Women left behind amid global crisis

This file photo taken in 2009 shows women working in a Phnom Penh garment factory. The sector was badly hit by the global economic crisis, forcing many women to find employment elsewhere. (Photo by: Tracey Shelton)

Wednesday, 17 February 2010
Sarah Ireland
The Phnom Penh Post

The crisis has given an opportunity to ask this question: Have we wasted the chance of reform? Have we promoted women’s roles in speedy recovery and shaped a sustainable economy enough? If not, it is about time.

YEAR 2010 will be a year of challenges for Cambodia. We all know about the effect of the global economic downturn. In Cambodia, the four main pillars of the economy – garment, construction, tourism and agriculture – have been affected. Businesses cut spending. Jobs were lost.

People migrated to other areas to look for work. And some went back to work in agriculture. Women in export-oriented and service industries are particularly vulnerable after overseas demand plummeted with eroding consumer confidence in American and European markets.

According to the Ministry of Commerce, as many as 63,000 Cambodian garment factory workers, or 18 percent of the total industry workforce, lost their jobs from September 2008 to May 2009. Many of them are women who had to go back to the farm sector only to find that there was nothing much to do at home because there was no rain for their rain-fed agriculture. The annual floods and Typhoon Ketsana that hit parts of the country late last year damaged thousands of hectares of rice crops in the last harvesting season and made their return to the farm sector a nonviable coping mechanism for many women.

Now the world economy is picking up, slowly but steadily. Governments across the world continue rolling out stimulus packages to fight unemployment and boost growth. Investor confidence started growing. There is hope that Cambodia’s economy will follow the same pattern. That is good news.

Here’s the bad news: Very few measures and policies are really designed to help poor people weather the economic storm, especially women who are the most vulnerable and affected by the turmoil and yet instrumental in the recovery.

Oxfam’s research and interviews with women in the region show that despite the positive outlook, the road to recovery is still bumpy, and there’s a long way to go, especially for women working in export-oriented industry in Cambodia, Indonesia, the Philippines, Thailand and Vietnam, whose main incomes rely on overseas demand.

According to the new World Bank report titled Global Economic Prospects 2010, the global recovery is still fragile and the fallout from the crisis will change the landscape for finance and growth over the next 10 years. It has estimated gross world product to grow 2.7 percent this year and 3.2 percent in 2011, a slight increase from 2.2 percent in 2009. In developing countries including China and India with robust recovery, the figure is expected to be around 5.2 percent this year and 5.8 percent next year, and much lower for developed countries.

For Cambodia, this means we cannot expect an overnight recovery, as we depend on demand from developed countries. In 2009 Cambodia suffered from a decreased export of garments, with negative growth in the sector, whereas Bangladesh and Vietnam have been exporting more garments than last year. The country should re-examine its competitiveness in the industry.

Sadly, it is always poor people who are hardest-hit and the last to recover from an economic crunch.

Since women workers generally earn little more than a minimum wage, they are able to save less. And because women are the majority of workers in export-oriented and service industries, they are more vulnerable to job loss and wage cuts than men in times of economic crises.

Some might think a family should not suffer much if a woman loses her job since her spouse earns more money anyway, but the fact that women spend more of their money on children, household goods and daily expenses compared with men means the loss is more serious.

And despite their majority and crucial roles in managing family income and ensuring everyone’s well-being, there were very few loan projects that granted the much-needed money to these women on the ground to rehabilitate their livelihood.

In urban areas of Cambodia, many women have sought new incomes through multiple jobs, some in the informal and entertainment sectors. In many cases, these options were taken after borrowing money. This livelihood disruption occurs across the region. Research and interviews with women workers in Southeast Asia by Oxfam has confirmed this. Complaints such as, “I was able to pay my loan but the interest ruined me”, “I scrimp and save and walk to the market”, “It’s much more difficult to find jobs in the cities, so everyone has to come home even if there’s nothing for us here” or “We have to budget all the time to have enough for even necessities” are all too common when you talk to them.

Questions abound as to why their governments have overlooked them or failed to set up specific programmes or measures that addressed their needs. Most governments in the region have also ignored the gendered impact of the crisis.

It is also worrying that many companies have used the crisis to hasten moves to a more “flexible workforce”, giving them less secure pay and conditions through shorter, temporary contracts. An Oxfam study in 2009 found that a small number of factories in Cambodia closed and reopened suspiciously for tax holiday purposes. Many employees were made to work without social security.

Studies around the world have suggested that active participation of women is necessary to deliver clear, practical and gender-balanced measures. Communities in which women play an active role in decision making and resource management showed a strong resilience against crises. And that should be our goal.

This one isn’t the last crisis. The key lesson from this is that governments must focus on how to create a sustainable economy with social welfare for poor men and women. We must also ask how durable this recovery is and whether it builds resilience or reduces vulnerability to future shocks.

The crisis has given an opportunity to ask this question: Have we wasted the chance of reform? Have we promoted women’s roles in speedy recovery and shaped a sustainable economy enough? If not, it is about time.
----------------
Sarah Ireland is regional director of Oxfam Great Britain. She was country director in South Asia for a few years before moving to Southeast Asia in 2007.

Economic crisis: Gamblers hit by the blues

Slot machine parlors in Phnom Penh (Photo: Phnom Penh Post)

19 Feb 2009
By Ky Soklim Cambodge Soir Hebdo
Translated from French by Luc Sâr
Click here to read the article in French

On the side of the conference on the modernization of the banking system which was held on Thursday 19 Feb in Phnom Penh, Chea Peng Cheang, the state secretary to the ministry of Economy and Finance, announced that the government collects some $20 million from various gambling taxes.

This year, even though the government plans to see an increase of 12.5% from the gambling tax collection, this increase could be affected by the economic crisis. “The number of gamblers could decrease, they will gamble a smaller amount of money,” he said.

Gambling parlors (casinos, lottery sales, sport betting, etc…) are growing like mushrooms in the kingdom in the past few years. The majority of the casinos are located along the Thai and Vietnamese borders. Betting parlors which were originally found in Phnom Penh mainly, are now growing in the provinces.

