Boom or bust

Cam­bo­dia’s con­struc­tion in­dus­try has been en­joy­ing sig­nif­i­cant growth in re­cent years, but there are con­cerns over the qual­ity of some of the projects and an over-reliance on Chi­nese in­vest­ment

Southeast Asia Globe - - Contents - By Nathan Paul South­ern

How Cam­bo­dia can make the most of its boom­ing con­struc­tion sec­tor

ITis lunchtime on Koh Pich, a man­made is­land in Ph­nom Penh that will one day host the coun­try's finest condo de­vel­op­ments and a host of other attractions. For now, sky­scrapers at var­i­ous stages of com­ple­tion dom­i­nate the land­scape.

Sakon is a 55-year-old con­struc­tion worker, who prefers not to re­veal his full name. He sits shirt­less on top of the thin mat that he will sleep on later that night. Sakon lives and works in­side what will one day be­come the car park of a skyscraper in the rapidly evolv­ing Cam­bo­dian cap­i­tal. The dark, damp con­crete ex­panse is a wel­come es­cape from the mid­day heat. He says he is happy to see Ph­nom Penh de­velop so quickly be­cause of all the op­por­tu­ni­ties it grants him as a con­struc­tion worker.

Cam­bo­dia's con­struc­tion boom, fu­elled by real es­tate and in­fra­struc­ture projects, has evolved to be­come one of the coun­try's four eco­nomic pil­lars, over­tak­ing agri­cul­ture and tourism as the sec­ond-largest driver of growth in 2014, ac­cord­ing to a World Bank re­port. Since then, the in­dus­try has con­tin­ued to grow at a rapid rate. In 2016, the Cam­bo­dian govern­ment approved 2,636 con­struc­tion projects with a to­tal value of $8.5 bil­lion, ac­cord­ing to fig­ures re­leased by the Min­istry of Land Man­age­ment, Ur­ban Plan­ning and Con­struc­tion (MLMUPC). This was more than dou­ble the $3.3 bil­lion to­tal in 2015.

De­scrib­ing the na­ture of the boom, Lao Tip Seiha, un­der­sec­re­tary of state at the MLMUPC, told the Ph­nom

Penh Post that “most of the projects approved last year were con­dos, apart­ments, ho­tels, of­fice build­ings, malls, boreys, fac­to­ries and many more com­mer­cial cen­tres”. He was quick to add that this is pro­vid­ing many jobs for Cam­bo­di­ans and mak­ing the coun­try more at­trac­tive to for­eign in­vest­ment.

One ex­am­ple of the ex­pan­sive scale of this boom is the Chi­nese-backed Thai Boon Roong Twin Trade Cen­tre. When com­pleted, the tow­ers are ex­pected to ex­tend 500 me­tres high, mak­ing them the tallest build­ings in all of South­east Asia. The project is slated to hold a shop­ping mall, of­fice space, high­end apart­ments and con­do­mini­ums, six-star ho­tels and fine-din­ing restau­rants. In ad­di­tion to the

$2.1 bil­lion con­struc­tion cost, the de­vel­op­ers will in­vest an ad­di­tional $3 bil­lion in op­er­at­ing costs to en­sure the suc­cess of the huge project once it is run­ning.

The boom has also led to $100m of Chi­nese money be­ing used to fund the Morodok Te­cho Na­tional Sports Com­plex. This will in­clude the con­struc­tion of a $157m foot­ball sta­dium 15km north of Ph­nom Penh, which will hold about 60,000 peo­ple upon com­ple­tion in 2020. It's a project that Cam­bo­dia's Prime Min­is­ter Hun Sen has said will make a great con­tri­bu­tion to de­vel­op­ing the sports in­dus­try in the coun­try.

Such projects are cer­tainly cre­at­ing a wealth of new jobs, es­pe­cially in the cap­i­tal. Ac­cord­ing to fig­ures re­leased by the MLMUPC, there are about 50,000 peo­ple em­ployed each day in con­struc­tion

“With Cam­bo­dia and China hav­ing a spe­cial re­la­tion­ship, and the for­mer be­ing a beltand-road coun­try, we have some big Chi­nese com­pa­nies look­ing to in­vest in Cam­bo­dia”

in Ph­nom Penh alone, plus an ad­di­tional 23,000 ca­sual work­ers. One such worker is Ry from Kam­pong Speu prov­ince, who asked to with­hold his sur­name to pro­tect his iden­tity.

Ry ex­plains that he was un­able to get a job in his prov­ince as most of the roles avail­able were fac­tory po­si­tions that are nor­mally only given to fe­males.

The con­struc­tion in­dus­try, he ad­mits, is hard work and work­ers are treated poorly, but for many young Cam­bo­dian men, it's one of the few op­por­tu­ni­ties for steady em­ploy­ment and in­come.

The boom is be­ing driven by mas­sive for­eign in­vest­ment, in par­tic­u­lar from China, which ac­counts for 70% of to­tal in­dus­trial in­vest­ment in the coun­try, ac­cord­ing to fig­ures from Open De­vel­op­ment Cam­bo­dia.

Ross Whe­ble, Cam­bo­dia coun­try di­rec­tor of the UK-based real es­tate firm Knight Frank, points to the ‘friend­ship' be­tween Cam­bo­dia and China as a cat­a­lyst for the surge in in­vest­ment. “With Cam­bo­dia and China hav­ing a spe­cial re­la­tion­ship, and [the for­mer] be­ing a belt-and-road coun­try, we have some big Chi­nese com­pa­nies look­ing to in­vest in Cam­bo­dia,” he ex­plains.

Cam­bo­dia is an im­por­tant piece of the geo­graph­i­cal puz­zle in Chi­nese Pre­mier Xi Jin­ping's ‘One Belt, One Road' vi­sion, which seeks to build roads, bridges, ports, pipe­lines and much other in­fra­struc­ture to link up the an­cient ‘Silk Road' trad­ing route that stretched from East to West.

From Cam­bo­dia's per­spec­tive, the re­la­tion­ship with China is an at­trac­tive one; Hun Sen's govern­ment•

is able to ben­e­fit from huge in­vest­ment with­out the con­di­tions im­posed by donors such as the US or

World Bank in terms of po­lit­i­cal trans­parency and hu­man rights.

Yet, de­spite the mu­tual ben­e­fits, ques­tions are be­ing raised over whether the con­struc­tion projects pri­ori­tised by these Chi­nese part­ner­ships are gen­uinely ad­dress­ing Cam­bo­dia's most press­ing needs.

Of par­tic­u­lar con­cern is Ph­nom Penh's hous­ing cri­sis. Cur­rent es­ti­mates sug­gest that the cap­i­tal's pop­u­la­tion will grow by more than 50% by 2030, lead­ing to a pop­u­la­tion of 7.9 mil­lion. Ac­cord­ing to govern­ment es­ti­mates, that will cre­ate the need for an ad­di­tional 800,000 homes in the next 13 years. How­ever, rather than build ur­gently needed af­ford­able homes, the Chi­nese con­struc­tion in­dus­try in Ph­nom Penh is largely fo­cused on the lux­ury mar­ket.

“There is al­ready an over­sup­ply of the lux­ury con­do­minium mar­ket in Ph­nom Penh, which is be­ing driven by the for­eign mar­ket,” says Whe­ble. “The mass mar­ket can­not af­ford these units.”

But it's not only a ques­tion of price, it's also one of cul­tural dif­fer­ences, ac­cord­ing to Kim­leang Kean, man­ag­ing di­rec­tor of the real es­tate de­vel­op­ment firm Ur­ban Liv­ing So­lu­tions. He ex­plains that the kinds of homes be­ing built are out of sync with the tastes of the Cam­bo­dian mar­ket, which he says val­ues a com­mu­nity feel rather than generic con­dos that alien­ate peo­ple from their neigh­bours. Kean, who grew up in a small shop­house in Ph­nom Penh, is adamant that the fu­ture of con­struc­tion in Cam­bo­dia will be in build­ing af­ford­able homes that tar­get the emerg­ing mid­dle class that will ac­count for much of the city's pop­u­la­tion boom.

“It's the mar­ket. Tar­get­ing rich for­eign­ers is no longer the game. Af­ford­able hous­ing is re­ces­sion-proof. It won't make you rich, but it's a start,” says Kean, who is hoping that his Ur­ban Vil­lage project, which fo­cuses on com­mu­nity liv­ing, will be com­pleted in the next five years.

Kean is not alone in fo­cus­ing on hous­ing that meets the needs and val­ues of Cam­bo­dian buy­ers. Jerome Lu­ciani-Khao, deputy gen­eral man­ager of LBL, a French-Cam­bo­dian con­struc­tion firm that has op­er­ated in Cam­bo­dia since 1991, agrees that de­mand for af­ford­able hous­ing in Ph­nom Penh is grow­ing and that oth­ers are step­ping in to fill the gap left by many over­seas de­vel­op­ers. He says he is see­ing a surge in in­vestors in­ter­ested in build­ing homes worth $30,000$50,000, as op­posed to the usual price range of lux­ury con­dos, which come in at about $70,000-$100,000.

In ad­di­tion to hous­ing, Cam­bo­dia's lack of in­fra­struc­ture is a ma­jor stum­bling block to de­vel­op­ment. In a speech given this year at Ph­nom Penh's Royal Univer­sity of Law and Eco­nom­ics, In­ter­na­tional Mon­e­tary Fund (IMF) deputy man­ag­ing di­rec­tor Mit­suhiro Fu­ru­sawa em­pha­sised the im­por­tance of “build­ing the in­fra­struc­ture to sup­port the next stage of de­vel­op­ment”, say­ing that this means “pro­vid­ing the skills needed to suc­ceed in a mod­ern econ­omy. And it means giv­ing all Cam­bo­di­ans a stake in the fi­nan­cial sys­tem”.

Again, Cam­bo­dia's most press­ing in­fra­struc­ture re­quire­ments do not al­ways seem to dove­tail with China's pri­or­i­ties. As Miguel Chanco, lead Asean an­a­lyst at the Econ­o­mist In­tel­li­gence Unit, sug­gests, con­struc­tion projects could of­ten be bet­ter fo­cused on the needs of the coun­try.

“There is cer­tainly a lot of grand­stand­ing, es­pe­cially with re­gards to Ph­nom Penh's prop­erty mar­ket, but at the same time, Cam­bo­dia's in­fra­struc­ture needs re­main sub­stan­tial,” he says.

Of­ten, the most valu­able in­vest­ments in large-scale in­fra­struc­ture projects come from other quar­ters, such as the Ja­panese In­ter­na­tional Co­op­er­a­tion Agency (JICA). Deputy chief rep­re­sen­ta­tive Ko­taro Tanaka likens his or­gan­i­sa­tion to a mix be­tween the World Bank, Asian De­vel­op­ment Bank and USAID, claim­ing that JICA is work­ing on projects that will en­able Cam­bo­dia to de­velop in the long term.

These in­clude a $400m in­vest­ment into the deep sea port in Si­hanoukville and a num­ber of cross-coun­try in­fra­struc­ture projects, such as the con­struc­tion of bet­ter roads link­ing Ph­nom Penh to the Thai and Viet­namese bor­ders.

Tanaka hopes that build­ing these roads will in part help re­duce road traf­fic ac­ci­dents, which are one of the lead­ing causes of death in the coun­try, to­talling 1,576 in 2016 ac­cord­ing to the Na­tional Po­lice Ser­vice web­site. The roads should also lead to a more ef­fec­tive lo­gis­ti­cal trans­port sys­tem, which has been dubbed the South­ern Eco­nomic Cor­ri­dor and should fa­cil­i­tate the trans­port of goods in and out of Cam­bo­dia with greater ease.

De­spite such ef­forts, Tanaka be­lieves that Ja­pan, which was once Cam­bo­dia's big­gest donor and de­vel­op­ment part­ner, is now seen as of sec­ondary im­por­tance •

“There is al­ready an over­sup­ply of lux­ury con­do­mini­ums in Ph­nom Penh, which is be­ing driven by the for­eign mar­ket… the mass mar­ket can­not af­ford these units”

to China. To il­lus­trate the ex­tent of his coun­try's past in­flu­ence, he smooths out a Cam­bo­dian 500 riel ban­knote, point­ing to de­pic­tions of two JICA-built bridges, one of which is fly­ing a Ja­panese flag. In re­cent years, though, Ja­pan's in­flu­ence has di­min­ished. “China is num­ber one,” says Tanaka. “We can­not keep up with the size, speed or vol­ume [of Chi­nese projects].”

Ja­pan and China, which Tanaka calls “nat­u­ral part­ners and [at the] same time nat­u­ral ri­vals”, rarely com­pete for the same projects, but they do ap­pear to have com­pet­ing vi­sions for the coun­try. Ac­cord­ing to Tanaka, China fo­cuses on more os­ten­ta­tious projects, of­ten with lit­tle ur­ban plan­ning or for­ward think­ing, whereas JICA is shift­ing to­wards smaller projects with a greater em­pha­sis on tech­nol­ogy and protecting the en­vi­ron­ment. “This is our dif­fer­en­ti­a­tion,” he says.

