Is Chinese investment going to swamp Cambodia in debt?

YUAN

Direct foreign investment from China into Cambodia now outstrips that from all other sources combined. Is this a problem?

Right now the biggest national issue that everyone is talking about in Cambodia must surely be the topic of Chinese investment. Due to sizeable land transfers particularly around Sihanoukvlle, and with the instant-high-rise nature of Phnom Penh there is a strong and palpable perception that China is disenfranchising local Khmer people.

Property and real estate are the leading forms of foreign investment. In part because the effort going into starting an actual new business (such as a clothes or bicycle factory,) is still harder work in Cambodia than in most of its Asian neighbors. The World Bank puts Cambodia 138th on their Ease of Business Index – with neighboring Vietnam 69th and Thailand 27th by comparison. Cambodia lacks clear business laws and is penalised for the level of paperwork required.

So a big hotel is simpler. Sold as a property development – on a land concession made simple by the Government – the advent of Chinese-built hotels, run for Chinese tourists, with minimal wages going to local Khmer staff (who work 12 hour shifts) and with profits going straight back to China is a highly visible form of direct foreign investment that is hardly leading to a wealthier populace.

The Government has already overturned morality based laws (gambling for money is illegal in Cambodia but has been legalised for visitors to the little-Macau Chinese casinos of Sihanoukville.) So much for sovereignty.

Land concessions are also a big part of the perceived problem. Human Rights Watchdog LICADHO estimate that 2 million hectares of land have been made available for developers, local and foreign, but often at the cost to local land owners who have been kicked off their farms.Dispossessed, (as the ABC of Australia reported of farmers who lost their land to a Sofitel development in March 2016) protestors were shot and wounded by armed forces on behalf of the hotel group.

Here is a map detail land concessions across Cambodia. Concession awarded to Chinese interests are marked in red, local interests are in blue while Vietnamese interests are in green.  Source map is bigger, clearer and interactive. Click here.

CAMBODIAN LAND CONCESSIONS

But is Chinese money exposing Cambodia to a future of debt-laden servitude? Right now Cambodia’s foreign debt as a proportion of GDP is relatively modest, though climbing quickly. There are two prices to be paid though.  One is the social debt – the idea that Cambodians are becoming, and will remain, in a cheap labour economy.

Then there is the fiscal debt. Here Cambodia needs to watch itself. The question is: who owns the infrastructure. Historically this has always been the business of Government, but China has the capital and human resource to come in and extend the sea port, put in hydro schemes and develop the currently struggling road network – then the ‘rates’ must surely get paid to the country that funded these things.

This from the Hong Kong Trade Development Council website: August 2018.

At the end of last month, Cambodia’s Ministry of Public Works and Transport (MPWT) announced that work had been completed on 2,000 kilometres of new roads, seven major bridges and a container terminal servicing the Phnom Penh Autonomous Port. All these initiatives had largely been backed by the Chinese mainland, with funding provided from within the framework of the Belt and Road Initiative (BRI).

In an article published by the Phnom Penh Post, on March 27th, 2018, journalist Robin Spiess noted that China’s financing and investment of the Belt & Road projects in Cambodia could lead to a significant rise in public debt, and even take it to ‘distress’ levels.

According to a policy paper released by the Center for Global Development, Cambodia will likely see a significant rise in debt to China as a result of the Belt and Road Initiative. At the end of 2016, Cambodia’s total public and publicly guaranteed debt was $6.5 billion, a relatively low percent of the country’s $20 billion GDP. About half of that $6.5 billion debt was owed to China, according to the report.

Miguel Chanco, lead Southeast Asia analyst for the Economist Intelligence Unit (EIU), noted that the report was accurate regarding the risks to Cambodia, but also said any prediction of future debt levels was complicated by the overall lack of transparency of BRI projects.

“Our estimates put the country’s public debt stock at around 35 percent of GDP, which is well below the median for Asean and emerging markets at large,” Chanco said. “Having said that, I am concerned about the lack of transparency in many of China’s projects in Cambodia, as it makes it difficult to determine the latter’s overall sovereign debt commitments.”

Publicly declared projects at the end of 2016 were predicted to leave Cambodia indebted to China by an additional $3.5 billion though this figure might well be much higher.

One example is China’s proposal to develop over two million kilometers of national expressways [in Cambodia] by 2040”, which is a broad-brush swoop of a figure to begin with, and given the geo-technical engineering risks of building on a flat, sand-based terrain could easily blow out beyond the estimated cost of around $26 billion. A blow-out could leave the Kingdom significantly more in debt to China.

Meanwhile estimates of the national debt to 2020 is less fuzzy.

The EIU forecasted a rapid rise in Cambodia’s external debt in the next few years, according to Chanco. “We expect the country’s total foreign debt stock to rise to $17 billion by 2020,” he said.

Right now Chinese investment hasn’t pushed Cambodian debt prospects over the brink, unless you factor in the very real human rights costs. But in pure money terms Cambodia is going for the quick and easy path to economic growth.  It has a long wayto go however, before it becomes an economy – like that of Singapore – where business is easy to conduct and where locals are not in underpaid jobs. Current policy is growing the economy, but it is a recipe for dissatisfaction and a real sense of disenfranchisement.

I write these blogs as an observer of changing Cambodia. I’ve been involved in a small NGO since 2004 back when the tallest building in Phnom Penh was 8 storeys high. I hope expats, volunteers and others in the Cambodian community find these reports useful.  I try to compile hard data from credible sources.

Meanwhile: China and the US square-off in dispute over recent history.  Click here.

 

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The impact of school fees on poor families in Cambodia.

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Free education? In Cambodia it is supposed to be free – but widespread charging of ‘fees’ is hurting attendance of poor rural children. Many call it corruption.

 

A key philosophy of Savong is that all schooling provided by his organisation should be free of charge. This is to ensure that the poorest families can still gain a good education for the children. In fact the question of school fees is a vexed one in Cambodia. In short the education system is supposed to be free, but the State system is under-resourced and the practice of charging students fees for attendance is practically universal. Some critics term this fee as an out and out bribe; while others see the fees as simply a realistic way for schools to meet their basic running costs. Without this levy schools would simply have to close.

This blog has posted recent figures which demonstrate that the Cambodian government devotes a very skinny slice of its annual spend towards education, and the Ministry is on record as saying it relies on the NGO and private sector to help Cambodia reach its education goals. Between the ‘free education’ rhetoric the Government is really saying that others will have to pay for schooling – don’t rely on the Government. So while the Ministry said in 2008, following international criticism, that charging of informal levies was illegal – the practice is found in every region of Cambodia and primary as well as secondary school level.

How much do these informal fees cost? A 2007 report by the Cambodian NGO Education Partnership (NEP) suggested that education costs for each child averaged $108 annually, or 9 percent of the average annual income of each family. Clearly in a nation where having four or five children is very common, the education costs become very significant.

The NEP study found that these fees were the main reason given for children not attending school, and that a quarter of parents were unaware that their children had a right to free education.

The problem is particularly challenging for poor families, and a study (conducted by Mark Bray for the World Bank in 2001,) looked at the same issues in neighbouring nations and found that the poorest 20% devoted a much greater slice of the annual income to education costs.

Thus in Thailand the cost to the average family of their children’s education was 16% of household income, while this represented 47% of the household income of the poorest quintile. In Vietnam education cost the average family 12% of their annual household income, while education costs represented 22% of the annual income of the poorest quintile.

Where do these informal fees go? Do they go toward running costs or do they go into the pockets of poorly paid state school teachers?

Judging by Government policy, and the recent declaration that secondary school teachers would receive a pay rise, it appears that the Government is carrying out a policy it first announced three years earlier – to stamp out corruption (or informal fees) by raising teacher salaries.  In other words it appears the Government accepts that most of these fees have indeed been going into the pockets of teachers.

But there’s a fine line between teaching staff doing their best but levying students in order to keep teaching on an otherwise low salary (justifiable fees?) versus out and out corruption where teachers accept bribes in order to fatten their income in exchange for tweaking exam results for those willing to pay over some cash. (Unjustified corruption.)

In a 2005 study that examined how corruption touches everyday life ( Nissen, C. (2005) Living under the Rule of Corruption: An Analysis of Everyday Forms of Corrupt Practices in Cambodia. Phnom Penh: Centre for Social Development0 the author found almost a third of families expected to have to basically pay off teachers, head masters, and ministry staff for good scores in examinations, good records in attendance, and school admissions and transfers.

The public resent this and Nissen’s report highlights how the public actually feels the most unease about their teachers being a part of the corruption culture.

So long as the Ministry under-supports the education sector, thereby making fees a practical necessity, two bad outcomes will occur.

  1. The poor will lose their right to a good free education.
  2. The door is open for further more serious corruption.

This is one of the serious issues facing the education sector in Cambodia.

The Cambodian Primary School droupout rate – 39% don’t complete primary school

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Here’s another sad statistic that reflects on the underinvestment in education for young Cambodians. For every hundred who start primary school, 39 do not complete their studies at primary school according to the latest available figures. “Oh but we’re a poor country,” might be the argument of the government – but poorer than Myanmar or Laos? The fact is, Cambodia spends a smaller percentage of the annual government expenditure on education than does its neighboring nations.

The result: 4 in ten do not make it to middle or high school.

Reasons include:

  1. Insufficient provision of primary schools especially in remote regions.
  2. Distance and transport. Many children live too far away from school and do not have transport.
  3. Financial – the fact that state schools charge money to attend. This is extremely widespread, and penalises the poor.
  4. Children required to work on farms to help the family income.
  5. Sickness. Child health is still far from ideal in Cambodia.

During the 2013 election the Government announced a 20% lift in education budget (a move I’d rate as a shift from totally inadequate to merely inadequate,) but the Government has not released any plans or policies to indicate where the additional money will be spent.

The annual education spend works out to around $50 per child in Cambodia up to age 18.

For more education statistics click here.

An outstanding Cambodian documentary – Enemies of the People

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Investigative journalist Thet Sambath is a reporter with the Phnom Penh Post and over 10 years he went about interviewing victims and soldiers in search of why Pol Pot and his generals did what they did. After all, there is a rich collection of literature telling the story from the point of view of the victims, but the story from the Khmer Rouge point of view was greyed-out, even during the time of their reign of terror in the 1970s. It took more than a year before Pol Pot even revealed himself to the public – preferring to rule by secrecy until 1977.

Sambath is an amazing journalist who digs into the story in a characteristically Cambodian way: preferring not to be confrontational but to win the friendship and trust of those he interviews. I found his treatment of two soldiers, youngsters at the time they carried guns for the Khmer Rouge, particularly moving. At first the soldiers say they weren’t involved and cannot remember the details, but gradually the journalist takes them to the point where they realise that confessing what they did – one of the two men recalls throwing babies in the air and bayoneting them with the sword on the end of his rifle – is the only way to release themselves from the nightmares they have nursed for decades. The men weep with horror and shame at what they did. “What will I return as?” one asks rhetorically, recounting the rules of Buddhism.

Following a trail that emerges with each time he asks: “who gave your the orders? Why did so many people die in the killing fields?” Sambath eventually finds himself at the doorstep of  former Khmer Rouge leader Nuon Chea, Pol Pots’s right hand man.

Chea insists that the regime had to get rid of “enemies of the people” but he cannot adequately address the core fact: that those in power were simply executing everyday Cambodians. Who, if not these leaders, were the real enemies of the people?

Nuon Chea is a arrogantly proud man, deluded perhaps, but through the lens of Sambath’s camerawork still human. Not a monster, but a deeply flawed man who, ultimately, is arrested to face trial.

This is a stunning movie, and has won multiple prestigious awards since being released in 2011. One hurdle, it has had to overcome, is that the Cambodian Government decreed it was too sensitive to release in Cambodia. The producers were working last year to ensure that at least through DVD release it might be viewed by Cambodians themselves.

Watch the trailer – click here.

More on Khmer film click here.

Election irregularities in Cambodia – here’s the report.

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What kind of nation is this young Cambodian going to experience as an adult? In 2005 one foreign critic said there were three main problems to be addressed: “Corruption, corruption and corruption.” A new report of the 2013 elections comes to similar conclusions.

While Thailand is getting a lot of media attention over its political upheavals – neighbouring Cambodia has also been in political turmoil since the recent General Elections which saw the return of the Hun Sen Government – albeit chastened with a sharply reduced majority.

At least that was the official result, but the opposition Sam Rainsy party continues to orchestrate protests and demands for a rerun, and this time a fair election.

Are they exaggerating? Well here is the report conducted by a multi-party watchdog group. Their verdict: that there were irregularities (disallowed votes, duplicate voting etc) that in total add up to more than the electoral majority of the Hun Sen Government. In other words there is the probability that thanks to these misdemeanors and irregularities the outcome may have been different.

The Joint-Report on the Conduct of the 2013 Cambodian Elections authored by The Electoral Reform Alliance (ERA) appears well researched and quite independent.

A blog I wrote just after election day. Was it over-optimistic?

A new landscape for Cambodian NGOs

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Twilight on an old, less controlled NGO environment. Today there are new arrangements with Government Ministries designed to boost accountability.

When Savong first established his school in 2005 and childrens home in 2008 there were few restrictions or regulations. Back, ten years ago, anybody could set up an NGO, and for every ten good organisations that established themselves, with clear objectives and sound service delivery, there was perhaps one “cowboy” operation – some say more – that was established either as a money making venture (orphan tourism for example,) or with good intentions but seriously weak delivery.  From a humanitarian agency point of view it was the wild west.

Well, the sun is setting on those days. Today Savong is in Phnom Penh on a business journey to see the Ministry of Social Affairs and the Ministry of Education, Youth & Sport (MOEYS) to process paperwork that both ministries are demanding of NGOs: the Memorandum of Understanding which forms, in simple terms, a contract between the NGO and (via the Government) the people of Cambodia. The MoUs spell out:

  • The objectives and purpose of the organisation
  • The resources and deliverables of that organisation
  • The organisation structure – a clear list of who is accountable
  • Three years’ worth of budgets
  • Evidence that the NGO is well supported and will continue to be supported.

What does the Government provide in exchange? Not resources exactly (they charge a fee to submit a MoU) but they do provide support for registered NGOs, and they also provide for foreign supporters a degree of genuine legitimacy. Our NGO has already been audited successfully as part of the process and the audit was an opportunity to share best practices.

Nobody loves paperwork, do they? But in this case Savong is genuinely excited by these dealing with Government. I suspect this is due to a sense of inclusivity that is being fostered by the Ministries who, by weaving independent NGOs into the social welfare fabric (and by shutting down the cowboys), are starting to put Cambodia on the track of having a more cohesive social policy. Cambodia benefits when the Government starts dealing with the front-line agencies.