The opposition party regularly scolds the government for authorizing such activities which ruin the society and pushing people to robbery and violence. Chea Peng Cheang said that he prefers legal gambling to illegal gambling which was prevalent in the past: “I am reflecting on the critics, but I think that, now, gambling is correctly controlled by the authorities. The situation is not that bad,” Chea Peng Cheang defended.

Stimulus Package "Reasonable" With Reduced Government Corruption: Sam Rainsy

Sam Rainsy's letter published in The Cambodia Daily, February 9, 2009

STIMULUS PACKAGE "REASONABLE" WITH REDUCED GOVERNMENT CORRUPTION

In "Reforms Needed To Tackle Crisis, Forum Told" (Friday, page 1), it was reported that "[Prime Minister] Hun Sen rejected an opposition recommendation of a $500 million stimulus package as 'unreasonable' for Cambodia given its budget."

On January 16, in my capacity as an elected representative of the people, I wrote to the prime minister suggesting that the government adopt a series of appropriate and urgent measures to cope with the unfolding world financial crisis.

In particular, I suggested a $500 million stimulus plan designed to reduce the economic and social repercussions from the global slump that are being increasingly felt by Cambodia ("Sam Rainsy Urges Government To Prepare Stimulus Package", January 19, page 33).

The indirect and negative response I received through the press shows either the government does not yet fully understand the seriousness of the situation or it lacks the sense of responsibility to take appropriate action.

What Mr Hun Sen said at last week's Third Annual Cambodian Economic Forum seems no more than a repetition of long-heard commitments that proved to be lip service for the donors' easy satisfaction. The Prime Minister is quoted as saying: "In the current context, the Royal Government clearly sees the opportunity and needs to push forward the systematic and interrelated reforms, which aim at improving investment and business climate."

The key word among all the empty ones we often hear, is "reforms". But what long-awaited reforms have been implemented over the past 10 years? Land reform? Judicial reform? Civil service reform? Anti-corruption reform? None of them. In particular, the anti-corruption law, which has officially been "in preparation" for more than a decade, is still in limbo.

My proposed $500 million stimulus package is considered "unreasonable" compared with Cambodia's budget of $1.8 billion for 2009. But in 2004, a USAID-funded corruption assessment highlighted the significant loss in state revenue due to smuggling, bribes and other illegal practices, which possibly totaled as much as $500 million.

Since 2004, corruption has dramatically increased, with the plunder of state assets and land grabbing by government officials and their cronies occurring on a larger and larger scale.

Therefore, the above stimulus package could be financed by a reduction in government corruption.

Besides, international financial institutions such as the World Bank, the Asian Development Bank and the International Monetary Fund, and major donor countries such as Japan, have stated that they have set aside funds to help poor countries cope with the world crisis. But countries like Cambodia must first devise a concrete contingency plan and ask for help in a responsible way.

In the current context dominated by the world crisis, Cambodia needs a significant and thoroughly planned stimulus package whatever the name we give to the series of fiscal and monetary measures aimed at boosting economic activity.

All Cambodia's neighboring countries including China, India, Indonesia, Malaysia, Thailand and Vietnam, have already released their first economic stimulus packages and are preparing new ones in the face of the intensity and the possible duration of the crisis.

Cambodia cannot afford to have leaders who ignore that we are facing an emergency situation that requires prompt and adequate measures. It's very worrying to see our government taking lightly the people's sufferings and distress while having no credible plan for the future. Through a significant stimulus package that comes on top of the already known budget for 2009, any responsible government would implement a number of projects such as:

• Setting up mechanisms to support and stabilize agricultural prices in order to protect farmers' revenue and living conditions
• Investing in human resources by increasing spending on education, training and health
• Building infrastructure that Cambodia lacks most (roads, railways, water-control and irrigation systems, housing for the poor)
• Works to protect the environment and to restore the ecological system that has been disrupted nationwide, including replanting trees (reforestation) and dredging lakes and rivers
• Tax cuts and reduction in fees for the use of public services including road tolls and the electricity price
• Special social allowances for the poorest segment of the population
• Loans with reduced (lowest possible) interest rates for small domestic entrepreneurs and the needy.

The objectives of the above measures are two-fold:

• In the short term, protect revenue and create jobs by boosting aggregate demand through an increase in public and private expenditures triggering the multiplier effect;
• In the longer term, lay the foundations and create the conditions for a sustainable and equitable development.

Sam Rainsy
Member of Parliament
Former Finance Minister

Number of new businesses opening declines in Cambodia [-Don't tell Hun Sen that there is an economic crisis in Cambodia, he wouldn't believe you]

PHNOM PENH, Feb. 4 (Xinhua) -- The number of businesses that opened in 2008 declined after years of steady growth, Cambodian national media reported Wednesday.

In 2008, 2,744 new businesses registered with the Commerce Ministry, compared to 2,826 new openings in 2007, the Cambodia Daily newspaper said, citing data from the ministry.

Overall in the period from 1988 to Jan. 30 of this year, 18,910 businesses opened and 1,561 closed, according to the data.

In the first month of 2009, only 159 new businesses registered with the ministry, which puts Cambodia on pace to register only about 1,850 new businesses this year, nearly 30 percent down than that of last year.

MPs not invited to attend 3rd Cambodian Economic Forum: Sam Rainsy

KINGDOM OF CAMBODIA
Nation Religion King

National Assembly

Mr. Jo Scheurer
Country Director
UNDP Cambodia
February 3, 2009

Subject: 3rd Cambodian Economic Forum

Dear Mr. Scheurer,

I strongly regret that the 3rd Cambodian Economic Forum organized by the Supreme National Economic Council in collaboration with the UNDP, the World Bank and the Asian Development Bank will not include Members of Parliament at the most critical time when Cambodia must deal with the global economic crisis. I am well aware that the forum is initiated by the government and designed to be a discussion between government officials and policy makers, however the severity of the crisis demands a dialogue of all stakeholders who will sit together at the same table to find sound solutions for the whole nation. I am also aware of the workshop UNDP will organize for Members of Parliament and members of the civil society where experts will release research findings, however the situation requires dialogue with most senior members of the government and not a just a debriefing by experts.

