Cambodia construction industry rebounding

Jun 22, 2011
Property-Report.com

Cambodia’s construction industry has experienced an 87 per cent increase in government-approved investment in the first five months of 2011 compared to the previous year.

Officials have approved 868 projects worth roughly US$505 million up to the end of May this year, up from the 889 projects worth US$270 million in the same period of 2010, according to figures just released from the Ministry of Land Management, Urban Planning, and Construction.

Despite the decrease in the number of projects approved, larger projects have more than made up for it in terms of revenue.

Construction projects of more than 3,000 square met-res have risen by 153 per cent, Construction Department director Lao Tip Seiha told the Phnom Penh Post. They included condominiums, garment factories, warehouses, oil and gas stations and markets, among other buildings, he said. “Even though we got fewer construction projects than last year, they are still large projects with big value,” Lao Tip Seiha said.

He also noted that the growth in investment had outpaced the hiring of new workers to service some of the projects.

Cambodia Has to Cope With its Global Connection

Global misery: Cambodian women workers, who once benefited from foreign orders for garments, are now facing unemployment. (Photo: Anne-Laure Porée)

Once the poster child for the benefits of globalization, Cambodia is now being asked to cope with its darker side in the aftermath of the financial crisis. The four pillars of the country’s economy – tourism, garment-making, construction, and agriculture – are feeling the global pinch in their various ways, writes journalist Anne-Laure Porée. Tourism is down thanks to the global stay-at-home vacation trend. Garment-making has collapsed due to lower US demand and choosey shoppers. Construction, like the rest of the world, plummeted with knock-on effects in consumer banking as rising unemployment led to greater personal loan defaults. Even agriculture, which could still provide positive growth in 2009, faces the uncertainty of weather and the challenges of foreign investment choking off local farmers. Perhaps the only ray of light is the natural resource industry – a sector that has long promised to provide limited value-added components to the economy. The sad part of this story is that the government seems content to wait for a rebound in the global economy, hoping the rising tide abroad will lift Cambodia’s boat. But as Porée notes, to integrate fully into the world economy, Cambodia has to learn how to be more than a supplier of garments based on cheap labor. – YaleGlobal

Waiting for a rebound, Cambodia needs to be more than dressmaker to the world

11 August 2009
By Anne-Laure Porée
YaleGlobal

PHNOM PENH: Defying the gloom descending on the tourism sector brought about by the global crisis, the capital’s airport recently launched a hopeful initiative: a new airline. Cambodia Angkor Air was launched to boost tourism between the capital and Siem Reap near the famed ruins of Angkor Wat. With tourist arrivals falling sharply since late last year, this may signal a triumph of hope over reality. If anything, the hopes and fears surrounding Cambodia’s tourist revenue and garment trade underline how the fortune of the country has become intertwined with the larger world.

Since peace came to Cambodia in the last years of the last century, the country has emerged as a poster child of globalization in Southeast Asia. In the middle of this decade, Cambodia enjoyed double digit growth and even hoisted itself up to 6th place in the rank of the fastest growing economies for the 1998-2007 period.

And now the country is experiencing the downside of dependence on the world. The sectors most affected by the crisis – tourism and garment export – are the ones that have seen the most development thanks to the integration of Cambodia into the global economy a decade ago, after peace was restored in the country. At this time, the economy was opened to foreign investors, who poured money into the garment industry, taking advantage of supports granted to Cambodia such as the Most Favored Nation (MFN) and the Generalized System of Preferences (GSP). This status provided access to the American market and it enabled other Asian investors – Chinese in particular – to get round their own quotas or the Least Developed Country status conferred upon them by the United Nations.

But the happy days are now threatened by the shrinking world market. Of the four major pillars of Cambodian economy – the garment industry, tourism, construction and agriculture – three are seriously impaired by the global crisis. With 70 percent of Cambodia’s garment production going to the US, the declining American economy, choosey shoppers and stay-at-home tourists have led to job losses in Cambodia.

