Thursday, August 25, 2011

Back, .... and some 'Pretty Good Economic News'

After a hiatus of more than 2 months I am back. I took a trip to Germany and Italy for 6 weeks and since my return have been extremely busy with my (consulting) job, so that between that, checking on things at the rubber plantations, and my search for a fishing boat, I haven't had much time to dedicate to writing about Cambodia -as it is.

I have to say one thing. The Italian waiters, especially in Venice, could really learn something from the normal waitstaff at Cambodian restaurants. I do understand that Venice gets run over by about 20 million tourists a year - the city itself is only about 300,000 - so the waiters might sometimes get a little harried, but one would think the basic courtesies could still be extended to the people who in effect pay their wages and their tips.

There are different mentalities in that country, as in any other larger country too; that was made strikingly clear in the city of Verona where service was outstanding and the waiters' politeness was impeccable.

Nevertheless, what a contrast to Cambodia where in the many years I have been here I really haven't met with a rude or impolite waiter/waitress; never mind their oftentimes incompetence; at least, they do it with a smile on their face.

On another note, I am a regular reader and previous poster on Their website got a makeover and it looks much different and the front page is now really good. I can only recommend one of the recent contributions by one of their regulars, '7 reasons why I should probably marry a Cambodia woman'. This is really a funny, somewhat self-deprecating piece, but it does hit the nail on its head. You can read it here

Again here is a quarterly newsletter put out by Leopard Capital by email. All in all, they paint a pretty good picture of the Cambodian economy. For those of you who don't receive it I am attaching it below:

Economic Update

In 1H 2011, Cambodia is beginning to see signs of a return to the robust pre-crisis economic activity after a retraction in 2009 and modest recovery in 2010. Economic growth forecasts for the year have been revised upwards to 8.7% by the Economic Institute of Cambodia, while the IMF and the World Bank currently predict a more conservative 6.5%. The elevated forecast is being driven by three of the Kingdom's four economic pillars-garments, tourism and agriculture-while recovery in real estate still remains nascent.

Garments benefit from relaxed regulations. The garment industry contributes more than 70% of Cambodia's exports. In H1 2011, garment exports surged 32% YoY to US$ 1.9 billion as a result of loosened European Union regulations governing rule of origin and increasing demand from Asian countries. As of January 1, 2011, under the Everything But Arms (EBA) trade initiative, least developed countries such as Cambodia could export to the EU duty- and quota-free if the country manufactures 40% of the product's value, whereas the previous threshold was 70%.

Tourism increases with more direct flights. Cambodia's second largest source of income is the tourism industry. In H1 2011, tourism arrivals rose 13% YoY to 1.4 million with Vietnam, Korea and China as the largest sources of tourists, respectively. Ticket sales at Cambodia's main tourist attraction, Angkor Wat, rose 33% YoY to US$ 20 million during this period, and total revenue from the sector is expected to reach US$ 1.9 billion in 2011. An increase in direct flights to Cambodia is one of the principal drivers behind the overall increase in arrivals-Air France has even relaunched direct flights from Paris to Cambodia in July after a 37-year hiatus.

Agriculture also benefits from relaxed regulations. Accounting for a third of the Kingdom's GDP, the agriculture industry also benefited from the relaxed EU export regulations, among other factors. In H1 2011, rubber exports increased 84% YoY to 21,511 tons (US$ 102 million); milled rice exports increased 369% to 80,442 tons ($46 million); and cassava exports increased 88% to 212,018 tons (US$ 8.7 million). Prime Minister Hun Sen has set a target of exporting 1 million tons of milled rice by 2015-a feat considered attainable if the Kingdom builds another 25 to 30 rice mills (a US$ 350 million investment) to expand production from currently just five major mills.

Real estate starts to recover. Cambodia's fourth economic pillar, real estate, has started to show signs of recovery in 2011. The value of approved construction projects (i.e., housing developments, apartments, factories and tourist facilities) increased 94% YoY to US$ 638 million in H1 2011. While land prices for commercial and residential properties in Phnom Penh have still remained flat since the end of 2009, demand and prices are expected to rise over the next two years.

Banks are also rebounding. With 35 banks, Cambodia's congested banking sector showed signs of a rebound in H1 2011. Aggregate loans among the Kingdom's three largest banks increased 9.5% YoY to US$ 2 billion-loan books for ACLEDA, Canadia and Campu grew 11.9%, 10.6% and 5% YTD, respectively. Banks are expecting a surge in agricultural investment to continue driving the increasing demand for loans. The growing agricultural sector has also led to more loans and deposits at the Kingdom's 27 microfinance institutions (excluding ACLEDA)-loans among these MFIs increased 6.7% YoY to US$ 505 million in Q2 2011, while deposits increased 33% to US$ 69 million.

CSX opens with no trading. The long awaited Cambodia Securities Exchange (CSX) officially launched in July, making Cambodia one of the last Southeast Asian nations to open a stock market. However, no companies have been listed yet for trading. Three state-owned enterprises-Phnom Penh Water Supply Authority, Sihanoukville Autonomous Port and Telecom Cambodia-are expected to list by year's end.

Inflation is a rising concern. Driven by rising food and petroleum prices, the Kingdom's inflation rate rose to a 14-month high of 6.5% in May 2011, exceeding the inflation rate of neighboring Laos and Thailand but still well below Vietnam's rate of 20%. The Cambodian government had recently raised its 2011 inflation target by 50 basis points to 5.5%, while the World Bank and the IMF predict 5% and 6.5%, respectively, for the year. To mitigate inflationary concerns, the National Bank of Cambodia is considering raising the reserve requirements of commercial banks from 12% to 16%.


Being in the natural rubber business, I am a benefactor of the upsurge in prices, and despite those irrational up and down swings in the stock markets, rubber has been holding pretty steady over the year. There was some drastic drop from around $4,900/mt for crepe rubber to around $4,700 right now, but the expected drop to $4,000 is not in sight despite some predictions that there has been an oversupply since July. I will continue reporting on that particular market situation.