Thursday, April 9, 2009

Contraction or Growth?

With all those dire predictions coming out virtually every day, or so it seems, and each one giving a different figure to boot, one doesn’t really know what to think anymore. The latest one to weigh in was the World Bank with a 1% contraction, and the previous one was the Economist Intelligence Unit with a prediction of Cambodia’s susceptibility to social unrest and an increase of 200,000 people to fall below the poverty line.

The government, with the Prime Minister seemingly the most vociferous one, vehemently denies all those findings and sticks to its predictions of continuing growth, albeit at a slower pace.

I believe we can discount the SRP’s comments altogether, as those folks don’t have a clue about the economy at all. They keep blowing hot air.

What struck me most, however, was a comment made by Chap Sotharith of the Cambodia Institute of Cooperation and Peace (CICP), which I read in today’s Phnom Penh Post. According to him, the growth rate will be approximately 5 – 6%, thereby sticking to the government’s line. He also said that export revenue made up only 20% of the GDP. Now I don’t know where he got that number. But the last time I looked agriculture made up 30%, industry 30% and services 40% of the GDP. However, a disproportionate number of approximately 75% of the labor force work in agriculture, but that’s not a factor for the GDP.

With the decline of about 30% to 40% in the garment sector reported, and a 15% drop in rubber exports (not in tonnage but because of a sharp drop in prices), and a decrease of tourist arrivals (2% so far isn’t all that much; we still got 9 months to go), one thing is for sure, the GDP will shrink. By how much will be anybody’s guess. Depending on the parameters, used one might conclude a contraction, like the World Bank, or a growth rate of about 3%, although 5-6% seems a little far-fetched. For those people having an overly optimistic view the results most likely will be disappointing. Officialdom must paint a rosier picture. They want foreign capital inflow to resume to at least a semblance of the previous years; they want to assure investors that Cambodia is still a place where they can safely invest. Who can blame them for that? It’s their job, isn’t it?

Additionally, one important factor mostly overlooked is the question of whether all the numbers used are reliable. Given the government’s state of computerization and reporting I venture to doubt that. For those readers of this blog who are gathering information about Cambodia for a possible business venture or a return to their homeland, don’t be confused by all those predictions - just sit back and relax, and do your due diligence and act with prudence. The rubber industry, my own industry, still operates at a profit despite the 15% drop.

And even a 1% contraction, which would amount to approximately $1.2 billion, won’t really be seen or felt dramatically. People will lose their jobs, small business owners will feel the pinch, and hotels will have to make do with fewer guests for some time, but over all life will go on.

The social unrest risk has to be seen in Cambodia’s context. First, it is a risk, meaning it might or might not occur. Second, the mindset of the population in general really isn’t wont to wander in that direction.
200,000 more poor people? They used $1.25 per day, while the government uses $.60. Before they all used $1.50 or even $2.0 a day. Now which is it? Of course, there will be more poverty in a recession. Just look at the U. S. People live in tents there because they lost their homes. Throwing out all those numbers doesn’t really help anybody. What we do know is that one cannot live on $50 or $60 a month in Phnom Penh. But one can scrape by on that in the countryside. With 75% employed in agriculture, and with the majority of the rural population living on subsistence farming, it is hard to draw a definitive line of poverty there.

For social unrest to really happen you need agitators. I would think those would be quickly dealt with in Cambodia. People with political leadership qualities instigate social unrest. There simply aren’t any of those around outside the government in Cambodia.

And another thing is certain. Most of those reports, while in themselves conceivable and well-founded on their parameters, don’t have a lot to do with how things are on the ground in Cambodia. Statistics show the weak spots and offer a guideline, but we all know that a lot still needs to be done in Cambodia.

No comments: