Friday, November 28, 2008

CNN Heroes of 2008

I had the opportunity to watch CNN’s Heroes of the year 2008. This being an American TV station it is hardly surprising that the viewers chose 7 Americans. One would have wished that their selection would reflect a little more of the international perspective of human suffering, not that those 7 Americans weren’t deserving of the praise. Three of them, in fact, do help people abroad. CNN, after all, is watched by more people outside the U. S. than inside.

The show as such was pretty much a normal Hollywood award show production with all its smoothness, the celebrities in low-cut dresses and high-heels, basically the format of an Oscar or Emmy awards presentation. Even the female heroes were decked out in Hollywood designer dresses with many a revealing neckline, one even in danger of revealing everything. The stars who presented the heroes are pretty much household names and they did a good job, as could be expected. We saw many in the audience wiping away tears from their eyes. The finale was a rousing rendition by John Legend with his song ‘If you are out there’.

Among the ten, however, was also a Cambodian woman, now living in Canada, by the name of Phymean Noun. Her story can be viewed on CNN’website at

It goes without saying that her efforts are indeed heroic, not the least that she spent $30,000 of her own money to get her project started.

What bothered me in the presentation of her good work was that Cambodia was mentioned as a place in hell. Yes, I know when Lucy Lui said this she was referring to the dump sites, not to the country as a whole, but it nevertheless came across as just that. Maybe I am a little oversensitive here, but it left a sour aftertaste in my mouth. Of course, we know about these scavengers, and we know something must be done about that, and indeed are happy that someone feels called upon to actually act. But it still would have been better if at least a fleeting remark had been made about what Cambodia is today. I could imagine an opening line for the video like this:

‘Cambodia is one of the poorest countries on earth. Although it has made some progress in alleviating the plight of the poor, it still is not enough. Some people and their children can only carve out a meager living by scavenging the dump sites…..’

Thursday, November 27, 2008

Recent News

After what seemed like an extended self-imposed period of silence Sam Rainsy is back. He recently spoke with the Voice of America Khmer edition returning from a private audience with the former King in Beijing. He deplored that the economy was bad – what else is new? – and blamed it on the world financial crisis – no, really? – and, of course, what would you expect, on bad governance. He was probably thinking of the $500 million the government could save by fighting corruption effectively. He also said people were protesting for solutions to their living and the coming months could lead to ‘turmoil’. What on earth was he thinking? Is he trying to incite a riot? Sam Rainsy, please stay quiet, it’s better. You can’t offer solutions; you can’t be constructive, so just shut up. Sorry, only fools still think you have a role to play in Cambodia.

The ban on marrying foreigners was lifted recently. As much as one can understand that the government wants to protect their poor, uneducated women, it nevertheless was a curtailment of civil rights to begin with. If two consenting adults decide to get married, it is not the government’s role to interfere. Just close down those marriage brokers. The law against human trafficking covers this trade adequately, doesn’t it?

But foreigners still need to apply at the Ministry of Foreign Affairs for permission to get married. Is the government the guardian of all Cambodian women now? Foreigners must also be present in Cambodia. What about if they get married abroad? The U. S. for instance provides for a fiancée visa so the bride can go to the U. S. to get married to her U. S. groom. Or a woman is able to obtain a tourist visa to another country, stays for 3 months and gets married there? Are they legally married under Cambodian law?

I mean, I know that this regulation existed even before that decree, but one would expect that they come up with something more imaginative than marriage permits issued by the government.

Good news – the first American-owned bank opened in Phnom Penh. Wow, they have a capital base of a whopping $13 million. Yes, that’s what Cambodia needed, another bank, and so well-financed too. What does ‘American-owned’ actually mean? That they manage your money better than everybody else? Sure, we see that with all those American banks that are basically bankrupt and are now crying for government help. If these people are as smart as the ones in the U. S., stay away from that bank. A serious investor with $13 million would look for other places to put his money. If you are looking for a short-term quick return, Cambodia is the wrong place to begin with.

And finally, although this concerns Cambodia only indirectly, perhaps directly if you look at the Preah Vihear problem, when will responsible people in Thailand see that those demonstrations are ruining their country? The commander of the armed forces has called upon the prime minister to hold new elections and the PAD to disperse. The PAD's reply was that even with new elections the problems wouldn’t go away. What? Yes, it is a well-known fact that the PPP bought votes in the last election, but it was not a close call with a difference of almost 5 million votes in their favor. What the PAD seemingly wants is a return to a full-fledged monarchy. It is rumored they even have some royal backing (according to news reports in the New York Times, no less). It will be some time before Thailand can get back on its feet thanks to the PAD. Never mind, the impact of the world financial crisis, never mind the disastrous state of the Thai economy now. What are they thinking? Not of the common people, that's for sure.

