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.

No comments: