Saturday, October 24, 2015

The Cambodian Car Market

The Toyota official dealership announced that it is going to import used cars from the U. S. and other countries, checks them for safety, roadworthiness, and environmental criteria, and will sell them as pre-owned certified cars. I have been wondering why the authorized dealerships have not used this very important tool till now. Up to now they relied on selling their new cars and SUVs and the service that needs to be done by the authorized dealership so that the warranty would not become void. New cars usually come with a 3-year or 50,000 mile warranty. Some brands include free servicing in their package.

Although Cambodia is a growing market sales were quite modest for most authorized dealers given the 125% tax and duty levied on cars. This brings the sticker price up to $125,000 for a car that costs $50,000 in the U. S. or Europe, e. g. roughly an Audi A6. It is also remarkable that especially the luxury car segment has added practically all the biggies in the industry, like Range Rover, Jaguar, Audi, Porsche, Mercedes, etc.  I personally believe that all these brands want to get in on the action on the ground floor believing that the upper middle and upper class will tire of their Lexi and Landcruisers eventually.  They see how successful Range Rover has become – as a used vehicle. Rarely is any on the roads bought new. Additionally, a one-year old used car is a lot cheaper as you usually lose 10% of the new car value the minute you drive it off the lot. They are just as good as a new one. Or take the show room models that are deeply discounted by dealers in the West. Why go for a new one?

As with most things in Cambodia, Cambodians follow a very simple pattern. If my neighbor has it or something seems to be successful they will just do the same – do it like the Joneses as the Americans say. Initially, way back in the 1989/90 they liked the Mercedes 190, also called the baby Benz in the U. S. As it happens I was the one who imported and supplied them. Next, once the U. S. trade embargo was lifted, the overseas Khmer started importing Toyota Camrys, the best-selling car word-wide, mainly from California. It caught on and soon you could only see Camrys on the roads. Next followed the smaller Corolla and the pick-ups. Of course, the Mercedes 190 had become too small a status symbol for the ministers and state secretaries so they took a shine to what all the UNTAC people used to drive, the Landcruiser -not a bad choice, of course, considering the road conditions at that time. Slowly other brands started showing up, and in the 2000s the car market had become pretty diverse, but the Toyotas and the Lexi still dominated the picture. Everybody who wanted to be somebody needed to drive those gas guzzlers, even if they couldn’t afford them.

One day somebody introduced the Range Rover, an excellent SUV, no doubt, and it became the SUV of choice. Since Cambodians are enamored with all things American, some even imported the Cadillac Escalade, another vehicle that is to Cambodia as pearls are to swine. But the Range Rover with its various types outdid it by far. Soon the more adventurous added Porsche SUVs, BMWs, etc. They were all what the authorized dealers here call grey market. There is no such thing as a grey market, mind you. This is nothing more than a free market economy. Anybody who registers a business, has the funds, can import and sell cars. Before cars are registered they have to pass an inspection, which needs to be renewed every two years. So the argument that these cars are unsafe does not hold much water, not for newly imported cars. Again, as with all things in Cambodia, enforcement of that 2 year interval inspection requirement is not or rarely enforced, most certainly not on all those minivans and trucks.

The calls by the authorized dealers for laws and regulations curbing these imports would be tantamount to a controlled market as in Vietnam – as in Communism. The one regulation that would most definitely put an end to many illegal and unsafe practices is the safety inspection. If the Ministry of Transport would enforce this law that would take care of the biggest hazard on the roads by eliminating the many minivans that in other countries would be condemned. Also the vast majority of the trucks and overland buses on the roads are completely unsafe; the many accidents, with many fatalities, is striking evidence of this deplorable state of affairs.

If authorized dealers want to increase their business they should not rely just on new car sales and high priced service. It is just not affordable for the emerging middle class. A case in point: I had my Mercedes (which I imported myself) serviced at the dealership in Phnom Penh before I moved to Sihanoukville. Labor charges were still within reason but the price of parts was just outrageous. Now I found a good shop here in Sihanoukville with a trained technician who knows how to handle and read the computer diagnostics and do repairs just as well. He gets his parts from a source that imports them from Singapore and the Middle East. In Phnom Penh one part would be $4000, he got it for a little over $1,000. I bought a part directly from the U.S. for $80 and I paid regular duty on it; in Phnom Penh it was $250.

Take a page from the Western playbook. Toyota’s step is only a half-step. The big game changer would be to take trade-ins. Inspect them, repair them and resell them. That would partially dry up what they have incessantly been complaining about – the so-called grey market. Make those used-cars into certified used cars, possibly even with a one year warranty, and they would have a completely different ball game. In the west car dealers, even used car dealers, can buy insurance for this purpose. In any event, this would take away business from the shady dealers on the market and drive their new car sales as well. Large scale advertising campaigns would certainly change the public perception quickly. Why nobody has ever come to this conclusion has been baffling me for a long time. The entrepreneurs in the business obviously do not trust their own expertise.

Another big problem, the extent of which is not really known, is the import of salvaged or condemned cars, which are then repaired here and resold. Sometimes, they put together a complete car from salvaged parts. Quite obviously, there was a reason why these vehicles were condemned and only had a salvage title left. This is just as dangerous as changing Thai cars or Japanese imports from right-hand to left-hand steering as they used to do in the 90ies. This is the sector where stiff regulations should take effect. A few years ago when the Prius craze started I also bought one for city driving. It cost me $17,000 (I forgot the year). It came with a 3-month warranty, though. When I checked the price in the U. S. for the same model and year I was surprised to read that it retailed for $14K to $15K there. We owned it for a year and then sold it. We never had a problem with it but it most certainly must have been a junk car.

