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Private sector warns government that high costs imperil investment

A vehicle lifts containers for shipping last year at the Sihanoukville Autonomous Port.
A vehicle lifts containers for shipping last year at the Sihanoukville Autonomous Port. Sahiba Chawdhary

Private sector warns government that high costs imperil investment

Private sector representatives are deeply concerned by the government’s inability to reduce the cost of doing business in the Kingdom, and they warned yesterday that the country would start to lose investors if the situation did not improve.

At a logistics forum hosted by the European Chamber of Commerce yesterday, investors and company managers called on the government to take immediate steps to lower logistics costs and issued dire assessments of Cambodia’s logistics situation, at times surprising the government officials who were invited to speak at the event.

Charles Esterhoy, president of the influential American Chamber of Commerce in Cambodia, said that officials needed to start acting on promises to reduce logistics costs for business operating in the country.
“[The government] has the full support of the private sector,” Esterhoy said. “The time for talk is over – it’s urgent that some action be taken.”

Tung Pham, the country manager for shipping and logistics giant MAERSK, said that if business costs were not lowered soon, he feared investment would move to other countries in the region.

Taro Tanzaki, the deputy managing director of Toyota Tsusho Corporation’s Techno Park in Poipet, went one step further. When asked directly whether his company would pull out of the country due to high costs, Tanzaki suggested it was a possibility.

“I need the chance to talk to my investors, but we are always concerned about logistics costs, especially unofficial fees,” he said. “If we can’t reduce these costs, there won’t be any more investment in Cambodia. The situation is quite serious.”

Private businesses have levelled similar complaints for years, but they appear to have picked up urgency amid a wave of populist policies enacted by Prime Minister Hun Sen ahead of this year’s national elections. Labour costs have risen sharply as the minimum monthly wage for the garment sector has jumped to $170 this year, compared to $125 in 2014. The government has also floated plans for a new universal minimum wage to apply to all sectors and increased mandatory employer contributions for workers’ health insurance.

But the severity of businesses’ concerns appeared to come as a shock to Sophal Kong, the deputy director-general of land transport at the Ministry of Public Works and Transport. Kong said yesterday he was “surprised” to hear that foreign direct investment may slow due to logistics costs.

“[High costs] happen everywhere,” Kong said. “Of course our logistics costs are a bit high, but I don’t think it is as bad as you say.”

After acknowledging less than 50 percent of roads in Cambodia were paved, Kong pointed to evidence that the government had been working to improve infrastructure, specifically noting his ministry’s road development strategy, which was 70 percent complete, and the plan to construct a new expressway from Phnom Penh to Sihanoukville.

Reducing costs of doing business has not been a focus of the government in recent years, according to Migeul Chanco, lead Asean analyst at the Economic Intelligence Unit.

“It’s safe to say that high logistics costs have not been part of the government’s top five priorities,” he said yesterday. “Ongoing infrastructure developments funded by multilateral and bilateral donors will continue to help lower the costs of doing business, but these improvements won’t be realised overnight, and the cash-strapped government is not in any financial position to expedite their construction.”

Chanco said that if minimum wages continued their rise, he expected to see businesses begin to pack up and head for other countries that also had similar wage levels, such as Vietnam and Bangladesh.
“My concern is that the government won’t feel any sense of urgency, as such an exodus will happen gradually over time instead of suddenly and unexpectedly,” he said.

Cambodia’s rank in the World Bank’s Ease of Doing Business annual report has fallen for two consecutive years, as the body has noted a lack of tangible reforms in the Kingdom. Cambodia also fell slightly in the conservative Heritage Foundation’s Economic Freedom Index released earlier this month.