Monday, August 31, 2009

Radio Free Asia

Although I usually refrain from commenting on current events in Cambodia when I am not there one bit of news caught my eye when I glanced through the SRP-mouthpiece KI-Media recently. It is only there that one can usually find little tidbits about Cambodia that are not reported in the international press, or even in the English papers in Phnom Penh. As an aside, only one of the two is of significance, and that is the Phnom Penh Post. The Cambodia Daily is usually very thin on domestic news and practically only prints wire services news. As for the Khmer-language papers, their standard is pretty poor. They publish uncorroborated stories and have no qualms about taking money for presenting one particular viewpoint; all this besides their normal blood and gore stories.

But back to the main point. I read that the Tom Lantos Commission on Human Rights of the U. S. Congress is going to hold a public hearing on Cambodia. According to a report on Radio Free Asia, that commission plans to invite Mu Sochua and others to testify on the state of human rights abuses in Cambodia. Now first, I was wondering why Cambodia showed up on the commission's radar all of a sudden. In the past U. S. politicians rarely showed an interest in what was going on in Cambodia – probably for a good reason. Perhaps they did not want to be confronted with Cambodia’s history and the U. S.’s involvement there, e. g. toppling Sihanouk in 1970, illegally bombarding Cambodia, thereby killings thousands of Khmer, supporting the Khmer Rouge against the Vietnamese, etc. So I checked with the commission whether this hearing was really on the agenda. As it happens, it is not. There is no hearing scheduled for September at all. So I don’t know where RFA got their news, but it sounds like a little bit of misinformation. RFA is somewhat controversial to begin with. It is financed by the U. S. Congress, but many question its reason for existing these days. If I remember correctly, there was even a call by a Congressman to stop financing it. After all, to disseminate U. S. propaganda they have the Voice of America. But the Congress has more important matters to deliberate on these days so this was forgotten and fell through the cracks of the political machinery. RFA is supposed to reach people that don’t otherwise have access to free news. That doesn’t seem to be the case in Cambodia. Even if most of the press is government-friendly, people have access to the internet, can read the New York Times or any other newspaper online, can watch BBC news on cable TV, and so on and so forth.

Why then does RFA have a Khmer service? Maybe there is a power group that successfully lobbies for this service to be maintained. Surely, the SRP must have a hand in this, as both Sam Rainsy and Mu Suchua are frequent guests on their programs and get a nice forum for free - nothing reprehensible about that actually. Now that actually makes me scratch my head again. Why do these two seek out mostly overseas forums for their interviews and reports on Cambodia? Well, I can imagine that they don’t get as much play in the Khmer press as in RFA-like media. But who actually listens to RFA in Cambodia? I would bet they don’t reach a whole lot of regular Khmer, and it would appear those are the ones they need to reach with their message. It is as though they are preaching to the choir. They don’t need to convince overseas Khmer, or foreigners for that matter, now do they? If they are playing to foreign governments or nations, they should have realized by now that these may lend an open ear to their complaints but for the most part won’t act. I am an ardent follower of news about Cambodia, even when I am not there. I find the international press is mostly silent on Cambodian affairs. So then why don’t these two use their efforts on the Khmer at home - or are their appearances overseas just for fundraising purposes? I guess so.

Sunday, August 30, 2009

How Not to Do Business

I want to equip my house in Sihanouk province with solar power, as electric power is quite expensive down there. I would at least like to get a partial solar supply since a full-blown installation for the entire house would be too expensive.

So I contacted five companies for quotes. Three of them were Cambodian, one was a multi-national, and the fifth was a small outfit run by a Dutch man. Since they naturally need to know how many kilowatts/hour you use they wanted a list of all electrical appliances and installations we would have. Since this is sort of difficult to give over the phone, they all requested me to email them this list, which I promptly did, expecting a reply within the next couple of days or so.

Well, that was in July, and I am still waiting. Only the Dutchman gave me an estimate the next day. It was somewhat on the high side but I did appreciate his prompt response and his detailed explanation.

It appears that the Cambodian companies have so much business they can afford to just forget about a home installation; never mind, that this would probably run anywhere from $15,000 to $50,000. What surprised me the most, though, was that the multi-national didn’t bother either.

We all know that companies in the West would just scramble to get your business. I mean in this case they wouldn’t even have to go out soliciting business. They got an inquiry ready-made. They just need to compete with their pricing and expertise. People lament the general lack of normal business and marketing skills. This is prime example of it, it seems. And mind you, this is the simplest form of marketing – following up on inquiries.