Wednesday, November 26, 2008

The Situation and Prospects of the Rubber Industry in Cambodia

Rubber trees during wintering season

Rubber plantation

The world financial crisis has without doubt dramatically impacted the important rubber producing segment of Cambodian agriculture. Cambodia had hoped to increase its output drastically in order to broaden its economic base from just three current mainstays – garments, tourism, and real estate/construction. As so often, a continuing increase in world rubber prices led decision and policy makers to believe that this segment held promising prospects for the future and propagated and encouraged in many speeches the cultivation of rubber trees.

Many a private real estate speculator, having made some money by selling a piece of land, turned to this industry and started a rubber plantation. One needs to take into account, though, that a plantation will not begin to produce latex until 5 to 6 years after planting the first seedlings. Neversteless, private investors are increasingly seeing natural rubber as a good business. They may now have developed some doubts, though, about their recent decisions to go into this industry.


Soy bean field to be replaced by rubber trees

Rubber tree seedlings

The mostly state-run rubber industry in Cambodia, plantations and processing plants, were or are in the process of being privatized. But estimates still put the state-run producing segment at 70%, whereas the worldwide average of privately-run operations is about 80%, most of them small-holder with sizes of less than 10 ha.

The current total acreage of trees older than 6 years is about 80,000 ha. The number was 70,000 ha in 2007 but in the meantime many new plantations have trees mature enough for tapping.The overall available acreage suitable for the cultivation of rubber trees due to appropriate soil properties is estimated to be up to 350,000 ha. Most of that area is located in Kompong Cham, Kompong Thom, and Rattanakiri provinces. But I have even seen plantations being started in Koh Kong province, formerly not considered ideal for rubber plantations.

Since it appears that all, but one, world-renowned economists, world-leaders, and other politicians did not foresee the economic collapse brought on by the irresponsible marketing of basically worthless securities and other financial instruments (derivatives), the leaders and politicians in Cambodia can hardly be blamed for their enthusiasm in promoting the cultivation of more diverse economic sectors such as rubber – rice, cassava, jatropha would be the other ones that come to mind. It stands to reason that a formerly significant rubber producing country would go back to its erstwhile core industry, especially in view of increasing worldwide demand caused by the emergence of China and India as great economic driving forces in the world. After all, these two countries contributed greatly to the exorbitant levels of oil prices until May this year.

Oftentimes, however, the most basic facts of commodity pricing are overlooked by even industry insiders. Commodities are cross-indexed, that is to say, several commodities rise and fall in tandem, like oil and rubber, or rise and fall in opposite direction to each other, like the US-$ and precious metals. Currencies play an essential role, as one might guess. Worldwide commodity trading is done in US-dollars, in other words, any fluctuation of the dollar will be reflected in local commodity trading centers.

Needless to say, that the current world financial crisis wouldn’t bypass the rubber industry. Slowing, stagnant, or falling consumer demand will lead to across-the-board decreases in demand for essential commodities for each respective industry. The auto industry is seeing almost unknown diminishing sales. The U. S. is the largest single market in the world, whether it is automobiles, garments, housing, or entertainment. So far, at least from what I can see, the U. S. market has been hit hardest, as might be expected from its being the cause of the crisis. It seems like the U.S. consumer has stopped buying. Only Wal-Mart and other discounters report increasing sales. The credit squeeze is a significant part of the problem. If the U. S. stops or reduces consumption the effects will be felt in China, India, and, yes, Cambodia.

Declining auto sales combined with more frugal driving will result in falling oil prices as supply exceeds demand. Speculators contribute their share when they only see doom on the horizon. One would have expected oil prices to fall 50% from its high of almost $150, but is now hovering in the $50 range, and some analysts see it at $40 within a month. The effect on the rubber industry is rather easy to see. Fewer autos built and sold - fewer tires will be needed. Synthetic rubber, the great competitor in several industrial applications and based on oil, suddenly becomes cheaper to produce. High oil prices led to the replacement of synthetic rubber by natural rubber. We are now seeing the opposite movement.

The rubber industry in Cambodia is now feeling the harsh realities of world economics. Cambodia had virtually no own marketing of its natural rubber products. Previously all its rubber was sold to Vietnam, which resold it to international markets. In the past few years, however, Chinese, Korean, Singaporean, and Taiwanese buyers stepped in. But all these countries are now suffering from their own economic woes.