Only today is the public aware of the holding of information on the high rate of inflation by the Minister of Planning prior to the 2008 elections. This lack of transparency hurts Cambodia and maintains a system of governance that can lead to even more disastrous economic, social and political consequences. By being part of such a system, we are all guilty and are accountable to the people of Cambodia who are suffering from not just political manipulation but gross violations of their rights to information and their right to participation. We must not condone such undemocratic practice but it is our responsibility to ensure that barriers to information be lifted at all cost.

The 3rd Cambodian Economic Forum will be of no purpose if it is just a mere occasion to hear speeches and discussions that does not translate into immediate actions against the current economic storm.

Sincerely yours,

(Signed) Sam Rainsy
Sam Rainsy Member of Parliament

cc: Mr. Qimiao Fan
World Bank, Cambodia
Mr. Arjun Goswami
Asian Development Bank Cambodia

Out Of Luck?

UNFORTUNATE: Cambodian workers leave after their shift at a garment factory in Phnom Penh. (Photo courtesy: TANG CHHIN SOTHY/ AFP)
UNDER CONSTRUCTION: Foreign companies that were the main drivers of the Cambodia’s construction sector have been winding down their activities in response to developments in their home countries. (Photo courtesy: TANG CHHIN SOTHY/ AFP)
BONE OF CONTENTION: The Preah Vihear temple. (Photo courtesy: The Straits Times/ AsiaNews)

2009-01-31
By BRUCE GALE In Phnom Penh
The Straits Times (Singapore)
AsiaNews

Just as the stage seemed set for further growth, the four drivers of Cambodia’s economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.

"Unlucky.” This was the assessment of the Cambodian economy by Vikram Nehru, the World Bank’s chief economist for East Asia and the Pacific, late last year. It certainly seems appropriate.

While citizens in just about every country in the region can blame the current global economic storm for at least some of their problems, Cambodians probably have more reason than most to feel aggrieved.

Still one of the world’s poorest countries, Cambodia was nevertheless doing well before the global crisis hit. Recovering from a long period of political and social disruption dating back to the 1970s, the economy grew by an average of 11.1% a year between 2004 and 2007.

And the elections of July last year, which saw a landslide victory for the ruling Cambodian People’s Party, suggested that the country would soon be able to add political stability to its list of attractions.

The garment sector, which began to expand rapidly in the mid-1990s, provided employment for about 350,000 people. The tourism industry was also booming, with the number of foreign visitors rising by more than 20% annually. Further evidence of the country’s success could be seen in the growing level of direct foreign investment, which reached a high of 10% of gross domestic product (GDP) in 2007.

There were problems, of course. They included rampant corruption, rising inflation, a dysfunctional public service, infrastructure bottlenecks and a developing property market bubble. But with the economy making great strides, and with leaders no longer preoccupied with political survival, there was hope that at least some of these issues would be addressed.

Indeed, soon after the elections, economic managers moved quickly to minimise financial sector risks arising from the enthusiasm with which local banks were rushing to profit from the economic boom. The central bank doubled reserve requirements in July, introduced a ceiling on loans to the real estate sector, then tripled capital requirements in September. Meanwhile, plans were well advanced for the establishment of a stock market.

But just as the stage seemed set for further growth, the four drivers of the Cambodian economy—agriculture, garment exports, tourism and construction—were hit by changes in external conditions.

The tourism industry got into trouble as early as July, when the decision by Unesco to list Preah Vihear temple as a World Heritage Site resulted in a military stand-off between Cambodian and Thai forces. Cambodia also suffered from the effects of Thailand’s internal turmoil last month, when anti-government protesters forced the closure of Bangkok’s international airport. The result was a wave of cancellation of hotel reservations at Siem Reap during the height of the tourist season. The global financial crisis looks set to cut further into tourist arrivals.

The garment industry, meanwhile, has begun to suffer from lower demand in the United States, its main export market. Expectations that rice exports would boost economic growth have also been dashed by the fall in international prices since their mid-2008 peak.

The juxtaposition of these political and economic developments has already been reflected in a 25-per-cent drop in revenues from the kingdom’s trade-dependent railway network last year. Rail links with Thailand were cut completely during the tension with Thailand in October.

Finally, South Korean and other foreign companies that were the main drivers of the nation’s construction sector have been winding down their activities in response to developments in their home countries. Modern Cambodia’s first-ever property boom is no more.

Influenced, perhaps, by years of rapid growth, the government late last year rejected as too gloomy an International Monetary Fund report that suggested that GDP growth would fall to 4.8% this year. But officials have since responded to the global slowdown by announcing a budget that increased spending and offered incentives to the garment industry. They have also delayed the launch of the stock exchange.

Early last month, foreign donors demonstrated their continued faith in the country by pledging more than US$950 million in aid, an increase of almost $300 million over pledges made in 2007.

Even so, there is little doubt that the nation faces difficult times. Foreign direct investment fell last year and, according to the World Bank, will likely fall again this year.

With the garment and tourism sectors faltering, widespread unemployment is a distinct possibility. Fifty per cent of the population is under 20 years of age, suggesting that a large number of job seekers will begin to enter the workforce over the next few years.

Yet all is not lost. While international rice prices have fallen, they are still relatively high. Programmes designed to boost agriculture could help absorb some of the unemployed.

Meanwhile, continued strong supervision of the banking sector, an increase in government-funded infrastructure projects and further moves to upgrade the legal framework for investment could help prepare the country for the inevitable recovery. In times like these, Cambodia needs to make its own luck.

Opposition MPs want Hun Sen to brief National Assembly about the economic crisis

Click on the letter in Khmer to zoom in

27 Jan 2009
By Ung Chamroeun
Cambodge Soir Hebdo
Translated from French by Luc Sâr
Click here to read the article in French

On Tuesday 27 January, SRP and HRP MPs sent a letter to Hun Sen in which they indicated their wish to see the setup of special bailout budget to soften the downfall of the economic crisis.

The request by opposition MPs was sent to Hun Sen through the Parliament procedure, i.e. in the care of Heng Samrin, the president of the National Assembly. The letter contains essentially the demands previously made by Sam Rainsy to Hun Sen on 16 January.

The MPs ask the government “to prepare a $500 million bailout budget to counter the downside effects of the economic crisis.” They pointed out the difficulties faced by farmers with the current price drop of some essential agricultural products such as rice, corn, beans, cassava, and rubber. This problem affects millions of Cambodians, the opposition MPs indicated. They would like “to know the mechanism and measures planned by the government to get the country out of this crisis,” and they underscore in their letter that other countries in the region, such as Indonesia, China, India, Vietnam, Malaysia and Thailand all have prepared “bailout budget package” to improve the daily life of farmers by lending them money with low interest rate.

For Son Chhay, the SRP spokesman, Keat Chhon, the minister of Economy and Finance, must choose a date when he will provides his answers to the MPs’ questions on the NA floor. Son Chhay also invoked Article 96 of the Constitution which stipulates that MPs have the right to question the royal government when an negative impact hits the country, and when the government must find urgent solutions to these issues.

Thai consumers shun Cambodian produce

26 Jan. 2009
By Im Navin
Cambodge Soir Hebdo
Translated from French by Tola Ek
Click here to read the article in French

Since July 2008, tension between the two countries led to a drop in the sale of Cambodian agricultural produce to Thailand. All the provinces bordering Thailand are affected.

When reached over the phone, Heng Bonhor, the director of the Banteay Meanchey province Department of Agriculture, confirmed the stop of export to Thailand. “Farmers are producing rice and potatoes mainly which, under normal circumstances, they would sell everyday to Thai people. However, the latter are no longer buying them. This leads to financial problems among our farmers because a lot of them resorted to micro-credit (loans) to produce their crop. They can no longer pay back the lending institutions.”

He added also that in his province, 30,000-hectare produce 25 tons of potatoes per hectare per year. All these potatoes were geared for export to Thailand. Regarding rice, 4,000 tons are exported out daily during harvest season. “I informed the ministry of Agriculture about these problems because we cannot solve them at the provincial level. This is not the first time that we have this kind of problem with our Thai neighbors.”

Chhim Vichara, the deputy director of the Battambang province Department of Agriculture, faces the same problem. While he was not able to provide the exact number, he nevertheless underscored that in his province, several producers have exclusive contracts with Thai buyers therefore, establishing statistics is a difficult task. “All Thai buyers have stopped their activities, except those who have contracts with producers. In Battambang, the situation is most likely better than in other provinces, because there are exports to Vietnam.”

According to Heng Bonhor, the stop of the purchases is attributed to the behavior of Thai consumers who, following the declarations issued by their government, purchase Thai products as their priority. “The market for Cambodian agricultural produces is uncertain, each year, there could be problems. One kilo of potato is sold at 100 riels ($0.025) this year, whereas it was 2,000 riels ($0.50) last year. The price of rice drops from 1,000 ($0.25) to 600 riels ($0.15) per kilo this year.” He also indicated that each year, the government invests in rice husk-removal equipment so that rice paddy can be processed locally rather than being sold at low cost to Thailand or Vietnam. “However, we don’t have sufficient financial means to eradicate this issue,” he concluded.

Government should take economic bailout seriously: Sam Rainsy

Sam Rainsy's letter published in The Phnom Penh Post, January 26, 2009

January 26, 2009
Letter to The Phnom Penh Post

Dear Editor,

In the front-page article "SRP calls for govt bailout" in the January 19 edition of The Phnom Penh Post, you wrote « opposition leader Sam Rainsy has called on the government to set aside a US$500 million economic stimulus package to offset the local effects of the world financial slump, claiming "tens of thousands" of Cambodian jobs have been lost to the global crisis ». This article correctly reflects the spirit of my January 16 letter to Prime Minister Hun Sen drawing his attention to Cambodia's vulnerability in the face of the ongoing world financial crisis and to the seriousness of its worsening impact on our economy, the unprecedented fall in agricultural prices literally strangling our farmers, massive job destruction in the hitherto-growing nonagricultural sectors (garment, construction, tourism), and the collapse of the property market.

The suggested US$500 million stimulus package would be the first emergency measure designed to alleviate the fallout from the world crisis and to prevent economic, social and political upheavals with incalculable consequences for Cambodia's stability and long-term development.

However, in the above mentioned article, Information Minister Khieu Kanharith is reported as saying there is no need for such a package because the government has already reserved funds for unforeseen circumstances, as it has been doing every year in the annual state budget. He is quoted as saying: "We have a reserve budget, not only for the global economic crisis but also for other disasters such as floods, and so forth", although he reportedly could not remember the exact amount set aside in 2009.

What the government has actually set aside for the fiscal year 2009 as "unplanned expenditures" -- US$144 million compared with US$132 million for 2008 -- is not adequate to cope with the deteriorating situation. Firstly, in the amount being far too little, and more importantly, in the concept, because the package must be thoroughly planned in order to produce its expected effects. For this purpose, we must forget "floods" and similar contingencies for a while, and concentrate on macroeconomics, fiscal policy, monetary policy, job creation, full-employment equilibrium, aggregate demand, deficit spending, multiplier effect and other elements of Keynesian economic theory.

I would like to respond also to National Assembly Vice President Nguon Nhel who is quoted, in the January 18 edition of Khmer-language newspaper Rasmei Kampuchea, as saying the government does not need to follow my recommendation related to the world economic crisis because it has already taken "measures against inflation". Apparently, Mr Nguon Nhel does not realize that the problem is no longer inflation but deflation and recession.

