of choice for business development.
Minister of Commerce Sun Chanthol has been instrumental in combating corruption.  First and foremost, he recognizes that corruption is a serious problem and a deterrent to additional local and foreign investment.  Second, as part of an effort to take action on reducing corruption and improving efficiency, he is currently planning to automate the business registration process at the Ministry of Commerce.  Senior Minister Sun Chanthol has also instituted a competitive hiring process at his ministry to eliminate nepotism.  He clearly understands the need to bolster Cambodia’s “brand” by increasing efficiency and tackling corruption.  Additional efforts to combat corruption in Cambodia will help secure the promise of equitable development and greater transparency.  Increasing the number of services available online, raising the pay of civil servants and teachers, and instilling an ethos in government service that rewards efficiency and honesty would all be substantial steps forward.
Even with the progress in addressing corruption, investors remain concerned about the small skilled labor pool and poor infrastructure in Cambodia. By boosting the integrity of the national exam and promoting vocational training, Ministry of Education has made significant progress towards expanding the pool of skilled labor.  Still, another area that needs to be improved is English language instruction.  English is the most common language on the Internet, in academia, and in the business sector.  Furthermore, English will be the common language of the ASEAN Economic Community.   An increasing number of multinational companies now use English as the common corporate language in an effort to improve communication and performance across geographic borders.In order for Cambodia to be competitive in ASEAN and the world, English language has to be considered as a necessity.
Another challenge for Cambodia concerns its physical infrastructure, which includes the country’s power supply, road network, and ports.  Infrastructure provides the foundation for increasing growth, jobs, safety, and regional competitiveness.  Energy in Cambodia is still expensive and lacks the reliability of at least some ASEAN countries.  The coverage and the condition of the road network also limit Cambodia’s ability to compete effectively with other ASEAN countries.  A recent World Bank report comparing Cambodia, Thailand, and Vietnam, for example, showed that Cambodian rice, although the least expensive to produce, lost its cost advantage by the time the product made it to port.  Fortunately, Electricite du Cambodge (EdC) is working to improve the coverage, reliability, and price of the country’s power supply and national grid network.  With over 55 percent of households currently having access to the national grid, Cambodia is now on track to meet its goal of 70 percent access by 2030. EdC’s efforts will go a long way toward addressing Cambodia’s power supply challenges. 
In part due to the efforts of these forward-thinking government officials, foreign brands are beginning to understand Cambodia’s potential.  In the last month alone, we have seen large U.S. retail companies like Domino’s Pizza, Kohler Faucets, and Hometop Do It Best launch their brands in Phnom Penh.  With Cambodia’s growing middle class and 70 percent of the population under the age of 30, these companies see the country’s potential.  Another good example of Cambodia’s continued development is the recent announcement by World bridge International in partnership with ACLEDA Bank to launch an e-commerce service in 2015.  The service, My All In One Mall, or MAIO Mall, already has more than 70 companies on board and will tap into the younger generation’s greater familiarity and comfort with new technology.
In an increasingly competitive and difficult business climate, Cambodia continues to be a bright spot in the world of business, despite the doubts of some foreign investors and market analysts.  As Cambodia prepares for ASEAN economic integration, the time is now to accelerate reform efforts.  Through the cooperation of government, the private sector, and civil society, Cambodia can enhance its global image and win the race towards economic empowerment. As President Nixon once said, “A record is not something to stand on; it is something to build on.”
Thank you very much for reading my column this week.  If you would like me to answer your questions, please e-mail me at AskAmbToddPP@state.gov.

1 comment:

Anonymous said...

Mr.Todd,

Thank You for your excellent point of view.

Chhary