Ms. Mu Sochua, the prominent female SRP deputy, the other day filed a lawsuit against the Prime Minister for defamation of her. The neutral observer is wondering why Ms. Sochua is resorting to a legal tactic usually employed by the government. After all, in the past only the Prime Minister and his Foreign Minister used this instrument. I didn’t hear the words spoken in Khmer so I have to rely on the various translations that appeared in the press. According to one source, this revolves around a speech the Prime Minister made in Kampot, Ms. Sochua’s district. He referred to a lady in the province as a ‘provocateur’. ‘She tripped on someone but she accused him of unbuttoning her blouse.’ Ms. Sochua claims she had an altercation with a CPP member over a photograph she was taking of an RCAF vehicle in the election campaign, which is against election regulations. In the course of the brief scuffle, a button of her blouse came off.
The Prime Minister didn’t name her directly but the context probably left no doubt whom he was referring to. Ms. Sochua took offense at that and now brought a lawsuit seeking a symbolic amount as restitution for her blemished honor. Defamation is very broadly defined as making false allegations against a public figure.
The question now is, ‘Did the Prime Minister indeed insult or slander her, that’s what I would call an attack on my personal honor, or was he just describing an event in a snide fashion?’ Assuming he indeed meant her, one could also interpret his remarks as calling her a liar. Now that would be an insult and probably fall into the defamation category – she is a very public figure in Cambodia. But one must question whether this is an ideal case to make a point, which Ms. Sochua is clearly trying to do, or whether this is a rather futile effort in showing the world how justice is dispensed in Cambodia. Observers of the situation in Cambodia know how this is done anyway. There would certainly be better cases to highlight some not so palatable characteristics of the Cambodian judicial system. One would have wished she had chosen another avenue to raise her public image. Come to think of it, the SRP politicians didn’t mince any words either when they called the government a bunch of thieves. Politics is a rough business and one needs to be somewhat thick-skinned to survive.
In other news, the lately somewhat silent SRP-leader Sam Rainsy was reported as once again calling on the government to implement certain policies to alleviate the economic crisis in Cambodia. He was interviewed on the Khmer version of the Voice of America. He repeated his three points, which are
1. Allocate $500 million (sic) in a special package to increase expenditures on social programs that help the poor, bolster the health and education systems and prepare new investment sites to create jobs, he said.
2. The National Bank should decrease interest rates, to avoid confiscation of land and homes of people who may be struggling under debt, while at the same time promoting more loans as people cope with the downturn.
3. The government should seek to decrease the prices of electricity and fuel, along with the price of tolls and other services.
First, one must wonder why the reporter didn’t ask the ‘former Finance Minister’ how he would pay for this. Clearly, Mr. Rainsy must know that you need to have revenues in order to pay for your expenditures. And clearly, he must know that Cambodia’s national budget is a mere $1.8 billion. Where and how would a government raise this additional money, which amounts to roughly one third of the entire budget?
That would really be interesting to find out from the SRP. If they came up with a constructive proposal, e. g. how to restructure the national budget, this would certainly enhance their credibility, and they wouldn’t have to resort to lawsuits to heighten their profile. This does not imply that the government’s tactics in that respect are any better or are even endorsed.
Sunday, April 26, 2009
Wednesday, April 15, 2009
Looking Back on My Cambodian Experience and Doing Business Here – Part I
Having talked about business and the economy here for some time I really haven’t devoted an entire post to this subject, that is, my experience in that field. After all, I have been doing this for most of my adult life, first as an employee for medium-sized to large corporations, then on my own, I should know a bit about both subjects – the economy in general and business in particular. This will also, quite naturally, include a description of the situation as it has developed in Cambodia over the last twenty years.
I first came to Cambodia in August 1989 when a Thai business partner had mentioned to me that both Vietnam and Cambodia would open up to the outside world, that is non-Communist world, and that we should go and have a look what we could do in terms of operating tours into both countries. We were already doing a comparatively small but pretty good business with Thailand for individual tourists and saw these two countries as nice extensions to our existing programs. The idea was that we would operate charter flights into Siem Reap. Additionally, as many Thai travel businesses do, my partner also dealt in gems, jewelry, and silk. For that trip, he put together a group of gem merchants that wanted to explore those opportunities in Vietnam. I was going to be drawn into that business too because of that trip.
Most of the long-time expats now living in Cambodia and Vietnam hadn’t been to either country at that time yet. Some of them are Vietnam War vets, but that was a different time.
You could count the number of cars on the roads in Ho Chi Minh City; this is where I went first. There were virtually no streetlights at night. The most widely used means of transportation was the light motorcycle, or moped, and the cyclo.
Going to Cambodia was a major hassle at that time. Vietnam at least had an embassy in Thailand and getting a visa there was no problem at all. They had started their Doi Moi (open door) program to foreign investment already. But Cambodia was so isolated that there were no flights into Cambodia other than from Vietnam. Naturally, they had a consulate in Ho Chi Minh City. When I went there, I was told it would take three days to process the application – the cost was $5 or $10, if I remember correctly. Getting on a flight wasn’t easy either. If it took three days, I would miss my booked flight and would have to wait another 3 days. My schedule didn’t allow for that. I tried to cajole the officer in speeding it up – but all I got was ‘no can do’. Communication was haphazard at best too. They had a set time of 11 o’clock every morning for communicating with the Foreign Ministry in Phnom Penh. I then turned to the time-honored practice of putting a $50-bill in my passport. Then all of a sudden, the officer remembered that he needed to go to Phnom Penh himself tomorrow and I could hitch a ride with him in his car. He would also try do make that call, and maybe he could get that visa tomorrow before we left.
So what do you think – would he get it done? Sure enough, when I turned up at the consulate the next day, my visa was waiting and the car would leave at 12 o’clock for the 8-hour drive to Phnom Penh. 8 hours for 240 km? If you had seen the roads at that time in both Vietnam and Cambodia, you would know why. On top of it, as people who have been to Cambodia know, they aren’t the world’s best drivers either. Add to that potholes up to 50 cm deep, the bicycles, mopeds transporting pigs, those collective taxis consisting of a moped towing a trailer with 20 people on it, and not to forget the ferry at Neak Leung, you would actually think 8 hours is a good time. Crossing the border at Moc Bai/Bavet was actually less of a hassle than I thought. It took only twenty minutes. What are now brick buildings at the ferry crossing used to be nothing but wooden shacks. Border checkpoints were but a single building on either side. They clearly weren’t geared for a lot of tourists or business people at that time.
Needless to say that because of the lack of modern communication I had not been able to make a reservation at a hotel. But then, Cambodia was still a Communist state and the Ministry of Tourism arranged everything for you. And it wasn’t exactly overflowing with visitors from abroad either. So the consulate officer took me to the Cambodiana Hotel, the only one that was acceptable for Western people at that time. There were a number of different hotels available, but they were all in a decrepit state, as I found out during later visits. There is no need to list them here, as they are all either gone or have been renovated and conform to international standard - no $5 or $20 flophouses at that time.
Being in the hospitality business I was comped for the 4 nights I stayed there. The next morning I was somewhat surprised when I got a call that my guide was waiting for me at the reception. I hadn’t ordered a guide, since I was used to exploring things on my own. But I was quickly informed that moving about Cambodia on your own was not in the cards. You could not set foot outside the door without the company of a tour guide from the Ministry of Tourism. Aha, I thought the same policy as in all Eastern European countries. And after all, the trip to Vietnam was with a group of Thai gem merchants, and a guide from Saigontourist had met us at the airport as well.
But these two Communist countries seemed to be a lot more relaxed in their controlling of visitors. A Western consular officer later once told me, this is not the type of Communism one could compare to the Eastern European style at all – one could describe it as less dogmatic, a blend of Buddhism and socialism. In that sense, my guide, a very short guy in his 30ies, turned out to be very friendly and helpful. When we talked we could do this about everything very openly, and he did not toe any discernible party line at all. Also, this way I was driven around in one of the rare cars on the roads in Cambodia. The so-called ‘rebels’, as the NYT called them at that time, the coalition of various political factions, including the Khmer Rouge, were still very active in their fight against the government. This is why there was a 7 pm curfew in place. So forget about nightlife or any other entertainment. If you could count the number of cars on the road in Ho Chi Minh City, they seemed to be completely absent in Phnom Penh. Even the mopeds weren’t as numerous. Whoever owned one counted himself very lucky. It seemed to be the transport for the entire family (and still is today). Five people on one of those little things were no rarity, almost the norm. The cyclo drivers rode down the streets at an even slower pace. I won’t forget this one scene at the Independence Monument; we came down Norodom Blvd. in our car heading north when a moto with 4 people on it sped along Sihanouk Blvd. heading west; it’s almost needless to say they were going on the wrong side of the road, but never mind, with such few vehicles around it didn’t really matter. The moto was on a direct collision course with us. Our driver seemingly wasn’t going to give way either, as he made no effort to slow down. The moto driver was staring straight ahead obviously oblivious to us. Our driver finally slowed on my request but was almost onto the moto when he honked. The moto driver snapped his head around, a look of utter surprise turning into fear on his face. It was almost comical. Then of all things to avert this almost certain disaster, he extended both his legs to the pavement in order to brake the moto by slithering his sandals along the road. Apparently, the brakes were not working, or he was sitting too far up front to reach them. One of his passengers probably had his feet on the main pegs. This would not have saved them, had it not been that our driver had at last braked the car down to an almost complete stop. Now, if another vehicle had come down on the correct side of the road in the same fashion the moto had raced along, these people would have been history. Still seeing this scene in my mind, it is rather funny or even comical despite the possible deaths from this.
Another nice example of Khmer mentality at that time I could observe one day at the Cambodiana Hotel. I was sitting in the lobby with a couple of people. Some workers were repainting walls at one end. One of them was painting a wall with a picture hung on it. He painstakingly used his brush very carefully to paint around the frame of the picture, careful not to get any paint on the frame. Certainly, he was very conscientious, but he never got the idea that it would have been better to just take the picture off the wall. This attitude both in traffic and of workers can sometimes still be seen today. But the people and the situation have changed dramatically since then. And I recount this not with snideness or even malice but with a chuckle.
Part of my purpose was to meet with officials to learn what they had in mind in terms of opening the country up to Western tourists. So a meeting was scheduled at the Ministry of Tourism on Norodom if I remember correctly. I thought that I would meet with a couple of lower echelon experts, as I was not leading an official Western delegation. To my surprise, the minister himself greeted me and I saw myself seated across about 10 or 12 people in the conference room. One really has to picture this – on one side the lone Westerner and on the other side 10 or 12 Khmer officials. Naturally, one was busy taking notes of the meeting. After all, here was a Westerner and one never knows what’s behind those guys, right? They might be enemies of the state and try to subvert the country.
The meeting was in a friendly atmosphere; they all listened very politely to what I had to say about the nature and essence of Western tourism. They nodded their heads understandingly at the more salient points I was making. Unfortunately, their response exhausted itself in reiterating their great interest to welcome Western tourists, and that they would do everything to make them feel at home. I had offered to help them set up representative offices in Europe at no charge. The U.S. still had a complete embargo in place for both Cambodia and Vietnam, so that country was out of question. Yes, they understood the need for this and would certainly study this thoroughly in the time to come. Well, I thought, not too bad for a first meeting. (Needless to say, that nothing ever came of that plan. It’s easy to see why – they simply didn’t have the money for it, nor did they have the freedom to travel yet. Anybody who traveled to the West at that time would just use this to defect.)
I first came to Cambodia in August 1989 when a Thai business partner had mentioned to me that both Vietnam and Cambodia would open up to the outside world, that is non-Communist world, and that we should go and have a look what we could do in terms of operating tours into both countries. We were already doing a comparatively small but pretty good business with Thailand for individual tourists and saw these two countries as nice extensions to our existing programs. The idea was that we would operate charter flights into Siem Reap. Additionally, as many Thai travel businesses do, my partner also dealt in gems, jewelry, and silk. For that trip, he put together a group of gem merchants that wanted to explore those opportunities in Vietnam. I was going to be drawn into that business too because of that trip.
Most of the long-time expats now living in Cambodia and Vietnam hadn’t been to either country at that time yet. Some of them are Vietnam War vets, but that was a different time.
You could count the number of cars on the roads in Ho Chi Minh City; this is where I went first. There were virtually no streetlights at night. The most widely used means of transportation was the light motorcycle, or moped, and the cyclo.
Going to Cambodia was a major hassle at that time. Vietnam at least had an embassy in Thailand and getting a visa there was no problem at all. They had started their Doi Moi (open door) program to foreign investment already. But Cambodia was so isolated that there were no flights into Cambodia other than from Vietnam. Naturally, they had a consulate in Ho Chi Minh City. When I went there, I was told it would take three days to process the application – the cost was $5 or $10, if I remember correctly. Getting on a flight wasn’t easy either. If it took three days, I would miss my booked flight and would have to wait another 3 days. My schedule didn’t allow for that. I tried to cajole the officer in speeding it up – but all I got was ‘no can do’. Communication was haphazard at best too. They had a set time of 11 o’clock every morning for communicating with the Foreign Ministry in Phnom Penh. I then turned to the time-honored practice of putting a $50-bill in my passport. Then all of a sudden, the officer remembered that he needed to go to Phnom Penh himself tomorrow and I could hitch a ride with him in his car. He would also try do make that call, and maybe he could get that visa tomorrow before we left.
So what do you think – would he get it done? Sure enough, when I turned up at the consulate the next day, my visa was waiting and the car would leave at 12 o’clock for the 8-hour drive to Phnom Penh. 8 hours for 240 km? If you had seen the roads at that time in both Vietnam and Cambodia, you would know why. On top of it, as people who have been to Cambodia know, they aren’t the world’s best drivers either. Add to that potholes up to 50 cm deep, the bicycles, mopeds transporting pigs, those collective taxis consisting of a moped towing a trailer with 20 people on it, and not to forget the ferry at Neak Leung, you would actually think 8 hours is a good time. Crossing the border at Moc Bai/Bavet was actually less of a hassle than I thought. It took only twenty minutes. What are now brick buildings at the ferry crossing used to be nothing but wooden shacks. Border checkpoints were but a single building on either side. They clearly weren’t geared for a lot of tourists or business people at that time.
Needless to say that because of the lack of modern communication I had not been able to make a reservation at a hotel. But then, Cambodia was still a Communist state and the Ministry of Tourism arranged everything for you. And it wasn’t exactly overflowing with visitors from abroad either. So the consulate officer took me to the Cambodiana Hotel, the only one that was acceptable for Western people at that time. There were a number of different hotels available, but they were all in a decrepit state, as I found out during later visits. There is no need to list them here, as they are all either gone or have been renovated and conform to international standard - no $5 or $20 flophouses at that time.
Being in the hospitality business I was comped for the 4 nights I stayed there. The next morning I was somewhat surprised when I got a call that my guide was waiting for me at the reception. I hadn’t ordered a guide, since I was used to exploring things on my own. But I was quickly informed that moving about Cambodia on your own was not in the cards. You could not set foot outside the door without the company of a tour guide from the Ministry of Tourism. Aha, I thought the same policy as in all Eastern European countries. And after all, the trip to Vietnam was with a group of Thai gem merchants, and a guide from Saigontourist had met us at the airport as well.
But these two Communist countries seemed to be a lot more relaxed in their controlling of visitors. A Western consular officer later once told me, this is not the type of Communism one could compare to the Eastern European style at all – one could describe it as less dogmatic, a blend of Buddhism and socialism. In that sense, my guide, a very short guy in his 30ies, turned out to be very friendly and helpful. When we talked we could do this about everything very openly, and he did not toe any discernible party line at all. Also, this way I was driven around in one of the rare cars on the roads in Cambodia. The so-called ‘rebels’, as the NYT called them at that time, the coalition of various political factions, including the Khmer Rouge, were still very active in their fight against the government. This is why there was a 7 pm curfew in place. So forget about nightlife or any other entertainment. If you could count the number of cars on the road in Ho Chi Minh City, they seemed to be completely absent in Phnom Penh. Even the mopeds weren’t as numerous. Whoever owned one counted himself very lucky. It seemed to be the transport for the entire family (and still is today). Five people on one of those little things were no rarity, almost the norm. The cyclo drivers rode down the streets at an even slower pace. I won’t forget this one scene at the Independence Monument; we came down Norodom Blvd. in our car heading north when a moto with 4 people on it sped along Sihanouk Blvd. heading west; it’s almost needless to say they were going on the wrong side of the road, but never mind, with such few vehicles around it didn’t really matter. The moto was on a direct collision course with us. Our driver seemingly wasn’t going to give way either, as he made no effort to slow down. The moto driver was staring straight ahead obviously oblivious to us. Our driver finally slowed on my request but was almost onto the moto when he honked. The moto driver snapped his head around, a look of utter surprise turning into fear on his face. It was almost comical. Then of all things to avert this almost certain disaster, he extended both his legs to the pavement in order to brake the moto by slithering his sandals along the road. Apparently, the brakes were not working, or he was sitting too far up front to reach them. One of his passengers probably had his feet on the main pegs. This would not have saved them, had it not been that our driver had at last braked the car down to an almost complete stop. Now, if another vehicle had come down on the correct side of the road in the same fashion the moto had raced along, these people would have been history. Still seeing this scene in my mind, it is rather funny or even comical despite the possible deaths from this.
Another nice example of Khmer mentality at that time I could observe one day at the Cambodiana Hotel. I was sitting in the lobby with a couple of people. Some workers were repainting walls at one end. One of them was painting a wall with a picture hung on it. He painstakingly used his brush very carefully to paint around the frame of the picture, careful not to get any paint on the frame. Certainly, he was very conscientious, but he never got the idea that it would have been better to just take the picture off the wall. This attitude both in traffic and of workers can sometimes still be seen today. But the people and the situation have changed dramatically since then. And I recount this not with snideness or even malice but with a chuckle.
Part of my purpose was to meet with officials to learn what they had in mind in terms of opening the country up to Western tourists. So a meeting was scheduled at the Ministry of Tourism on Norodom if I remember correctly. I thought that I would meet with a couple of lower echelon experts, as I was not leading an official Western delegation. To my surprise, the minister himself greeted me and I saw myself seated across about 10 or 12 people in the conference room. One really has to picture this – on one side the lone Westerner and on the other side 10 or 12 Khmer officials. Naturally, one was busy taking notes of the meeting. After all, here was a Westerner and one never knows what’s behind those guys, right? They might be enemies of the state and try to subvert the country.
The meeting was in a friendly atmosphere; they all listened very politely to what I had to say about the nature and essence of Western tourism. They nodded their heads understandingly at the more salient points I was making. Unfortunately, their response exhausted itself in reiterating their great interest to welcome Western tourists, and that they would do everything to make them feel at home. I had offered to help them set up representative offices in Europe at no charge. The U.S. still had a complete embargo in place for both Cambodia and Vietnam, so that country was out of question. Yes, they understood the need for this and would certainly study this thoroughly in the time to come. Well, I thought, not too bad for a first meeting. (Needless to say, that nothing ever came of that plan. It’s easy to see why – they simply didn’t have the money for it, nor did they have the freedom to travel yet. Anybody who traveled to the West at that time would just use this to defect.)
The Silver Pagoda in 1989/90
Outside Phsa Thmey
On that first trip I also traveled to Siem Reap to see Angkor Wat. To be honest, at that time I did not know the significance this site held for Cambodia and her people. To me this was just another historic religious site – I had seen plenty of those, including Borobodur in Indonesia, probably the largest Buddhist temple in the world.
The flight was on an Antonov 24, a rickety Soviet-made 44-seater, without sufficient air conditioning, worn seats, and no service. The so-called airport was nothing but an airfield with s simple hut for a terminal. The Grand Hotel in Siem Reap was unique and very nice in its French colonial architecture. Unfortunately, it had fallen into great disrepair. The steps of the staircase were worn out and creaky. The rooms were spacious, but smelled musty. The bed sheets looked gray rather than white, and the bathrooms sported rusty and leaky plumbing. The beds were saggy. I didn’t dare look at the mattresses.
Some hotels seem to believe they have to serve Western food to Westerners. This may be all right if it were tasty and well prepared. Nothing of that sort was available at the Grand Hotel at that time.
The next day we drove out to Angkor Wat. It was a great, amazing sight to see – even for a world traveler like me. What marred the impression somewhat were the soldiers with their ubiquitous AK-47s that were stationed everywhere along the road as well at the temple itself. My guide said we couldn’t go too far inside, as they never knew whether or not some Khmer Rouge had advanced overnight. Angkor Thom was out of bounds for us, since this was more or less Khmer Rouge territory. And when he made that point this was promptly underscored by the sound of distant gunfire. About half of Angkor Wat was still overgrown by thick jungle and not accessible at that time anyway.
On that first trip I also traveled to Siem Reap to see Angkor Wat. To be honest, at that time I did not know the significance this site held for Cambodia and her people. To me this was just another historic religious site – I had seen plenty of those, including Borobodur in Indonesia, probably the largest Buddhist temple in the world.
The flight was on an Antonov 24, a rickety Soviet-made 44-seater, without sufficient air conditioning, worn seats, and no service. The so-called airport was nothing but an airfield with s simple hut for a terminal. The Grand Hotel in Siem Reap was unique and very nice in its French colonial architecture. Unfortunately, it had fallen into great disrepair. The steps of the staircase were worn out and creaky. The rooms were spacious, but smelled musty. The bed sheets looked gray rather than white, and the bathrooms sported rusty and leaky plumbing. The beds were saggy. I didn’t dare look at the mattresses.
Some hotels seem to believe they have to serve Western food to Westerners. This may be all right if it were tasty and well prepared. Nothing of that sort was available at the Grand Hotel at that time.
The next day we drove out to Angkor Wat. It was a great, amazing sight to see – even for a world traveler like me. What marred the impression somewhat were the soldiers with their ubiquitous AK-47s that were stationed everywhere along the road as well at the temple itself. My guide said we couldn’t go too far inside, as they never knew whether or not some Khmer Rouge had advanced overnight. Angkor Thom was out of bounds for us, since this was more or less Khmer Rouge territory. And when he made that point this was promptly underscored by the sound of distant gunfire. About half of Angkor Wat was still overgrown by thick jungle and not accessible at that time anyway.
Angkor Wat in 1989/90
One might think that all this did not sound too auspicious for organizing tours for pampered, experienced Western tourists; many of whom are prone to complain about everything, including about too much sand on beaches (I kid you not). But it sure did not deter me. I saw the novelty of Cambodia on the map and wanted to be one of, if not the, first one to send Western tourists to Cambodia. I had heard from my guide that people from the Soviet Union, Czechoslovakia, and other Eastern European brother countries came to Cambodia, but they were mostly embassy staff or technical assistance people. From what I heard, the local people didn’t like them too much, as they tended to be somewhat raucous and rowdy, drank a lot, and liked to swim in the nude.
On my return to Phnom Penh I went back to the Cambodiana but this time wasn’t comped. The made me pay $25 for a room. I had a couple of days to spare there and just lay by the pool soaking in some sun. In the evening, however, to my surprise I found the restaurant full of local people. I had thought they wouldn’t have the money to afford it (only dollars were accepted). And I was equally surprised to see that they broke out the big bottles of Hennessey XO to wash down their meals with. I knew of the Asian habit of drinking Cognac or Whiskey with instead of after the meals. However, I wouldn’t have expected this in Communist and backward Cambodia. But there they were, eating and drinking up a storm and being noisy as hell. Once they had finished their dinner, a side door opened and a middle-aged lady came in leading a phalanx of young pretty, overly made-up girls, all Vietnamese – the after-dinner entertainment for the locals. A band set up on a small stage and began to play. But only the girls used the dance floor, dancing with each other – the men were too drunk almost for the most part anyway. The mama-san walked from table to table taking her orders and then sitting down the requested girls with the guests. I knew already that Communists were no prudes; in fact, they were sexually more liberated before the West had its sexual revolution in the late ‘60ies. Again, I hadn’t expected such blatant show of ‘amoral’ behavior in Cambodia, but admittedly I didn’t know too much about the country and its people at that time yet. Well, I wondered where those party functionaries, this is what they obviously were, found the money for this kind of life-style. Also to my surprise, dollars abounded everywhere. In fact, it was the common currency then already. Obviously, at the first glimmer of the incipient changes a lot of dollars had found their way into Cambodia. Hard currencies could buy everything in Communist countries before, but normal people usually didn’t have access to it. However, they sure got their hands on it fast, didn’t they? When I returned to my room, I saw a couple of drunken men with their ladies of the night staggering along the hallway toward some rooms. Another surprise – they used the top hotel in Phnom Penh as an by-the-hour hotel? I think it was managed by Novotel at that time. I wonder whether they knew about this at their regional head office in Singapore.
On my final day of my first trip, a Sunday, my guide took me out to Kien Svay for a Sunday morning picnic. Only Khmer people there, no foreigners whatsoever. Again, here was another wanton side of Cambodia, at least according to my guide. Men came out here with their sweathearts, not their wives, rented one of the thatched huts that could be hung with bamboo mats to ensure privacy and obviously enjoyed a Sunday morning of delight. It was evident by the Soviet-made cars parked in front of those cottages that only the nomenclature indulged in those delights. On the other hand, at the main plaza, so to speak, many families with children had come there too. Otherwise Kien Svay offered beer on the rocks, for lack of refrigeration, and some really tasty food in a at that time still placid and pleasant setting. It was hot, the beer was still drinkable, I guess it made it a beer light, and you could really kick back. Once I got back to the hotel I was ready for a nice afternoon nap.
One might think that all this did not sound too auspicious for organizing tours for pampered, experienced Western tourists; many of whom are prone to complain about everything, including about too much sand on beaches (I kid you not). But it sure did not deter me. I saw the novelty of Cambodia on the map and wanted to be one of, if not the, first one to send Western tourists to Cambodia. I had heard from my guide that people from the Soviet Union, Czechoslovakia, and other Eastern European brother countries came to Cambodia, but they were mostly embassy staff or technical assistance people. From what I heard, the local people didn’t like them too much, as they tended to be somewhat raucous and rowdy, drank a lot, and liked to swim in the nude.
On my return to Phnom Penh I went back to the Cambodiana but this time wasn’t comped. The made me pay $25 for a room. I had a couple of days to spare there and just lay by the pool soaking in some sun. In the evening, however, to my surprise I found the restaurant full of local people. I had thought they wouldn’t have the money to afford it (only dollars were accepted). And I was equally surprised to see that they broke out the big bottles of Hennessey XO to wash down their meals with. I knew of the Asian habit of drinking Cognac or Whiskey with instead of after the meals. However, I wouldn’t have expected this in Communist and backward Cambodia. But there they were, eating and drinking up a storm and being noisy as hell. Once they had finished their dinner, a side door opened and a middle-aged lady came in leading a phalanx of young pretty, overly made-up girls, all Vietnamese – the after-dinner entertainment for the locals. A band set up on a small stage and began to play. But only the girls used the dance floor, dancing with each other – the men were too drunk almost for the most part anyway. The mama-san walked from table to table taking her orders and then sitting down the requested girls with the guests. I knew already that Communists were no prudes; in fact, they were sexually more liberated before the West had its sexual revolution in the late ‘60ies. Again, I hadn’t expected such blatant show of ‘amoral’ behavior in Cambodia, but admittedly I didn’t know too much about the country and its people at that time yet. Well, I wondered where those party functionaries, this is what they obviously were, found the money for this kind of life-style. Also to my surprise, dollars abounded everywhere. In fact, it was the common currency then already. Obviously, at the first glimmer of the incipient changes a lot of dollars had found their way into Cambodia. Hard currencies could buy everything in Communist countries before, but normal people usually didn’t have access to it. However, they sure got their hands on it fast, didn’t they? When I returned to my room, I saw a couple of drunken men with their ladies of the night staggering along the hallway toward some rooms. Another surprise – they used the top hotel in Phnom Penh as an by-the-hour hotel? I think it was managed by Novotel at that time. I wonder whether they knew about this at their regional head office in Singapore.
