Sunday, November 29, 2015

The European Parliament’s Resolution on Cambodia

It certainly was an overwhelming show of support for Sam Rainsy and his international endeavors to put pressure on the Cambodian government to allow him back into the country without threat of imprisonment for a dubious court sentence.

The explanations for the arrest warrant given by various government spokesmen are, of course rather ridiculous. This is a conflict between the opposition leader and the PM, not the Foreign Minister. Who are they trying to kid here? The excuses put forth are so transparent as to be laughable. Additionally and this is what the government officials seem to forget is that Cambodia is a signatory to a U. N. convention that prohibits double jeopardy. For those who don’t know what this is: if somebody has been tried in a court of law in a signatory’s country that person cannot be tried again in another signatory’s country for the same matter. Since Sam Rainsy prevailed in France the sentence in Cambodia which was passed later contravenes that convention and is illegal by international standards. Cambodia does not much care about international standards always citing its sovereignty. Cambodia, however, is not alone with this stance. Many other signatory countries to that convention disregard this and other U.N. conventions at will, most notably the United States – Guantanamo, torture, illegal wars (Iraq), come to mind. So it actually is no great surprise that Cambodia does the same thing, although one would wish that they used more erudite reasoning for their actions.

Colloquially speaking, one could say Sam Rainsy, on the other hand, has always been pushing the envelope. The Vietnam border issue is as trumped up as many of the government’s legal maneuvers against him. His outspoken racism is also clearly an incitement for possible riots. Common people may not fully understand the implications of how serious such matters are. It is surprising that his rhetoric hasn’t led to more serious clashes with the ethnic Vietnamese in the country. A look to Europe would show them what such rhetoric can lead to. Refugees are attacked because leaders of right wing groups encourage them with their hateful speeches. For a while he toned it down somewhat but the beatings of two fellow opposition MPs at the hands of thugs was enough for him to call the PM a dictator and fascist. Never mind that he later apologized for this. The opposition party clearly encouraged overseas Cambodians both in New York and in Paris to demonstrate against the PM on his visits there. Demonstrations in other countries are an expression of free speech and sanctioned by those countries’ constitutions but whether overseas Cambodians in greater numbers would really have cared about the PM's visit there is highly doubtful. New York has a minuscule Cambodian population. One could assume that they were bused in from Massachusetts. Although Paris surely has a larger Cambodian community they tend to live outside Paris where it is more affordable. Rents are sky-high in Paris. It stands to reason that many of them were encouraged to travel to the city. The government may have played the same game, but what’s right for the goose is right for the gander.

This all provoked the PM’s ire. He, never one to mince words, called Sam Rainsy the son of a traitor. Earlier  he had called him the leader of thieves. The consequence of that ire was the sudden invocation of a past dormant court sentence and swift issuance of an arrest warrant. Sam Rainsy being Sam Rainsy chose not to return from a visit to Korea. He instead has been seeking international support in the Philippines and more significantly in Europe. Why he didn’t lobby the U. S. government or the Congress may have been due to the fact that the Asian-Pacific meeting was being held in Kuala Lumpur at that time and the U. S. president was in attendance. Barack Obama even shook hands with the PM and invited him, but along with all the other Asian heads of state too, to the U. S. next year.

In seeking international support he could obviously only turn to European countries. Those governments and the parliaments there had their hands full with the refugee crisis and how to cope with it. They obviously had no time for Sam Rainsy and his problems with the Cambodian PM.

The European Parliament, on the other hand, has always had an open ear for Sam Rainsy. He must have some influential proponents of his cause. That resolution had been prepared and was ready for a vote when he arrived in Strasbourg.  But what effect will that resolution have?

It did contain a paragraph that the parliament would ask the European Commission, which is the executive branch, to suspend some $400 million in aid for the years until 2020. Most of that aid is for humanitarian and human rights efforts. EU member countries pledged around $1.8 billion from 2014 to 2019. The European Union is the largest partner in terms of aid for Cambodia. That aid, though, comes from individual European countries and is given by the national parliaments and governments, not by the European Commission.

As with all European Parliament resolutions concerning foreign policy they don’t carry much weight in the great scheme of things. This resolution on Cambodia is a very nice symbolic victory for Sam Rainsy but in the end it won’t achieve any of the goals set forth in it. Cambodia went through the motions and immediately protested vehemently again citing its sovereignty but will most surely just continue to ignore it.