Rep­re­sen­ta­tives from ma­jor Chi­nese de­vel­op­ers and in­dus­try rep­re­sen­ta­tives, such as the Hong Kong-based East­land De­vel­op­ment, Sino Great Wall and the Chi­nese Min­istry of Com­merce in Cam­bo­dia did not re­spond to, or re­fused, re­quests for in­ter­views.

Tanaka is not the only on­looker who has raised se­ri­ous con­cerns with many of China's more am­bi­tious ini­tia­tives in Cam­bo­dia.

Ear­lier this year, Sophal Ear, au­thor of Aid De­pen­dence in Cam­bo­dia: How For­eign As­sis­tance Un­der­mines Democ­racy, told the Cam­bo­dia Daily news­pa­per: “Who knows what, if any, en­vi­ron­men­tal im­pact as­sess­ment there is be­fore all this in­fra­struc­ture goes up? With the World Bank and other Western donors there are more safe­guards… Only a cou­ple of years ago, a road the Chi­nese built went bad within months. Asked why, they said the dirt in Cam­bo­dia is dif­fer­ent than in China.”

Mean­while, the $800m Lower Se­san 2 Dam, in the north­east of the coun­try, has been widely ac­cused of be­ing con­structed with lit­tle thought given to lo­cal res­i­dents or the project's en­vi­ron­men­tal im­pact. An ar­ti­cle in the Wash­ing­ton Post es­ti­mated that up to 5,000 peo­ple liv­ing in the sur­round­ing area might need to be evicted when the reser­voir of the dam fills, while 40,000 peo­ple who rely on the Se­san and Sre­pok rivers face los­ing both their food and liveli­hoods.

De­spite per­sis­tent crit­i­cism of Chi­nese con­struc­tion projects, on the other hand there is ma­jor con­cern about the eco­nomic im­pact and the po­ten­tial mas­sive loss of jobs should the in­vest­ment from Cam­bo­dia's largest bene­fac­tor dry up.

“When we speak about a boom we can speak also about a crash. It's some­thing that can hap­pen,” says Lu­ciani-Khao, al­though he is ea­ger to stress his con­fi­dence in Cam­bo­dia's econ­omy to with­stand fluc­tu­a­tions in in­vest­ment.

Chanco is less op­ti­mistic, though, warn­ing that Cam­bo­dia should be wary of a Chi­nese in­vest­ment bub­ble. “Here at the EIU we ex­pect eco­nomic growth in China to slow more markedly than in re­cent years af­ter the party congress [in Oc­to­ber], as the au­thor­i­ties there take more ag­gres­sive mea­sures to tame what we see as un­sus­tain­able build-up in debt,” ex­plains Chanco. These mea­sures could also af­fect Chi­nese con­struc­tion projects in Cam­bo­dia, he says.

Worse, while a Chi­nese in­vest­ment bub­ble in the cap­i­tal would re­sult in a slew of empty, over­priced con­dos in a city des­per­ate for af­ford­able homes, Whe­ble be­lieves that there is lit­tle ev­i­dence to sug­gest that the mar­ket would cor­rect it­self with a de­cline in house prices.

“There won't nec­es­sar­ily be a de­cline in prices as these guys [Chi­nese in­vestors] are cash buy­ers, so they will just hold onto it,” ex­plains Whe­ble.

Oth­ers say they have al­ready be­gun to see signs that China is putting the brakes on their con­struc­tion drive. “You can see the projects are slow­ing down,” says

Kean. “Now they are tak­ing their time. They are not stop­ping, which is good, but they are slow­ing down.” •

An artist's ren­der­ing of the Bridge, a lux­ury 45-storey apart­ment com­plex cur­rently un­der con­struc­tion in Ph­nom Penh

Clock­wise from top left: a con­struc­tion site in Ph­nom Penh; work­ers build a road in Mon­dulkiri prov­ince; an in­te­rior shot of T Gal­le­ria by DFS, a lux­ury store built by FrenchCam­bo­dian firm LBL Con­struc­tion

Work­ers build a road in Mon­dulkiri prov­ince. Ac­cord­ing to the Asian De­vel­op­ment Bank, 15,400km of Cam­bo­dian roads are in need of re­pair

Fe­male con­struc­tion work­ers build sup­port beams (be­low left); work­ers move iron rods close to a con­struc­tion site on Ph­nom Penh's huge Koh Pich (Di­a­mond Is­land) project

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