And here is another example. I am in the market for a small piece of land, e. g. 10 x 20 or so on the outskirts of Phnom Penh. In the course of my search, I came across an owner who had 5 lots 5 x 22 in a very good location with access to power, water, sewer, and a paved road. He was willing to sell me 2 lots at the end of his land. He wanted to keep the 3 lots facing the main road for himself, which suited me fine.

Initially, he wanted $10,000 per lot, then he lowered it to $9,500. We kept negotiating back and forth but he was adamant. The land had no hard title, although the area had been covered by LMAP already. Our arguments were that the hard title would probably run to about $2,000 and that we wanted to nail down a price per m2, as we were not sure whether the commune would declare part of his land common land for widening the road.

Well, the seller said he didn’t care, he is selling a lot, and the price is set. No amount of reasoning would sway him. We wanted to know for sure so we asked the cadastral officer in charge of the area to check out the land and let us know what the general development plan is. Well, to make a long story short, it turns out that the 6 m wide road would eventually be 11 m, and an additional 2 m were to be kept free for access to the sewer system, which would leave us with a lot 10 x 15 instead of the original 10 x 22. The hard title was no problem as the owners; either seller or buyer, just needed to apply for it and 6 months later it would be issued. Confronting the owner with these facts, we were hoping that he would at least understand the implications for himself, as he wanted to use part of the land personally. We might as well have talked to a brick wall. Of course, this late in the talks he wouldn’t budge for fear of losing face. Well, he didn’t lose face but he didn’t make a sale either.

Tuesday, August 25, 2009

Cambodian Passports

There is this tidbit of information I wanted to share. My family needs to get new passports as their old ones have been extended twice already, and that’s the maximum you can do with a Cambodian passport.

Most Western countries issue passports for 5 or 10 years. Cambodia only issues them for 3 years. Then you can extend them twice, but only for 2 years each. I have been wondering why this is.

Could it be that this is not just to cover the expenses but is a source of revenue for the government, thinking that people who need a passport obviously want to travel? So these people must have money; if they travel often they can afford to pay the extension fees as well.

The cost for the original passport is $130, an extension is $75. The issuance takes about 1 month; if you want to have it processed quickly, say in 1 week, you need to cough up $250.

In comparison a U. S. passport good for 10 years costs $100, a EU passport also good for 10 years costs €59 or roughly $80 - $89.

A Cambodian citizen who needs a passport will consequently pay $380 over 10 years, or almost 4 times as much as their Western counterparts.

It looks like a minor issue but let’s take a look at the numbers. According to the Ministry of Tourism the number of Cambodian tourists for the first quarter of 2009 was 146,000. But in 2008 that same number was well over 600,000. I couldn’t find the exact number per year but I estimate around 500,000 to 600,000 for 2009.

So, let’s say, if 600,000 travel, you are looking at $78 million for the original cost alone. Not too shabby, is it?

And to make things even better overseas Khmer with Cambodian passports, and there are quite a few of those in the meantime, cannot apply for a new passport at their local embassy. They need to apply in person in Phnom Penh.

Whereas administrative costs in the U. S. and Europe are high, they are only a small fraction of what the government takes in. So it must be an additional source of revenue for the government. Whilst one would think that those basic services should only cost so much as to cover expenses, it is, on other words, a tax. But that’s only me thinking.

Sunday, August 23, 2009

Foreign Direct Investment in Cambodia

Because of the questions posted by a reader of my previous entry, I decided to give a more comprehensive reply that might interest more people. Mind you, I am not an economist but I do have a degree in business administration, which always includes the fundamentals of macroeconomics. So, I am not totally unknowledgeable in this field.

Cambodia’s largest problem is its narrow economic base and its size with a small population. The four sectors, garments, tourism, construction/real estate, and agriculture, do not offer foreign investors enough opportunities to invest in. In all developed countries, the small and medium sized businesses comprise about two thirds of a country’s economy, both in terms of employment and production/service. The public sector contributes anywhere from 33% (USA) to 55% (France) to the GDP in industrialized countries.

The Cambodian government with a budget of about $1.88 billion does not have enough money to spend huge amounts of money on infrastructure projects in order to achieve a sizable share of the GDP. Foreign governments, first among them the Chinese, extend loans or give foreign aid to Cambodia for most of the infrastructure projects; others extend foreign aid. In the case of the Chinese most of the money, however, is plowed back into Chinese companies who are awarded the projects as a condition of the loan. The one thing missing is the West’s direct involvement in Cambodia’s development. They do give foreign aid, often tied to certain projects, but rarely do you see Western companies carrying out road projects, new bridges, etc. One of the largest donors is Japan, which also fortunately are directly involved in major investments, e. g. the Stung Hao special economic zone.