The result for Cambodia is that latex prices fell from a high of KHR 11,000 to KHR 4,000 per kg. Crepe rubber of the CSK5L was down from $2,500 a ton to $1,600. That’s the bad news. The good news is buyers are still buying. But no one knows how long that will continue. Most of the harvest is brought in from September to January. After that there is a usually one-month long wintering season without any production. Some processing plants have already stopped buying intermittently to soften the impact and curtail supply. But they are heavily invested in machinery and have to make payroll. They can’t just leave their plant sit idle for long; likewise plantation owners, and mind you, most of the private plantations are small-holders. They may have recouped their initial investment in land, trees, fertilizer, etc., in previous years but a stoppage of tapping leaves them without income.

Depending on how lean their operation is many plantation owners are on the brink of profitability or losing money at the current prices already. The production of 1 kg of latex costs about $.60 to $.70, amortization of trees, equipment, etc. runs to about $.35. This does not include the cost of land assuming that the value will either appreciate over the lifetime of the plantation or stay the same. One can safely assume, however, that it will appreciate. I have never seen land anywhere that wouldn’t appreciate over a period of 35 years. The bottom line is that owners aren’t making money on those low prices.

The picture is not much different at the processing plants. One big problem for Cambodian plants is that they have to discount their prices heavily in order to stay competitive. They still have to play catch up with their international reputation. Even though the quality of most privately produced crepe rubber is equivalent to Thai, Malaysian, Vietnamese, or Indonesian rubber the long years of neglect in the last 25 years or so have left their mark. This combined with low market prices puts all processing plant owners in a very precarious position.

Older plant

Older plant

Older plant


It is, of course, not known how much reserves owners of both plantations and plants have built up over the last years but this will be crucial for their survival in the next few months. The question for both is whether or not they can endure a longer period of no income, or even losses. The wintering period lasts about 1 month, some take two months. During that period plantation owners still have to make payroll. Plant owners do not face this problem as they will have stockpiled crepe rubber for sale during these months. But with slowing demand the biggest stockpiles won’t help.

Investment in a processing plant starts at about $500,000 to $700,000 depending on capacity - $1.0 million is no rarity. I don’t know any plant owner that didn’t use their own money – so no loans, at least for the most part. That’s the bright side. They probably have enough reserves to ride it out for a few months. But the typical small-holder probably doesn’t. They will be hanging by their fingernails come January, February 2009. Whether they can survive will in large part depend on how quickly all those bail-out and kick-start programs by the U. S. and European governments will take effect.

The rubber exchanges in Asia moved in step with the stock-markets, more or less anyway, usually with a delay of a day or two. But neither stock nor commodity exchanges are a true reflection of reality. Hype in speculation may lead to a vast overpricing of a stock and result in an unrealistic market capitalization of those corporations, or on the opposite side, a ridiculous undervaluation of a manufacturer or bank. Stock exchanges rarely go any more by what the assets, liabilities, and profitability of a company is, which used to be the basis of the valuation of a company. Likewise the current price of rubber does not reflect the true picture as it relates to supply and demand, which by any economic standard should be the determining factor in finding a price of a commodity. No doubt, there is a current oversupply. But would that oversupply lead to a 50% and more price drop? I don’t think so. Equally without doubt, the current price levels include a certain psychological deduction. How much? Hard to say – this is an intangible, and who can really assess intangibles.

So now what are the prospects of natural rubber in the short and medium term then? On the upside, automobiles will still be built. They will be built in increasing numbers, make no mistake about that. They just won’t be so big and will be more fuel-efficient. Even if they didn’t burn gasoline any more, they would still need tires. Fortunately, there is no replacement for tires. And natural rubber will remain to be the main ingredient as studies and tests have shown that fully synthetic rubber tires are not nearly as rugged, resilient, and wear-resistant as natural rubber tires. Other automobile related parts, motorcycles, and bicycles are another important segment of rubber-based industries. Then there is the huge medical industry throughout the world. Just think latex gloves and medical equipment and you are looking at a steadily rising demand. Fully two-thirds of the world population has little or no medical care. Health care will be one future growth industry in decades to come. Additionally, oil prices – again, oil being the basis for synthetic rubber – will stabilize at a sustainable level. Analysts say this will be around the $50 to $60 per barrel mark. Rubber saw an upswing even when oil prices were at $30. So consequently, there is no reason to believe that a natural product, which replenishes itself, as opposed to oil, is bound for extinction in a multitude of applications.

Well, this is the grand picture, but what about the next few months up to one year?