As long as the authorized dealerships don’t take the initiative with more advanced marketing techniques, nothing much will change in today’s car market. Calls for regulations might be heard but are uncalled for. So far they have fallen on deaf ears anyway for fear of depriving many people of their livelihood. And, last but not least, there will always be a greased hand that will look the other way. So, take it in your hands, for goodness sake.

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.

Thursday, October 1, 2015

What’s in a political image?

It appears as though the government always has the innate need to threaten legal action against anyone who in their opinion uses words that seem to criticize them.

The latest case in point was a press conference held by the spokesman for the Ministry of Labor. There is an ongoing discussion about the minimum wage for garment workers with the labor unions. Some of the unions used terms like living wage or minimum wage. Now this obviously very bright spokesman stated that anybody who uses the wrong terminology will have to face legal action. For what I don’t know. What kind of wrong terms can one use in this context? He did not really elaborate on this. One can only presume they want to warn off the union members to go on strike which might turn violent again as in January 2014.

Another example is a speech the PM gave recently. It is a well-known fact that the he often resorts to crude language and threats when dealing with the opposition or anybody who dares to voice even the mildest criticism.

He said if the opposition won the next elections and would act on their plans to reclaim land lost to neighboring countries and redistribute land owned by rich people, they would provoke a war. They would have powerful enemies indicating well-heeled people in the audience. He intimated that they would not stand for it, and neither would the neighboring countries, alluding to the past allegations about Vietnam’s encroachment on Cambodian territory. These ‘enemies’ would protect their rights and holdings. He said that these tycoons are the opposition’s class enemy and taking away their hotels and giving them to the poor would provoke a war. Class enemies –isn’t that a term out of a Communist textbook?

He also referred to the current refugee crisis in Europe saying that the people left Syria, Iraq, and Libya because there is war, there are color revolutions, a desire for change. He must have gotten that wrong somehow. The people are leaving because of religious civil wars raging in these countries (Sunnis and Shiites – ISIS). In none of those countries did a color or peaceful revolution happen. That was the Ukraine before they had their own civil war. These people do want change, that’s for sure, but they want change from autocratic governments and a change in their lives so they can live peacefully. He seemed to imply that Cambodia might undergo the same problems if the opposition won.

The PM also referenced an interview in which Sam Rainsy said the PM wants to avoid the fate of Muhamar Ghaddafi. If he wants to topple him by a military coup Sam Rainsy should reserve a coffin. A very statesman like statement.

One might really conclude from all these statements that he must really be fearful of losing the next election. Why else would he conjure up war? It is as if he is trying to intimidate the entire population by playing on their fears?

Another fall-out from speeches and press conferences like this is the damage to the government’s image, maybe not so much at home but definitely abroad. After all Cambodia is still very much dependent on foreign aid, to the tune of approximately $800 million a year to be exact.  Why portray an image of a bully, although that characterization has clung to him for a long time. If the ruling party has a strong base within the population they don’t need to resort to these crude tactics. They could just let the image of a benevolent, caring government work for them. After all, this is what they think of themselves.

He chastised developed nations for not giving enough foreign aid to developing nations. A little ironic seeing as Cambodia itself is a major recipient of foreign aid. However, without that aid Cambodia would not be able to pay for many budget items, such as its security forces. A better image would behoove him well with the donor nations one might think. The donor nations overlooked many negative things in the past because any cuts in aid would affect the population in their opinion. Let’s not talk about corruption in this context though and where a lot of that money is spent.  He also repeated that request in a speech at the U. N. later. One can only wonder how much resonance this request elicited among the countries that fall short of those goals, e. g. the U. S.

Intrinsically, however, the PM is dead right. If the opposition were to win the next election and embarked on some of the plans, specifically seriously combating corruption, review of land property, sources of income of the rich in the public and private sectors, etc., they would not survive long. The rich and powerful are too deeply entrenched and have a wide network of cronies in place, not the least the many generals who would also stand to lose quite a lot, to accept any meddling in their affairs. A coup would not be unthinkable in that event, or would it? But I am sure the opposition realizes this without any of the warnings and threats. Before the PM left for New York he told the armed forces to look after Cambodia while he was gone. That pretty much says it all. He controls the military, he has the power, and as long as this remains like this, there won’t be a change of government.

On the other side of the aisle, so to speak, Sam Rainsy and Kem Sokha visited a Cham community the other day. Kem Sokha said there is no racial discrimination in Cambodia. Sam Rainsy supported this remark explaining there is no xenophobia only apprehension about the loss of land that has been going for so long. This was quite obviously in response to the PM’s statement to the new U.N. Human Rights Rapporteur that she should focus on racial discrimination in Cambodia. This should certainly be one point in any effort for reforms in Cambodia. But the claim that there is no racial discrimination is absurd, especially coming from such prominent proponents of anti-Vietnamese campaigns as Sam Rainsy and Kem Sokha. They use every opportunity to raise the subject of Vietnamese encroachment, illegal Vietnamese immigrants, and illegal Vietnamese voters rigging the elections in the CPP’s favor to foment racial resentment among the population. Reading or hearing this, one cannot help but think of them as self-serving, sanctimonious hypocrites and opportunists. Sam Rainsy had seriously claimed in one of the past election campaigns that the rapid increase of the population was because of all those illegal Vietnamese immigrants - unproven and outright false. How is that for fomenting racial discrimination?

Sometimes Sam Rainsy was called charismatic. How on earth did he ever attain that attribute?