On my final day of my first trip, a Sunday, my guide took me out to Kien Svay for a Sunday morning picnic. Only Khmer people there, no foreigners whatsoever. Again, here was another wanton side of Cambodia, at least according to my guide. Men came out here with their sweathearts, not their wives, rented one of the thatched huts that could be hung with bamboo mats to ensure privacy and obviously enjoyed a Sunday morning of delight. It was evident by the Soviet-made cars parked in front of those cottages that only the nomenclature indulged in those delights. On the other hand, at the main plaza, so to speak, many families with children had come there too. Otherwise Kien Svay offered beer on the rocks, for lack of refrigeration, and some really tasty food in a at that time still placid and pleasant setting. It was hot, the beer was still drinkable, I guess it made it a beer light, and you could really kick back. Once I got back to the hotel I was ready for a nice afternoon nap.
Countryside
To be continued
Thursday, April 9, 2009
Contraction or Growth?
With all those dire predictions coming out virtually every day, or so it seems, and each one giving a different figure to boot, one doesn’t really know what to think anymore. The latest one to weigh in was the World Bank with a 1% contraction, and the previous one was the Economist Intelligence Unit with a prediction of Cambodia’s susceptibility to social unrest and an increase of 200,000 people to fall below the poverty line.
The government, with the Prime Minister seemingly the most vociferous one, vehemently denies all those findings and sticks to its predictions of continuing growth, albeit at a slower pace.
I believe we can discount the SRP’s comments altogether, as those folks don’t have a clue about the economy at all. They keep blowing hot air.
What struck me most, however, was a comment made by Chap Sotharith of the Cambodia Institute of Cooperation and Peace (CICP), which I read in today’s Phnom Penh Post. According to him, the growth rate will be approximately 5 – 6%, thereby sticking to the government’s line. He also said that export revenue made up only 20% of the GDP. Now I don’t know where he got that number. But the last time I looked agriculture made up 30%, industry 30% and services 40% of the GDP. However, a disproportionate number of approximately 75% of the labor force work in agriculture, but that’s not a factor for the GDP.
With the decline of about 30% to 40% in the garment sector reported, and a 15% drop in rubber exports (not in tonnage but because of a sharp drop in prices), and a decrease of tourist arrivals (2% so far isn’t all that much; we still got 9 months to go), one thing is for sure, the GDP will shrink. By how much will be anybody’s guess. Depending on the parameters, used one might conclude a contraction, like the World Bank, or a growth rate of about 3%, although 5-6% seems a little far-fetched. For those people having an overly optimistic view the results most likely will be disappointing. Officialdom must paint a rosier picture. They want foreign capital inflow to resume to at least a semblance of the previous years; they want to assure investors that Cambodia is still a place where they can safely invest. Who can blame them for that? It’s their job, isn’t it?
Additionally, one important factor mostly overlooked is the question of whether all the numbers used are reliable. Given the government’s state of computerization and reporting I venture to doubt that. For those readers of this blog who are gathering information about Cambodia for a possible business venture or a return to their homeland, don’t be confused by all those predictions - just sit back and relax, and do your due diligence and act with prudence. The rubber industry, my own industry, still operates at a profit despite the 15% drop.
And even a 1% contraction, which would amount to approximately $1.2 billion, won’t really be seen or felt dramatically. People will lose their jobs, small business owners will feel the pinch, and hotels will have to make do with fewer guests for some time, but over all life will go on.
The social unrest risk has to be seen in Cambodia’s context. First, it is a risk, meaning it might or might not occur. Second, the mindset of the population in general really isn’t wont to wander in that direction.
200,000 more poor people? They used $1.25 per day, while the government uses $.60. Before they all used $1.50 or even $2.0 a day. Now which is it? Of course, there will be more poverty in a recession. Just look at the U. S. People live in tents there because they lost their homes. Throwing out all those numbers doesn’t really help anybody. What we do know is that one cannot live on $50 or $60 a month in Phnom Penh. But one can scrape by on that in the countryside. With 75% employed in agriculture, and with the majority of the rural population living on subsistence farming, it is hard to draw a definitive line of poverty there.
For social unrest to really happen you need agitators. I would think those would be quickly dealt with in Cambodia. People with political leadership qualities instigate social unrest. There simply aren’t any of those around outside the government in Cambodia.
And another thing is certain. Most of those reports, while in themselves conceivable and well-founded on their parameters, don’t have a lot to do with how things are on the ground in Cambodia. Statistics show the weak spots and offer a guideline, but we all know that a lot still needs to be done in Cambodia.
The government, with the Prime Minister seemingly the most vociferous one, vehemently denies all those findings and sticks to its predictions of continuing growth, albeit at a slower pace.
I believe we can discount the SRP’s comments altogether, as those folks don’t have a clue about the economy at all. They keep blowing hot air.
What struck me most, however, was a comment made by Chap Sotharith of the Cambodia Institute of Cooperation and Peace (CICP), which I read in today’s Phnom Penh Post. According to him, the growth rate will be approximately 5 – 6%, thereby sticking to the government’s line. He also said that export revenue made up only 20% of the GDP. Now I don’t know where he got that number. But the last time I looked agriculture made up 30%, industry 30% and services 40% of the GDP. However, a disproportionate number of approximately 75% of the labor force work in agriculture, but that’s not a factor for the GDP.
With the decline of about 30% to 40% in the garment sector reported, and a 15% drop in rubber exports (not in tonnage but because of a sharp drop in prices), and a decrease of tourist arrivals (2% so far isn’t all that much; we still got 9 months to go), one thing is for sure, the GDP will shrink. By how much will be anybody’s guess. Depending on the parameters, used one might conclude a contraction, like the World Bank, or a growth rate of about 3%, although 5-6% seems a little far-fetched. For those people having an overly optimistic view the results most likely will be disappointing. Officialdom must paint a rosier picture. They want foreign capital inflow to resume to at least a semblance of the previous years; they want to assure investors that Cambodia is still a place where they can safely invest. Who can blame them for that? It’s their job, isn’t it?
Additionally, one important factor mostly overlooked is the question of whether all the numbers used are reliable. Given the government’s state of computerization and reporting I venture to doubt that. For those readers of this blog who are gathering information about Cambodia for a possible business venture or a return to their homeland, don’t be confused by all those predictions - just sit back and relax, and do your due diligence and act with prudence. The rubber industry, my own industry, still operates at a profit despite the 15% drop.
And even a 1% contraction, which would amount to approximately $1.2 billion, won’t really be seen or felt dramatically. People will lose their jobs, small business owners will feel the pinch, and hotels will have to make do with fewer guests for some time, but over all life will go on.
The social unrest risk has to be seen in Cambodia’s context. First, it is a risk, meaning it might or might not occur. Second, the mindset of the population in general really isn’t wont to wander in that direction.
200,000 more poor people? They used $1.25 per day, while the government uses $.60. Before they all used $1.50 or even $2.0 a day. Now which is it? Of course, there will be more poverty in a recession. Just look at the U. S. People live in tents there because they lost their homes. Throwing out all those numbers doesn’t really help anybody. What we do know is that one cannot live on $50 or $60 a month in Phnom Penh. But one can scrape by on that in the countryside. With 75% employed in agriculture, and with the majority of the rural population living on subsistence farming, it is hard to draw a definitive line of poverty there.
For social unrest to really happen you need agitators. I would think those would be quickly dealt with in Cambodia. People with political leadership qualities instigate social unrest. There simply aren’t any of those around outside the government in Cambodia.
And another thing is certain. Most of those reports, while in themselves conceivable and well-founded on their parameters, don’t have a lot to do with how things are on the ground in Cambodia. Statistics show the weak spots and offer a guideline, but we all know that a lot still needs to be done in Cambodia.
Thursday, March 26, 2009
Can Cambodia Do Anything to Dampen the Effects of the Economic Crisis?
First, we need to ask whether Cambodia is suffering from the same effects as other nations and whether the same sort of aid and support can be brought to bear in this country. Second, we also need to look at the current regional geo-political situation in face of repeated incursions by Thai troops into Cambodian territory. Some constraints might hamper the government’s ability to act decisively in either sector.
The media come out almost every day with another dire look at the Cambodian economy. If they are to be believed the country faces almost immediate collapse, or so one might assume. But is it really so bad, or can we discount some of the representations think tanks and many other institutions publish? What we do know, though, is that more often than not all predictions are more like reading tealeaves than anything else. Of course, they use certain parameters, but the values of those parameters are hypothetical, and as such rather subjective. Remember, some analysts saw oil prices at $200 at the end of 2008. The U. S. performed better in the 1st quarter of 2009 than analysts expected. So can we disregard them altogether? Certainly not, but rather than seeing them as absolute we should all take them with a little grain of salt.
The Prime Minister was originally very sanguine in his outlook and stated that the crisis will more or less bypass Cambodia, as it does not have an economic structure similar to other countries. He is right about the second part. Of course, he is a politician and they usually paint a better picture if they are in power or a bleaker one if they are the opposition. The same holds true in Cambodia. Naturally, he is now reviled for this remark from many quarters.
Of course, what he failed to see was that Cambodia with its narrow economic base and dependence on foreign economies, whether as the destination for exports or origin of tourists will eventually be affected one way or another. The current downturn in all major sectors proves the point.
On the other hand, we should also remember that leading politicians in the countries most affected did not see this crisis until it had already happened. It looks as though virtually everybody was literally caught with their pants down. I, for one, still remember the statements by the previous American presidential candidate John McCain that ‘the fundamentals of the American economy are strong’ right up to the minute big banks started to falter. The previous president didn’t have a clue whatsoever anyway. And the leaders in Europe weren’t faring much better either.