All the economic pundits say that this recession will last more than 12 months, but that doesn’t mean it won’t recover sooner. In order to avoid massive layoffs auto manufacturers, and these are the most visible and significant players and, therefore, will have a great psychological impact, need to get on a sound footing again and start selling their cars. Consumers need to start spending again. This can only happen when the banking crisis is under control and all those bail-out plans are in place and working. Once this has been accomplished, and these programs simply must be implemented, and the first results become visible, this will most likely also signify the end of the current low rubber prices. I don’t think they can go much further down than at present.

The wintering season will help bring down stockpiles. Additionally, the first months in the harvesting cycle aren’t as productive as the second half. Thailand and Vietnam have signaled reduced production on account of the current market situation. There are reports that many a small-holder will stop operating their plantation next season. This will all lead to a leveling-off of the natural rubber supply in international markets, eventually leading to a stabilization of prices. Don’t expect an increase to over KHR 6,000/ kg the entire next year, though. Only 2010 will possibly see a slight increase to prices higher than that. But don’t hold your breath. What used to be a sure bet 10 or 20 years ago is no longer true now. Now nobody can see more than three to 6 months ahead, everything else is just like reading tea leaves. All those highly paid analysts are wrong 98% of the time. So the best thing an owner can do is build reserves, never a bad thing, and ride it out. Better times are sure to come. If they can go without profits for a year, they’re probably ok. If they can’t, perhaps they should start looking for other sources of income. But if you can, don’t sell your land – the market is down as we all know, so you would lose twice. Another cash crop might be the way to go, but that would be a subject for another time.
All in all, I believe the next 9 months will be tough, but as always there is a silver lining on the horizon, even for us rubber people.

I am the owner and co-owner of rubber plantations in Cambodia.

Yours truly KJE

Sunday, November 23, 2008

Now What?

Normally, I don’t touch gossip subjects. But this one sort of stands out; that’s why I thought I might give this one an airing on my blog as well. We are talking about the baffling case of a young woman who calls herself DJ Ano. Her real name doesn’t really matter here.

This young woman works as a music show host on one of the Khmer TV stations, from what I understand. I don’t watch these shows and am generally completely uninterested in celebrities, so I don’t know about her. First time she appeared on my radar screen was when one blog reported her as missing – naturally, as a blogger I read a few other blogs about Cambodia. They had obviously picked it up either from a Khmer language paper or from another blog. But it did eventually appear in at least one paper that I know of – the Isle of Peace (Koh Santhepeap). My wife reads this so I am somewhat abreast of what’s reported there.

First they all wondered where she might have gone because it was initially dealt with as a ‘simple’ disappearance. But slowly it developed into a major story of a love triangle. These are all too common in Cambodia, just like in any other country of the world. It is, of course, not so remarkable that only those involving people in power and young female celebrities get wide press and blog coverage. And what’s not all too common in other countries outside SE Asia is that it all too often happens that the jealous wife of the husband takes matters to terminate this affair in her own hands by throwing acid into the female lover’s face, which leaves her horribly disfigured, or even by having her killed. There are at least three cases where this happened but no one was ever apprehended or let alone stood trial for any of these horrible crimes. Needless to say, that the rumor mills are still in full spin over all these cases.

The next report about this disappearance a few days later then contained some gory details of a purported crime. It was said that two goons abducted the young woman in broad daylight, threw her in a car and took her to a place where they shaved her head with a razor and then proceeded to inflict razor cuts all over her upper body, 83 in all, it was reported. The blogs were full of it. It also came to light that her pubic hair was shaved off and wounds inflicted on the genital area. Now who could be blamed for such a crime? Clearly, only a jealous wife of a high-ranking official could be responsible for such a heinous act.

When the press checked with the police, the response was there is no report of such an incident, consequently, there is no reason to investigate. This was quickly seen as part of a cover-up by the public. It was clear to them that the husband just threw a blanket over the affair in order to preserve his wife’s and his reputation and standing, not to mention to cover up a crime. Coincidentally, the police commissioner for Cambodia, Hok Lundy, who didn’t really enjoy the best of reputations among rights activists, died in a helicopter crash a few days later.

Now that set the rumor mill spinning so quickly it virtually span out of control. The wildest theories were explored, e. g. he was the husband, and now supporters or fans shot down his helicopter. Others said there were even pictures and videos in circulation showing the act. That material would also identify the wife. Everybody can imagine how those freakish minds went into overdrive.

On one board a poster even quoted 20 or so witnesses to the crime, who unfortunately were too afraid to come forward. But they knew who was behind all this.

One poster said, ‘Well, the bitch knew what she was getting into with a married power broker.’ – A bit crass this, don’t you think?

