Tharum Bun musings from Cambodia

Bribe tax main barrier to business growth

By Richard Woodd

Eight hundred businesses questioned in a
Government-commissioned survey have identified corruption as
the leading constraint to doing business in Cambodia.

Weak laws, bureaucratic costs, unfair competition from
well-connected rivals and unnecessary inspections, were also
cited as barriers and discouragements

Cambodia’s “bribe tax” was more than double that found in a
parallel survey in Bangladesh, which rated last out of 102
countries in the 2002 Transparency International Corruptions
Index. (Cambodia is not assessed by Transparency
International.)

The survey and summary report were completed by the World Bank
Group, comprising staff and consultants from the World Bank,
International Finance Corporation, Mekong Project Development
Facility and the Public-Private Infrastructure Advisory
Facility. The survey was part of the development of a private
sector growth strategy for the Cambodian Government.

A total of 802 firms were surveyed, comprising 502 urban, 200
rural and 100 urban “informal” (unregistered, undeclared).
Eighty-two percent said they paid bribes, and 71 percent paid
frequently.

“The theme emerging from the survey is one of weak rule of
law, bureaucratic costs and corruption,” the report says.
“Cambodia firms identify corruption as their leading
constraint to operation and growth.”

Using an average of 5.2 percent of sales paid in the form of
bribes in the manufacturing and services sectors, and
multiplying this by the sectors’ contribution to GDP, “a rough
estimate of bribe payments for these sectors amounts to around
$120 million [annually].

Assuming this was spread evenly to 160,000 public sector
employees, the average would be $62 per month.

“Overall, businesses’ view of agency integrity is alarmingly
negative, with the Judiciary and Customs viewed the most
negatively. Staying in the ‘informal’ sector appears to be a
rational response, because informal firms pay less tax and
fewer bribes,” the report says.

“In many countries bribes are seen as a mechanism to avoid the
rules of the legal system, or to expedite delivery of
services. In Cambodia this doesn’t appear to be true. The
larger and more ‘formal’ the enterprise, the higher the bribe
tax. Bribes are routinely required for connection to public
services, including power and telephones.”

Dealing with trade facilitation, the report says that on
average imports take 6.5 days to clear Customs, while exports
take 4.5 days. However, firms reported that in the past year
they had waited over 11 days for at least one import shipment
and 16 days to clear an export shipment. ‘Documentation
problems’ were reported in 56 percent of imports and 41
percent of exports.

Procedures were unclear and superfluous. Customs clearance at
the port of Sihanoukville involved 12 steps, which mainly
consisted of visiting, sometimes repeatedly, key officials.

More than 70 percent of businesses surveyed viewed “dominant
firms or conglomerates in key sectors”, and individuals or
firms with close personal ties to political leaders as
wielding substantial influence over national laws and
regulations.

The report says the growth of the private sector in the past
10 years has proven that private investment can create jobs
that can reduce poverty. It notes that the central objective
of the Government’s national poverty reduction strategy is to
“promote broad-based sustainable economic growth with equity,
with the private sector playing the leading role”.

The challenge for Cambodia, building on its World Trade
Organization membership, was to broaden the base of growth and
diversify the economy, by removing impediments and
insitutionalised transaction costs.

Due to Cambodia’s destructive past, the economic landscape
reflected a lack of key institutions that provided the
framework for trade and investment, most notably the rule of
law. It also reflected an attempt by the Government to fill
the vacuum through administrative measures that had largely
not worked, and created opportunities for corruption.

“Cambodia is bordered by Thailand and Vietnam, each growing
rapidly. Cambodia has a small domestic market, and had wisely
chosen the route of globalization [rather than a regulated,
protected economy].

“WTO represents an opportunity to reap gains from integration
with the global economy.”

Cambodia would become one of the first least-developed
countries to join the WTO, but it required endorsement from
the National Assembly. This and many other listed legal and
judicial reforms required for full WTO membership remained in
the National Assembly and constituted a large pipeline of
pending legislation, until a new government was formed.

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Phnom Penh Post, Issue 13/10, May 7 – 20, 2004
© Michael Hayes, 2004. All rights revert to authors and
artists on publication.
For permission to publish any part of this publication,
contact Michael Hayes, Editor-in-Chief
http://www.PhnomPenhPost.com – Any comments on the website to
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