Cambodia Investment Review
Recently released data from the World Bank’s Enterprise Surveys for 2023 reveals that businesses in Cambodia are still facing significant obstacles, with the informal sector and tax rates topping the list. As Cambodia continues its economic growth, businesses continue to grapple with issues that have long been identified as barriers to development. This report also compares Cambodia’s business challenges with its regional peers in Southeast Asia, including the Philippines, Vietnam, and Bangladesh.
Major Challenges for Cambodian Businesses
The survey findings from 2023 highlight the most pressing challenges that businesses face in Cambodia:
- Informal Sector: A significant 78% of Cambodian firms reported the informal sector as a major obstacle to doing business. Informal businesses, which operate outside the regulatory framework, often offer products and services at lower prices, creating an uneven playing field for formal businesses.
- Tax Rates: Tax rates remain a heavy burden for businesses, with 68% of firms citing it as a key challenge. Cambodia’s complex tax system, which businesses often find difficult to navigate, continues to create frustrations for entrepreneurs who are trying to stay compliant while keeping their costs manageable.
- Corruption and Court Inefficiency: Corruption continues to be a widespread issue, affecting 57% of businesses. Alongside this, inefficiencies in the court system also make it difficult for companies to resolve disputes, with the same percentage of businesses expressing concerns about legal barriers.
Other significant obstacles include issues with transport (48% of businesses), business documents (48%), and political instability (45%). These factors make it harder for businesses to expand operations, both locally and internationally.
Trends Over Time: Obstacles Persist
When looking at how these obstacles have evolved since 2016, the data reveals some worrying trends:
- Increasing Challenges: The share of businesses citing the informal sector as an obstacle has increased by 6% since 2016. Similarly, tax rates and tax administration continue to be significant burdens, with a 6% increase in businesses noting these as major challenges.
- Improvements in Some Areas: While the majority of challenges have either remained constant or worsened, there have been some improvements. For example, concerns about electricity availability have decreased, with only 43% of businesses listing it as a barrier, compared to higher figures in 2016. Additionally, issues related to transport and business documentation have become less significant, suggesting gradual improvements in Cambodia’s infrastructure.
Cambodia’s Business Environment Compared to Regional Peers
When compared to its regional peers, Cambodia stands out for its particular set of challenges. The data indicates that Cambodia faces more significant difficulties than countries like the Philippines, Vietnam, and Bangladesh in several key areas:
- Informal Sector and Tax Rates: Cambodia’s businesses are more likely to cite the informal sector as a major obstacle (78%) than their counterparts in the Philippines (42%). Similarly, tax rates are a bigger issue in Cambodia than in both Vietnam and Bangladesh, where fewer businesses report this as a challenge.
- Corruption: Corruption is also a more prominent issue in Cambodia, with 57% of firms highlighting it as a challenge, compared to just 26% in the Philippines and 21% in Bangladesh. This underscores the ongoing need for stronger governance and anti-corruption measures in Cambodia.
Despite these challenges, Cambodia has seen improvements in areas such as labor regulations and finance, where fewer businesses report these as obstacles compared to previous years. Experts suggest that continued efforts to streamline tax processes, improve transparency, and address corruption are crucial for making Cambodia a more attractive environment for business investment.
The Path Forward
To enhance Cambodia’s business environment, the government must focus on reducing the challenges posed by the informal sector, simplifying tax administration, and addressing corruption. The data from 2023 reveals that while some areas have improved, the country still faces significant obstacles. However, with targeted reforms and sustained investment in infrastructure and legal systems, Cambodia has the potential to create a more competitive business environment that can attract more investment and drive future growth.
As the country moves forward, addressing these core challenges will be key to fostering long-term economic development and creating a more level playing field for businesses operating within Cambodia.