Sam Rainsy
Member of Parliament

-----
Click here to read the Rasmei Kampuchea article quoting Nguon Nhel about "measures against inflation".

Click here to read Sam Rainsy's response in Khmer published by the Rasmei Kampuchea newspaper.

Cambodian central bank to slash reserve requirement

PHNOM PENH, Jan. 26 (Xinhua) -- The National Bank of Cambodia will cut the bank reserve requirement from 16 percent to 12 percent and eliminate restrictions on real estate lending effective on Feb. 1, national media said on Monday.

This constituted a reversal of the bank's monetary tightening measures brought in last year to cut inflation and rein in soaring property values, said English-language daily newspaper the Phnom Penh Post.

Officials said that they hoped the looser rules would stimulate lending amid a worsening economic crisis.

"We increased the reserve rate (from 8 percent to 16 percent in May 2008) because we were vigilant over the crisis and wanted to prevent the inflation. Now inflation is falling, so we lowered it to give banks easy cash to provide more loans to their customers," said Tal Nay Im, director general of the National Bank of Cambodia.

Inflation rocketed to 25.1 percent in the first half of 2008 in Cambodia and dropped to 13.46 percent in December, according to the National Institute of Statistics of the Planning Ministry.

Experts and bank industrialists have repeatedly called on the government to lower the reserve rate so that financial institutions could loan more money and fuel the economy in the grips of a financial slowdown.

The Cambodian economy enjoyed double-digit increase during the 2005-2007 period, but down to below 10 percent in 2008 and will further slide to around 5 percent in 2009, according to the forecasts by experts and international financial institutions.

Cambodia Keeps Tax Breaks as Shortage of Cash Prevents Stimulus

By Daniel Ten Kate

Jan. 26 (Bloomberg) -- Cambodia, reliant on overseas aid to finance a quarter of the national budget, said it will extend tax breaks for clothing manufacturers and invest in power plants as a cash shortage restricts its ability to provide economic stimulus.

“We cannot distribute cash to the people,” Hang Chuon Naron, secretary-general of the Ministry of Economy and Finance, said in a telephone interview from Phnom Penh on Jan. 23. “What we can do is give targeted tax cuts to garment factories and spend more on infrastructure so we can prepare for economic development in the future.”

Cambodia needs to reduce business costs because it can’t afford the stimulus measures adopted by richer neighbors Thailand, Singapore and Malaysia. The International Monetary Fund said the economy, Southeast Asia’s second poorest, may grow 4.75 percent this year, the slowest pace in 11 years.

Opposition leader Sam Rainsy said the government should ask for more grants and loans to fund a $500 million stimulus package he has proposed. The money would go to stabilizing crop prices and the construction of irrigation and road networks, he said.

“The Cambodian government is disconnected with reality and when the fallout materializes, it will be a terrible awakening,” Sam Rainsy said in an interview from Phnom Penh. “Every country around the region has announced a stimulus package, but Cambodia has done nothing so far.”

The government will extend a 2006 profit tax exemption for garment factories until the end of this year, Hang Chuon Naron said. That will help cut costs for an industry that accounted for 12 percent of gross domestic product in 2007 by supplying clothes for retailers such as Gap Inc. and Stockholm-based Hennes & Mauritz AB.

Donor-Funded

The tax breaks will be coupled with donor-funded investments in rural roads, power plants, irrigation systems and telecommunications networks, he said. More than two-thirds of the nation’s labor force work at least some of the time in the countryside, according to the Economic Institute of Cambodia.

Tourism, construction and garments, which together make up more than 60 percent of the economy, all face threats to growth this year, Hang Chuon Naron said. The number of foreign visitors may fall by 20 percent, construction will slow and garment exports might drop more than the 2 percent decline in 2008, he said.

“It’s very difficult to make a judgment about garment exports this year because we don’t sell high-end products,” he said. “We have to look at the real figures for the first quarter, which will be crucial.”

Dwindling Factories

The number of garment factories fell 10 percent to about 260 last year, leaving 20,000 workers without jobs, said Roger Tan, secretary-general of the Garment Manufacturers’ Association of Cambodia. The industry, which employs about 320,000 of Cambodia’s 14.2 million people, sells 70 percent of its products to the U.S., where retail sales have fallen for six straight months.

“Even if factories want to operate on the same scale, they may be forced to reduce their scale on account of reduced credit lines,” Tan said in an interview. “Buyers in Europe and America are telling us to ship on consignment.”

Cambodian lawmakers last month passed a $1.8 billion budget for 2009, increasing spending by a third from last year. The passage came days after donor countries pledged $950 million in aid, almost 40 percent more than they offered in 2008.

Last year marked an end to four straight years of economic growth in excess of 10 percent spurred by foreign-investment friendly policies such as 99-year leases for agricultural land, tax holidays and low import tariffs. The boom helped Prime Minister Hun Sen’s party win 73 percent of seats in a July election.

Stock Exchange

The country plans to open its first stock exchange in December, undeterred by a global financial crisis that halved the value of markets in neighboring Thailand and Vietnam last year. Government coffers may soon get a boost from petroleum concessions in the Gulf of Thailand, where Chevron Corp., the second-biggest U.S. oil company, struck oil in 2005.

The government doesn’t have many options to boost the economy besides tax cuts and tackling corruption to ensure a more efficient use of donor funds, said Kang Chandararot, an economist with the Cambodia Institute of Development Studies. Transparency International, a global non-governmental organization, ranked Cambodia 166 out of 180 countries in its 2008 Corruption Perceptions Index.

“Not wasting the money we received from donor countries is the only way to induce private investment,” he said by phone from Phnom Penh. “Confidence in the real estate and construction sectors is in free fall.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

Garment sector riding rough seas

(Photo: DR, Cambodge Soir Hebdo)

20 Jan 2009
By Ky Soklim
Cambodge Soir Hebdo
Translated from Khmer by Luc Sâr
Click here to read the article in French

Factory closures, financial problems, these are some of the concerns faced the GMAC boss.

The President Garment Manufacturers Association of Cambodia (GMAC) is worried, Van Sou Ieng told unions and government representatives during a crisis summit held on Tuesday 20 January.

In 2008, textile exports rose only by 1 to 2% as opposed to 10 to 15% in the years before, and 25,000 factory workers were fired from their jobs.

The beginning of 2009 does not look rosy either. “During the first trimester of 2009, we will surely see a drop in production and other factories will be closing,” Van Sou Ieng predicted.

The culprit? “Buyers are no longer buying, and orders are less than before,” he indicated. Furthermore, buyers also demand a lowering of the cost by about 10% as well. They asked to maintain a credit line for their purchases and this situation leads to a cash flow problem for factories.

Should there be an interruption of orders between April and May, Van Sou Ieng estimated that 50 to 60,000 additional workers will be laid off.

'For Sale': a sign of the times for real estate

A "for sale" sign on a building. With values in free fall, developers need buyers fast. (Photo by: TRACEY SHELTON)

Friday, 16 January 2009
Written by SOEUN SAY and GEORGE MCLEOD
The Phnom Penh Post

Leveraged developers and speculators are scrambling to offload their property in a weakening real estate market as banks move in for the kill

With the local property market in free fall, thousands of "for sale" signs are springing up in the capital as developers scramble to dump real estate. Along major thoroughfares, posters marking "For Sale: urgent" are marks of a property market that has gone from boom to bust.

And even with property prices down by half in some segments, a worsening economy promises to bring more selling pressure on the market, say local dealers.

"I'm worried I will not be able to sell the homes we have on offer. I badly need money to pay back my lenders," says Samnang Rithy, owner of Samnang Rithy Development.

Analysts estimate the local property market has plunged 40 percent to 50 percent since it peaked in mid-2008.

Buyers needed
Hardest hit are heavily leveraged speculators and property developers. Samnang Rithy is one of the crisis's casualties and says slow demand has left him unable to repay nearly US$1 million debt, which is due by the end of 2009.

Another developer, Kong Vansophy, general manager of Cambodian Priority Property Investment said that homes and apartments have been difficult to offload or rent in today's tough times.

"So many developers have seen the same problem.... I am very worried about the market," he said. "No one comes to see our homes, we hope the market turns around soon."

He said that promotional campaigns have failed to generate interest for what last year seemed promising property investments.

Kong Vansophy said that developers were continuing to delay or stop projects. With debt mounting and sales down between 50 and 80 percent, he says he fears the banks are poised to confiscate his assets. Asking prices for property in Cambodia have dropped by between 30 percent and 40 percent from an historic peak in June as sales activity has dropped to almost zero, according to Sung Bonna, president and chief executive of Bonna Realty Group and President of National Valuers Association of Cambodia.

Land broker Chea Vutha said he posted signs on Norodom Boulevard reading "Land for sale hurry up!" and "Home for sale hurry up".

However, not everyone is exposed to the slowdown, according to one developer. Su Si, Mega Asset Management, the property unit of the Overseas Cambodia Investment Corp, said that the 32-storey Canadia Bank building on Monivong Boulevard is proceeding on schedule.

"We have had no problems because our clients have paid their bills. Our bank is lucky to have good clients," she said.

ACLEDA Bank President and CEO In Channy said his bank only had limited exposure to the real estate sector.

He added that lending to the real estate sector was limited to mortgage lending rather than development loans.

"We do not have a problem because we only have eight percent of our loan portfolio in real estate. That means we have restricted loans for real estate to around $40 million as our bank's services are almost completely focused on business enterprises," he said in a previous interview.

Buying opportunity?
But the lower prices could be a buying opportunity, according to a property expert with property consultancy CB Richard Ellis.

"If property developers are offering better deals and a better product, then [lower prices] could be an opportunity. It depends on whether they are offering extras like lower payments or better facilities," said Naim Khan-Turk, director of research and consultancy in Ho Chi Minh City.

He said that even with more pain expected in the short term, the market is showing some bright signs.

Interest rates have fallen and inflation is slowing, leading to more activity in the property market. "With inflation coming down, banks are starting to lend.... Having said that, its going to be a rather tough market [for 2009]."

Foreign Investment Expected to Slump

By Chun Sakada, VOA Khmer
Original report from Phnom Penh
09 January 2009

Foreign direct investment is expected to drop by $200 million in 2009, from more than $800 million last year, according to a recently published World Bank report.

The drop in foreign investment would cause a fall from a high of 10 percent of GDP in 2007, to 5.2 percent in 2009, “as foreign investors become more cautious about investing in developing countries,” according to the report, “East Asia: Navigating the Perfect Storm.”

Cambodia saw a record $866 million in FDI in 2007, followed by $812.7 million in 2008. But the World Bank report predicts about $596 million in foreign investment to reach the country this year.

“We recognize the downturn of FDI, because of the global economic crisis, but the slowdown in 2009 is better than [the investment] in the early 2000s,” Hang Chhuon Naron, secretary general of the Ministry of Finance, said Friday. “But the government has taken measures to pay its budget for public investment.”

Opposition lawmaker Yim Sovann said he was “very concerned” about the drop in investment.

“It affects the people’s living, and the people will have no job to do,” he said. “It causes the government policy to reduce poverty fail.”

Cambodian retailers shaken by the after-effects of land speculation and economic crisis

Phnom Penh (Cambodia), 16/08/2008. A SUV showroom (Photo: John Vink / Magnum)

09-01-2009
By Ros Dina
Ka-set in English
Click here to read the article in French
Click here to read the article in Khmer

In the middle of town or on the outskirts, in shopping centres or on little public market stalls, the sad diagnostic made by sellers is the same: for a few months now, business has been desperately slow. Already weakened by the consequences of the world economic crisis, Cambodia is experiencing the after-effects of several months of mad and unparalleled speculation in land. Indeed, many Cambodian consumers, among the wealthier, suffered the freezing of the savings they had invested in land, now affected by price stagnation. From jewellers to small street sellers, the effects of a reduced level of consumption are logically felt among merchants.

“Nowadays, Sundays are as bad as Mondays”, young Dary deplores. She sells fancy jewellery in a small shop on the third floor of Phnom Penh's brand new shopping centre, the Sovanna Shopping Mall. The first days after its opening at the beginning of 2008 saw crowds rushing in, but these days are now bygone, “even Sundays”, a traditional shopping and relaxing day for Cambodians. “Earning money is really difficult today. There are fewer and fewer customers, people do not come to the market any more”, the young woman adds, standing in front of her cheap necklace and bracelets.

11am. Around that time of the day, people usually rush about, but the market aisles are unusually quiet. Retailers are trying to keep busy reading newspapers and magazines outside their shop, while waiting for potential customers. Others mechanically dust their goods for the umpteenth time in the day...

The context then gives way to all sorts of situations, and anything will do to lure rare shoppers: a battle of promotions ensues, and signs offering 5% to 30% discounts cannot be missed. The shopping centre manager also did his own part and organised a prize draw boasting some big surprises, to attract a clientèle usually very fond of that type of game. Alas, customers are nowhere near the usual bustle. The majority of people who go to the new shopping centre is composed of high-school students, strolling around in groups of 3 or 4, but often more interested in the video game room located on the third floor than in window-shopping...

Where have all the customers gone?
“High-schoolers are not really good buyers”, Dary says, cursing her bad luck. “I rather find my best customers among the children of people affiliated to the high circles of power, or the children of wealthy Cambodians, who live here or abroad... But today, I have no idea where they may have all gone... Maybe they have gone back abroad”, she wonders. The young retailer, who used to earn a daily US$300 worth of sales when the Sovanna centre opened is now struggling to make more than US$50 a day.

Bargaining becoming fiercer with the days
Sok Long, a young Sino-Khmer owner of a mobile phone shop located near Dary's jewellery shop, shares her misfortune. In front of customers' demands, who are more and more inclined to bargaining, the young man feels desperate: “Even when I accept to cut my selling prices by a few dollars, customers don't want to buy... When a phone cost me US$120, they offer US$50 for it! I cannot lower my prices more... For a new mobile phone, I only make 2 to 3 dollars' profit”, Sok Long tells us, remembering the good old time - not so long ago - when high-ranking officials and their children used to buy two or three phones at once, without even trying to negotiate the prices...

Struggling to pay their business rent
The consequences of this slump in sales are starting to be felt: today, retailers find it hard to make ends meet and be able to pay for their business premises monthly rent. Little by little, Sok Long used all of his savings to be able to pay for his monthly US$875 rent, for an area equivalent to two shops. And he is not the only one making every effort to cover his expenses. On December 11th, shop-keepers at the Sovanna shopping centre went on strike for four days, demanding that the director reduce rents by 30% for nine months, due to bad business. Facing their discontent, the director-general eventually agreed to reduce rents by 10% for a period of 6 months.

From mobile phones to fruit and veg...
Mobile phone and jewellery shops in modern shopping centres were among the first ones to be affected by consumption decrease, but the crisis also struck those who sell vital products. Roth, a fruit and vegetables wholesaler and retailer at the O'Russey market in the centre of Phnom Penh, has not yet felt any change among his individual private buyers, he explains while tidying up his stall with the help of his wife. However, he did notice a drastic drop in whole sales. His eight main customers, who are restaurant owners, reduce their orders with every passing day, themselves experiencing difficulties with their clientèle. “At weekends, I used to sell US$800 to US$1000 worth of vegetables in just one day. Now, I only sell a quantity worth US$300 to US$500. For instance, an important restaurant owner, who makes noodle soup, only buys 10 dollars worth of vegetables every day - not that long ago, he spent 80 dollars.” For a few weeks now, Roth has watched his profit go down every day by 30%.

Households forced to cut their expenses
Nguon Chanthorn, who sells clothes at the Chom Chao market, to the South of the Phnom Penh airport on the outskirts of the capital, explains that she also tries to cope with the situation, like other retailers selling in that area of town. The mere income she manages to earn is not enough for her to sustain her standard of living. “Because of that situation, I had to reduce my daily food expenses to 3,000 riels (around 0.75 dollar) when I normally spend around 15,000 riels (3.75 dollars). Now, I only bring back home between 30,000 and 40,000 riels (between 7.5 and 10 dollars) every day, that is ten times less than before. So I only spend my money in vital goods now”, she stresses.

Near the Olympic market, this time, in the centre of town, a rice soup seller, having no customers to serve, watches people walk by. She started reducing her soup production weeks ago and now only makes half the quantity of soup she used to prepare. “Very few people have their breakfast out at the moment. Before, there was not enough room for everyone to sit. Today, my stall is very quiet, but it is even worse in other places!”, she said as her daughter, doing the washing-up, tries to explain: “It is probably because they invested their money in land, for speculations, and now they cannot sell it any more because of the economic crisis. When they used to come and have their rice soup here, they always talked land speculation and profit”...

Money frozen in pieces of land
This analysis tallies with the one made by president of the Cambodia Economic Association (CEA) Chan Sophal. “I believe that the main reason [for consumption decrease] is linked with the bad transactions generated by land speculation”, the economist puts forward. “Last year, in times of high economic growth, most Phnom Penh residents invested in land with a view to speculate. But this money now stays frozen”, he says, when income tends to decrease and consumers lack confidence, in a gloomy context of global economic recession.

The first victims of this contraction in demand, Chan Sophal details, are those sellers who cannot sell to customers, who themselves try to limit their expenses as much as possible, hoping for brighter days. But at the end of the day, this problem affects the whole economy, since sellers are buyers too... “When clothes sellers do not sell much, they reduce their expenses. Same goes for meat sellers: they do not have enough money to buy clothes”.

However, the CEA president would like to believe that the situation is not hopeless, but still reckons that a year at least will be needed before the situation goes back to normal.

Economic crisis in Cambodia, from the World Bank's point of view: with bad luck comes some good?

Takeo (Cambodia) 03/09/2008 Rice export may be the only growing sector of the economy. Daily labourers harvesting the first of two yearly crops of a landowner. They are paid the grass that is left after the rice has been threshed. They use it to feed their cows. (Photo: John Vink / Magnum)

11-12-2008
By Stéphanie Gée
Ka-set in English
Click here to read the article in French
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East Asia will not be spared the impacts of the global economic storm which started in the developed countries and has been severely raging throughout the world since September 15th, the World Bank (WB) warned in its latest report, released on Wednesday December 10th. However, according to projections made by Jim Adams, vice-president of the World Bank, the region of East Asia and Pacific, pulled by China's line of dynamism and better-prepared to face the crisis than it was in 1997 when it was hit by the financial slump, will contribute about a third of the total global growth in 2008. But what about the small Kingdom of Cambodia, who stood out over the past ten years with important growth records - GDP growth averaged 11.1% between 2004 and 2007 - achieved thanks to open policies? The WB forecast a GDP of 6.7% for 2008 for the country, but the product should plummet down to 4.9% for 2009.

Hard times for the four key drivers of Cambodia's growth

“The unfavourable external environment will now lead to less demand for Cambodian exports, fewer tourists, and less foreign investment”, Stéphane Guimbert, a senior economist for the Cambodian branch of the World Bank, explained. “Inflows of foreign direct investment are projected to slow from a record high of 10% of GDP in 2007 to 5.2% in 2009, as foreign investors become more cautious about investing in developing countries, in a context of unstable economic situation.

So, the four key drivers of Cambodia's economic growth will suffer severe blows: first of all, the sector of agriculture: it offers substantial opportunities for Cambodia, a rice exporter, but the scope for a robust supply response remains uncertain given the recent decline in prices and limited investment in the sector. Then, the garment industry, hit by the slowdown in the United States, its main export market, weakened by competitiveness issues due to high inflation and an increase in workers' wages, and affected by the lifting in 2009 of safeguards measures by the United States and the European Union on China, a major competitor in garment exports. Thirdly, the sector of construction is slowing down too, due to the consequences of the crisis on Korea who had until now been acting as a locomotive for the Cambodian construction sector. Finally, tourism has been directly affected by weaker global economy on the one hand and the border disputes with Thailand on the other hand. The WB reported that a slowdown in tourist arrivals was noticeable in the first six months of 2008.

The World Bank's recommendations

As some do not hesitate to say that this economic depression may well be the worst in the world since the 1930s, one may wonder what a small country like Cambodia could do to respond to the crisis with its own resources. Vikram Nehru, the World Bank’s Chief Economist for East Asia and the Pacific, admitted frankly, from Tokyo, that “Cambodia was unlucky to [have been] caught in the crisis at this particular time”.

Stéphane Guimbert, for his part, put forward four key policies which could help lessen the impact of the shock wave on Cambodia. To start with, he advocated the strong supervision of the banking sector to avoid financial risks. “The financial sector is still very young in Cambodia. If there is a problem, the situation could get worse very quickly!” he warned, adding that the government was on the right track in this field. He also suggested the establishment of fiscal stimulus meant to support growth without jeopardizing macroeconomic stability.

Another key policy, he added, would be to offer trade and investment facilitation to mitigate the adverse effect of the external environment. And finally, the economist advised that social safety nets should be prepared to help the most vulnerable cope with the slowdown in growth

Keeping the garment sector in good health

In such a context, Cambodia seems bound to lose its market shares in the United States since demand will clearly be reduced. The Kingdom will then be forced to seek new markets, Vikram Nehru advised.

Cambodia must boost its competitiveness - “it must be one of the country's priorities”, Stéphane Guimbert insisted – by facilitating trade, offering fiscal stimulus and dealing with labour-related conflicts. The World Bank economist reminded that the country suffered from its dollarised economy since the American dollar has been appreciating against other currencies circulating in the region due to the inflation this year.

With bad luck comes ... some good?

The World bank economists yet want to believe that there may be a few advantages to take from the current situation of crisis, at least in the medium term. In the case of Cambodia, the sector of agriculture, which is still far from being exploited in the best way, could be boosted more, with a view to support economic growth. “Although the price of rice has gone down after a peak in May-June, it is still higher than it was before. This allows farmers to invest more in their land and buy pumps for irrigation or more seeds and fertiliser to increase their crop yields and make more profit...”, Stéphane Guimbert suggested.

Then, before the crisis actually vanishes and investors, currently sitting on their liquidities, come back to speculate, the latter will keep thinking twice before committing to any project, worried about the financial risks they would potentially take. To Stéphane Guimbert, it is time for Cambodia to do everything in its power to reduce these risks by improving the climate for investment. Moreover, Cambodia, according to the economist, must dare implementing “slightly more ambitious” expenditure policies, particularly when it comes to infrastructure projects and social protection nets, which will have a beneficial effect on potential growth in the medium term. The Cambodian government seems to be taking this track, judging by the 2009 budget, widely increased (US$1.8 billion) and adopted on Tuesday December 9th by the National Assembly.

The measures already taken by the government

In order to slow down inflation and lessen financial sector risks, the Central Bank tightened its monetary policy, as pointed out in the World Bank report. With further details, the WB described that the Central Bank doubled reserve requirements in July 2008, introduced a ceiling on loans to the real estate sector, tripled capital requirements in September 2008 and introduced restrictions on cash withdrawals from the Central Bank in October 2008.

The government continues to advance structural reforms, although with some slowdown at the time of the elections. Progress has also been made in upgrading the legal framework for investment, notably with the enactment of the Law on Secured Transactions, which makes it possible for a business to use its moveable and intangible assets as security for a loan. The World Bank pointed out that this had allowed Cambodia to skip 15 places in the 2009 “Doing Business” Report.

Last but not least, the World Bank assessment quoted another important reform recently enacted, namely the introduction in May 2008 of ASYCUDA, or Automated System for Customs Data, at the Port of Sihanoukville.