The Global Financial Crisis Affects Construction Projects in Cambodia – Thursday, 11.12.2008

Posted on 12 December 2008. Filed under: Week 590 |

The Mirror, Vol. 12, No. 590

“The hope to see luxury hotels, high raise buildings, and other modern similar buildings in the future, as a sign to prove in reality that Phnom Penh is changing, seems now to be still far away. Why?
 
“In fact, there is no other reason besides the global financial and economic crisis, because all construction of high rise buildings to develop the city to become a modern city are mostly based on foreign investment in Cambodia. Therefore large scale investments, like those by Korean investors, planning constructions for the city, are delayed; for instance, the [42 stories double] Golden Tower construction project is not yet clearly assured – according to a report of Asia Satellite TV.
 
“The plans to construct a modern city with high raise buildings is not clear, but this is just a part of various concerns, because some buildings, like the CamKo City [Cambodian-Korean City], are being revised. In September, before the drop of the global economy and the financial crisis and turmoil started, Cambodia had at least 30 big construction projects being planned.
 
“The big problem which financial institutions in the United States of America are facing, strongly affects many countries around the world, but it does not affect Cambodia directly as much as other countries. However, it strongly affects foreign investors in Cambodia, like the Korean investors, including the BK Global, related to G.S or Yapwoo, which are severely affected by the financial crisis.
 
“Mr. Teng Rithy, the manager of the Pharos Mekong project, which is one part of BK Global as BK Asia Pacific, said that the project to construct entertainment places (hotels and resorts at the Mekong river [on the Chroy Chongva Island – 780 housing units in several high rise buildings) with a predicted cost of US$250 million in total, which was scheduled to start early October 2008) is postponed, because the economy of Korea is in an unclear situation, and also because of falling into inflation as never before.

Note:

Pictures of all these planned constructions can be see here, but the related text is in Thai – I could not find English descriptions; I still thought some people might want to see all these enormous plans for which – even without a global financial crisis – it is difficult to imagine, even if they were all built, how they all together could find sufficient renters for the thousands of flats at very high prices. What economic planning and and what expectations were at the basis was never made public.

If you want to see the pictures, click at the end here on the word “pictures” – you have to move way down through the detailed Thai texts.

Access to the pictures]

“That means if they want to follow the projected scheduled, the Korean investors in Cambodia will lack capital, because of the instability of the exchange rate between the Korean Won and the US Dollar. Furthermore, investors cannot borrow money from the banks in Korea as they did before the global financial crisis. Nevertheless, if the global situation would improve gradually, the Korean construction companies, that always borrow money from the banks for their construction projects, would be able to proceed as normal.
 
“A construction project manager said, ‘We used to present projects to ask for loans in order to implement such projects, but now the banks in Korea stop lending money for such investments in foreign countries.’
 
“It should be noted that it is not only these traditional investors who used to ask for loans from foreign financial institutions that have problems, recently, even a Thai cement company, which uses much money as the basis for their direct expenses for a Thai cement factory in Cambodia, also announced to delay the extension of the manufacturing capacity of the cement factory in Kampot ‘because of the demand on the market declines.’
 
“However, this situation is not what actually describes fully what happened in Cambodia; in fact, big projects, including two or three big development projects, costing billions of dollar, have suspended their construction processes since the middle of this year, because the investors had information about the meltdown of economic growth processes since early in the year, particularly the economic crisis in the United States of America that badly affects the economy in many regions of the world.

“The director of a branch of BK Global said, ‘It is not sure whether the Pharos Mekong project will proceeded or not.’ But the present situation seems not to have created serious problems for the source of capital, collecting some individual investment to develop the first steps. However, even if the construction would be finished in one or two more years, problems of the market will be haunting again.
 
“Mr. Im Chamrong, the director general of the Construction Department of the Ministry of Land Management, Urban Planning and Construction, shared the information recently that in Cambodia, there is no new construction project for two months.
 
“An official working at a construction project site refused to give details about how many construction projects have been postponed so far, or how many projects have been closed.
 
“The director of the Bunna Realty Group and a construction advisor in Phnom Penh, Mr. Sung Bunna, said recently that about 50% of big projects, as mentioned above, are postponed since October, after the financial crisis in the USA started, which results in loans for construction being hardly available.
 
“The director of the Cambodia Institute of Development Studies, Dr. Kang Chandararot, made a similar statement, saying that small and big investors are lacking money to continue their activities because of the pressure of the global economy, which is affected by the financial crisis. However, some investors promised their efforts so that the capital continues to be available for their activities like in previous times. But although some investors are preparing sufficient capital for investments, some of them were blocked, because all projects must follow the instructions of the Ministry of Economy and Finance, which requires that those investors put much money into the National Bank to prevent any crisis to happen that could spread directly into the financial system of the country.

“In July 2008, the National Bank issued a regulation requiring big construction companies to pay 2% of the total construction capital into the bank, in order to help prevent capital flow problems in case the inflation shoots up.

“The National Bank issued also another regulation, saying that other projects – like the selling of houses, buildings, including office buildings, is not possible, except when less than 3% of the process of the construction is still unfinished. Doing so is a good way to avoid loss.

“Mr. Ro Ratana, the sales manager of the Golden Tower 42 buildings, said that the Yonwoo Company from South Korea, which is managing the finance of the 42 floor building in Phnom Penh, might announce to delay the construction of another project for a new city, costing approximately US$1 billion.
 
“He said, ‘We have postponed it and might stop it… our company is greatly disappointed, while we are facing this crisis, and moreover, we are now facing limitations imposed by the investment bank.’
 
“As for the representatives of G.S from South Korea who are the owners of the project to construct office buildings and accommodations on 45 floors near the Tonle Basak river, they said that the construction will continue unless the Cambodian government gives different instructions related to the construction.
 

 
“Mr. Shin Hankyu [phonetic], the manager of the BSP Bank from South Korea, which has just been opened in Phnom Penh, gave an interview late October, saying that investment capital from Korea increased to US$830 million last year making Cambodia to rank sixth among countries with investments from Korea. Also, the South Korean ambassador to Cambodia, Mr. Shin Hyun-Suk, said at that time that different financial institutions in Cambodia still guarantee security, and are set away from the global economic and financial crisis. But he reminded Cambodia to be careful with the effects of the global economy, which can also affect tourism.
 
“The Minister of Commerce, H.E. Cham Prasidh, said that foreign investment capital increased quickly from US$483 million in 2006 to US$2,700 million in 2007, and to US$8,900 million in the eight months of 2008.
 
“In the meantime, the per capita income of Cambodian citizens per year increased from US$288 to US$583.

“Actually, in 2007, construction became a favorable investment in Cambodia, not only construction projects to develop Phnom Penh,but also other projects to expand some other important cities that have many tourists, such as Siem Reap and Sihanoukville, that received gradually more and more investments, so that huge amounts of money flow into Cambodia to construct places of entertainment and hotels, which should, according to their projections, attract more tourists to visit Cambodia.

“Careful observation shows that the construction sector in Cambodia became lively through big and and important priority projects, and because of the expansion potential of such lively construction activities, the Cambodian economy grew very fast with 10 to 12% on overage until 2007, but in 2008, especially since mid 2008, the situation has totally changed.
 
“The International Monetary Fund – IMF – issued a statement in the first week of November that the Cambodia economy can grow only 6.5% in 2008 and it will drop to only 4.8% in 2009.

“According to figures about foreign investments in 2008, it should be around US$750 in total, and this figure will decline to only 25-30% in 2009.
 
“According to IMF data for last year, the export of garments from factories in Cambodia earned US$3.8 billion for the country, and the number of tourists who visited Cambodia was 2.1 million, making Cambodia economically and politically stable. Nevertheless, if we look at the situation around the world, we can see that the construction sector and general development have problems not only in Cambodia, but it is the same also for big construction projects around the world. If one considers the priority requirement policies for Cambodia, it is the export of garment from Cambodia to world markets – but now, the demand for garments on the world market will decline next year because of the global financial and economic crisis. Also the number of tourists will drop.
 
“Not only big construction projects, even the construction of flats for sale is stagnant, because of the lack of loans from the banks, so there are almost no costumers, and because prices of land speculation are also down, which creates problems for those constructing houses for sale.
 