President Obama hastily cobbled together a stimulus package and a trillion-dollar deficit budget to put an end to the current downturn and to lead the American economy out of this recession.
Europe is still wavering and squabbling among themselves while the rest of the world is standing by, waiting for signals from the industrialized world to have its repercussions everywhere.
Now what about tiny Cambodia? Can Cambodia do the same? We know that the main sectors are the garment manufacturing industry, construction and real estate, tourism, and agriculture – mainly rubber, rice, and cassava (tapioca), and some palm oil. There is a fish industry, but it is mainly for domestic consumption, there was a somewhat sizable cashew nut production but many a cashew farmer converted to cassava or rubber.
Reportedly, the Cambodian national budget calls for $1.88 billion for 2009. $223 million or 11.9% is allocated for national defense and security. Unfortunately, the government has not made available the budget to the public or even the media. We do not know the allocations by sector. But we do know that the defense and security budget includes all expenditures for the military, the national police, the border police, etc. Therefore, this item looks less generous than at first glance. One also needs to remember the brief flare-up at the Thai border in 2008. It makes sense that the government wants to bolster its military power vis-à-vis Thailand. $399 million or 21.2% are set aside for health and education, which is less than most developed nations spend but still considered within an accepted range.
Budgets are passed and once people have money that is given to them, they tend to spend it. However, if there is a shortfall they won’t be able to. As the economy slows down and collection of taxes don’t meet projections all that allocated money may not be available to spend, so certain items, e. g. construction of new military barracks might be postponed, or some new schools might not be built. The major increases are to go into pay-raises for the military, teachers, and civil servants. They all say it is still not enough, and they are right. We should also remember that more than half of the budget is financed by foreign aid, namely a cool $1.0 billion.
Son Chhay, apparently the economic spokesperson for the opposition – not as one might assume Sam Rainsy, a financial expert - requested that the government impose tariffs in order to prevent cheaper imports from impacting the Cambodian marketplace. Previously he had also called for subsidies to farmers to strengthen their position.
Finance Minister Keath Chhon recently wrote that the government subsidized electricity with $300 million in 2008, and $450 million went to the fiber industry. But that was all in 2008. He said further that government intervention, say subsidies, accounted for about $500 million of Cambodia’s GDP, an estimated $10.3 billion at the official exchange rate or $29.24 billion by purchasing power parity. In other words, subsidies account for 4.9 % of the GDP. This is rather substantial. It would be interesting to know the public sector’s contribution to the GDP in order to really gauge the government’s efforts for the economy. I couldn’t find a source on that figure. Any emails to the finance ministry remain unanswered.
Now should the government support the private sector in a way similar to what the U. S. government is doing or would this be somewhat counterproductive as financial resources allocated for certain purposes, e.g. public works, would not be available there? In other words, funds to boost the garment industry would not be available for, say, building roads, which after all provide jobs in the construction industry. Consequently, you save jobs in one industry but lose jobs in another. I don’t think that makes a lot of sense. And remember, private businesses are for profit and business owners might not use public funds to bolster their overall business and save jobs but to guarantee their bottom line. We see market forces at work in the garment industry - nothing more, nothing less. It is not the government’s role to interfere in faltering businesses. These are not businesses too big to fail.
How would you support the tourism industry? You can’t just go out to foreign countries and corral tourists to be sent to Cambodia. Cambodia is attractive enough as a destination for individual tourists from Europe and the U. S. and package tourists from other Asian countries. If foreign economies tank, you can spend all the money you want in advertising but you may only say a very small increase, if that, in arrivals. What has been missed in the past can’t be caught up with over the short term – namely, a more diverse tourism infrastructure, mainly along the coast. Cambodia must appeal to package tourists from Europe and the U. S. The benefit lies in larger numbers. But the country just does not have an adequate infrastructure to accommodate those. Last year we saw an increase of just 5% as opposed to a predicted 25%. Well, the 25% were put out at the beginning of 2008 when the financial crisis hadn’t hit full force yet. All things considered, the 5% is still an impressive number. In the first 2 months of 2009, there were 2% fewer arrivals than in the same period last year. People in the tourism industry know this is nothing, certainly no cause for alarm. In spite of this being the high season, this is not a discouraging number, quite the opposite and the year is not over yet. This is not to say that the Ministry for Tourism shouldn’t make any efforts to lure more tourists into the country. But to spend extra money? I wouldn’t do that. Additionally, any dollar spent now will be just like of puff of wind and mostly ineffective, as it will show results, if at all, in July or August, traditionally low season in Cambodia with fewer arrivals to begin with.
Agriculture has been hit hard with a 40% drop in prices for cassava (tapioca) and a 15% drop in rubber exports in 2008 and the plummeting of prices by 50%. There is a rice surplus available for export, but it just so happens that other countries are saddled with the same problems. No amount of subsidy will alleviate this. After all, this is not a regional problem, this is a global crisis – one thing the opposition seemingly forgets when calling for protectionist measures.
The problems in agriculture are mostly homemade and structural. 90% of the entire annual rubber production is sold to Vietnam, which just rebrands it as Vietnamese and sells it on the world market. In times of slowing demand, Vietnam naturally stops buying Cambodian rubber and sells its own first. The marketing of the surplus in rice is hampered by the same problem. Recently, I was offered 200,000 mt to sell internationally. The agent for the seller couldn’t give me the international rice classification but gave me the Khmer names only. Nobody in Africa knows anything about Khmer rice, as good as it may be. Then they wanted a 15% down payment. This is unheard of in international trade, unless it’s a government. What I mean to say is that there is an insufficient knowledge base in the country, especially in agriculture, to market their products internationally.
Then there is this strange effect, I don’t know whether it’s a typical Cambodian feature. But once they see somebody is successful with one product they all scramble to trade or plant the same product. There were rising prices for cassava in 2007 and 2008 so many changed from cashew nuts to cassava. Now that cassava is afflicted by slackening demand, they don’t know what to do. Should the government simply buy up all the production that can’t be sold? I don’t think so.
The same applies to the rubber industry, which I happen to know intimately. The government actively encouraged the cultivation of new rubber plantations, and many followed that advice. Now world demand has dropped dramatically, and prices fell just as dramatically. Despite the drop, however, the industry will survive. They just face a lean year or two. Again, no subsidy would ameliorate this. We just need to wait for demand to pick up; and this will happen once the auto industry has retooled to better, more-fuel efficient, or alternative energy-driven cars. Tires will be needed for a long time to come, not to mention other huge industries that use rubber in their products, e.g. the health industry.
And now to the construction and real estate industry, which was fueled by mostly Korean investments and developers and Cambodian entrepreneurs who wanted to imitate them. For a while it all worked out well. I won’t repeat here what I wrote about extensively in other posts. Can the government do anything for this sector at all? The short answer is a simple no. The land law on the books, if enforced, is sufficient to protect landowners and prospective buyers. There is a need to regulate the industry, though. Developers’ escrow accounts serve to protect homebuyers and investors and should not be waived. Licensing of developers is another must. As I said recently, the speculators were dealing among themselves a lot of time. There were building and speculating for phantom buyers. They simply don’t exist in that large a number. Again, how can the government help? Aside from ensuring that shady developers don’t disappear overnight, it can’t.
The cause of Cambodia’s economic problems can be found overseas on the one hand and are structural on the other. For both there is no immediate remedy. Funds are scarce and limited and since this is a dollar-based economy, no amount of printing new riels would help, other than blowing inflation out of proportion. In the U. S. and other affected countries, it was and is mainly a financial crisis with repercussions across the entire economy. What Cambodia goes through is what can be called a tertiary effect – financial crisis abroad, recession abroad, dwindling consumption abroad, consequently dampening the Cambodian economy. Again, no amount of stimulus money can ward this off. Domestic consumption cannot be spurred artificially with the majority of people living hand to mouth.
I believe the only way to live through this is to sit tight and wait for the U. S., European, Korean, and other tiger countries’ economies, in short Cambodian trading partners, to pull out of the recession. The government needs to implement a better tax collection system, ensuring that state revenue is close to what is projected in the budget, stick to its programs, and spend the money where it is supposed to go.
The perpetual question of corruption comes into play at this point as well, and we are not talking about petty corruption of the policeman who collects $3 for a wrong turn and pockets it. We are talking about the corruption at the higher and highest levels. The government must make sure that all the money received as foreign aid, or earned as royalties for land or mineral concessions, or from leases of whatever kind, doesn’t end up in party coffers or in private bank accounts but in the national treasury. If that were accomplished Cambodia would have done a great deal to help itself and will live through this slow-down relatively unscathed and be ready for the upswing in 2010, which will hopefully be the year this nightmare ends.
Let’s not forget Cambodia simply does not have the structure and the size, let alone the resources, to implement policies a lá Obama. So far, comparatively it has not been battered as severely as the U. S. or Europe. That may be a poor consolation for the people who just lost their jobs. But it by and large is still a fact.
P. S. I worked 20 years in the tourism industry, and have 20-year experience in international trade (a few years overlapping), and am now engaged in the agricultural sector in Cambodia.
The media come out almost every day with another dire look at the Cambodian economy. If they are to be believed the country faces almost immediate collapse, or so one might assume. But is it really so bad, or can we discount some of the representations think tanks and many other institutions publish? What we do know, though, is that more often than not all predictions are more like reading tealeaves than anything else. Of course, they use certain parameters, but the values of those parameters are hypothetical, and as such rather subjective. Remember, some analysts saw oil prices at $200 at the end of 2008. The U. S. performed better in the 1st quarter of 2009 than analysts expected. So can we disregard them altogether? Certainly not, but rather than seeing them as absolute we should all take them with a little grain of salt.
The Prime Minister was originally very sanguine in his outlook and stated that the crisis will more or less bypass Cambodia, as it does not have an economic structure similar to other countries. He is right about the second part. Of course, he is a politician and they usually paint a better picture if they are in power or a bleaker one if they are the opposition. The same holds true in Cambodia. Naturally, he is now reviled for this remark from many quarters.
Of course, what he failed to see was that Cambodia with its narrow economic base and dependence on foreign economies, whether as the destination for exports or origin of tourists will eventually be affected one way or another. The current downturn in all major sectors proves the point.
On the other hand, we should also remember that leading politicians in the countries most affected did not see this crisis until it had already happened. It looks as though virtually everybody was literally caught with their pants down. I, for one, still remember the statements by the previous American presidential candidate John McCain that ‘the fundamentals of the American economy are strong’ right up to the minute big banks started to falter. The previous president didn’t have a clue whatsoever anyway. And the leaders in Europe weren’t faring much better either.
President Obama hastily cobbled together a stimulus package and a trillion-dollar deficit budget to put an end to the current downturn and to lead the American economy out of this recession.
Europe is still wavering and squabbling among themselves while the rest of the world is standing by, waiting for signals from the industrialized world to have its repercussions everywhere.
Now what about tiny Cambodia? Can Cambodia do the same? We know that the main sectors are the garment manufacturing industry, construction and real estate, tourism, and agriculture – mainly rubber, rice, and cassava (tapioca), and some palm oil. There is a fish industry, but it is mainly for domestic consumption, there was a somewhat sizable cashew nut production but many a cashew farmer converted to cassava or rubber.
Reportedly, the Cambodian national budget calls for $1.88 billion for 2009. $223 million or 11.9% is allocated for national defense and security. Unfortunately, the government has not made available the budget to the public or even the media. We do not know the allocations by sector. But we do know that the defense and security budget includes all expenditures for the military, the national police, the border police, etc. Therefore, this item looks less generous than at first glance. One also needs to remember the brief flare-up at the Thai border in 2008. It makes sense that the government wants to bolster its military power vis-à-vis Thailand. $399 million or 21.2% are set aside for health and education, which is less than most developed nations spend but still considered within an accepted range.
Budgets are passed and once people have money that is given to them, they tend to spend it. However, if there is a shortfall they won’t be able to. As the economy slows down and collection of taxes don’t meet projections all that allocated money may not be available to spend, so certain items, e. g. construction of new military barracks might be postponed, or some new schools might not be built. The major increases are to go into pay-raises for the military, teachers, and civil servants. They all say it is still not enough, and they are right. We should also remember that more than half of the budget is financed by foreign aid, namely a cool $1.0 billion.
Son Chhay, apparently the economic spokesperson for the opposition – not as one might assume Sam Rainsy, a financial expert - requested that the government impose tariffs in order to prevent cheaper imports from impacting the Cambodian marketplace. Previously he had also called for subsidies to farmers to strengthen their position.
Finance Minister Keath Chhon recently wrote that the government subsidized electricity with $300 million in 2008, and $450 million went to the fiber industry. But that was all in 2008. He said further that government intervention, say subsidies, accounted for about $500 million of Cambodia’s GDP, an estimated $10.3 billion at the official exchange rate or $29.24 billion by purchasing power parity. In other words, subsidies account for 4.9 % of the GDP. This is rather substantial. It would be interesting to know the public sector’s contribution to the GDP in order to really gauge the government’s efforts for the economy. I couldn’t find a source on that figure. Any emails to the finance ministry remain unanswered.
Now should the government support the private sector in a way similar to what the U. S. government is doing or would this be somewhat counterproductive as financial resources allocated for certain purposes, e.g. public works, would not be available there? In other words, funds to boost the garment industry would not be available for, say, building roads, which after all provide jobs in the construction industry. Consequently, you save jobs in one industry but lose jobs in another. I don’t think that makes a lot of sense. And remember, private businesses are for profit and business owners might not use public funds to bolster their overall business and save jobs but to guarantee their bottom line. We see market forces at work in the garment industry - nothing more, nothing less. It is not the government’s role to interfere in faltering businesses. These are not businesses too big to fail.
How would you support the tourism industry? You can’t just go out to foreign countries and corral tourists to be sent to Cambodia. Cambodia is attractive enough as a destination for individual tourists from Europe and the U. S. and package tourists from other Asian countries. If foreign economies tank, you can spend all the money you want in advertising but you may only say a very small increase, if that, in arrivals. What has been missed in the past can’t be caught up with over the short term – namely, a more diverse tourism infrastructure, mainly along the coast. Cambodia must appeal to package tourists from Europe and the U. S. The benefit lies in larger numbers. But the country just does not have an adequate infrastructure to accommodate those. Last year we saw an increase of just 5% as opposed to a predicted 25%. Well, the 25% were put out at the beginning of 2008 when the financial crisis hadn’t hit full force yet. All things considered, the 5% is still an impressive number. In the first 2 months of 2009, there were 2% fewer arrivals than in the same period last year. People in the tourism industry know this is nothing, certainly no cause for alarm. In spite of this being the high season, this is not a discouraging number, quite the opposite and the year is not over yet. This is not to say that the Ministry for Tourism shouldn’t make any efforts to lure more tourists into the country. But to spend extra money? I wouldn’t do that. Additionally, any dollar spent now will be just like of puff of wind and mostly ineffective, as it will show results, if at all, in July or August, traditionally low season in Cambodia with fewer arrivals to begin with.
Agriculture has been hit hard with a 40% drop in prices for cassava (tapioca) and a 15% drop in rubber exports in 2008 and the plummeting of prices by 50%. There is a rice surplus available for export, but it just so happens that other countries are saddled with the same problems. No amount of subsidy will alleviate this. After all, this is not a regional problem, this is a global crisis – one thing the opposition seemingly forgets when calling for protectionist measures.
The problems in agriculture are mostly homemade and structural. 90% of the entire annual rubber production is sold to Vietnam, which just rebrands it as Vietnamese and sells it on the world market. In times of slowing demand, Vietnam naturally stops buying Cambodian rubber and sells its own first. The marketing of the surplus in rice is hampered by the same problem. Recently, I was offered 200,000 mt to sell internationally. The agent for the seller couldn’t give me the international rice classification but gave me the Khmer names only. Nobody in Africa knows anything about Khmer rice, as good as it may be. Then they wanted a 15% down payment. This is unheard of in international trade, unless it’s a government. What I mean to say is that there is an insufficient knowledge base in the country, especially in agriculture, to market their products internationally.
Then there is this strange effect, I don’t know whether it’s a typical Cambodian feature. But once they see somebody is successful with one product they all scramble to trade or plant the same product. There were rising prices for cassava in 2007 and 2008 so many changed from cashew nuts to cassava. Now that cassava is afflicted by slackening demand, they don’t know what to do. Should the government simply buy up all the production that can’t be sold? I don’t think so.
The same applies to the rubber industry, which I happen to know intimately. The government actively encouraged the cultivation of new rubber plantations, and many followed that advice. Now world demand has dropped dramatically, and prices fell just as dramatically. Despite the drop, however, the industry will survive. They just face a lean year or two. Again, no subsidy would ameliorate this. We just need to wait for demand to pick up; and this will happen once the auto industry has retooled to better, more-fuel efficient, or alternative energy-driven cars. Tires will be needed for a long time to come, not to mention other huge industries that use rubber in their products, e.g. the health industry.
And now to the construction and real estate industry, which was fueled by mostly Korean investments and developers and Cambodian entrepreneurs who wanted to imitate them. For a while it all worked out well. I won’t repeat here what I wrote about extensively in other posts. Can the government do anything for this sector at all? The short answer is a simple no. The land law on the books, if enforced, is sufficient to protect landowners and prospective buyers. There is a need to regulate the industry, though. Developers’ escrow accounts serve to protect homebuyers and investors and should not be waived. Licensing of developers is another must. As I said recently, the speculators were dealing among themselves a lot of time. There were building and speculating for phantom buyers. They simply don’t exist in that large a number. Again, how can the government help? Aside from ensuring that shady developers don’t disappear overnight, it can’t.
The cause of Cambodia’s economic problems can be found overseas on the one hand and are structural on the other. For both there is no immediate remedy. Funds are scarce and limited and since this is a dollar-based economy, no amount of printing new riels would help, other than blowing inflation out of proportion. In the U. S. and other affected countries, it was and is mainly a financial crisis with repercussions across the entire economy. What Cambodia goes through is what can be called a tertiary effect – financial crisis abroad, recession abroad, dwindling consumption abroad, consequently dampening the Cambodian economy. Again, no amount of stimulus money can ward this off. Domestic consumption cannot be spurred artificially with the majority of people living hand to mouth.
I believe the only way to live through this is to sit tight and wait for the U. S., European, Korean, and other tiger countries’ economies, in short Cambodian trading partners, to pull out of the recession. The government needs to implement a better tax collection system, ensuring that state revenue is close to what is projected in the budget, stick to its programs, and spend the money where it is supposed to go.