Sam Rainsy also did not consider one significant factor in his international efforts. Europe is too busy with its own problems. The U. K. might even leave the E. U. which would weaken it considerably. The common European currency is in danger, as many economists see it, and the refugee crisis could actually be the beginning of the disintegration of the European Union, as some prominent European politicians, including Prime Ministers, see it. The Cambodian issue, if it were an issue there at all, is a non-issue.

The European Parliament does not even have the power to rein in wayward, for lack of a better word, nations like Hungary and Poland, both members of the EU. Hungary recently stripped its Supreme Court of its powers, giving the prime minister almost absolute authority, and Poland just elected a new government that is about to repeat this. This is against the EU statutes but the European Parliament is powerless or unwilling to do anything about it. In the face of the current problems this might only hasten the split-up of the EU, which currently is in a precarious state.

As a consequence, Sam Rainsy achieved a victory but will still remain the Don Quixote in Cambodian politics fighting his war with the powers-that-be from his exile. And what’s new about that?


Today I finally found the time to post again. I am posting two articles on the same day at. The previous one had been written a while ago and only today did I get to post it.

The next one is on some recent developments and this has been on my mind these past few days, of course, apart from other more mundane things, like running a business.

Military Generals in Cambodia

There are well over 1200 generals in the Cambodian military, not counting the ones on the police forces. There is no accurate number how large the military and police forces are; estimates  say about 150,000 for the military and possibly 100,000 for the police, of which about 7,000 to 10,000 are military police. The police comprises gendarmerie, municipal, military, traffic, and immigration police, and basically all branches must be considered para-military.

In comparison the U. S. military is about 1.4 million on active duty and there are about 500 generals and around 216 admirals. The police in the U. S.  is a local matter,except the FBI, and cannot be used in comparison, inasmuch as the U.S. population currently stands at 320 million whereas Cambodia has a ‘paltry’ 15 million.

The contrast between these numbers is striking. Why would a nation as small as Cambodia need so many generals, some might even ask why it needs such a relatively large military to begin with. Cambodia does not have any real enemies from whom it would have to defend itself. Both Thailand and Vietnam are much stronger militarily and could defeat Cambodia in a heartbeat if ever came to a serious conflict. That, however, is highly unlikely as no country would have anything to gain by waging war on one another besides dead soldiers and an immense cost that especially Cambodia could ill afford. Additionally, Vietnam is a close ally, and Thailand, depending on the government in power, is either a friend, or an adversary in historical questions, such as Preah Vihear. There is some antagonism among the populations of all three countries but that certainly would and will not lead to an armed conflict in this day and age. The skirmishes with Thailand a few years ago about Preah Vihear was more for show and muscle flexing on the part of some firebrands than for anything else. Unfortunately and sadly, this unreasonable and fanatical thinking cost lives on both sides.

The benefit of such a large military/police force is the jobs this provides for people in a poor country. It is a well-known axiom that young, poor men without any great prospects in poor countries join the military. The get free housing, food, and a lot of free time. The military could also be deployed in other areas, most notably in natural disasters. Many soldiers moonlight as guards in factories, plantations, etc., using their free time to supplement their incomes.

By all appearances, and the PM underscored this in a recent speech, the military serves a more domestic purpose. It is the backbone that supports the ruling party. Many of those generals aren’t really soldiers; they didn’t get their rank because of merit but out of gratitude for their support of the ruling party and by extension the PM. They use their position in the business community to influence deals that would greatly benefit their wives’ businesses. It has been a running joke that all high officials have wives that are very successful in business. This is why they have become so wealthy they otherwise could not have become on their meager salaries. The PM said the high ranking generals would not stand for it if the opposition party would retire them. In other words, this would provoke a Thai solution, meaning a military coup. These people have too much to lose to be shunted aside by a new reform-minded government. There are also too many loyal officers and soldiers feeding from the same trough.  That statement made it abundantly clear what the real role of the military in Cambodia is.

