Covid rattles business confidence
With economic uncertainty brought about by the spread of Covid-19 pandemic, the Kingdom’s 2021 business confidence index fell to 46.1 per cent from 52.9 per cent in 2019, according to the European Chamber of Commerce in Cambodia (EuroCham).
On the other hand, businesses are optimistic about future economic recovery as 56 per cent plan to invest further in the Kingdom over the next 12 months, the trade body said in its Business Confidence Survey 2021: In the Time of Covid-19.
Conducted from November 26 to January 11 with responses from over 350 businesses in EuroCham’s ranks, the survey said the Kingdom’s economy has proven resilient, outperforming predicted contractions, and is expected to make a sharp recovery this year.
While this illustrates the perseverance of businesses through these perilous times, the global pandemic has still caused substantial unforeseen socio-economic disruptions, it said.
Last year witnessed the Cambodian economy shrink for the first time in three decades, with crucial sectors such as manufacturing, construction and tourism especially bruised, it added.
“According to our members, confidence in the Cambodian market has declined – at least temporarily. The economic challenges, complexity and uncertainty caused by Covid-19 are likely the driving forces behind this decline.
“However, given that our members are concentrated in sectors heavily impacted by the pandemic – services, education, tourism and hospitality – the decline in confidence is less severe than might be expected,” it said.
The survey showed a decrease in perceived ease of doing business, with 12 per cent of businesses considering it to have become easier, compared to 18 per cent in 2019.
It said 77 per cent of businesses underperformed against their profitability targets over the past 12 months, as opposed to 32 per cent in 2019, while only 21 per cent reached their target, from 32 per cent in 2019.
In Channy, president and group managing director of Acleda Bank Plc, one of the respondents, said the Kingdom’s “doing-business” atmosphere remains “good and favourable”, despite the pandemic.
“I’m fully satisfied with the business environment, having been in the banking business during 2020. The business of banking is great and it keeps growing positively.”
According to the survey, businesses are perceiving Cambodia’s regional competitiveness more positively, with 48 per cent feeling that the Kingdom’s competitive advantages are “average”, in contrast with 38 per cent in 2019, while those perceiving them as “weak” dropped from 45 per cent in 2019 to 37 per cent.
It added that 67 per cent reportedly have not been impacted by the partial removal of the EU’s ‘Everything But Arms’ (EBA) scheme, while 30 per cent say they feel the decision has negatively impacted them.
On August 12, the European Commission (EC) officially removed Cambodia’s EBA duty-free privileges, officially imposed on around one-fifth of the Kingdom’s annual exports to the EU’s 27-nation bloc, amounting to €1 billion ($1.2 billion).
Garment Manufacturers Association in Cambodia secretary-general Ken Loo told The Post on May 31 that with the trade preferences granted by other developing countries, the Kingdom would remain a tantalising place with a special draw for investment.
“Cambodia continues to enjoy trade preferences from many developing countries. Once the matter of Covid-19 comes under control, I am confident that Cambodia will continue to be an attractive place for investors and buyers,” he said, pitching travel goods as an option.
The survey noted that while 56 per cent of businesses forecast growth over the next 12 months, compared to 72 per cent in 2019, this should be considered a positive indicator given the ongoing challenges posed by Covid-19.
The number of respondents expecting business to become “more difficult” in the next 12 months has dipped to 29 per cent, from 40 per cent in 2019. However, there was little change in those expecting business to become ‘easier’”, at 27 per cent.
“Continuing the trend from our last survey, negative sentiment remains regarding non-transparent practices and unofficial fees, as well as the implementation of certain bureaucratic procedures. Areas such as unfair competition and taxation, though improving, continue to represent key challenges.
“Our members recognise the ongoing efforts of the Royal Government to promote compliance, however, disproportionate taxation enforcement has created a divide between businesses pursuing compliance, and those continuing certain uncompliant practices,” it said.
It added that ninety per cent of respondents reported being moderately negatively affected by Covid-19, with 29 per cent, or nearly one-third, significantly negatively affected. On the other hand, 10 per cent of respondents experienced no negative impacts, and of this, four per cent were even positively affected, in areas such as e-commerce.
“With more compliant investors entering the market to utilise the Kingdom’s competitive advantages, and service the rapidly growing demand, our results show that businesses are willing to invest further to increase the quality of their products and services – as long as they are provided with appropriate support, and a level playing field,” the survey said.