Potholes on a path to progress

Labourers work on a road project in Phnom Penh. Cambodia ranked low for its infrastructure quality, which includes roads, railways and electricity supply, in a recent report on global competitiveness.

Cambodia marginally improved its global competitive ranking this year, moving up five spots to place 90th out of 144 nations surveyed, with weak public institutions and lack of innovation continuing to affect its economic progress, according to a newly released World Economic Forum report.

The Global Competitiveness Report for 2015-2016 (GCR) had the Kingdom lagging behind most ASEAN member states, except Myanmar, which ranked 131. Bigger ASEAN economies such as Singapore, Malaysia, Thailand and Indonesia, ranked in the top 50.

Cambodia’s overall ranking was dragged down by its lack of capacity to innovate and a poor score on business sophistication – a metric that assesses the value of business networks as well the quality of the individual firms.

While these factors would continue to plague Cambodia in the short term, using its strategic geographical location should help improve that, according to Hiroshi Suzuki, lead economist at the Business Research Institute for Cambodia.

“Using the improved connectivity among the region, which is an advantage for Cambodia, business sophistication would be improved,” he said.

Despite the Kingdom’s low competitiveness ranking, Suzuki said investors would instead base their investment decisions on the kind of industry they are looking to set up here, though there will be limitations when it comes to attracting heavy industry.

“Cambodia is one of the best candidates for labour-intensive parts manufacturing because it has the advantage of low labour cost and connectivity with neighbouring countries,” he added.

Weak public and private institutions were another area of concern, with judicial independence strength of auditing and reporting standards ranking 128 and 132, respectively.

Preap Kol, executive director of Transparency International Cambodia, said this critical challenge needed to be more effectively addressed by government-initiated reform.

However, he added that there was an acknowledgement from the government, which was trying to enable clean business operations.

“Several key steps including online facilities, access to information and simplifying business registration procedures among others are underway,” he said. “However, these will take some time to complete and yield results.”

Srey Chanthy, an independent economist, said the lack of revenues generated by the Cambodian government leaves it hamstrung when it comes to investing in quality infrastructure, another criteria where the Kingdom fared poorly.

While the overall quality of infrastructure was ranked 102, the quality of electricity, railroads and air transport infrastructure ranked at least 100 or above.

“The current government will continue to depend on donors, international governments, multilateral banks and, of course, the private sector to modernise infrastructure and logistics,” Chanthy said.

But, if one were to move away from these pitfalls, Cambodia still provided open access to regional markets, low labour costs coupled with a young workforce and low natural-disaster risk, he added.

“Leaving aside weaknesses relating to the infrastructure and skilled labour force, Cambodia remains a competitive country for businesses and investment,” Chanthy said, adding however that Myanmar was quickly catching up.

One criterion that Cambodia does have in its favour is the country’s stable macroeconomic environment, with its debt-to-GDP ratio and balanced government budget ranking in the top 20.

In Channy, group president and CEO of Acleda Bank, said the debt-to-GDP ratio was within acceptable limits for the economy’s size and a low non-performing loan rate reduced any possible risks.

“This [macroeconomic stability] will be one of the major factors going forward for Cambodia’s economy,” he said, adding that it was critical to continuing inflows of investment.