Another possible explanation for the high number of generals is that most officials in ministries, e. g. state secretaries also hold a military rank. In other countries you would have all kinds of under secretaries,  assistant secretaries, and assistant under secretaries or directors, etc., in the civil service.  Those positions are usually held by generals in many ministries, particularly the Defense, and the Interior Ministries. Even the PM and the President of the Assembly hold the rank of general. They created a five-star rank especially for them. The late Chea Sim, the President of the Cambodia People’s Party, also held that rank.

Another baffling thing is that there are seemingly hardly any common soldiers or NCOs  (sergeants) visible in public. You only see officers denoted by at least one stripe on their shoulder sleeves. This also applies to the various police branches with the exception of the traffic police.

Still, statistically there is one general for every 110 soldiers. That function is usually performed by a captain in most of the Western militaries. So it does appear as though favoritism and power considerations play a large role.

Sunday, October 25, 2015

The Cambodian Car Market

The Toyota official dealership announced that it is going to import used cars from the U. S. and other countries, checks them for safety, roadworthiness, and environmental criteria, and will sell them as pre-owned certified cars. I have been wondering why the authorized dealerships have not used this very important tool till now. Up to now they relied on selling their new cars and SUVs and the service that needs to be done by the authorized dealership so that the warranty would not become void. New cars usually come with a 3-year or 50,000 mile warranty. Some brands include free servicing in their package.

Although Cambodia is a growing market sales were quite modest for most authorized dealers given the 125% tax and duty levied on cars. This brings the sticker price up to $125,000 for a car that costs $50,000 in the U. S. or Europe, e. g. roughly an Audi A6. It is also remarkable that especially the luxury car segment has added practically all the biggies in the industry, like Range Rover, Jaguar, Audi, Porsche, Mercedes, etc.  I personally believe that all these brands want to get in on the action on the ground floor believing that the upper middle and upper class will tire of their Lexi and Landcruisers eventually.  They see how successful Range Rover has become – as a used vehicle. Rarely is any on the roads bought new. Additionally, a one-year old used car is a lot cheaper as you usually lose 10% of the new car value the minute you drive it off the lot. They are just as good as a new one. Or take the show room models that are deeply discounted by dealers in the West. Why go for a new one?

As with most things in Cambodia, Cambodians follow a very simple pattern. If my neighbor has it or something seems to be successful they will just do the same – do it like the Joneses as the Americans say. Initially, way back in the 1989/90 they liked the Mercedes 190, also called the baby Benz in the U. S. As it happens I was the one who imported and supplied them. Next, once the U. S. trade embargo was lifted, the overseas Khmer started importing Toyota Camrys, the best-selling car word-wide, mainly from California. It caught on and soon you could only see Camrys on the roads. Next followed the smaller Corolla and the pick-ups. Of course, the Mercedes 190 had become too small a status symbol for the ministers and state secretaries so they took a shine to what all the UNTAC people used to drive, the Landcruiser -not a bad choice, of course, considering the road conditions at that time. Slowly other brands started showing up, and in the 2000s the car market had become pretty diverse, but the Toyotas and the Lexi still dominated the picture. Everybody who wanted to be somebody needed to drive those gas guzzlers, even if they couldn’t afford them.

One day somebody introduced the Range Rover, an excellent SUV, no doubt, and it became the SUV of choice. Since Cambodians are enamored with all things American, some even imported the Cadillac Escalade, another vehicle that is to Cambodia as pearls are to swine. But the Range Rover with its various types outdid it by far. Soon the more adventurous added Porsche SUVs, BMWs, etc. They were all what the authorized dealers here call grey market. There is no such thing as a grey market, mind you. This is nothing more than a free market economy. Anybody who registers a business, has the funds, can import and sell cars. Before cars are registered they have to pass an inspection, which needs to be renewed every two years. So the argument that these cars are unsafe does not hold much water, not for newly imported cars. Again, as with all things in Cambodia, enforcement of that 2 year interval inspection requirement is not or rarely enforced, most certainly not on all those minivans and trucks.

The calls by the authorized dealers for laws and regulations curbing these imports would be tantamount to a controlled market as in Vietnam – as in Communism. The one regulation that would most definitely put an end to many illegal and unsafe practices is the safety inspection. If the Ministry of Transport would enforce this law that would take care of the biggest hazard on the roads by eliminating the many minivans that in other countries would be condemned. Also the vast majority of the trucks and overland buses on the roads are completely unsafe; the many accidents, with many fatalities, is striking evidence of this deplorable state of affairs.

