Sunday, August 8, 2010

Is The Recession Over?

By economic standards, yes. The Cambodian economy is growing again, so officially it is over. This is borne out by the increase of tourist arrivals, the rise in exports, sale of cars and trucks, where imports jumped by 35% and the resumption of construction activity in the first half of 2010. According to the Ministry of Commerce, the agricultural sector is contributing to the growth significantly, which I can, of course, personally confirm from my own experience.

Unfortunately, this is combined with increased inflation, one sign of which is the increase in gasoline prices. Regular gas is now about $1.04 versus about $.90 per liter at the beginning of the year. The riel has also come under pressure prompting the National Bank to sell dollars from its reserves, trying to reduce the volume of the riel. So far, as much as I can see, this has had limited effect, as the riel still is at KHR 4270 to the dollar. The National Bank tries to keep it between KHR 4000 to KHR 4200.

What surprises me most, however, is the real estate and construction sector. I am no longer involved in looking for land or in developments, but from what I can see around Phnom Penh, there are still many Cambodian–style flats, or town houses, sitting empty. But I see new ones springing up everywhere now. Where and to whom are these people selling their houses? Where I live in PP, about half of the ‘gated community’ sits empty, but the developer nevertheless added about 20 units. Of course, all the existing ones had been sold (prior to the bust). People who bought them as investments aren’t getting any return on them, neither as rent nor by re-selling them at a profit.

Opposite that gated community a new development is being built. Guess what? It’s a compound of Cambodian flat houses again. I don’t really know what to make of that. There is glut on the market already but they are still building new ones?

Camko has resumed building their high-rises. From what I hear they have a new management in place, which was obviously able to tap into fresh working capital. Other than that, however, I don’t see any of the big development plans, e. g. Koh Rong resort development, or the Stung Hao international port, making any great strides towards realization or making much progress. Stung Hao International Port has put up an impressive portal and they started blasting the hill, but I haven’t seen any other activity for over a year now.

In the West they usually build the entrance last, but here it is obviously important to have a great portal first in order to show (off) the size of the investment. That ridiculous gate at the Grand Phnom Penh City is a case in point.

A little digression here: I also like the new Koh Pich. They built a nice park for the public. Although it still needs more landscaping it makes for a nice view of the area. I just don’t know what it is with the Greek monopteros-style gazebos. They do look nice but I find them a little misplaced in Cambodia. An absolute eyesore in my mind is the almost completed government building next to the new Council of Ministers building on Russian Boulevard. Whereas the existing building is daring in its architecture and definitely an interesting design, that new building is just a monstrosity, which reminds me of Soviet-style architecture with a slight Cambodian touch.

So money seems to be flowing again, what with the multiple projects under way all over the city, and new cars coming onto the roads (I only wish new trucks would replace those old run-down, ready-to-break-down trucks in use now). On a different note, I seem to be seeing a lot more vehicles with military plates again; also the green plates of the state appear to be mushrooming. They also appear on high-end SUVs all of a sudden, whereas before that was rather the exception.

But as before, that money seems to flow in the same circles, namely the ones who have it use it to hand it over to other people who also have it, in other words, it’s the business people and the upper echelon civil servants driving all this. Of course, there is also foreign money from China, Vietnam, and South Korea still flowing in. The consuming part of the population, however, is still so small that it will not have any noticeable effect on boosting a consumer-driven economy. That will still be some time in coming. A good way of seeing this is the Lucky market clientele. Besides all the expats and tourists, you see what I would call the Khmer upper-middle and upper class shopping there. You can tell by the way they dress.

Average people still have a hard time making the money it takes to break through the subsistence level. Most people just make enough to eat; they live hand to mouth so to speak. There is nothing left over to put aside for getting a business started, or expand the one they might already have.

But this is in large part due to the prevalent general ignorance of people of how to go about getting a loan, for instance. A good example is a couple who started a car/driver-for-hire business. They borrowed $5,000 from a loan-shark; they euphemistically call themselves micro-finance people. There are many of those operating in every market. The couple is paying $150 a month as interest, in other words, 36% p. a. Of course, there is no collateral so a higher interest rate in justified, but 36%? Well, somebody told the couple to go ACLEDA, the largest small-business lender in Cambodia, and a highly successful one at that. ACLEDA loans money for this kind of business using the car as collateral. The interest rate was 15% p. a. The couple was told to contact a certain person who is an acquaintance of the person advising them.

They did go to the bank, but spoke to somebody else who just shoved a sheaf of paper into their faces, which they didn’t know how to fill out. Intimidated by all this, they left it at that and now continue paying $150 a month.

Another example is a young man who will graduate next year from college with a degree in ‘tourism’, which includes some sort of business management classes. He wanted to start a fishing business in Rattanakiri and needed $500 to buy a motor for a boat. Did he do any research whether or not this business would be viable, what the competition is like, etc. No, he didn’t. Consequently, he didn’t get that $500. It looks like there are enough fishermen around already, right? Why would somebody who is studying tourism want to go into the fishing business?

This all just goes to show, that the key to improving their livelihoods starts with a good education – a sort of a platitude, I know, but that’s what is boils down to. Yeah, I know the educational system sucks, but, still, there are people who know how to use it to their advantage. I know a young lady who got a BA in marketing from the state university. She graduated top of her class and got a Fulbright scholarship in the U. S. Now she is back with a master’s degree and found a job with a financial institution.

A final word to some of my readers who simply disagree with everything I write about. Don’t start making comments again about corruption and it’s all the government’s fault that Cambodia is in this state. We have covered this ad nauseum, so save your energy.

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