Tourism attracted a good share of foreign investment in hotels, especially in Siem Reap, but as part of the whole picture, it doesn’t make a dent in the overall volume. Other big projects you read about, like Koh Puos or Koh Rong, are still in its infant stages or are still looking for investors, in other words, the private sector is somewhat hesitant to come in. Club Med or other well-known Western companies may have shown interest but no firm commitment has been made. In my view, it is Westerners that need to be attracted as they spend big money on their vacations. For instance, they don’t go to their own ethnic restaurants, like the other Asian people. And they all usually buy day tours, spend on souvenirs, etc.

Now construction/real estate is a different matter. The South Koreans just poured in millions of dollars into real estate projects. They leased huge tracts of land from the government or bought it through dummy companies and fronting people. But they will take it all back in the form of cash for sold properties, or in less desirable ways by way of abandoning their projects, and making off with the deposits. Again noticeable here is the lack of Western companies in real estate. Why? I believe they all saw the true nature of the Cambodian marketplace and just couldn’t see how to turn a profit in the current environment. One of the latest government’s instruments to lure foreigners to invest in Cambodia is the decree to allow foreigners to own condominiums above ground level. If they think that this will kick-start the economy, they had better think again. Why would a foreigner want to buy a condo in Phnom Penh? Most of them come here to work for certain period of time, only to return once their contract is up. They rent but don’t buy. How many are there to come to Cambodia to settle here? A few, but those are mostly people who dropped out from Western culture and civilization. They usually don’t have the means to buy a condo. I just can’t see the masses of foreigners coming in gobbling up all those empty condos.

The government also made huge concessions to Vietnamese companies in agriculture. Although this helps along the way in Cambodia’s development, it doesn’t benefit the country and its people in the long term, apart from providing low-paying jobs for farm workers. The Vietnamese just ship their products back to Vietnam from where they export them as Vietnamese goods. You also have Thai, Malaysian, a few Indonesian companies investing in agriculture, but again in the grand scheme of things, they don’t account for much.

Because of its low labor costs, Cambodia would be ideal for mid-size companies in the light machinery sector. The insurmountable roadblock here seems to be the low level of skills and education. The only sector utilizing this factor are garment manufacturers. Workers are quickly and easily trained on the job. But again, only other Asian countries have utilized this. There may be a couple of factories that have Western investors and are run by Western managers, but if I recall correctly, it is only two out of about 300 in Cambodia. You will find garments made in Cambodia in most Western stores, like Walmart, JC Penny in the U. S., or C&A in Europe, but they are only buyers and not investors. Some of these have directly invested in China though. So why not here?

Honda’s assembly plant is the sole exception in the machinery/automobile sector. In the consumables sector we read that the Crown brewery has attracted an investment from a Western fund. Hopefully, that Hyundai plant will become reality and not just be an unrealized pipedream. In my experience, the automobile sector is right up many a Khmer’s alley. There are countless auto repair shops everywhere in Cambodia. And they can deliver quality work, if properly trained, as the examples of the Toyota and Mercedes dealerships demonstrate.

This brings us to the question of investors’ confidence in the Cambodian economy and its political stability. A quick look back shows that what you first got in 1990, right after the country dropped its Communist name and opened its borders, were the adventurers and hazadeurs. They wanted to make a quick killing by smuggling, illegal logging, and other disreputable activities. A few even did, but most went away empty-handed. In other words, that period saw no investment, and nobody had any confidence in Cambodia as a country or as a viable economy.

In the pre- and the immediate post-1993 era, big bucks came in by way of UNCTAC, but Cambodia was still the Wild East. It depended almost 100% on foreign aid. The election itself did not raise the prevailing uncertainty what with one party threatening secession. From 1993 to 1997, the power struggle between the CPP and Funcinpec kept regular investors away. It took from 1998 until 2003 for Cambodia to consolidate and establish some stability, and promptly the turning point came at around that time. More garment factories opened their doors and the real estate craze began. Tourism boomed, and the governing party thought they had successfully navigated the first step on a quick path to a threshold country. Dreamlike growth rates just cemented that belief.

But was it really the serious investors with confidence in the system or was it just another form of hazardous gambler that caused that incredible boom? Probably a mixture of both. The government repeatedly pronounced Cambodia a very stable country thanks to the firm leadership of its prime minister and would not tire in stating that this is the reason why Cambodia is so attractive to foreign investors. I am just wondering why this doesn’t extend to Western investors.