The figures released in late July by the Garment Manufacturers Association of Cambodia (GMAC) showed a worse than anticipated loss: exports dropped almost 30 percent and one garment worker in 6 lost her job in the first six months of 2009. Most of these workers are women who transfer a substantial part of their earnings to their family living in rural areas in order to supplement farming-based incomes. In some villages, every family has one or several members working in the garment factories based in the Phnom Penh suburbs. Some go for unpaid leaves or part time jobs, some enter prostitution, but most decide to go back to their village in order to work in the rice fields.

According to Van Sou Ieng, GMAC president, Cambodia is much more severely affected by the crisis than other Asian countries like Indonesia, Vietnam, Bangladesh or China because the industry sector in Cambodia is less competitive. “We need more time to produce than China or Vietnam,” he says. Though the government helps with profit tax exemptions or export charge reductions, there’s no miracle cure for Ieng.

Tourism – the second pillar of the economy – has suffered from the economic crisis, and the fallout from the swine flu. In Siem Reap, located next to the famed Angkor temples, a spot visited by more than 1 million tourists in 2008, the situation is described as “catastrophic” by hotel managers. The hotels’ occupancy rate has fallen 25 percent compared to the same period in 2008. Several three or four star hotels have definitely closed their doors, and the mid-range hotels have been multiplying promotional offers for months.

The drop in Western tourists’ arrivals (down 14 percent during the four first months of 2009 according to the Minister of Tourism) has a direct impact on tourism generated incomes – foreigners spent 1.6 billion dollars in 2008. The Ministry of Economy and Finance expects a drop in tourism growth of 7 to 8 percent this year.

The construction sector is also affected: many foreign investors have delayed, reduced or slowed their projects. The capital Phnom Penh started to change face in 2008 with the building of huge towers, business centers and shopping malls but activity slid in the second half of 2008, leaving workers without employment. Such trends have had significant consequences, particularly among the banking sector. The Acleda bank, which has the largest branch network in all provinces, reported a fall in profits in the second quarter of 2009 because of late payments and less lending. The Cambodians, who speculated on land as investment, are now facing difficulties because the prices of land and real estate have plunged and they can’t sell and get cash.

The hardest hit, of course, are the poorest of the poor who count each riel. For them, any drop in income, as well as any unexpected crisis, immediately results in cutting down the number of meals per day.

Agriculture, the fourth pillar of the Cambodian economy and the least exposed to global currents, could bolster the country’s 2009 growth, which is forecast at 2.1 percent. The agricultural sector (with 4.3 percent growth expected in 2009 depending on weather conditions) is essentially based on rice farming and fishing.

But the part of agriculture that has drawn foreign interest proves to be a mixed blessing.

In northeastern Mondolkiri province, plans by a French company to set up a rubber plantation have created a conflict that symbolizes the double edged sword of globalization. For several months, Bunong, a Montagnards ethnic group, has been fighting against the project – as their farmland gets swallowed up by the rubber company that has an agreement with the Cambodian government. The company is expected to make huge profits, a part of which could return to the community via the salaries of the plantation workers and the development of a new city.

The crisis has forced the government to pay attention to those left behind by globalization. “We thought that the private sector could solve every problem but we have to reconsider the role to be played by the State in order to palliate the deficiencies of the market,” says Hang Chuon Naron, Secretary General of the Ministry of Economy and Finance.

The crisis has also led the leader of political opposition Sam Rainsy, former Economy Minister, to call for injecting government funds into the economy and for pushing reforms, in particular against endemic corruption. But the government would rather let the storm blow over, waiting for growth to come back in developed countries, hopefully pulling the country out of its recession in the process.

In the meantime, some hopes turn to the mineral, oil and gas resources development. But the revenues from these productions will be mainly derived from exports of raw materials with no local added value, whereas imports of manufactured goods will increase. Even after growth returns, Cambodia will still have to figure out how to hitch its industry to the global economy profitably rather than be a supplier of garments produced by cheap labor. Cambodia is beginning to learn the challenge of being part of an integrated world.

Anne-Laure Porée is a journalist based in Phnom Penh. She can be reached at
alporee@hotmail.com.

SRP MP Yim Sovann addresses National Assembly meeting on May 27, 2009

On May 27, 2009, SRP MP Yim Sovann raised the issue of economic and financial crisis in Cambodia resulting from the world economic crisis.

