Corruption Takes Toll on SMEs, Report Says

A majority of small and medium-sized enterprises (SMEs) in Cambodia believe corruption has adversely affected their businesses, according to a report released Wednesday by Transparency International Cambodia (TIC).

The report, “Corruption Perceptions in Cambodian Small and Medium Enterprises,” details the corruption-related struggles facing SMEs operating in the country through interviews with those businesses’ chief executives, directors and general managers.

“SMEs in Cambodia have long been operating in the shadows, often running operations that are half formal-half informal, leaving the door open to all forms of corruption,” TIC director Preap Kol writes in the report.

Of the 100 individuals interviewed, 57 responded that they believed “corruption is one of the external factor[s] impeding the progress of their company,” while 47 interviewees said they had heard of or experienced issues with corruption in their business.

The report added that the inconsistency between those two figures was possibly due to hesitancy among respondents about discussing corruption.

“The survey that we conducted confirmed the general perception that corruption is the obstacle to businesses in Cambodia including the SME,” said Pech Pisey, TIC’s director of programs.

A lack of awareness of the existing legal framework regulating SMEs and lax enforcement of those laws were among the factors contributing to widespread bribe paying, the report noted.

“The majority of SMEs owners are unfamiliar with the laws and regulations that are applicable to them,” the report said, adding that due to this confusion business owners often employed third parties to help them navigate the country’s complicated business registration process.

Fifty-three interviewees believed weak law enforcement by authorities was partly to blame for “unofficial fees.”

“The lack of law enforcement engenders the payment of unofficial costs on a day-to-day basis, for example with…inspections, as well as in the registration process,” the report said.

Only 61 interviewees said their firms were registered with the Ministry of Commerce or a provincial department of commerce.

Mechanisms for addressing corruption were also not well-known or trusted by respondents, with only 32 saying they would appeal to the Anti-Corruption Unit (ACU) if faced with a major corruption problem. Thirty-four said they would use the court system.

Ok Dararith, director of the Ministry of Commerce’s department of commercial registration, denied corruption existed within his department, but acknowledged that business owners rarely handled their own registration.

“Indeed, there is no bribery,” he told reporters on the sidelines of a press conference for the report’s release at the Intercontinental Hotel in Phnom Penh on Wednesday.

“Those who start businesses never come to the Ministry of Commerce by themselves. But they ask somebody [to do registration] and that somebody takes the money.”

Mr. Dararith added that the ministry planned to implement electronic business registration to cut down on face-to-face interactions between businesspeople and officials, and on the prevalence of middlemen in the registration process.

“It means that [business owners] can register electronically by clicking onto the Ministry of Commerce’s website from home. Then we can process everything and the payment will just be made at the bank,” he said, adding that the new e-registration system would be implemented by the end of this year.

Mr. Pisey of TIC welcomed the ministry’s efforts to streamline the service.

“I think the Ministry of Commerce is one of the institutions that has undergone some concrete reforms that we are aware of and we congratulate and also encourage them to do so,” he said.

He added, though, that the new registration system alone was not enough to fix the problems facing Cambodia’s small- and medium-sized businesses.

“To ensure we have a better business environment is not just the job of the MoC…. It’s all relevant stakeholders including the ACU, the judicial sector, the audit authorities and the tax departments,” Mr. Pisey said.

“All the stakeholders involved should be able to work together to be able to improve that.”

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