If authorized dealers want to increase their business they should not rely just on new car sales and high priced service. It is just not affordable for the emerging middle class. A case in point: I had my Mercedes (which I imported myself) serviced at the dealership in Phnom Penh before I moved to Sihanoukville. Labor charges were still within reason but the price of parts was just outrageous. Now I found a good shop here in Sihanoukville with a trained technician who knows how to handle and read the computer diagnostics and do repairs just as well. He gets his parts from a source that imports them from Singapore and the Middle East. In Phnom Penh one part would be $4000, he got it for a little over $1,000. I bought a part directly from the U.S. for $80 and I paid regular duty on it; in Phnom Penh it was $250.

Take a page from the Western playbook. Toyota’s step is only a half-step. The big game changer would be to take trade-ins. Inspect them, repair them and resell them. That would partially dry up what they have incessantly been complaining about – the so-called grey market. Make those used-cars into certified used cars, possibly even with a one year warranty, and they would have a completely different ball game. In the west car dealers, even used car dealers, can buy insurance for this purpose. In any event, this would take away business from the shady dealers on the market and drive their new car sales as well. Large scale advertising campaigns would certainly change the public perception quickly. Why nobody has ever come to this conclusion has been baffling me for a long time. The entrepreneurs in the business obviously do not trust their own expertise.

Another big problem, the extent of which is not really known, is the import of salvaged or condemned cars, which are then repaired here and resold. Sometimes, they put together a complete car from salvaged parts. Quite obviously, there was a reason why these vehicles were condemned and only had a salvage title left. This is just as dangerous as changing Thai cars or Japanese imports from right-hand to left-hand steering as they used to do in the 90ies. This is the sector where stiff regulations should take effect. A few years ago when the Prius craze started I also bought one for city driving. It cost me $17,000 (I forgot the year). It came with a 3-month warranty, though. When I checked the price in the U. S. for the same model and year I was surprised to read that it retailed for $14K to $15K there. We owned it for a year and then sold it. We never had a problem with it but it most certainly must have been a junk car.

As long as the authorized dealerships don’t take the initiative with more advanced marketing techniques, nothing much will change in today’s car market. Calls for regulations might be heard but are uncalled for. So far they have fallen on deaf ears anyway for fear of depriving many people of their livelihood. And, last but not least, there will always be a greased hand that will look the other way. So, take it in your hands, for goodness sake.

Saturday, October 17, 2015

Sihanoukville For Rent – The Surge in New Casinos

Cambodia’s policy for the development of the country has long been one of allowing or inviting the private sector to re-build the infrastructure. Most of the roads, probably all national roads, have been built by foreign countries giving Cambodia loans and getting their own companies to carry out the actual construction. Other infrastructure projects pretty much follow the same pattern. Certainly, the government does not believe that casinos play a part in the development of the country, or do they?

So, what I haven’t fully understood to this day is why the government grants licenses for casinos. There is no apparent benefit for the country with this. Of course, they charge a fee which often disappears quite mysteriously. Unfortunately, the national budget is not made available on the internet or to the media in general. Only rough figures get published. Casinos don’t really make much economic sense for Cambodia. The income the country derives from them is minimal compared to the revenues and profits generated there for the owners. They do employ Cambodian staff, mostly menial, as the dealers or croupiers are mainly from abroad. Evidently, management is foreign too. Profits are repatriated or sent to off-shore accounts, which is the greatest advantage speaking for Cambodia as a place for doing business on a larger scale. There is definitely no value added for the country. Detractors and critics no doubt are pleased to read that many of them now do not turn a profit at all. Bokor, that ugly behemoth in a beautiful natural setting on top of the Bokor mountain in the national park of the same name, is but one example. Reports in the media say that many of the casinos along the border to Thailand and Vietnam are also hemorrhaging  money. These casino owners are mostly Thai, Malay, or Hong Kong-based. The largest one is based in Shanghai. Their Phnom Penh operation reportedly actually does run at a profit, though.

Now rather recently, more Chinese gambling operators have discovered Cambodia and in particular have set their eyes on Sihanoukville. Lately, that number of licenses has risen to 76 in all as 10 more licenses were granted, mostly in Sihanoukville. These licenses do include the right to operate on-site and online casinos.