The young woman was reportedly transported to the Calamette Hospital in Phnom Penh, but because of the severity of the wounds she was quickly flown by helicopter to Ho Chi Minh City for intensive care. Status reports from an unidentified hospital there followed, giving the situation as grave but not hopeless. Some had her in a life-threatening condition. The unnamed hospital later published a bulletin that she was on the way to recovery and would be released in a few days. No one ever saw that bulletin, let alone could say with any degree of certainty which hospital they were talking about.

On another blog someone posted a comment saying that the young woman is fine and will return to the public eye shortly. She, the poster, claimed to be a close relative of hers.

Another newspaper article again quoted the police as saying there is no grounds for an investigation because no one filed a missing persons report, there is not one shred of evidence indicating that such a crime had been committed, although the police stated they had also heard of those rumors but dismissed them as just that. Not even her employers at the TV station saw the need to file a report. Perhaps she was just on vacation and the producer just didn’t want to bother with all these rumors or saw a good publicity stunt in the making, all without lifting one finger or a phone?

The police can’t act on rumors alone, unless it is in the public interest. A missing person that has not been reported missing is not dealt with by any police force in the world, or is it?

One zealous blogger wrote an open letter to the police demanding they investigate. Incidentally, he also implicated the late police commissioner in the crime. This blogger is a particularly vexatious individual who obviously considers himself a hard-core journalist the way he publishes his contributions on several blogs. He keeps admonishing the Cambodian government about what it must do. I am sure they read his blog with great interest.

Now, then one day after two weeks or so, lo and behold, the young woman appeared on her TV show alive and unscathed. But some people just wouldn’t let it go. They indicated, hey, this is a doppelganger (dead ringer). The young woman then put out a press release saying she doesn’t know what prompted anyone from circulating those rumors. Nothing ever happened and she will sue anyone who continues spreading these falsehoods about an affair, etc.

Now what happened? I mean, who the hell really cares? But this is a glowing example of how our new information dissemination via blogs, you-tube, etc. can run amok. One can’t really blame those bloggers on the one hand as they oftentimes do uncover facts otherwise kept hidden. But even the New York Times fell victim to some blogged falsehoods. On the other hand this case exemplifies very clearly how pernicious an effect an even initially small rumor can have when it mushrooms into a major story with possibly uncontrollable consequences, and often to the detriment of the purported victim – and nothing beats a story or rumor with such prurient salaciousness. Sure, in this case the young woman got a lot of publicity, whether good or bad is arguable, but the often noticed tendency to blow things out of proportion is a deplorable and rather unwelcome side product of our web-dominated information highway.

Wednesday, November 12, 2008

Read This

There were two articles in the Phnom Penh Post today bolstering my previous assertions about the real estate market in Cambodia.

And another one on who is suffering the most from the downturn in construction.

In case you don't read the Post you should because they are still the best when it comes to English-language papers in Cambodia.

Friday, November 7, 2008

Bust or No Bust in the Real Estate Market?

This seems to be a very popular subject indeed. Replies to my article below as well as comments on other boards keep kicking this question around. Most people say it’s a bust. Here is why I consider it a deflation, although the term itself is of secondary importance. What counts is the impact various factors have on both the players in the real estate market and the overall economy. Let me give you an example of one of those projects, in which I am involved as an adviser.

A friend of mine bought one hectare in Phnom Penh Thmey in April of 2007. It was the typical low-lying land along a higher-lying badly paved road, which was previously used as agricultural land, most likely a rice paddy. The difference in level was about 1 m. The reason he bought it was clearly for speculation, as the boom had been going on for a while now and he had profited well from a few previous deals. He paid $30/m2, which was still considered a good buy as most of the neighboring lots already went for around $50/m2.

First thing he needed to do was fill it up with dirt. He then built a low stone wall around it as a boundary. The land was then divided into 92 lots; the majority of them measured 4m x 15m, some twice that size, with some land set aside for villas. You also needed to allocate common land for streets, sidewalks, etc.

At that time, filling up one hectare cost about $5,000, so the total cost to him was around $310,000, including the low wall. The whole thing was a family affair; each of his adult children had chipped in to come up with this sizable amount. But one month later the price had already risen to $60/m2 and he had a lot of inquiries. Some people even came by with large wads of cash to buy on the spot. The market was this hot at the time. It really seemed like they were on the road to making a bundle. I had been watching the market and seen this incredible rise in prices, which to my critical mind was rather unhealthy. Much of the land was completely undeveloped - no power, no water, no access roads. But the local commune and Sangkat chiefs promised to bring in roads and power.