The opposition will no doubt make you believe corruption and human rights violations are the two single factors preventing serious Western companies from investing in Cambodia. I doubt that very much. Western countries do good business with Vietnam, China, Arab countries, etc., and never had a problem with this way of doing business. They usually have no qualms about playing along with certain corrupt practices. You have human beings, you have corruption, it’s part of human nature. And hey, we don’t need to look down on any of those countries. Corruption is widespread and very common in the West as well. It only assumes forms that are more refined. Human rights violations? If you are familiar with the West and have lived or still live there, you know that this can’t be true. A very cynical view, yes, but true nonetheless. For the most part, it is lip service on the part of Western politicians.

So, generally, increased foreign investment is a direct result of increased confidence and will lead to a faster recovery from the downturn; we all know that. But how to go about it? Well, I don’t presume to advise the Cambodian government. But Hun Sen’s visit to France was a step in the right direction. This government must do more to enhance its stature with the EU and the U.S. and Canada. China may a willing partner without attaching any strings to its commitments, but this is a two-edged sword. Cambodia must achieve credibility with the richest nations, and those are in the majority still found in Europe; a well-mounted P. R. campaign to the EU and the Scandinavian countries like Norway and Denmark would greatly help in accomplishing that. I also don’t see a lot of activity directed towards the U. S. And it is also the smaller countries that can make a difference. And where are the French, British, and Germans in Cambodia in terms of investment? Unfortunately, this is not what I see from the government. Besides Sarkozy Hun Sen has not been received by another top foreign leader in the West. Perhaps a multi-pronged campaign will overcome that lack of confidence?

Friday, August 14, 2009

June-July 2009 Observations in Cambodia

Since I am currently not living there full-time but go there every three months or so for an extended period of time I will from now on only post relevant personal experiences, observations or events during those stays.

Generally, nothing much has changed compared to my last stay in February. On the surface the hustle and bustle on Phnom Penh’s streets seems to belie the fact that there is an economic downturn. Of course, we know that a number of the garment factories have closed down, construction of new housing has come to an almost stand-still, and restaurants aren’t as busy as they used to during the boom times.

On the political scene, overseas Khmer still gripe about the iron grip the ruling party holds on every facet of daily life, the SRP still hasn’t come up with a viable alternative solution to Cambodia’s problems, defamation law-suits seem to be the favorite game of players in both the opposition and governing party, and the Khmer Rouge trial is moving ahead at a snail’s pace. Average Khmer don’t seem to care one way or the other as long as they have some semblance of livelihood.

Tourism is down 2 % the first half of the year compared to the same period last year. This statistic is somewhat misleading a the lack of tourists from countries like S. Korea are made up by Vietnamese visitors, who I would venture to say don’t spend as much as the tourists from Taiwan, Japan, or S. Korea.

Hotels except for a few niche properties in Phnom Penh are hurting, Sihanoukville is outright dead at this time of the year. But then this is the height of the rainy season.

Real Estate

Realtors state that land prices are down by up to 50 % in Phnom Penh and even more in the provinces. But there doesn’t seem to be agreement among them as some point out prices are only down 20% or 30%. I don’t know where they get their numbers, plus it seems as if they compare those proverbial apples and oranges. What about location, location, location? Prime land in the center or in Toul Kork may have come down, but this is rather hypothetical, as there is simply no trade to speak of these days. But check out the realtors with a website and search Villas or townhouses in Toul Kork. There is no scarcity of $1 million homes, or $250,000 townhouses. Two years ago the picture was pretty much the same.

But let’s use the up- and coming area of Phnom Penh Thmey and Chom Chao.

In the area of Hanoi Road those so-called Cambodian Flats (ptea le-weng) I met someone who bought a very nice two-story unit for $65,000 in 2007 – the height of the real estate boom. If you check prices with realtors and owners the going rate today is around a cool $135,000. Is that a sign of decreasing prices? (I use my Khmer friend for those inquiries so as not to get that Barang treatment.)

Land near Hanoi Road is still about $150 to $175. About 1 km in it hovers around $135/m2. About 3 km north along Okhna Thy Heng Road and about 500 m on a side road going south prices drop to $110/m2.

Then going farther south they range from $80 to 30$, depending on distance from a main paved road.

From what I know about that area prices were about the same 2 years ago and at the beginning of last year. So they haven’t risen but I can’t see any noticeable drop either.

There are hundreds, if not thousands, of lots staked out for sale and development. But trust me, development will be a long time coming. There is no paved road, no power, no water. Who wants to start a development there when there are so many unfinished projects in and around Phnom Penh?

