Cambodians Brace for First Taste of Recession

By Luke Hunt
Voice of America
Phnom Penh
08 May 2009

The global financial crisis is taking its toll on small countries like Cambodia, where citizens are bracing for the nation's first recession in living memory.

Cambodia's economy was shattered by four decades of conflict and communist dictatorship. But since peace was restored more than 10 years ago the country has enjoyed steady economic growth above five percent annually.

That stopped as this year began. Trade with Thailand - by far Cambodia's most important neighbor - has fallen 25 percent in the first two months of 2009. Garment exports are also down 25 percent and property prices slumped 40 percent from January to the end of March.

This is the first time in Cambodia's post-war era that property foreclosures, vehicle repossessions, bankruptcies and job losses have been seen, causing some concern for bankers and businessmen.

"We were of course seeing huge, huge, increases in land values probably over the last 12 months as a result of speculative land and investment in the country," said Paul Freer, vice president of Maruhan Japan Bank in Phnom Penh. "That has virtually come to a standstill."

The World Bank forecasts 30,000 lost jobs in Cambodia's garment industry. A decline in tourism receipts from the Western countries compounds economic problems for the government. The opposition calls for a 500 million dollar spending package, an enormous sum by this country's standards.

Many people here expect Cambodia to fall into recession in the next few months.

Derek Mayes from the Australian Business Association of Cambodia says investment was getting reckless as the economy peaked in the second half of last year. He says that pushed conservative and long-term investors out of the market.

Now, he says, the downturn could take the heat of out of the market and bring investment back to realistic levels.

"The wrong type of development was going ahead and I think this has actually brought it back to the point where the opportunities are still there but I think the realism from serious business people is saying yep we can still do a deal," said Mayes.

Freer at Maruhan Japan Bank echoes that sentiment.

"It's probably one of the first recession's that most people here I think in the business community can remember," he said. "People had perhaps thought that the property market was going to continue to go northwards."

Ultimately, he says, the downturn could prove to be good for the country, by encouraging more careful and sustainable growth.

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

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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.

Motorbike sales nosedive as local economy slumps

Motorbike shops along Sihanouk Boulevard near Olympic Stadium. Dealers report slower sales compared to last year. (Photo by: Sam Rith)

Wednesday, 19 November 2008
Written by Sam Rith
The Phnom Penh Post

Local motorbike dealers report slower sales as the falling property market and declines in foreign investment hit consumer spending at home

THE global economic crisis and a weakening property market have hit local motorbike sales, with dealers reporting drops of as much as 70 percent this year.

"Last year I did not have enough motorcycles to meet demand, and a lot of customers booked their vehicles in advance. But this year I have a lot of remaining bikes in my shop," said Chhay Ly, owner of Chhay Ly Honda Motorcycle Shop on Kampuchea Krom Boulevard.

He said his profits have nearly evaporated and he now sells only four or five bikes per month, at US$980 to $2,300 each, down from about 12 last year.

"The drops are caused by the slow economy," he added.

Motorbike sales soared last year and in the first half of 2008 as Cambodians cashed in on the strong property market and record foreign direct investment.

But with the economic crisis spreading to local markets and property values in freefall, motorbike dealers are feeling the pain of consumer belt-tightening.

Principal form of transport

Motorcycles are the Kingdom's most common form of transport, and the government says that 800,000 bikes are registered in the country.

"This year has been very quiet. Last year, a lot of people bought bikes at my shops."

"This year has been very quiet. Last year, a lot of people bought bikes at my shops - most were people who made money from selling their land outside of Phnom Penh," said Chhim Neang, owner of Chhim Neang Selling Motorcycle Shop. She reported a 40 percent sales drop, which she blamed mainly on the property market.

Keo Rottana, director of MCT Motorcycle Manufacturing (Cambodia) Co Ltd, which is a wholesaler of electric bikes, all-terrain vehicles and small electric cars from China, said his sales have dropped significantly, even after he cut prices from $600 to $550 each.

"We have seen a lot less buy orders from the provinces."

He said last year his company sold about 2,000 units, but this year sales dropped about 30 percent.

Another wholesaler, Pok Phalra, director of JM Japan Motorcycles Shop, said he has sold virtually no second-hand motorcycles imported from Japan.

"This year, sometimes I sell one bike and sometimes none," he said. "Last year I could sell up to eight bikes per day."

Cheng Song Heap, owner of Cheng Song Heap Motor Shop, a major motorcycle retailer in Phnom Penh, also said he has been affected by a drop-off in business.

"People are now depending on their salaries. They are not seeing large profits from land sales like last year."

According to a local property expert, the real estate market may not recover any time soon.

"It takes about one to two years before land prices will return to normal," said Sung Bonna, director of Bonna Reality.

Finance Minister Keat Chhon confirmed early this month that Cambodia's economic growth would slow to 6.5 percent next year.

Cambodia ‘Not Immune’ to Global Crisis: IMF

The number of tourists visiting Angkor Wat have fallen, as economies abroad struggle with a global downturn.

By Chun Sakada, VOA Khmer
Original report from Phnom Penh
07 November 2008

Cambodia's economic growth rate will be slashed by more than half compared to 2007, as a financial slowdown continues to plague world markets, the International Monetary Fund said Friday.

Cambodia's economic growth rate will be around 6.5 percent for 2008 and will decrease to 4.25 percent next year, the IMF said, reporting findings of a visit in recent weeks. Those numbers starkly differ from Cambodia's halcyon growth rate of 10.25 percent in 2007.

Cambodia's "narrow production and export base" will subject it to the global markets, said David Cowen, deputy division chief of the IMF's Asia and Pacific Department.

The global economy has constricted amid ripples of a US sub-prime mortgage meltdown, shrinking consumer confidence, and tumbling stock markets.

"Cambodia's economy will not be immune to this slowdown," Cowen told reporters.

The IMF noted on its visit a sharp increase in inflation driven by higher fuel and food prices, as well as the weakened US dollar, which Cambodia follows, and heavy domestic demand for goods.

"Following several years of very strong performance, Cambodia's economy faces a number of challenging headwinds," the IMF said in a statement Friday. "After a robust start, growth momentum eased over the course of 2008, and more recently the economy has begun to experience adverse effects from global financial stress."

Cambodian officials have already acknowledged a slowdown, while large construction projects in Phnom Penh have been put on hold and microfinance lenders have reduced operations.


"Cambodia's economic slowdown is following the global financial crisis, which has slowed down foreign trade to Cambodia," Finance Minister Keat Chhon told reporters on Monday. "We must increase agricultural production and increase the [value added tax] on agricultural products for export. And we are trying to attract foreign investment by all means to come to develop in Cambodia."

Garment exports and tourist arrivals—the two main engines of Cambodia's economy—were both slowing, the IMF said, part of a "rapid downturn" in the economies of its trading partners.

The IMF also estimated that the overall inflation rate for 2008 would come to around 15.5 percent, following its highest point, 26 percent, in May.

The IMF commended the government on "steady budget implementation, particularly through the election period," and for improved tax administration.

Rubber prices dip 35%

30 Oct, 2008
The Economic Times

KOLKATA: The global collapse in commodity markets has led to a slump in natural rubber prices too. Amid an overall downturn in commodity prices, India’s mostly used natural rubber variety RSS-4 fell 35% in the past one month. The popular global variety RSS-3, an equivalent of Indian RSS-4, dropped 27% in the Bangkok market within the same time span.

Reeling under the impact of global meltdown in commodity prices, RSS-4 rubber grade has now nosedived to Rs 8,800 per quintal in the Kottayam market from Rs 13,228 per quintal a month ago. Imports also come cheap. The landed price of RSS-3, originating from Bangkok, plummeted to Rs 9,127 per quintal by October-end, which was ruling at Rs 12,437 per quintal a month ago.

Its prices fell so sharply in the past one month because the global recession in the automobile market has broken out in such a time when rubber tapping too has begun in major rubber producing countries.

With crude oil prices falling continuously on a steady note, the bear grip over the natural resin market gets tightened further. Natural rubber price trails the crude oil prices as synthetic rubber is a crude oil derivative.

Expectedly, natural rubber exporters from the country are not happy with erosion in its prices in the global market. However, they keep on looking at export orders until global prices rule over the domestic prices. Today, it is ruling over the domestic price by around Rs 300 per quintal.

Concerned about the falling natural rubber prices, which may come in the way of hitting rubber export target for the current year, the Rubber Board recently convened a meeting of exporters where they have been told not to go slack in clinching export contracts, said a board official. The board has set the target for natural rubber export at 50,000 tonne for 2008-09, of which about 32,650 tonne have been exported between April-October, 2008.

Though till date no Indian importer has reneged on rubber import contracts in the event of sharp reduction in its prices, reports on contract default have started pouring in from some other rubber importing countries. This has prompted the Asean Rubber Business Council (ARBC) to take some preventive measures.

To prevent these default problems, ARBC has devised measures to restore order in the market, including distributing a blacklist of the defaulters to all members of the ARBC and advising the members to stop dealing with such defaulters.

Members have been asked to view the current situation in a proper perspective, to establish a healthy practice to enhance mutual business relationship in the long run, sources in the rubber industry said.

ARBC currently embraces rubber trade business associations from six rubber-producing countries of Asean — Thailand, Malaysia, Indonesia, Singapore, Vietnam and Cambodia — which account for 85% of the world’s total natural rubber production.

S Korean tourists to Cambodia decline early this year

PHNOM PENH, June 19 (Xinhua) -- The number of South Korean tourists visiting Cambodia showed some decline early this year, local media reported Thursday, citing South Korean Ambassador to Cambodia Shin Hyun-suk.

According to a South Korean airline company, the number of South Korean tourists decreased 17 percent in the first four months of this year when compared with the same period last year, Shin Hyun-suk told the Mekong Times newspaper in an interview.

A worldwide economic recession, high oil, energy and food prices, the increase of the exchange rate between South Korean currency won against the U.S. dollar and South Korea's domestic political situation have all contributed to the negative trend, he said.

However, Shin Hyun-suk is still cautiously optimistic about the future arrivals of South Korean tourists to Cambodia.

He said that in the medium term, once many tourism development projects in Cambodia are completed and as the world economy recovers its strength, the number of foreign and South Korean tourists will pick up again.