I advised my friend to sell immediately, forge the iron while it was still hot, so to speak. He was thinking about it and indeed sold off about 27 lots at $70/m2, but not because he thought this was a good price. He needed some money for different things, one of which was a big limousine. He said people didn’t believe the driver of a beat-up ’94 Camry was really the owner of the land. So the limousine was an investment in the business as well as a welcome status symbol. He no longer had a problem with the traffic police and fenced off streets were still open to him.

In October the price of land there had risen to $95/m2. I kept urging him to sell so he would have money to flip more land and in the end make more money than as if he waited for prices to rise.
But now he thought building the so-called Cambodian flats, basically row houses, would be the way to go. He could increase his overall profit by another quarter million. So he made plans for this but couldn’t carry them out for lack of capital. I did not want to get involved financially as I was by nature not a speculator but a trader or manufacturer by conviction.

Prices kept rising until they had finally reached $155/m2 in March 2008. In order to realize his plan he needed to build at least a model house so people could see the quality and then he could get down payments, which would be the base for his construction – a typical mode of financing and operation in the housing market (which he finally did, but not until August, a bit too late).

But slowly those price increases came to a stop on news of the real estate market collapse in the U. S. Although this did not directly affect the Cambodian economy, it made a few people with ties to overseas Khmer a little jittery so the white-hot state of the market became a red-hot state and finally only a glowing state in May. All admonitions to cash out were brushed aside in the hope of more rising prices after the election. He firmly believed it would go on and on and on.

A first disturbing sign was that prices dropped a little, e. g. $5/m2, then another $10/m2 in May and June. He still had buyers but didn’t budge. Then in July the market came to a complete halt, and prices started dropping even more, in our case, to $130, then to $120, and $110. It would still have been a nice profit of some $300,000. But in July everyone was waiting for the election to be over to see what was going to happen then, so no buyers. And that situation hasn’t changed since then until now – no or hardly any buyers. Finally the price for this property hovers around $100/m2, but determining a price is somewhat difficult if there is no action in a market. He is now holding on to his land waiting until the market picks up again. He is confident he can even sell it now at a discount and still make a profit, which probably is true. After a hype prices usually settle at a realistic level. His advantage is that some laterite roads were built so the site is not completely without access. Power is available nearby too. So some real value has been added.

This example is to illustrate my contention that it is not really a bust. I would like to point out that the signs for a slow-down started as early as March. This could be seen all over the place, not only at the site in question here. When things slow down gradually it is generally not a bust but a deflation. A bust is a free-fall.

But never mind the word. So far there is no word of anyone getting hurt in a way that they have lost real money, meaning cash. The big companies, e. g. the Koreans with multi-million-dollar projects, or the Canadia Bank have shown no signs of stopping their projects in progress. Of course, there is a credit squeeze; so many new projects have been put on hold.

But the majority of private speculators are just like my friend. The used their savings, possibly pooled them, or found partners to make those deals. Now they have been caught with their dreams of a nice profit unraveling, but it is not a nightmare yet, as they have no loans to pay back, and if they have some other means of making a living they can wait it out. And many of them, again like my friend, had gone through a number of previous deals that left them with enough money to live on for some time. One mustn’t forget that the cost of living, despite its 20%-plus inflation, is still only about one fifth of that in the U. S.

Like my friend said, ‘80% of the land in and around Phnom Penh is owned by rich people anyway. They have no problem holding on to it for some time.’

Westerners make a big mistake when they say it will get worse still. Again they forget there is virtually no mortgage market here. A recent article in the Phnom Penh Post stated that ANZ’s mortgage volume is about $5 million max, and they only loan 50% of the home value. That’s a negligible amount by any standard. So people losing their land or home won’t happen, apart from singular occurrences. Banks in Cambodia losing money on mortgage derivatives is not going to happen either. That concept is completely unknown in these parts. People losing their jobs and defaulting on their mortgages is an impossibility in Cambodia. People losing their jobs because of the real estate melt-down are the construction workers, service personnel, etc. Sorry, those people didn’t have the money to get into the game. Among others, these were all factors in the Western bust – not here.

So by and large, it’s a standstill, which will slowly re-gain some drive, perhaps not at the levels and hype as before, but surely there will be movement once the recession in the developed world is beginning to show signs of recovery.

As for myself, I didn’t speculate. I bought agricultural land, the cultivation of which still returns a slight profit, not as good as before because of the decline of commodity prices, but, like my Cambodian friends, my Khmer wife and I can wait for the market to recover. In fact, prices in my sector have been rising slightly already.

I also bought land to build a nice house on. Maybe it was a little too expensive, but then the location more than makes up for it – on a river bank about 500 m from the sea facing west. What more do I need?

Katyusha Rockets

I came across a picture of those rockets being fired in the New York Times. This is just to show how fearsome these weapons are.

Thursday, November 6, 2008

Is This What Happened?

The Thai-Khmer clash over the disputed border area at Preah Vihear is some time back and enough has been written about it, a lot of speculation has been going on; but us normal folks are none the wiser. So here is one more piece.

The shoot-out occurred on Oct. 15 just while I was driving along road no. 7 with my Khmer partner to visit one of our holdings in Rattanakiri province. It should be noted that my partner has friends in high places and an extended family, most notably quite a few nephews whom he brought up as all of his 8 his brothers and sisters, except 2, were killed during the Pol Pot era. Two are colonels, one an assistant to the highest ranking general in Cambodia. As we were driving along we got bits and pieces of news of what was happening and what happened over the phone. His son who studies media communications added his two cents every time there was a piece on the news wires, to which he has access by virtue of the faculty. Additionally, a friend of my wife’s is a general, commanding a brigade of elite body guards, who had been called to the ‘frontline’ in Preah Vihear. He is a battle-hardened soldier, wounded several times, and an experienced jungle fighter in the civil war with the Khmer Rouge. Let me tell you, that phone was ringing constantly. My friend is the patriarch of the family so everybody feels duty-bound to report the latest news to him.

This is just to tell what my sources were and that I don’t just grab things out of the blue like so many of the other bloggers who mostly just repeat what they read in the news and then put their own spin on it.

Clearly, what I am about to write is basically hearsay, and unconfirmed, basically just another piece of speculation, and this time with the spin I put on it, but everyone can make their own judgment. To me it rings rather true and credible.

From what I heard, Cambodian forces began massing along the Thai border two days before the clash, right after Hun Sen had delivered his ultimatum to the Thai Foreign Minister. It was widely reported that Hun Sen requested that Thai forces withdraw to positions before mid-July, when those incursions started becoming ever more audacious, clearly fueled by the domestic turmoil in Thailand. The Thai FM reportedly replied they would have to ask their parliament for authorization to withdraw, upon which Hun Sen said that doesn’t really make sense since they didn’t ask the parliament whether they could enter Cambodian territory to begin with. At the end of that meeting Hun Sen then issued his ultimatum. Whether this was done impulsively or with plans already in place to teach the Thais a lesson will remain a mystery. But right after this, troops were put on alert and necessary brigades ordered to reinforce the troops on the border. At the same time artillery was brought from Eastern bases to Preah Vihear overnight to be in position when the ultimatum ran out.

The next day, Wednesday, Oct. 15, Thai troops withdrew from the disputed area and had vacated it by 12 o’clock noon. The Cambodians were really surprised to see this but their surprise became even bigger when at 2 o’clock they saw Thai tanks moving toward Cambodian territory again.

Cambodian forces, of course, are no match to Thai troops when it comes to armaments. Cambodia’s most widely used piece of light artillery is the B40 RPG. They have another somewhat antiquated but still highly effective piece – the Katyusha truck-mounted rocket launcher.

(Archive photograph)

No one knows for sure who fired the first shot but a little after two a clock this conflict had developed from a tense situation into an open military conflict with bullets flying both ways. At one point a Thai helicopter gunship fired its rockets and reportedly hit an armored personnel carrier killing all eight occupants. Unconfirmed reports say that incensed the Cambodian commanders so much they launched counter-strikes with their Katyusha hitting tanks and killing scores of Thai soldiers.

At this point the Thai commanders obviously realized that Cambodia was indeed serious when it said Thailand would face the possibility of war. They ordered a hold-fire, which resulted in a sort of cease-fire until today. The Cambodian side claimed they surrendered, which, of course, the Thai side denied vehemently. Tensions still run high, with some soldiers obviously believing that another outbreak of hostilities is unavoidable.

Officially, fatalities reported were 3 dead on the Cambodian side, and 1 dead on the Thai side. Unofficially, it is said there were actually 8 or 11 dead on the Cambodian side due to that helicopter strike, and as result of that Katyusha fire at least a number in the teens dead and countless wounded on the Thai side.

Pride and the need for a resumption of negotiations made both countries play down the real effects of that clash, at least so it seems.

Western observers questioned the necessity of an armed conflict to resolve this for both sides thorny issue and are still wondering why Hun Sen took this action, which many consider to be outright brinkmanship given the apparent Thai military superiority.

But maybe this is what went through Hun Sen’s mind. A conference with the Thai PM was scheduled for that Monday preceding the clash. The Thai PM canceled the meeting on short notice citing problems at home and sent his FM instead. This man, who had said in an interview that he doesn’t know a whole lot about foreign policy, was ill-suited to the task at hand. Say what you may about Hun Sen, but he knows when he is dealt a good hand, plus he may have seen the Thai actions as an affront.

He saw the Thai PM weakened in his position what with the Thai opposition occupying the Thai government for months now. He has no power over his military to remove the demonstrators from the front lawn of the Thai White House fearing bloodshed and civil war. The military is obviously listening to someone else, definitely not to the Thai PM who at the same time is the Defense Minister and as such the commander of the military forces. This is a truly unique situation. Seeing a wounded Thai PM, a Thai government in disarray, and the Thai military standing on the sidelines, Hun Sen perhaps concluded now is a good time to show them that they can’t go on bullying the Cambodians and gave the order to fire or return fire, whichever may have been the case. He clearly assumed that Thailand would not risk an all-out war with its neighbor over a few square kilometers in a desolate part of the country. Additionally, Thai forces have no real battle experience, whereas the Cambodian forces can be compared to the Viet Cong in the 60ies and 70ies. They may wear tattered uniforms and walk in slippers, but by all accounts they are tough. Hun Sen reportedly said that the Thais may the elephant here, but the Cambodian ants can cause tremendous pain to the elephant.

A war would considerably weaken Thailand internationally, put enormous, additional strains on their economy, and they are already hurting economically, losing billions of tourist dollars because of that whacky opposition movement, which proclaims outlandish concepts, such as the abolition of democracy. Thailand also faces a long-festering Muslim insurgency in the South. It can’t manage to confine that, and it would be hard-put to face those tough, wily Khmer soldiers on their Eastern border.

So Hun Sen played a high-stakes game and won. He again showed that when it comes to power play he is not one to be discounted or scoffed at. Let’s hope the Thais will finally see that the territory is Cambodian by all international legal standards and good neighborly relations are much more valuable than a few sparsely populated square kilometers.

For all those who are interested in the historical context of the Thai/Khmer dispute the University of Sydney has a very illustrative animated historical map here

And finally, I am wondering what Sam Rainsy would have done had he been PM of Cambodia.

Monday, November 3, 2008

The Real Estate Bubble – Revisited

For those of you who have been wondering whether it has burst yet following the world-wide financial crisis there is some good news and some bad news.

The good news is that it hasn’t burst – it has been deflating as I had predicted previously; so nothing new to report here.

The bad news, especially for those who still bought into the market in May and June, is that nothing is moving. Prices in Phnom Penh are down by up to 25% depending on the area – more in Phnom Penh Thmey and less in Toul Kork – no surprise there either.

West of Kompong Speu prices are starting to go down as much as 50% according to my information.

Korean mega-projects like Camko City and other big ones are still going ahead seemingly unfazed. Their financing was secured long before the crisis hit South Korea as well. But I know for a fact from one of the newer Korean banks in town that projects that were planned at the beginning of the year and to be begun about right now are on hold for the time being as they are still trying to sort out what will become of their financing. Boon Yong is one of the newer ones. They have a 10$-million project in the pipeline but are all scratching their heads now.

Traditionally construction is started at the end of September and beginning of October to take full advantage of the dry season. Just drive around Phnom Penh and you will see a lot of idle construction sites.

Another sector that is suffering, which has been widely reported in the newspapers, is the rubber industry. There has been a sort of a surge into agricultural land suitable for rubber plantations that even went into Koh Kong province, which normally is not known for rubber, up to the election. As we all know by now rubber prices fell up to 35% and latex prices up to 50%. I can tell you, though, that this trend is unabated as those plantations won’t be ready to produce until the trees are mature enough after 6 years. So this is still considered a good investment by most Khmer buyers who want to invest in something tangible. Predictions are that rubber prices will recover after the wintering season when the surplus stock has been depleted and the market has adjusted to a lower output.

Other agricultural land, though not completely unaffected, is also still actively sold at more or less normal prices.

Let’s wait and see what will happen to the mega-projects in tourism. Word is that people start saving on big ticket items, and international travel is one of them. My expectation is that Sihanoukville will look the same for some time to come. People who bought land in Sihanoukville can only hope for a rebound of the market in 2009 and 2010, if they have the breath to hold out that long.

Well, I bought land outside Sihanoukville for my own house. So I guess I will take advantage of lower construction cost now – iron and cement is cheaper, order books aren’t as full; so this looks like a good time to start.