Negative Growth to ‘Challenge’ Cambodia: World Bank

By Ros Sothea, VOA Khmer
Original report from Phnom Penh
19 May 2009

[Editor’s note: Cambodia was at first insulated from the financial crisis thanks to its lack of ties to the global finance system. However, as the crisis spread, and US and European consumers slowed their spending, Cambodia’s factories began to feel the pinch, along with agriculture and construction. International finance experts now project Cambodia’s economy will shrink in 2009, a major shift from the galloping growth the country had enjoyed in recent years. Cambodia’s World Bank country director, Qimiao Fan, sat in a recent interview with VOA Khmer in Phnom Penh.]

Q. How has Cambodia’s general economy performed since the economic crisis hit the country?

A. As you know, Cambodia’ economy has been growing very rapidly in the last decade. It had experienced double-digit growth before the economic crisis. However, the global economic crisis has impacted Cambodia very significantly, because Cambodia’s economy depends very much on external demand and on the inflow of foreign direct investment. So the global economic crisis is likely to impact Cambodia’s economy growth in 2009. We are now forecasting about minus 1 percent growth in 2009 for Cambodia.

Q. How will a contraction impact Cambodia as a whole?

A. The negative growth in 2009 is going to impact first and foremost on the poor people. Clearly with the slowdown in the economy and with negative growth in a sector like garments, there are going to be significant lay-offs of existing workers from the garment sector, perhaps also from tourism and construction. So those people who used to be earning an income, sending their salary back to rural areas, will no longer have that income. Secondly, as the economy decelerates, there will be few opportunities for new entrance into the labor market. Therefore, these people will find it very difficult to find a job that can earn them a living. They are likely to find less paying jobs in the informal sector.

Q. Do you think the economic crisis will become a challenge for Cambodia to implement its poverty reduction policy?

A. I think the economy has hit small, open economies, like Cambodia, and now the country has to deal with perhaps a negative growth rate in 2009. Clearly this is going to be a challenge, because the economy needs to grow to create employment for the 250,000 or so new entrants into the market. The economy needs to grow in order for the country to achieve its poverty rate further. So it is going to be a challenge for Cambodia, as it is for other countries around the world.

Q. Under the circumstances, with the economic hit hard by the crisis, what should the Cambodian government do to cope?

A. What I think it would be important for the government to do is to be able to continue to maintain the kind of public expenditure, such as in agriculture, infrastructure and a social safety net. Secondly, I think the crisis is also an opportunity. The country should take this opportunity to further improve its investment climate, so that when the global economy rebounds, Cambodia will be in a better position for that rebound and can become a favorable destination for foreign direct investment.

Q. Do you think it is necessary now for the Cambodian government to plan any stimulus package?

A. Like many other poor developing countries, the country doesn’t…have a lot of money to stimulate the economy. The government needs to make sure whatever expenditure it has goes to priority sectors like agriculture, infrastructure and training workers who have been laid off from the garment sector.

Q. What is the role of the World Bank in helping Cambodia fight the crisis?

A. The World Bank is helping Cambodia in three ways. First, we are working with the government and other development partners to try to have a better understanding of the impact of the crisis, particularly on poverty, on employment and on growth.

Second, at the request of prime minister, the World Bank, together with other development partners, are examining our existing support programs to Cambodia to see if we can accelerate the implementation of existing programs, because we believe it is the best way to help a response to the economic crisis. At the same time, we are currently working with the government, and we will soon be negotiating a $13 million budget support program to Cambodia to help small-holder agriculture and social protection.

Third, we are also working to provide timely advice and analysis to the government to deal with the short-term impact of the crisis, to see how we can help to position Cambodia better when the economy rebounds.

As Losses Mount, Plans To Help Economy Emerge [-Where's that loud mouth PM who said that Cambodia will not be affected by the economic crisis?]

Kong Chandararoth, president of the Cambodian Institute of Economic Study and Development.

By VOA Khmer, Reporters
Reports from Phnom Penh & Washington
28 April 2009

Cambodia’s four main economic drivers have sustained multi-million dollar losses so far this year, despite insulation from the financial markets, a leading economist said Monday.

A report released by the International Labor Organization released Monday shows losses of $280 million in garments, $260 million in tourism, $180 million in agriculture and $45 million in construction.

Despite those losses, Cambodia remains somewhat insulated from the global financial crisis, said Kong Chandararoth, president of the Cambodian Institute of Economic Study and Development.

“Our country is not close to the financial market, so that does not have an impact as serious as other countries,” he said, as a guest on “Hello VOA.”

Cambodia’s agriculture has also made the global financial downturn easier that industrialized countries, he said.

Organizations like the International Monetary Fund and Asian Development Bank have warned that Cambodia’s economy will shrink this year, thanks to the financial crisis.

However, Kong Chandararoth said such predictions were “too dark about Cambodia,” and he predicted economic growth around 5 percent for 2009.

Cambodia’s situation is further different from other countries, he said, because it does not have a stock exchange or other financial markets, which have been hard-hit by the collapse of the US financial market.

Meanwhile, the government has prepared a package to restore the economy, including tax exemptions, tourism promotion, and help for construction, agriculture, garment factories and other investments.

The government announced Tuesday it will release $25 million to the agriculture and garment sectors, in an effort to mitigate the effects of the global downturn.

The money—$18 million to agriculture and $7 million to garments—will be used to increase farm production and help train people who have lost their jobs thanks to the slowdown.

Government officials made the announcement during the semi-annual donors meeting on Tuesday.

Construction investment down 12.5pc from last year

Tuesday, 23 December 2008
Written by Chun Sophal and Hor Hab
The Phnom Penh Post

The once-booming sector has seen a double-digit drop in growth to November, ministry officials say, as pullouts and layoffs are reported across the sector

THE global property crisis is taking its toll on Cambodia's construction sector, with the latest government figures showing new investment down 12.5 percent in the first 11 months of 2008, compared with the same period last year.

Construction investment fell to US$2.8 billion for the first 11 months of 2008 - down from $3.2 billion in 2007, according to the Ministry of Land Management, Urban Planning and Construction.

The decline is part of a global recession in the construction industry fuelled by plummeting property prices and a worsening global economy.

The international construction industry has been hit especially hard by the downturn, with the Dow Jones Construction and Materials Index - a broad measure of the industry - down 44 percent this year, or about two percent more than the Dow Jones Industrial Average.

In Cambodia, more than 30 percent of construction jobs have evaporated as projects are cancelled or scaled back, unions said. At its peak in mid-2008, the construction sector employed 45,000 to 50,000 people nationwide, earning $60 to $1,200 per month, according to the Ministry of Land Management's Department of Land and Construction.

Foreign investment

Minister of Land Management Im Chhun Lim said Wednesday the drops are sharpest in projects funded by foreign direct investment, with more declines expected next year.

"I think FDI in the construction sector may drop further if the financial crisis worsens," he said.

"All major construction sites, such as Camko City, Gold Tower 42 and IFC Tower, are progressing, but at a slower speed," he said.

Cambodia had 1,869 construction projects countrywide in the first 11 months of 2008, compared with 1,942 in 2007, according to ministry figures.

Chan Sophal, president of the Cambodian Economic Association, said Thursday that construction investment from the second half of 2008 until early next year will be hard-hit by the economic slump.

"I think FDI in the construction sector may drop further if the crisis worsens."

"I think it will be hard for Cambodia to maintain its construction boom because the world is facing difficulties and the local real estate market has remained stagnant," Chan Sophal said.

He said the government's restrictions on bank loans for construction have added pressure to the already battered sector, and he urged the government to reconsider the rules.

"I still think that investment in construction will be lower than 2008," he said.

Lower costs

The declines come despite falling construction materials prices that have significantly cut building costs.

Building companies report that materials costs have dropped by 30 percent to 40 percent since their peak in June, with steel selling for about $650 per tonne, down from about $1,100.

But lower feedstock prices do not compensate for a market with fewer investors to finance projects or buyers looking to mop up excess supply, industry players say.

Sung Bonna, president and CEO of Bonna Realty and president of the National Valuers Association of Cambodia, said the construction sector's health depends largely on government policy.

"I think that investment in construction can be strong as long as the government relieves the bank loan restrictions and the prakas on housing development and foreigners are given the right to own condominiums and apartments," Sung Bonna said.

"What I see at the moment is that the investment in construction is no longer strong, including local and foreign direct investment, because they have lost their financial power and confidence," he said.

Yun Hong, project manager of Kang Meng City, told the Post that construction has slowed down because of a fall in speculator capital.

"We are just finishing our old construction projects at the moment," Yun Hong said.

"If the situation of the property market stays like this, we will stop all construction."

ADDITIONAL REPORTING BY GEORGE MCLEOD

Work safety worsens as Cambodian construction booms

Cambodian workers are seen at a construction site

Thursday, October 09, 2008

...the gap between the rich and the poor is widening, with about 35 percent of the country's 14 million people living on less than 50 US cents a day

PHNOM PENH (AFP) — The race is on to build Phnom Penh's first skyscraper but as the fast-modernising city famous for its graceful colonial skyline transforms, safety standards appear to be stuck in the past.

The construction business in Cambodia is booming, attracting investments of 3.2 billion dollars in the first six months of this year and luring some 40,000 seasonal construction workers from impoverished provinces.

But, as construction worker Chan Vuthy can attest, work safety has deteriorated as buildings spring up.

The day a blade from a malfunctioning saw cut deep into his knee, the 23-year-old was wearing flip-flops, a cloth hat and no protective equipment.

When he stumbled to the bottom of the site, his boss scolded him for recklessness.

He was then fired, and had to spend his savings on a month of hospital treatment.

"Every time other workers and I have accidents, they say we are careless," Chan Vuthy says.

Cambodian construction workers risk their lives for an average wage of two and a half dollars a day, says Sok Sovandeith, president of the Cambodia National Federation of Building and Wood Workers.

There are no laws to force construction enterprises to pay adequate wages so many workers must live on building sites.

Few of them have any training and companies have little incentive to take measures to avoid accidents or use equipment such as hard helmets, work boots or safety harnesses.

"We're very worried about poor working conditions which have not been improved or guaranteed by law," Sok Sovandeith said, adding that construction work is the most dangerous kind of labour in the country.

"We are not happy when workers are not safely equipped. After some inspections, we found a lot of building sites and companies do not give out safety materials."

Many construction companies lay the blame for poor safety on workers who do not protect themselves.

So far the government has sided with businesses, taking no action to ensure better work conditions amid the building boom which has attracted investment from South Korea and China and helped fuel double-digit economic growth.

"The whole country acknowledges that construction is the third gem besides the agriculture and garment sectors to boost the domestic economy," says Im Chamrong, head of Cambodia's General Department of Construction.

"Some construction companies can't afford the safety equipment. We cannot force them to buy it," Im Chamrong says.

With few zoning regulations, new construction projects tower over traditional Khmer homes and the old French villas built in the colonial era.

In June, a South Korean company broke ground on a 52-storey tower slated to be the country's tallest skyscraper when it is completed in 2012, while all across the capital tall buildings are going up.

Once-sleepy boulevards are already crammed with expensive cars driven by the country's growing elite.

But the gap between the rich and the poor is widening, with about 35 percent of the country's 14 million people living on less than 50 US cents a day.

These are the men and women who end up migrating to the capital and risking their lives on building sites for a couple of dollars a day.

There are no statistics for accidents in Cambodia's construction industry, but there are many anecdotes about deaths and injuries to workers.

"There have been a lot of people being killed accidentally, but some companies try to hide the figure of the dead and victims," Sok Sovandeth says, adding the country needs better labour laws to save lives.

"Because workers take what they are offered, no better work conditions are given to them," he adds.

Constructions place third in national revenue generation

Tuesday, January 29, 2008
Everyday.com.kh
Translated from Khmer by Socheata

Im Chhun Lim, the minister of Land Management, Urban Planning and Construction, said recently that constructions take the third rank in terms of national revenue, right after tourism and the garment industry. Im Chhun Lim indicated that during the last 9 months of 2007, there were 1,514 construction permits request made, with a total of investment amounting to $1.558 billion. He also indicated that the construction plans above will provide about 20 to 30,000 manual labor jobs per month. He added that, because of the development in construction, this sector plays an important role in the national development and it is the third revenue generator, following tourism and the garment industry. Currently, South Korea is the major construction investor in Cambodia.