At first glance, it might appear that these Chinese operators see Sihanoukville with casinos as an attractive seaside town for Chinese tourists that would come here to enjoy the beaches and do some gambling after dinner. Chinese people are known to like gambling of any kind. But it turns out that this is not entirely what is going on. There has lately been a noticeable influx of Chinese people. First, people thought they were just tourists. They arrived at hotels by the busload – even in the rainy season. But then, the oldest hotel on Ochheuteal Beach was rented to a Chinese company. They remodeled it and put a casino in – the Bao Mai, formerly the Seaside Hotel on Mithona Street. It belongs to the family of an acquaintance of mine. It was rather successful as a hotel so the offer must have been really good for them to rent it. This hotel also features an on-site casino now.

Next I heard of two downtown guesthouses that were rented to Chinese companies - one as staff accommodations and the other one as the computer center for an online gambling operation. I know of at least 3 more smaller guesthouses that were also rented to Chinese online gambling operators. But my biggest surprise came when I was told by a hotel owner’s son that they had leased their successful Golden Sands hotel and the newly built White Sands Palace along with a smaller boutique hotel and a rather well-known and established guesthouse to a large Chinese group. Their plan is to build on-site casinos in the large properties. Part of the properties will also be converted into online gambling rooms – not for guests as some might think but for the online computer operators.  Gamblers in China don’t play against a computer but a real person who is online at the other end.

Depending on the number of computers the casinos need quite a few staff. This being a 24/7 operation they need to work in 3 shifts, hence the requirement for the large number of rooms as staff accommodations.

Although Cambodians have to a large extent Chinese blood in their veins they are pretty apprehensive about this latest development. People in the market are talking about it and fear that the Chinese are taking over the town. This may be without basis but a few Chinese restaurants have sprung up in the meantime, along with at least one purely Chinese supermarket.

So why all this sudden popularity with Chinese gambling outfits? To be honest, I am still flabbergasted and can only surmise that they choose Cambodia as it is sort of easy to get licenses, start a company without too much hassle, business visas have no requirement for a certain amount of investment, no proof of capital is needed, etc., etc.  All this combined with a lax enforcement of laws, an attraction of a seaside town could have triggered their interest. Cambodia also has no money transfer restrictions. It also has enjoyed a rather dubious reputation as an easy place for money laundering, which was underlined by a recent article that investigations of money laundering are rarely ever conducted as the agency in charge employs only 5 people. Given the fact that these ‘investors’ come in with bags of money – the one group mentioned above has a reputed $50 million budget for this – one cannot help but suspect there is some ulterior purpose behind these enterprises. I read that the money bet by gamblers in China, for instance, stays in China – losses in the casinos accounts, and winnings in the gambler’s account. All transactions are by credit card so this is theoretically feasible. Somehow, I doubt this. Profits would be taxable in China and are easily traceable. If they stayed in Cambodia they would be taxable at a mere 10% and there are many ways to finagle numbers or even cook books when using off-shore bank accounts that are not accessible to Cambodian authorities.

We have in the past seen many so-called investments go sour in Cambodia. All too often failed foreign business people just up and run away, leaving behind the Cambodian landlord more or less empty-handed. One such indication that their commitment is possibly a little fickle is that they only rent hotels, although with long-term leases, e. g. 10 years. They pay a security deposit of 6 months. This is easily recovered within a year; gambling after all is big business. Although they also pay rather attractive rents, these are on a monthly basis. One benefit of renting an existing property is that they can just move in and install their computers and internet connections and they are in business. The downside for the landlord is that that they can break the lease any time they want as soon as they have recovered their deposit.

The landlord is left holding the bag. The need to repair and renovation will most likely exceed the deposit he received, not to mention that the hotel/guesthouse business needs to be re-introduced into the marketplace at considerable cost.

In my thinking, leasing land and building a complex with enough units for housing and operating facilities would probably cost the same amount of money than spreading around large sums for deposits for multiple hotels/guesthouses. This would also prove their commitment over the long term. It also doesn’t make sense to use these huge hotels to attract Chinese travelers to Cambodia just to gamble here. So, perhaps, there is something shady going on?

Cambodian hotel/guesthouse owners, though, seemingly rather go for the in their opinion easy money than run a hotel themselves. In the end, they just might end up holding the short end of the stick.