Speaking of unfinished projects – Camko City has come to a virtual standstill, and so has Grand Phnom Penh International City. The Golden Tower is reported to have been near death but only the government’s insistent nudging, and we know what that might involve, keeps the project going, as one source familiar with the project says. So, in other words, all of them ran or are running out of money. Camko was said to be broke already. But rumors grow and spread swiftly, as we all know. Hard news on this has not been reported, maybe also at the government’s insistence?

To the interested observer all this comes as no surprise. These Koreans obviously came in spending their surplus cash on something they really didn’t seem to know too much about. They clearly didn’t know what they had gotten into. It seems as though none of those companies did a market research first, checking all the basic facts starting with the demographics of Cambodia. Who can buy all those expensive villas, condos, and estates? They are all plainly building completely ignorant of the real market conditions. Khmer companies, not wanting to leave this ‘profitable’ segment to the Koreans, followed suit, and as sure as night follows day, a good many defaulted or are defaulting on their loans because of their impaired vision. As stated before, many small independent operators and speculators are now left with plenty of land on their hands with no serious buyer in sight. But they are a stubborn lot. From my experience they won’t budge much in their pricing. This is why I really can’t understand all this talk about plummeting real estate prices – a market correction, yes, but a drastic drop to rock-bottom, no.

A sign of one developer’s megalomania can be seen approaching the site.

One can only ask, ‘What were they thinking?’ This is the not so Grand Phnom Penh International City, as you can see.

And here is a recent picture of Camko City. Not much activity there either.

Chom Chao offers a slightly different picture. What you have there are mostly Cambodian flat houses – or townhouses as we would call them.

A 2-story house in the Borey New World section near the Honda factory cost about $65,000 two years ago. Most of them can be had for about $50,000 to $60,000 these days. Some of the Eo-only houses with options to add another story go for as little as $25,000. I have even seen offers for $17,000. The usual size of such a property is 4.5 m x 16 m for the house, including common land the length is 21m. The big drawback, of course, is that it takes about 40 to 50 minutes to get downtown.

There is one very nice development close to the traffic circle. It’s called Vogos Village and was built by a Korean company. Most of the unit have been sold ranging from $85,000 to $115,000. It’s a combination of traditional Khmer style and Western townhouse. Lots of living space on two floors with about 190 m2. Quite a few of them are for resale or rent. The one problem is that it is located directly in the flight path of departing airplanes with Eastern destinations from Pochentong.

Where is all the outrage?

I came across a little story that has escaped the attention of everybody with the exception of the affected people themselves.

As with Dey Krahom and Group 78, government land that is being used by squatters has been sold or conceded to a private company, which wants to build a factory there. Precise details have not been made available. The Sangkat has now drawn up a list of people who live there. All people having resided there for more than 5 years will be assigned a new lot of land in the vicinity. Where exactly and the quality the new land is not known. But all people will stay together as a community. As it usually goes with those deals, none of the village dwellers were asked beforehand whether or not they agreed with this. We are talking about 100 or so dwellers, or around 30 families.

Speaking to some of them I heard no objections, quite the contrary, they were rather happy to get better lots than what they have now. Of course, pundits might say they make a happy face so as not upset the apple cart. Maybe, maybe not. In any case, the Sangkat for that community keeps the whole deal quiet so as not to attract people from other parts that want to get ahold of a piece of free land this way.

This little village is out of the way along a major highway, though. I wouldn’t really know about the commercial value of the land, but residential land goes for about $30/m2 in the vicinity of that area. Its location is near the junction of two highways, still within the city limits of Phnom Penh.

The very nature of this is very similar to the above-mentioned events. By definition this could be called an eviction. The authorities usually call this a relocation. The big difference, of course, is that the land there is not worth the often cited $4,000/m2 as in the Dey Krahom matter.

It just left me wondering where all those outraged Rights NGOs are. How do they learn about any such projects, and why haven’t they learned about this one? Perhaps, this is not worth pursuing as the people do agree to the relocation, or the general interest in something small like this is not that great to begin with.

After all, this would not produce any major headlines, but one could probably read about it hidden away in the middle of a paper, if at all. TV stations certainly wouldn’t bother. So can one assume now that those Rights groups don’t bother with those little stories because they are not high profile? I mean, not one rights representative has shown up in that community, for instance, to brief them on their legal rights.

Big headlines, big donations – not newsworthy, don’t bother? Is that how it works?

I won’t say where this is but I will show this picture: