Weekly news round-up / Week 43

Political (Cambodia-Specific)

A group of garment workers’ unions that is unhappy with the government’s decision to raise the sector’s minimum wage by only $12 for 2016 (to $140 a month) will meet this week to discuss whether or not to hold public demonstrations. Ath Thorn, president of the Coalition of Cambodian Apparel Workers’ Democratic Union, said he would meet with around six other union leaders on Wednesday to plan the unions’ next step. The negotiation process was tense at times but strikes have been avoided up until this point.

On Wednesday 21st October the Council of Ministers approved the national budget for 2016, which will rise 12.18% to $4.3bn.
Education is set to receive a significant budgetary increase (total $502m, up 28% on last year), which is aimed at funding reforms targeting teacher education, school inspections and curriculum development.
Likewise the Ministry of Labour will see its budget increased by 45.8% to $42m so as to invest in a vocational training institute to train people in mechanics, electronics and electricity.
Most other ministries received increases in proportion to the overall increase of 12%, though the much-maligned health sector only saw an 8 per cent increase of its budget, to $275 million.
A major component was listed as national capital expenditure, some $1.5 billion, which will cover infrastructure upgrades, including the continuation of the Northern Railway line and the construction of a river port.
Cambodia National Rescue Party lawmaker Son Chhay said although the budget looked evenly spread, the documents lacked any specifics about how cash would be spent. “I have personally been asking the government to provide details of spending for many years . . . We know at least 35 per cent of our budget gets pocketed by corrupt officials.”

A group of nine garment industry unions and coalitions released a letter yesterday making 13 demands for sweeping reforms in the sector, saying they would take to the streets in protests if their calls for improved working conditions and labour relations were not heeded. Expressing ‘deep regret’ at the outcome of the minimum wage negotiations, the group listed demands including banning the use of short-term contracts, dismissal of court cases against union leaders, as well as price controls and additional payments for the food and transportation of workers.
Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, dismissed the letter as a “threat”, saying that employers would not consider implementing any of its points. He also warned that any strikes would need to follow legal processes.

The national budget for 2016, released on Wednesday 21st October, includes a number of tax cuts for lower-income people. Tariffs on motorbikes, tuk-tuks and farm machinery are to be waived, along with fees at stalls in state-owned markets.
Whilst the impact of the motorbike tax breaks will be relatively low (tax for driving a motorbike at present varies between $1 and $2 per year), the cuts are reported in the press as populist measures aimed at pleasing lower-income people. The Prime Minister commented that the motorbike tax cuts are “a benefit for the people because, before this, they had to use their money to pay tax but now they will not. Before this, those who did not pay the tax had to drive to escape the police, but from next year onward, they will no longer have to drive to escape the police,”.
A reduction in fees at state-owned markets will provide more significant financial benefits for vendors, who currently pay monthly fees between $5 and $7.50.
A spokesman from the Ministry of Economy and Finance added that state officials currently spend around 60% of their time chasing and collecting these petty taxes, which is not economically efficient.
A group of garment workers’ unions that is unhappy with the government’s decision to raise the sector’s minimum wage by only $12 for 2016 (to $140 a month) will meet this week to discuss whether or not to hold public demonstrations. Ath Thorn, president of the Coalition of Cambodian Apparel Workers’ Democratic Union, said he would meet with around six other union leaders on Wednesday to plan the unions’ next step. The negotiation process was tense at times but strikes have been avoided up until this point.

Europe, European Businesses, EuroCham Members

The General Department of Customs and Excise have issued a statement reporting recent successes in seizing and destroying cars that were imported as scrap metal and unofficially assembled in Cambodian garages. The practice, which authorized importers have long complained about, poses safety risks for drivers and causes a loss of income for the Ministry of Economy and Finance as scrap metal is imported at a much lower tariff than automobiles.
Peter Brongers, president of the Cambodia Automotive Industry Federation, welcomed the Customs Department’s statement: “More people in the government are starting to understand that grey market [vehicles] can be dangerous,” he said. “Cambodia is becoming a dump for secondhand cars.”
Antoine Jeanson, head of the automotive committee at the European Chamber of Commerce, has previously commented on how such vehicles, reassembled without any regulatory oversight, at times come with missing airbags, chassis cracks, fuel leaks and seatbelts with broken pre-tensioners
Whilst complete cars have cumulative fees equivalent to 122.75% of their value, parts and scrap metal have cumulative duties and VAT between 0 and 45 per cent. These savings are passed on to consumers, though unauthorized dealers in town are reporting that the authorities are now starting to show greater concern to formalize the market and prevent cars posing safety risks from entering the market.

 Phnom Penh Post interview with Tomas Pokorny, CEO of WorldBrideE-Commerce, who has this week announced the integration of Acleda Bank’s online payment services into its online shopping marketplace MAIO Mall.
Whilst recognizing that cash-on-delivery will remain the most common form of transaction within Cambodian e-commerce over the next few years, Mr. Pokorny sees online payments begin to slowly become more prominent.
There are plans to distribute co-branded Acleda-MAIO Mall credit and ATM cards, which will help WorldBrideE-Commerce connect with Acleda’s 700,000-plus cardholders and provide consumers another reason to use the cards.
Logistically, online payments will make it easier for the online retailer to deliver products as payment will have been received in advance and only one call will be needed to find an appropriate delivery time. At present, MAIO Mall invests a lot of resources into their call center to make multiple confirmations before distributing a product.
Mr. Pokorny sees it as only a matter of time before e-commerce giants such as Amazon and Alibaba take a greater interest in the Kingdom and seek to form partnerships with local companies.

Infrastructure, Development and Core Industries 

A new rice quota agreement has been reached between Cambodia and China that will see Cambodia export 100,000 tons of rice to China in early 2016. A previous quota for 100,000 tons had expired in April 2015. The Royal Government had previously been trying to secure a commitment to double China’s quota though the new agreement has nonetheless been welcomed by players with the rice sector.
Cambodia has exported over 360,000 tons of milled rice in the first nine months of this year, up 37% over the same period last year, according to official figures. Almost two-thirds, 64 percent, were exported to the EU. Almost 100,000 tons were sold to China.
Song Sarang, chairman of Amru Rice (Cambodia), a leading exporter of milled rice, welcomed the deal, commenting that China was focusing on higher-quality Cambodian rice and saying it would raise the profile of rice grown in Cambodia.

Prime Minister Hun Sen has called for enhanced cooperation between government officials to prevent the smuggling of goods in and out of the country, causing the loss of much-needed tax revenue. Suggesting that previous government directives have not been sufficiently implemented, the PM stated: “the Royal Government has also noticed that the effectiveness of the prevention and combating…has not yet increased to its full potential. Besides directly affecting the national budget revenue, smuggling has caused unfair business competition”. A Council of Ministers spokesman explicitly acknowledged the problem of some customs officials being complicit in smuggling activities and made it clear that this issue will not be ignored.

Khmer Times Q+A session with Chea Serey, director-general of the National Bank of Cambodia (NBC).
She praises the growth of the financial sector in Cambodia and increasing number of consumers who are accessing formal financing options for the first time on the back of growing public confidence. The microfinance sector is particularly strong, hailed by Chea Serey as one of the strongest in the world.
Smaller financial operators have been required to register from earlier in 2015 so as to provide NBC greater opportunity to regulate against unethical and exploitative lending. However, due to an influx of more than 300 applications, the NBC has had to temporarily suspend receiving registration forms from rural microfinance institutions in order to conduct proper checks against the applications already received.
Credit growth stands at around 30% a year and the NBC is monitoring the situation to ensure that does not exceed what the economy’s underlying macro-fundamentals can support. In particular, they are looking at the spread of credit growth amongst different sectors and the financial performance of locally-financed construction projects which could create problems if unsuccessful. Unsuccessful condominium projects financed from abroad would be less problematic but could affect investor confidence.
Comments on the Royal Government’s and NBC’s commitment to increasing usage of riel within the economy, but commits to not using administrative measures to achieve this goal due to the potential for unforeseen consequences. Will focus more on awareness campaigns and changing peoples’ mindsets.

Despite having been credited with personally intervening to increase the 2016 minimum wage for the garments sector above what was recommended by the Ministry of Labor and Vocational Training, Prime Minister Hun Sen has expressed concern that the new rate of $140 a month could contribute to factories choosing to relocate out of Cambodia to lower-wage countries like Myanmar (minimum wage of $67 a month), Bangladesh ($75) and Laos ($80).
On 1st January 2015 the minimum wage increased from $100 to $128 and it is too early to know the full economic effects of this reform. Garment exports for H1 2015 were up by 9% and there were more factories opening than closing, though negative impacts could materialize over the longer term. GMAC insist that international competition makes it unlikely that buyers will pay any more than current levels and that the wage increases will have a serious impact on the profitability and sustainability of Cambodian garment factories.

Export figures for Kampong  Speu palm sugar, Cambodia’s second product protected by Geographical Indication (GI) status, is on track to double this year due to growing demand from Japan, Taiwan, South Korea and France. Compared to 40 tons sold in 2014, 40 tons have already been sold this year with orders for an additional 40 tons placed by customers in Japan and Hong Kong. 50 families producing organic palm sugar in Kampong Speu can sell for around $3 per kilo. The Kampong Speu Palm Sugar Promotion Association expects both the number of families producing the product and total exports to double again in 2016. There are plans to open a small factory to which villagers can bring their palm juice for conversion into palm sugar.

A study conducted by the National Institute of Statistics in collaboration with the Swedish International Development Cooperation Agency has collected data on 12,000 households to evaluate financial variables amongst Cambodian families. The survey found disposable income to have risen 16% year-on-year, with total monthly income at the household level averaging $352 per household. This rising income is illustrated in the survey’s estimation that Cambodia’s GDP per capita increased to $1,123 in 2014 from the $1,042 in 2013, not adjusted for inflation.
However, household debts are also increasing. Outstanding loans reached $993 per household nationwide, and up to $1,616 in Phnom Penh.
Grant Knuckey, CEO of ANZ Royal Bank, said it was encouraging that while household indebtedness was rising, incomes have kept pace with these increases. However, the data also showed that the average household was spending 45% of their disposal income on servicing debts, a ratio that Mr. Knuckey commented we would not want to see moving higher. A practice of borrowing in order to repay existing loans, particularly amongst famers, could put households in serious trouble and could stunt the development of the rural- and micro-financing sectors.

 



 

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