The perpetual question of corruption comes into play at this point as well, and we are not talking about petty corruption of the policeman who collects $3 for a wrong turn and pockets it. We are talking about the corruption at the higher and highest levels. The government must make sure that all the money received as foreign aid, or earned as royalties for land or mineral concessions, or from leases of whatever kind, doesn’t end up in party coffers or in private bank accounts but in the national treasury. If that were accomplished Cambodia would have done a great deal to help itself and will live through this slow-down relatively unscathed and be ready for the upswing in 2010, which will hopefully be the year this nightmare ends.
Let’s not forget Cambodia simply does not have the structure and the size, let alone the resources, to implement policies a lá Obama. So far, comparatively it has not been battered as severely as the U. S. or Europe. That may be a poor consolation for the people who just lost their jobs. But it by and large is still a fact.
P. S. I worked 20 years in the tourism industry, and have 20-year experience in international trade (a few years overlapping), and am now engaged in the agricultural sector in Cambodia.
Wednesday, March 18, 2009
Government Help for the Real Estate Market
This is rather lengthy so please bear with me on this one.
The Phnom Penh Post ran an article headline ‘A Helping Hand’, reporting on a request by the Real Estate Association for propping up their industry.
Let’s look at some of the things Sung Bonna, the owner of the largest real estate agency, and others said and whether or not they make sense.
A spokesman for local real estate agents is asking for a meeting with Prime Minister Hun Sen to make a case for government intervention in the property market in the hope of reversing a decline in sales and investment.
So they think that a simple statement by the Prime Minister will allay the effects of a world-wide recession? Don’t they understand what’s going on outside Cambodia? Do they live in a dreamland?
Sung Bonna, the president of the National Valuers Association of Cambodia, made the public call for a half-day meeting between the prime minister and key industry figures at a meeting of business people Friday night at the Almond Hotel. He warned the country faced bankruptcies and mass layoffs if the government did not take steps to ease investor and buyer concerns.
Now, please Mr. Bunna, what steps exactly do you want the government to take? If there are no buyers the government can’t just snap their fingers and buyers will come to Cambodia in droves to snap up previously overpriced, now discounted real estate?
"We hope the construction and real estate sector will receive a boost if the Cambodian government joins us to discuss possible solutions to the slump in the sector," Sung Bonna said. "If not, the slowdown will only worsen."
Because Bunna Realty is suffering as they can’t broker any deals, the government must step in?
Between 100,000 and 150,000 people were at risk of losing their jobs if the slump continued, Sung Bonna said. Job losses would not only hit realtors and construction workers but spread throughout the sector's value chain, hitting architects, furniture suppliers, lawyers and people in the building materials sector.
Guess what? This whole phenomenon is called economy. There are certain rules and laws that apply – the most fundamental one being the law of supply and demand. This is not a state-run, planned, Communist-style economy, this is called a free market in which market forces determine the actions of it.
The request for a meeting came a day after Sung Bonna called for more government involvement in the sector at last week's 2009 Cambodia Outlook Conference.
So when things turn sour they call for the government, although the majority of the people still don’t pay taxes, and property taxes are negotiable?
Sung Bonna told the conference that strengthening laws on land titles and property was the key to boosting confidence in the sector. "People are scared of Cambodia because we have no laws," he said. "This is a period where we need to compete with neighbouring countries. Any law that will make more headaches for investors we should temporarily withdraw and reconsider."
When business was flying high there was no call for more laws or their enforcement. Now all of a sudden we need them? People came when the market was hot, laws or no laws. The land law is pretty explicit already, isn’t it? And the Ministry for Land Management has been toiling away with LMAP for years now, ensuring that soft titles will be turned into hard titles. Again, a year ago this all was of no concern to the industry. They just kept building and building, buying up land, no matter who owned it, and now what? More laws to help speculators? Hopefully, not in your lifetime, my friend.
He was referring to the controversial housing development prakas temporarily shelved last year following an outcry from developers.
Korean developers in particular said they would be unable to progress with development plans should the rules take effect.However the government has repeatedly pledged it will be pushed through in some form.
The people need protection from shady developers and real estate speculators. The bad apples need to be weeded out. This is why Cambodia needs this regulation. We see what complete de-regulation entails. As a matter of fact, the consequences of de-regulation are now felt in Cambodia, in case anybody should have forgotten this.
At his opening speech at the Cambodia Outlook Conference, Hun Sen acknowledged the extent of the economic problems facing Cambodia as a result of the global economic crisis and called on the private sector to diversify and expand into sectors other than tourism, garments and agriculture. However, he was criticised for not setting out any concrete steps to boost the real estate sector.
"The government has concentrated on tourism, agriculture and the extractive industries but we have received no encouragement," Sung Bonna said.
Quit complaining. The real estate bubble was home-made and now you have to undo the consequences yourself.
Chhean Dara, project manager of the $50 million Happiness City complex on Phnom Penh's Chroy Changvar peninsula, also called for government intervention. He said the company was offering 20 percent discounts on houses and villas to no avail and warned it would be forced to stop construction within three months if no new buyers materialised.
"I think that if the government cannot find any solutions to help turn around the real estate sector downturn, it will slow Cambodia's economic growth," he said.
Now, is that so?
The request for a meeting comes after sales activity in the Cambodian property sector dropped to almost zero after hitting a peak around the middle of last year, buoyed by an influx of foreign investment.
Asking prices had dropped between 30 and 40 percent from the June peak as speculators tried to offload holdings in a market with no buyers, Sung Bonna said.
That’s what you get from over-speculating. But then, you couldn't tell from what people are still asking.
He said a failure to act would not only increase social instability through rising unemployment but that the dual decline in sales and property values would erode government revenues from stamp duties on land transfers and VAT taxes on the sale of apartments, villas and houses.
While this is true, it is still a laughable argument coming from someone who profited handsomely during the good times. Yeah, in the U. S. banks are too big to let them fail, in Cambodia you get social unrest, isn’t that what Mr. Sam Rainsy usually says? Wielding the big stick, eh?
The government charges 10 percent VAT on the sale of properties and four percent transfer tax on the sale of land.
Land Management Minister Im Chhun Lim told the Post last month that the government collected $21.35 million in property transfer taxes in 2007, up from $1.47 million in 2003 due to better revenue collection and improved relations with the larger estate agents.
In a departure from his prepared presentation, Ngy Tayi answered Sung Bonna point-by-point at the conference. While acknowledging Cambodia's legislative framework needed to be strengthened, he reminded the audience that the sector had been hit hard by the global financial crisis, with foreign investors scaling back major developments. Real estate prices had also been badly inflated in recent years and that the market needed a correction, he said.
The government had also worked closely with the sector, he said, in large part through the Inter-Ministerial Task Force it established last year to liaise on policy development.
It had also played a key role in setting up the National Valuers Association, of which Sung Bonna is president, implemented rules governing certification of estate agents and was working through industry concerns over the prakas on housing development accounts in consultation with stakeholders.
The government was also continuing to develop its legal framework, he added, as well as creating standards on valuations and real estate transactions fees, drafting a code of conduct for real estate developers, setting up an institute for professional real estate trading, and establishing a housing development association.
It was also working towards integrating the National Valuers Association of Cambodia into the ASEAN Valuers Association, Ngy Tayi said.
The elaborations of Mr. Ngy Tayi are all correct but neglect to pinpoint the underlying problem. Cambodia was discovered by adventurous developers, mostly South Korean, in or around 2005. It went like this. One came in started a project and was welcomed warmly by both the government and business circles. Word got back to Korea that Cambodia is the place to be and you had what could almost be called hordes of Koreans coming in, all loaded up with bundles of cash, starting new, ambitious projects completely oversized for an impoverished country like Cambodia with a very slim capital base.
Cambodian business people jumped on the band-wagon and started buying and selling real estate like hot cakes. What they overlooked was that they didn’t buy land for projects that would eventually end up in the hands of the average population, but they traded basically among themselves, very similar to what happened in the banking industry in the U. S. (There, unfortunately, it was not only confined to the U. S. but, good marketers that the Americans are, they sold their toxic, worthless, financial products world-wide.)
If I were to estimate the number of major players, and I mean major, not the many bit-players, in the real estate market up to mid-2008, I would put that number at not more than 10,000 people, overseas Khmer included. I had pointed out before in several of my past commentaries that the number of units planned or being built was just beyond any realistic assessment of the market capabilities. This huge number could in no way be absorbed.
All those Korean and domestic developers did not conduct a market research, feasibility study, and proper financial budgeting and planning. They appeared to be more like adventurers than level-headed businessmen. What you see now are the consequences triggered, of course, by the world-wide economic melt-down. But rest assured, this would have happened in any event. A bubble will always burst if you don’t stop blowing into it. But greed, again just like in the U. S. and elsewhere, dictated the action.
A simple look at the demographics of Cambodia would have revealed even to the most optimistic developer that there plainly was no market for 100,000 additional units of town-houses (ptea leweng) at $25,000 to $45,000 for a ground floor (see article below), or up to $130,000 for a 2 ½ story building. Normal people don’t have this kind of money, cannot and won’t be able to afford it for some time to come in view of that miserable economic situation we’re all in now.
Let me give you those numbers again. Cambodia has 14.5 or so million people, of whom 75% live in rural areas, 30% live below the poverty line of $1.00/day, 60% survive on $50 to $75 a month, the average wages in the cities is at that level, average salaries are in the $200 to $300 range, big business is run by 5 tycoons, the per capita GDP is $2100. These numbers vary slightly from different sources. But even these most basic numbers can’t fail to tell you that the bubble was so inflated that it would burst, at minimum deflate eventually, which in my view has happened since there is still activity in the real estate sector, prices haven’t plummeted despite the official reports of 35% to 40%. In some sectors it’s more like 10% to 15%. Price structures vary widely by location. But then, 30% to 40% would call for drastic action, wouldn’t it?
Calls for government help make for good headlines but are altogether disingenuous, unjustified, and uncalled for. The people crying now are the ones who didn’t heed the basic fundamentals of the economics 101 in the past few years.
The Phnom Penh Post ran an article headline ‘A Helping Hand’, reporting on a request by the Real Estate Association for propping up their industry.
Let’s look at some of the things Sung Bonna, the owner of the largest real estate agency, and others said and whether or not they make sense.
A spokesman for local real estate agents is asking for a meeting with Prime Minister Hun Sen to make a case for government intervention in the property market in the hope of reversing a decline in sales and investment.
So they think that a simple statement by the Prime Minister will allay the effects of a world-wide recession? Don’t they understand what’s going on outside Cambodia? Do they live in a dreamland?
Sung Bonna, the president of the National Valuers Association of Cambodia, made the public call for a half-day meeting between the prime minister and key industry figures at a meeting of business people Friday night at the Almond Hotel. He warned the country faced bankruptcies and mass layoffs if the government did not take steps to ease investor and buyer concerns.
Now, please Mr. Bunna, what steps exactly do you want the government to take? If there are no buyers the government can’t just snap their fingers and buyers will come to Cambodia in droves to snap up previously overpriced, now discounted real estate?
"We hope the construction and real estate sector will receive a boost if the Cambodian government joins us to discuss possible solutions to the slump in the sector," Sung Bonna said. "If not, the slowdown will only worsen."
Because Bunna Realty is suffering as they can’t broker any deals, the government must step in?
Between 100,000 and 150,000 people were at risk of losing their jobs if the slump continued, Sung Bonna said. Job losses would not only hit realtors and construction workers but spread throughout the sector's value chain, hitting architects, furniture suppliers, lawyers and people in the building materials sector.
Guess what? This whole phenomenon is called economy. There are certain rules and laws that apply – the most fundamental one being the law of supply and demand. This is not a state-run, planned, Communist-style economy, this is called a free market in which market forces determine the actions of it.
The request for a meeting came a day after Sung Bonna called for more government involvement in the sector at last week's 2009 Cambodia Outlook Conference.
So when things turn sour they call for the government, although the majority of the people still don’t pay taxes, and property taxes are negotiable?
Sung Bonna told the conference that strengthening laws on land titles and property was the key to boosting confidence in the sector. "People are scared of Cambodia because we have no laws," he said. "This is a period where we need to compete with neighbouring countries. Any law that will make more headaches for investors we should temporarily withdraw and reconsider."
When business was flying high there was no call for more laws or their enforcement. Now all of a sudden we need them? People came when the market was hot, laws or no laws. The land law is pretty explicit already, isn’t it? And the Ministry for Land Management has been toiling away with LMAP for years now, ensuring that soft titles will be turned into hard titles. Again, a year ago this all was of no concern to the industry. They just kept building and building, buying up land, no matter who owned it, and now what? More laws to help speculators? Hopefully, not in your lifetime, my friend.
He was referring to the controversial housing development prakas temporarily shelved last year following an outcry from developers.
Korean developers in particular said they would be unable to progress with development plans should the rules take effect.However the government has repeatedly pledged it will be pushed through in some form.
The people need protection from shady developers and real estate speculators. The bad apples need to be weeded out. This is why Cambodia needs this regulation. We see what complete de-regulation entails. As a matter of fact, the consequences of de-regulation are now felt in Cambodia, in case anybody should have forgotten this.
At his opening speech at the Cambodia Outlook Conference, Hun Sen acknowledged the extent of the economic problems facing Cambodia as a result of the global economic crisis and called on the private sector to diversify and expand into sectors other than tourism, garments and agriculture. However, he was criticised for not setting out any concrete steps to boost the real estate sector.
"The government has concentrated on tourism, agriculture and the extractive industries but we have received no encouragement," Sung Bonna said.
Quit complaining. The real estate bubble was home-made and now you have to undo the consequences yourself.
Chhean Dara, project manager of the $50 million Happiness City complex on Phnom Penh's Chroy Changvar peninsula, also called for government intervention. He said the company was offering 20 percent discounts on houses and villas to no avail and warned it would be forced to stop construction within three months if no new buyers materialised.
"I think that if the government cannot find any solutions to help turn around the real estate sector downturn, it will slow Cambodia's economic growth," he said.
Now, is that so?
The request for a meeting comes after sales activity in the Cambodian property sector dropped to almost zero after hitting a peak around the middle of last year, buoyed by an influx of foreign investment.
Asking prices had dropped between 30 and 40 percent from the June peak as speculators tried to offload holdings in a market with no buyers, Sung Bonna said.
That’s what you get from over-speculating. But then, you couldn't tell from what people are still asking.
He said a failure to act would not only increase social instability through rising unemployment but that the dual decline in sales and property values would erode government revenues from stamp duties on land transfers and VAT taxes on the sale of apartments, villas and houses.
While this is true, it is still a laughable argument coming from someone who profited handsomely during the good times. Yeah, in the U. S. banks are too big to let them fail, in Cambodia you get social unrest, isn’t that what Mr. Sam Rainsy usually says? Wielding the big stick, eh?
The government charges 10 percent VAT on the sale of properties and four percent transfer tax on the sale of land.
Land Management Minister Im Chhun Lim told the Post last month that the government collected $21.35 million in property transfer taxes in 2007, up from $1.47 million in 2003 due to better revenue collection and improved relations with the larger estate agents.
In a departure from his prepared presentation, Ngy Tayi answered Sung Bonna point-by-point at the conference. While acknowledging Cambodia's legislative framework needed to be strengthened, he reminded the audience that the sector had been hit hard by the global financial crisis, with foreign investors scaling back major developments. Real estate prices had also been badly inflated in recent years and that the market needed a correction, he said.
The government had also worked closely with the sector, he said, in large part through the Inter-Ministerial Task Force it established last year to liaise on policy development.
It had also played a key role in setting up the National Valuers Association, of which Sung Bonna is president, implemented rules governing certification of estate agents and was working through industry concerns over the prakas on housing development accounts in consultation with stakeholders.
The government was also continuing to develop its legal framework, he added, as well as creating standards on valuations and real estate transactions fees, drafting a code of conduct for real estate developers, setting up an institute for professional real estate trading, and establishing a housing development association.
It was also working towards integrating the National Valuers Association of Cambodia into the ASEAN Valuers Association, Ngy Tayi said.
The elaborations of Mr. Ngy Tayi are all correct but neglect to pinpoint the underlying problem. Cambodia was discovered by adventurous developers, mostly South Korean, in or around 2005. It went like this. One came in started a project and was welcomed warmly by both the government and business circles. Word got back to Korea that Cambodia is the place to be and you had what could almost be called hordes of Koreans coming in, all loaded up with bundles of cash, starting new, ambitious projects completely oversized for an impoverished country like Cambodia with a very slim capital base.
Cambodian business people jumped on the band-wagon and started buying and selling real estate like hot cakes. What they overlooked was that they didn’t buy land for projects that would eventually end up in the hands of the average population, but they traded basically among themselves, very similar to what happened in the banking industry in the U. S. (There, unfortunately, it was not only confined to the U. S. but, good marketers that the Americans are, they sold their toxic, worthless, financial products world-wide.)
If I were to estimate the number of major players, and I mean major, not the many bit-players, in the real estate market up to mid-2008, I would put that number at not more than 10,000 people, overseas Khmer included. I had pointed out before in several of my past commentaries that the number of units planned or being built was just beyond any realistic assessment of the market capabilities. This huge number could in no way be absorbed.
All those Korean and domestic developers did not conduct a market research, feasibility study, and proper financial budgeting and planning. They appeared to be more like adventurers than level-headed businessmen. What you see now are the consequences triggered, of course, by the world-wide economic melt-down. But rest assured, this would have happened in any event. A bubble will always burst if you don’t stop blowing into it. But greed, again just like in the U. S. and elsewhere, dictated the action.
A simple look at the demographics of Cambodia would have revealed even to the most optimistic developer that there plainly was no market for 100,000 additional units of town-houses (ptea leweng) at $25,000 to $45,000 for a ground floor (see article below), or up to $130,000 for a 2 ½ story building. Normal people don’t have this kind of money, cannot and won’t be able to afford it for some time to come in view of that miserable economic situation we’re all in now.
Let me give you those numbers again. Cambodia has 14.5 or so million people, of whom 75% live in rural areas, 30% live below the poverty line of $1.00/day, 60% survive on $50 to $75 a month, the average wages in the cities is at that level, average salaries are in the $200 to $300 range, big business is run by 5 tycoons, the per capita GDP is $2100. These numbers vary slightly from different sources. But even these most basic numbers can’t fail to tell you that the bubble was so inflated that it would burst, at minimum deflate eventually, which in my view has happened since there is still activity in the real estate sector, prices haven’t plummeted despite the official reports of 35% to 40%. In some sectors it’s more like 10% to 15%. Price structures vary widely by location. But then, 30% to 40% would call for drastic action, wouldn’t it?
Calls for government help make for good headlines but are altogether disingenuous, unjustified, and uncalled for. The people crying now are the ones who didn’t heed the basic fundamentals of the economics 101 in the past few years.
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