The Provincial Business Environment Scorecard in Cambodia A Measure of Economic Governance and Regulatory Policy November 2009 PBES 2009 | 1 The Provincial Business Environment Scorecard1 in Cambodia A Measure of Economic Governance and Regulatory Policy November 2009 1 The Provincial Business Environment Scorecard (PBES) is a partnership between the International Finance Corporation and the donors of the MPDF Trust Fund (the European Union, Finland, Ireland, the Netherlands, New Zealand, and Switzerland), and The Asia Foundation, with funding support from Danida, DFID and NZAID, the Multi-Donor Livelihoods Facility. PBES 2009 | 3 PBES 2009 | 4 Table of Contents List of Tables ..........................................................................................................................................................iii List of Figures .........................................................................................................................................................iv Abbreviations ............................................................................................................................................................v Acknowledgments .....................................................................................................................................................vi 1. Introduction ............................................................................................................................ 1 1. PBES Scorecard and Sub-indices ........................................................................................... 3 2.1. Overall Scoring Strategy.....................................................................................................................3 2.2. The Sub-indices ...................................................................................................................................3 2.3. Survey Strategy ....................................................................................................................................4 3. Profile of Cambodian Firms ................................................................................................... 5 3.1 Cambodia’s Firms are Micro-enterprises ........................................................................................5 3.2 Increase in Small and Medium Enterprise ......................................................................................6 3.3 Concentration of Firms in the Phnom Penh Region is Decreasing ...........................................6 3.4 Firms Tend to Operate Only Within Their Home Province .......................................................7 3.5 Most Firms are in Services or Commerce ......................................................................................8 3.6 Women are Active in Business. ..........................................................................................................8 3.7 Firms are Young ..................................................................................................................................9 3.8 Growth in Businesses Likely to Continue .......................................................................................9 4. The 2009 PBES Rankings: Explanation and Analysis .........................................................11 4.1. Rankings .......................................................................................................................................... 11 4.2 Improvement in Some Provinces Rankings Over Time ............................................................. 13 4.3. High Ranking, But Far From Perfect ............................................................................................ 15 4.4. Impact of Governance Improvements ........................................................................................ 16 4.5. Conclusions and Policy Implications ............................................................................................ 17 5. Sub-indices of the PBES .......................................................................................................19 5.1. Entry Costs ....................................................................................................................................... 19 5.2. Property Rights ................................................................................................................................ 25 5.3. Transparency ..................................................................................................................................... 32 5.4. Time Costs of Regulatory Compliance ........................................................................................ 39 5.5. Informal Charges ............................................................................................................................. 41 5.6. Participation ...................................................................................................................................... 46 5.7. Crime Prevention ............................................................................................................................. 49 5.8. Tax Administration and Burden .................................................................................................... 51 5.9. Proactivity of Provincial Authorities ............................................................................................ 54 5.10. Dispute Resolution ........................................................................................................................ 57 PBES 2009 | 5i 6. Changes in Key Indicators Between the 2006 and 2009 PBES .............................................61 6.1. Improvements in the Business Environment .............................................................................. 61 6.2. Ambiguous Change in Key Areas ................................................................................................. 62 6.3. Declines in Key Areas ..................................................................................................................... 63 7. Panel Analysis ....................................................................................................................... 65 7.1. Business Confidence and Growth ................................................................................................. 65 7.2. Business Formalization ................................................................................................................... 67 7.3. Land Titling ..................................................................................................................................... 69 7.4. Access to Capital .............................................................................................................................. 69 8. Methodology ..........................................................................................................................71 8.1. Sampling and Selection .................................................................................................................. 71 8.2. Constructing the PBES ................................................................................................................... 75 8.3. Relationship Between the 2006 and 2009 PBES Results .......................................................... 77 Appendix 1: List of Indicators Used to Create Sub-indices .................................................................................... 79 Appendix 2: Changes Over Time on Indicators used in Sub-indices ....................................................................... 80 Appendix 3: Association Between PBES and Willingness to Expand or Shrink Business Activity ........................ 88 Appendix 4 : Association Between PBES and Willingness to Expand ................................................................. 89 Appendix 5: Sub-indices by Province ...................................................................................................................... 90 iiPBES 2009 | 6 List of Tables Table 1: Changes in Distribution of Enterprise by Size (2006 and 2009 PBES) ..................................7 Table 2: Comparison of Phnom Penh to Business Environments in Other Provinces.................... 13 Table 3: Impact of Individual Sub-indices on the Probability that Business Owners Intend to Expand their Businesses ............................................................................................ 17 Table 4: Levels of Cambodian Business Formalization ......................................................................... 21 Table 5: Indicators Comprising Entry Costs (Dimension 1) ................................................................. 23 Table 6: Indicators Comprising Entry Costs (Dimension 2) ................................................................. 25 Table 7: Levels of Cambodian Land Titling ............................................................................................. 28 Table 8: Indicators Comprising Property Rights (Dimension 1) .......................................................... 29 Table 9: Regression Determination of Effective Land Price ................................................................ 30 Table 10: Indicators Comprising Property Rights (Dimension 2) .......................................................... 31 Table 11: Important Provincial Documents and Firms’ Knowledge of Their