“A man who works for a local construction company said that foreign investors, especially South Korean investors that have many construction projects in Cambodia, are challenged with financial problems in their own countries, therefore this will have some effects, and this makes the housing and land market to have no customers.” Mate Neak, Vol.1, #13, 10-16.12.2008

Newspapers Appearing on the Newsstand:
Thursday, 11 December 2008

Deum Ampil, Vol.2, #97, 10-16.12.2008

  • The 60th Human Rights Day on 10 December 2008: [Senior Minister and president of the Human Rights Committee of the Royal Government of Cambodia] Om Yentieng Said that the Situation is Better, while Pong Chiv Kek [also known as Dr. Kek Galabru, the director of the Cambodian League for the Promotion and Defense of Human Rights – LICADHO] Said that There Are Still Many Problems

Kampuchea Thmey, Vol.7, #1816-#1817, 10-11.12.2008

  • Samdech Krom Preah Announces to Retire from Politics at the Sup Chhlam Angkor II Restaurant
  • The Government Defines Wedding Procedures between Khmers and Foreigners [saying that weddings between Khmer citizens and foreigners must be based on the voluntary and directly expressed will of concerned persons following conditions stated in the law and other relevant standard documents of Cambodia]
  • The Phnom Penh Municipal Governor Tells Ms. Vang Sreyno [a young well-known film star] to Apologize and Pay Compensation for the Damage [caused to the lion at the Statue of Samdech Preah Sanghareach Chuon Nath by her high speed driving]
  • Pakistan Says that It Will Not Hand Over Mumbai Attack Suspects to India [and warns to fight back if India starts a war]
  • Residents Are Surprised Seeing a Khmer Potato Weighing 45 kg [Kampot]
  • Three Murders Beheading their Victims Arrested by Police [Banteay Meanchey]

 
Khmer Machas Srok, Vol.2, #301, 11.12.2008

  • The King Nominates Prince Ranariddh as His Chief Advisor

 
Khmer Sthapana, Vol.1, #155, 10.12.2008

  • In Nine Months of 2008 in Cambodia, Nearly 17% of Drug Users Are Street Children and 14% Are Unemployed People [according to a new report of the Secretariat of the National Authority for Combating Drugs]
  • The Citizens Hope that Prices of Helmets Will Not Go Up when the [new] Traffic Law Is Implemented [to fine divers who do not wear helmets]

 
Koh Santepheap, Vol.41, #6521-#6522, 10-11.12.2008

  • Cambodia Supports Vietnam to Establish an Office of the [Vietnam-Laos-Cambodia] Economic Development Association in Cambodia
  • The Government Orders Municipal and Provincial Authorities to Curb Down on Gambling Clubs Which Are Like a Paradise during the Night [entertainment clubs outside of hotels are required to be closed and for those inside of hotels, Khmers are not allowed to go in]

 

Mate Neak, Vol.1, #.., 10.12.2008

  • The Global Financial Crisis Affects Construction Projects in Cambodia

 
Moneaksekar Khmer, Vol.15, #3635-#3636, 10-11.12.2008

  • Siam [Thailand] Said that Its Political Crisis Will Not Affect the Solving of Border Disputes with Cambodia [according to the Thai Ministry of Foreign Affairs on 9 December 2008]
  • The World Bank Forecasts that Cambodia’s Economic Growth for 2009 Will Drop to 4.9%
  • The Government Decides to Reduce the Expenses for the National Defense Sector after Being Criticized by Donors [the expenses are reduced to US$160 million after the International Monetary Fund asked the government for the reasons, why the government suggests to increase to expenses by US$500 million after the armed clash with Thailand along the border]

 
Rasmei Kampuchea, Vol.16, #4764-#4765, 10-11.12.2008

  • The World Bank: Cambodia Cannot Avoided Being Affected by the Global Economic Crisis
  • Civil Society Organizations Marched to Celebrate the International Human Rights Day on 10 December 2008 [nearly 5,000 people from civil society organizations, human rights activists, trade unions, and embassies, including ethnic minority tribespeople participated]
  • The Government Takes the Korean Tong Yang Company as Advisor for Stock Exchange Affairs
  • Four [Taiwanese] Tourists Who Suffered when a Bridge Broke Down in the Chong Khneas Region Decided to Sue [the Su Ching] Company to Take Responsibility [because they lost some belongings during the accident, however, so far, the Siem Reap tourism police unit has not provided any forms for these tourists]

 
Samleng Yuvachun Khmer, Vol.15, #3454, 11.12.2008

  • 10 December 2008 Anniversary: Civil Society Focused on the Right to Voice Opinions, the Eviction of People from Their Houses, Arrests, Corruption Elimination, Reforms of the Court System, and Trafficking… Russia Cancels 70% of the Loans to Cambodia [from US$1,5 Billion owed by Cambodia]

Have a look at the last editorial – you can access it directly from the main page of the Mirror.

And please recommend us also to your colleagues and friends.

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