The Phnom Penh Post - ENGLISH: “GMAC calls for factories to shutter” plus 9 more

As workers protest in their thousands, the Garment Manufacturers Association in Cambodia (GMAC) this morning strongly urged its member factories to close for the rest of this week, fearing strike-related violence.

"If the workers are working in the factories, some bad elements of the demonstrators will go around and destroy your factories gates and properties in order to force the workers out to join the demonstration to demand a wage of US$160," reads a letter sent by email and obtained by the Post. "It is safer if there are no workers in the factories."

Five labour unions called for a nationwide strike on Tuesday, hours after the Ministry of Labour announced that the minimum wage in Cambodia's garment sector would rise next year from the current $80 – including a $5 health bonus – to $95, rather than the $160 workers want.

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Him Phalla, administrative manager of Huey Chuen (Cambodia) Corp. Ltd., said the Dangkor district factory allowed workers to go home after receiving GMAC's email this morning.

"In order to avoid any problems … we allowed them to stay home," Phalla said. "We've seen that some of the workers have broken property at other factories, so we fear that the same thing will happen to our factory."

Upon hearing about the GMAC letter this morning, Ath Thorn, president of the Coalition of Cambodian Apparel Workers' Democratic Union, encouraged workers to strike peacefully.

"We encourage workers to go on strike and also demand $160," Thorn said this morning. "But we do not encourage workers to commit crime."

Thorn said he had heard any reports of any strike-related property damage or violence.

Even if factories did not close, employees still would not show up to work, said Moeun Tola, head of the labour program at the Community Legal Education Centre. There is a lot of anger within the strikers' ranks, he said.

"The movement now is out of control," he said.

Without the King's intervention, the two parties have too much ego to make any concession.

High-ranking members of the royalist Funcinpec party have said they are set to file a court complaint against the party's senior leaders for allegedly attempting to sell the party's headquarters for their own personal gain.

Sok Sa Vann, a member of the party's steering committee, maintained yesterday that Funcinpec Secretary General Nhek Bun Chhay – along with party president Princess Norodom Arun Rasmey and her husband Keo Puthrasmey – was conspiring to sell party assets without the approval of the steering committee.

Other party officials, who spoke on condition of anonymity, echoed Sa Vann's allegations.

"We are studying with our lawyers to prepare a complaint to the court in order to maintain the political legacy and the assets of the late King Norodom Sihanouk, and the complaint will be completed no later than this month," Sa Vann said.

According to Sa Vann, the plans to sell the headquarters were announced at a December 22 meeting of only 160 of the party's 340 steering committee members – a figure insufficient for a quorum – and was not put to a vote.

Bun Chhay presented the sale as a means of paying down an $800,000 loan from Canadia Bank, but the property in question is worth substantially more, Sa Vann said, adding that the remainder was destined for the party leadership's pockets.

The alleged move, he added, is just the latest in a long string of sell-offs of party assets.

Bun Chhay denied the allegations yesterday, but did acknowledge that selling the headquarters was under consideration by the steering committee. However, he faulted Sa Vann's attendance count for Sunday's meeting, saying that of only 200 active steering committee members, 177 attended.

"Among the 177 steering committee members, only Sa Vann opposed the initial idea for moving the office closer to central Phnom Penh in order to make it easier for the national and international [delegations] to access it for meetings with Funcinpec," Bun Chhay said, noting that a final decision had not been made.

The value of Cambodia's garment and footwear exports topped $5.07 billion in the first 11 months of 2013, an increase of 22 per cent from the same time last year, according to the latest Ministry of Commerce statistics.

Cambodia's two biggest importers of textile garments and footwear, the US and Europe, both registered notable year-on-year increases.

US exports rose nine per cent to a total of $1.96 billion, while European exports rose 33 per cent to a total of $1.81 billion as of November.

Export value among the remaining countries, including South Korea and Japan, rose 31 per cent in the first 11 months of this year compared to 2012.

The surprising jump in value comes despite months of garment worker strikes, manufacturers reducing or ceasing productions entirely, and the Kingdom's ongoing political impasse over the disputed poll on July 28.

Protests at the Phnom Penh factory SL Garment Processing (Cambodia) over wages, among other issues, began on August 12, ended on December 4, and reportedly cost the company $15 million after international brands H&M and Gap reduced their orders and jeans manufacturer Levi's cut ties altogether with the factory. One bystander was killed in a violent day of demonstrations on November 12.

Earlier this week, thousands of garment factory workers from around the country walked off the job after the Ministry of Labour decided to raise minimum wages by $15 in 2014, rather than the $80 increase they demanded.

Not counting December, GMAC has recorded 131 strikes in 2013 alone, the most since it began collecting data 10 years ago.

But senior officer at GMAC Cheat Khemara said the positive figures were the result of deals already struck in 2012, and were not reflective of the troubles seen in the garment sector during 2013.

"As the quota comes to an end, we [GMAC] are discussing and considering whether to accept new orders from buyers," he said. "We are concerned that if issues are not solved very soon, we might tell buyers to switch orders to other countries. We may accept some orders, but it will only be for short-term contracts."

"We cannot afford to pay when we cannot produce according to deadline," he added.

Ath Thorn, president of the Coalition of the Cambodian Apparel Workers Democratic Union and head of the Cambodian Labour Confederation, dismissed Khemara's comments and said that "surely they will not switch their orders".

"We will keep going to strike until there is a solution. We cannot live on $95 per month," he said, referring to the new wage the government set on Tuesday.

Energy, the stock market, telecommunications, rice and investment stability. Looking back at the stand-out business trends of the year.

Rice exports boomed, but problems remain
In 2013, no other sector experienced the same growth rates as Cambodia's rice industry. Exports nearly doubled from 2012. Starting from a very low base in 2009, with 12,613 tonnes, rice shipments reached 332,009 tonnes in the first 11 months of this year.

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The growth was due to a number of factors, including more capital investment in the industry, improved rice milling capacity, as well as broader access to world markets through trade agreements.

The industry exported to 58 countries. Sixty per cent of them were in the European Union, thanks to the Everything but Arms (EBA) duty-free deal. Cambodia's rice exports to Malaysia, Thailand, China and Gabon are all on an upward curve.

In November, Cambodia's jasmine variety won the "World's Best Rice" award for the second year in a row at a conference that took place in Hong Kong.

But with all the fanfare, problems remain. Cambodia wants to ship 1 million tonnes per year by 2015, a daunting task. It faces competition from Myanmar and persistent competition from Vietnam and Thailand.

Most crucially, the EU seems to be scrutinising the origins of Cambodian rice.

A trade magazine this month printed allegations, later denied, that 30 per cent of the product was mixed with Vietnamese rice.

Fearing Cambodia could lose its special relationship with the EU, exporters vowed to sign a Code of Conduct that will supposedly ensure the originality of the rice.

Cambodia, unlike Vietnam and Thailand, benefits from the EBA agreement, which gives developing nations trade preferences to European countries on all products excluding armaments.

Telecommunications industry rides out price rules and Mfone bankrupcty
Cambodia's telecommunications industry took a major hit early in 2013. Mfone officially filed for bankruptcy before the first fortnight was out. The telecom giant folded with reportedly more than $160 million owed to more than 1,000 creditors, including $65 million owed to Chinese telco provider Huawei Technologies, and $3.7 million owed to Norwegian company Eltek Valere.

Mfone's demise left behind assets, of course, like the thousands of cell phone towers scattered around Phnom Penh and the Cambodian countryside. Their total value was unknown, but they eventually sold to Chinese-owned Khmer Unity Network Communicate Co Ltd for a considerably scaled-down price.

Following the sale, former Mfone employees, who had been protesting for unpaid wages, received a second payment for outstanding salaries. Of the $4.4 million owned, employees have now received 30 per cent. The corporate creditors are still waiting to be paid in full.

In April, the Cambodian government issued its warnings to two of the country's largest mobile operators for violating the often flouted Prakas 232, which was first signed in 2009 and set minimum call rates within a network of 4.5 cents per minute and cross-network rates of 5.95 cents. The enforcement sparked a backlash in the industry and among consumers, prompting the government to pull back on the controversial restrictions two weeks later.

But the government's easing was temporary. On November 28, it sent a letter to all mobile operators giving them just seven days to withdraw promotional deals that undercut minimum call rates.

Once again, thousands of young people took to Facebook – and a few protested at Wat Phnom – expressing their anger over the increased call cost. Cambodia's nine mobile providers agreed to follow and implement government regulations at a meeting on December 13, and decided to form an association to discuss industry issues.

The country's internet speeds, meanwhile, are on track to vastly improve after Cambodia's largest service provider Ezecom announced in June plans to help build a 1,425-kilometre submarine cable to Malaysia, which will then plug into the 20,000-kilometre Asia-American Gateway.

Construction on the $80 million cable was slated to begin in October this year and is due to be operational by the end of 2014.

Election year's troubling impact on business
By far the biggest news story of the year was the national election. But it was also one of the biggest business stories of the year. Mass protests from the newly emboldened opposition party over alleged voter fraud shook up the economy in more ways than one.

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Stability has always been Cambodia's main selling point for foreign investors. On July 28, election night, anger over disenfranchisement at the polls was met with increased security, which in turn caused panicky Phnom Penh residents to withdraw $4 million from Acleda bank ATMs.

As later figures showed, the trend continued on a larger scale. At least $600 million flooded out of Cambodia's entire banking system during the third quarter of this year, figures the National Bank of Cambodia said were probably a record.

Confidence in the economy sank 50 per cent in the tense post-election period, according to one survey. New business registrations also fell.

While Acleda and the banking system as a whole recovered, protests may have indirectly influenced some major changes to every day business and consumer life.

Responding to promised reforms from the ruling party, the General Department of Customs and Excise stamped out unofficial duties on imports in November. The new Minister of Commerce also cut red tape to make it easier to do business in Cambodia.

Getting rid of corruption is one thing, but the official payments on imports are now higher. The buck will be passed on to the consumer. The prices of basic goods are expected to rise as a result.

The former Minister of Commerce, Cham Prasidh, said this year that protests could destroy the economy. They didn't, but their influence on changes in policy was difficult to dismiss.

For energy sector, old problems but few fixes
Cambodia's energy sector has seen a handful of improvements in the past 12 months, but reminders of how much work is left cropped up with regularity.

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Little was heard about offshore gas extraction, so the news in June that Japan Oil, Gas and Metals National Corporation (JOGMEC) unearthed promising results in a search for fuel sources on Cambodian soil was welcome. JOGMEC's joint survey with the government on land in Siem Reap and Preah Vihear provinces led to the discovery of "onshore petroleum potential". Exploration in both provinces is expected to take up to eight more years.

In May, the government drafted a policy on energy efficiency that calls for a 20 per cent reduction in consumption by 2035, resulting in savings of hundreds of millions. But dampening Cambodia's energy prospects was a report released earlier this month that ranked the Kingdom fifth last out of 124 countries for its so-called Energy Architecture Performance.

Cambodia achieved the lowest scores in access to energy and its dependence on fossil fuels and imported energy.

In June, following months of rolling blackouts that crippled city residents and businesses, Electricite du Cambodge's (EDC) announced 50 extra megawatts of supply from its newly operational coal-fired plant in Preah Sihanouk. But so far, the plant's effectiveness in combating the city's chronic electricity shortages is not definitive.

In October, construction lurched forward on Cambodia's first oil refinery after a $1.67 billion loan from the Export-Import Bank of China was approved in October. The $2.3 billion project in Preah Sihanouk and Kampot provinces is supposed to produce 5-million tonnes per year. It should be finished by 2016.

The cheerful news belongs to the alternative energy sector. Solar powered tuk-tuks from Australian company Star 8 could be gracing Cambodia's roads as early as March 2014.

After coming out swinging, Cambodia's stock market has a difficult year
The Cambodia Securities Exchange stood out in 2013 as much for what it didn't achieve as for what it did. After the first company went public on the exchange to widespread praise in 2012, the applause didn't last.

That inaugural company, the state-owned Phnom Penh Water Supply Authority (PPWSA), is still the only publicly traded stock, while vows to go public from other firms have been sheepish and noncommittal.

For a young bourse, this is not unusual, but the poor performance of the sole stock underlined its lack of peers.

PPWSA was traded at record-low prices in 2013. From July 17 to the 23 – not counting the weekend in between when the bourse was closed, not a single share was bought or sold, the longest drought since the company first went live in April last year.

In 2012, PPWSA issued 13 million shares, which closed at 9,300 riel on the first day. In September of this year, prices dipped as low as 4,840 riel.

Investors may have lost confidence after seeing no public offerings. A Taiwanese-owned garment factory submitted a letter of intent in 2012. Letters from the Phnom Penh Special Economic Zone and companies that the Securities Exchange Commission of Cambodia would not disclose have also been submitted. Plans to list are plentiful.

Actual listings are nonexistent.

The exchange is moving its headquarters next year. A new location may bring new tidings. The more optimistic want to give the CSX a shot. Han Kyung Tae, the managing director of Tong Yang Securities (Cambodia), reminded everyone earlier this year that the bourse is the youngest in the world.

Deputy Prime Minister and Interior Minister Sar Kheng yesterday granted cash prizes to members of the triumphant national wrestling team, who returned from this month's SEA Games in Myanmar with a record haul of four gold medals, two silvers and four bronzes.

During a ceremony held yesterday morning at the Cambodian Wrestling Association head office, Sar Kheng gave gold grabbers US$500 each, silver medalists $400 and bronze winners $300.

Team delegates and coaches collected $200, while grapplers without medals received $100, according to Ministry of Interior Wrestling Club President Chea Bunheng.

A new report by financial services company SBI Royal Securities is taking a bullish view on the investment potential of Phnom Penh condominiums for high net-worth locals and residents or investors from overseas.

In the report, the Japan-based company's Cambodian subsidiary examines the kingdom's relatively low barriers to entry and substantial yields when compared with other Asian markets such as Hong Kong, China, India and Malaysia. It also projects that nearly complete development De Castle Royal will be the city's star performer in terms of return on investment.

In terms of cost, prime real estate in major cities in Cambodia was at the more affordable end of the spectrum, averaging $3,200 per square metre, the same as Indonesia, and just slightly more expensive than Malaysia at $2,800 per square metre.

Unsurprisingly, prime real estate in Hong Kong is the most expensive in the region at $21,200 per square metre, nearly seven times as expensive as comparable property in Cambodia.

When looking at the gross rental yields for these same Asian markets, Cambodia's investment advantage becomes clear. It currently offers yields of 5.3 per cent, slightly behind Indonesia and the Philippines at 7.1 percent and Thailand and Japan at 6.3 and 5.5 per cent, respectively. China and Hong Kong are offering rent yields of only 2.7 and 3.3 per cent, the report noted.

Such low costs and strong yields have driven increasing interest and investment in Cambodian residential property, especially condominiums. But this is still a relatively new phenomenon. SBI Royal Securities senior associate Leng Vandy said that a few recent but crucial market developments that have bolstered interest in condominiums in Cambodia, primarily Phnom Penh.

"A couple of years ago, there were only a few condominium projects in Phnom Penh," Leng said.

"They were developed by foreign developers and were unpopular with Cambodians. But the situation has changed remarkably, with new projects being developed by foreign and local developers plus new laws allowing foreigners to have ownership rights over private units in co-owned buildings."

Despite the attractive yields of condominiums in Phnom Penh, there is not much in the way of supply coming online in the coming year. The only luxury condominium development expected to be completed in 2014 is De Castle Royal, which will be ready for occupants in the second quarter.

The SBI Royal Securities report examined two investment scenarios for De Castle Royal. The first was calculated assuming 100 per cent cash down payment, the second assumed 30 per cent cash down payment with the remaining 70 per cent financed by a commercial bank at an annual interest rate of 10 per cent. Other important factors including rental rate, annual rental price, condominium price increase, occupancy rates and associated costs also figured into the two scenarios.

The results for both scenarios were well above the national average. The first scenario's expected gross rental yield exceeded 10 per cent, with the second scenario's predicted yield was nearly 30 per cent. Leng said solid fundamentals underpinned SBI's assessment of De Castle Royal's investment potential.

"De Castle Royal is located in BKK1, the prime residential area for high-net worth Cambodians and expatriates," Leng said. "Currently the project is the only high-rise condo in BKK1 expected to complete soon. Other existing condominium projects are not located in central Phnom Penh and those currently under construction are years away from completion."

Leng emphasized Canadia Bank's financial backing of De Castle Royal as well as Korean developer Nuri D&C's attention to detail and quality as additional factors for SBI's high expectations for De Castle Royal. Condominiums in the development are currently selling for between $130,000 and $950,000 depending on size and amenities.

"High-class facilities, luxury high-end furnishings and excellent interior and exterior designs are of course key attractive elements of De Castle Royal," he said.

All told, Leng said, the potential for De Castle Royal and Phnom Penh's condominium market in general looks good in the short term especially when compared with the rest of the region, for both external and internal reasons.

"As ASEAN integration in 2015 comes closer, Cambodia is expecting a freer flow of capital goods and people among member states. Demand for condominiums by locals and foreigners is likely to continue to grow in the coming years. In terms of modern developments, the residential property market here is still in its infancy compared with other Asian markets like Thailand and Malaysia. The market's lack of maturity offers unique opportunities for investors."

The head of local design and fit-out company YellowTree Interior thinks Phnom Penh is poised to see a boom in office rentals, as more and more international companies open up operations in the capital.

Bernie Durkin, YellowTree's General Manager, said he's optimistic about Phnom Penh's office market, despite the recent increase in competition.

"It seems now that every other shop on Street 163 is a decoration shop, but in reality we know that there are probably about four or five other players in Phnom Penh that work at the top level, and they are our real competitors," Durkin said.

YellowTree's clients include FTB Bank, PricewaterhouseCoopers, Vattanac Properties, Qatar Airways, Coca-Cola, KPMG and Marks & Spencer.

Durkin said he and his team specialise mostly in corporate work. "We do offices mainly, also banks, some retail and we've dabbled in F&B," he said. "We don't do domestic – as ordinarily the scale isn't big enough."

Although there is quite a bit of office space coming online in the coming year, Durkin said he thinks demand for office space will remain steady into the future, especially for mid-sized organisations.

"Before, people were quite happy to be working out of villas and townhouses. At the moment, people say 'oh, you can go to Vattanac Capital, Phnom Penh Tower, Canadia Tower, and very soon Aeon Mall', however, not everyone can afford those rentals."

Demand from bigger players for high-end interior design is poised to increase in the short-term, Durkin said.

"Vattanac Capital and Aeon Mall in particular, and also Hongkong Land, are going to be bringing in some big names, and they'll expect only the highest standards from contractors."

YellowTree, which has been operating in Cambodia for some 12 years now has a staff of 20, Durkin said they recruit only those willing to give their all to the job.

"Additionally, we utilise only the best sub-contractors that we've worked with for more than a decade," he added. "We think we have one of the best outfits for gypsum work and probably the best carpenter in Phnom Penh, both integral parts of the fit-out business."

Durkin puts the company's success down to his team giving the clients exactly what they want.

"I've got a good team. Coming from a military background I find that having energetic and bright people is essential. As long as I have that, I'm quite happy. To me it's mainly about quick response and reaction time – that's why we are successful. Our work ethic is that all aspects of our work must be done in a timely manner, with no excuses, and we stand firm on that principle. If you don't give the client what they want, they will simply go to another contractor."

Durkin views Cambodia's future with optimism and is especially impressed with the local talent pool's drive and skills.

"It's my own personal opinion that if the political situation remains reasonably stable, perhaps in 20 or 30 years, Cambodia could overtake Thailand," he said.

"When I worked in Thailand, I had to learn to speak Thai to communicate with most of my staff. In Cambodia, there isn't the same need to speak Khmer as the people here are more motivated and I think that gives this country a distinct advantage.

Khmers in the main show a greater willingness to progress and learn, which bodes well for the future."

Interest in Chroy Changvar is rebounding after a lull in buying and selling following this autumn's election, local real estate experts said.

This interest is being kindled by the soon-to-be-completed bridge being built by China Road and Bridge Corporation next to the Japanese Friendship Bridge, as well as the widening of National Road No 6.

Khmer Real Estate president Kim Heang said there was a noticeable decline in property transactions in Chroy Changvar in the second half of this year, which disrupted a two-year trend of steady market activity, especially along National Road No 6.

"Property transactions in Chroy Changvar area did not increase in the last four or five months, but that hasn't translated into lower land prices," Kim said.

Land prices along the first 500 metres of National Road No 6 heading away from the Chroy Changvar Bridge are currently running between $1,200 and $1,500 per square metre, the next 500 metres are averaging $1,000 to $1,200 and the following 500 metres are priced between $700 and $900, Kim said. Demand and land prices are both likely to increase after the completion of the new bridge, he said.

Key Real Estate general manager Sorn Seap said that concerns about the kingdom's political stability had depressed investor sentiment, leading to a slowdown in property deals across the Tonle Sap. The current bridge and road work, combined with the unique advantages offered by Chroy Changvar should drive future interest in the area, Sorn said.

"After expanding the road and the completion of the new Chroy Changvar bridge, which will be finished in mid-2014, the Chroy Changvar area will become one of the city's high-potential investment destinations," he said. "The area possesses good geographical features – it is located between two rivers, so the air is fresh and the view of central Phnom Penh is beautiful. There are many condominium, office and other residential projects planned for the area.

Bonna Realty Group general manager Seng Sopheak agreed that the potential of the Chroy Changvar area is high, noting the large number of existing and planned projects there.

"Land prices in the Chroy Changvar area have been rising steadily over the last couple of years," Seng said. "Large plots between the bridges and Mekong Garden condominiums are running between $500 and $800 per square metre, while land for building flats costs between $800 and $1,000 per square metre."

The number of fatalities associated with road accidents in Cambodia remains stubbornly high in an early assessment of traffic accident data for the first 10 months of 2013.

According to a report produced by the Ministry of Public Works and Transport and obtained by the Post yesterday, 1,727 people have died in road accidents up until November, only eight deaths fewer than the same period last year.

The director of the transport department at the Ministry of Public Works and Transportation, Preap Chan Vibol, said that although the statistics are similar to 2012, the underlying issue remains, in that "on average more than five people die from traffic accidents every day".

The number of overall road accidents increased slightly from 3,905 in 2012, to 3,934 in 2013.

This year, nearly 3,800 people were critically injured and some 2,700 sustained minor injuries, while at the same point last year, almost 4,000 people were critically injured and nearly 3,000 people sustained minor injuries.

Pea Kimvong, head of education for the National Road Safety Committee's safety campaigns, said that in 2011, road crashes cost the nation $310 million in property damage, medical costs and other related expenses, and that figure is increasing.

Kimvong said that while there are a host of factors contributing to road accidents – including a lack of law enforcement and the pittance spent on the issue – it is the public's lack of education on road matters that is the chief culprit.

"People do not pay much attention to the issue of traffic accidents," he said.

When speaking at an event aimed at increasing the use of helmets in Cambodia earlier this year, Momoe Takeuchi, senior program management officer with the World Health Organisation, said that despite the number of road fatalities, "helmet use is still low".

"While 65 per cent of motorcycle drivers wear helmets, only 9 per cent was observed among passengers," she said.