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Friday, January 09, 2009

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

By Ros Dina

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.



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Cambodian garment industry needs to survive crisis

PHNOM PENH, Garment, the foremost pillar industry of Cambodia, has an urgency to survive its crisis in the upcoming days, amid the ongoing global financial crisis and the recession of traditional demand from the U.S. market.

LESS EXPORT IN 2008

At an annual meeting of the Association of Southeast Asian Nations' Federation of Textiles and Apparel (AFTEX) which was held here on Thursday, Cambodian Commerce Minister Cham Prasidh said that the garment industry saw a 2 percent decrease in its export in 2008 over 2007.

"This is better than my own expectation. I thought that it would have been down 5 to 7 percent," said Van Sou Ieng, chairman of the Garment Manufacturers Association in Cambodia (GMAC).

Previous local reports have attributed it to the withering demand of traditional client countries.

Around 70 percent of Cambodia's garment products were sold to the United States, 4 percent to Canada and the rest mainly to European countries.

The export volume of the garment industry used to account for over 70 percent of the country's total annual export volume.

In 2007, garment export earned 2.93 billion U.S. dollars for Cambodia, according to official figures.

CRISIS AHEAD

The garment industry of the kingdom will face a 6- to 9-month-long crisis in 2009, due to lack of profitable orders, Van Sou Ieng said at the AFTEX meeting.

"I think that we will have a crisis 6 to 9 months long this year," he said.

Due to the global financial crisis, especially the U.S. economic recession, most garment factories could not secure new worthy orders and the current orders could only sustain them until March, he said.

"The crisis has propelled some buyers to give prices too low to be acceptable for the producers, so they have no choice but shut down their factories," he said.

Over 20 or even more out of the 400-strong garment factories of the kingdom have closed, leading to the unemployment of some 25,000 workers, he added.

Meanwhile, suspension of bank credit also spilled oil over the troubled water of the manufacturers, he said.

ALTERNATIVE MARKET

Japan might become the alternative market for the garment producers of Cambodia, as the demand of traditional purchasers has sharply sagged, said the chairman, adding "currently, Japanese orders are few, because their quality demand is so high that we can hardly meet it."

Fortunately, Japanese buyers have already listed some suggestions which could help Cambodia improve product quality, he said.

"Two directors, rather than one, supervise the operation of every 10 workers. This is the open sesame that they give us," he said.

The United States, as the largest buyer of Cambodian garment products, may need 2 to 3 years to cope with its economic recession, so it has become ever more urgent for Cambodian garment producers to find new markets, he added.

The garment factories of Cambodia used to employ some 300,000 people and have been the largest foreign currency contributor for the kingdom.

Garment, as a labor-intensive industry, is well-rooted in Asian countries, which still encompasses China, Vietnam and Indonesia.

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Top Cambodian KRouge trial officials to be investigated for graft

PHNOM PENH (AFP) — A Phnom Penh court will hear a corruption complaint against top officials at the UN-backed Khmer Rouge war crimes tribunal, a judge told AFP Friday.

Chief judge of Phnom Penh Municipal Court Chev Keng said he would accept the complaint against Sean Visoth, the top government official at the court, and Keo Thyvuth, its former chief of personnel, lodged Thursday by defence lawyers.

The lawyers allege the pair have received kickbacks from court workers, but on Friday the tribunal's Cambodian judges released a statement denying any involvement.

The judges added the complaint "was causing confusion and seriously affecting the honour and dignity of all individual judges and this (Khmer Rouge tribunal) institution as a whole."

Thursday's complaint was lodged by international lawyers for Khmer Rouge "Brother Number Two" Nuon Chea, one of five former leaders due to stand trial.

They said the failure to address corruption allegations undermined Nuon Chea's right to a fair trial on charges of war crimes and crimes against humanity.

Last year the UN launched an investigation into allegations that Cambodian workers had been forced to pay for their jobs, and withheld at least 300,000 dollars in July funding and court salaries.

The investigation's findings were never made public but Keo Thyvuth was later transferred from the court and Sean Visoth put on leave.

The tribunal opened in 2006 after nearly a decade of wrangling between the United Nations and Cambodia.

It is expected to hear its first case within the next few months, against former Khmer Rouge prison chief Duch, whose real name is Kaing Guek Eav.

Up to two million people were executed or died of starvation and overwork as the communist Khmer Rouge dismantled modern Cambodian society during its 1975-1979 rule in a bid to forge an agrarian utopia.
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