Take the ferry across the river from Chroy Changvar to Phnom Penh’s Sisowath Quay, and as you take in in the neon-and-skyscraper cityscape snaking before you, you could be forgiven for thinking you’re approaching a waterfront metropolis like Bangkok or Doha.
Until, that is, the boat docks on a crumbling slope of dirt and gravel, and you’re close enough to see that the city that is more a work-in-progress than an economic miracle.
Even in its centre, Phnom Penh feels like the outskirts of a city that’s expanding faster than it can cope with rather than a buzzing capital. Power drills roar endlessly and overloaded cement trucks block the roads, even in upmarket parts of the city. In rainy season, when lack of decent drainage causes flash floods, naked toddlers literally swim along major roads. As motos, handcarts, SUVs and lorries dodge the same potholes and jostle for the same scraps of space, daytime traffic halts to standstills so bad that a five kilometer journey can take over an hour.
It’s a scene that highlights the scale of investment pouring into the Kingdom, but also its dire lack of infrastructure – and persistent poverty. While the money that pours in from foreign investors to the construction industry is a welcome boost to Cambodia’s GDP, the nature of many of these projects raises serious questions over the priorities they reflect – and ultimately, who they will benefit.
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.
Foreign investment drives this growth, with China representing 70% of total industrial investment in the country, according to figures by Open Development Cambodia. However, many of these boil down to vanity projects: grandiose, commercial developments designed to convey success, rather than tackling the country’s more pressing needs.
One such example is the Chinese-backed Thai Boon Roong’s Twin Trade Center. When completed, the towers are designed to extend 500 metres high, making them the tallest buildings in all of Southeast Asia.
Chinese money is also being used to fund the Morodok Techo National Sport Complex: the construction of a $157 million football stadium, nine miles north of Phnom Penh, which will hold 55,000 people upon completion in 2020. Bear in mind that this is a country whose national football team has not qualified for a major international tournament since 1972.
The problem is not that Cambodia does not have very real construction needs; it does. The problem, as Miguel Chanco, lead ASEAN analyst at the Economist Intelligence Unit, warns, is that most foreign investments in the country do not address them.
“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.
What’s more, the problem is not that these kinds of projects are not profitable, he adds: “Indeed, projects that aim to make the country more energy secure or improve links between rural and urban areas continue to make economic sense, from my vantage point.”
Some foreign investors have taken note. The Japanese International Cooperation Agency (JICA), for example, is looking to address some of these concerns through large-scale infrastructure developments. Deputy Chief Representative Kotaro Tanaka compares his organisation to a mix between the World Bank, Asia Development Bank and USAID, explaining that JICA is working on projects that will enable Cambodia to develop in the long term.
These projects include a $400 million investment into the deep sea port in Sihanoukville and a number of potential cross-country infrastructure projects, such as the construction of better roads linking Phnom Penh to the Thai and Vietnamese borders.
As well as decreasing the worryingly high number of traffic deaths (1,576 in 2016. according to the National Police Service website), Tanaka also hopes that the roads will lead to a more effective logistical transport system. He refers to this as the Southern Economic Corridor.
As Tanaka explains, Japan used to be Cambodia’s biggest donor and development partner; to illustrate the importance of their role, he smooths out a 500 Riel note, pointing to depictions of two JICA-built bridges, one of which flies a Japanese flag. Yet Japan’s influence has recently diminished – now, their investment much compete with China.
“Now China is Number One,” says Tanaka. “We cannot keep up with the size, speed or volume [of Chinese projects].”
“Japan and China are natural partners and [at the] same time natural rivals,” he continues. However, in Cambodia, it is not that the two compete for the same projects, but rather that they have competing visions for the country.
As Tanaka sees it, China focuses on large scale projects, often with little urban planning or forward thinking, whereas JICA are shifting towards smaller projects with a greater emphasis on technology and protecting the environment.
“This is our differentiation,” he says.
Chinese investors do also invest heavily in Cambodian infrastructure projects – about 70% of new roads and bridges in the country are being constructed by the Chinese, says a government report. However, there are serious concerns over many of these projects. As Sophal Ear, author of Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy, told the Cambodia Daily earlier this year:
“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.”
Chinese investors, it seems, have a poor reputation for accountability and transparency. Tanaka explains that JICA regularly meet with other development partners such as the EU, the French, World Bank, Asia Development Bank, the US and Korea, doing their best to keep each other up to date on their ambitions in Cambodia. Chinese delegates however, do not even show up to the meetings.
“Maybe they are too busy,” he says.
These concerns, while reasonable, do little to hinder the proliferation of Chinese-backed construction projects in the Kingdom.
“Over the last six weeks, we have had about eight conference calls with our Shanghai and Beijing offices because a lot of the investment is from China,” says Ross Wheble, Cambodian Country Director of the UK-based real estate firm, Knight Frank. Wheble, who had just returned from a business trip to Shanghai, points to the special relationship between Cambodia and China as a catalyst for the surge in investment.
“With Cambodia and China having a special relationship and it being a belt-and-road country, we have some big Chinese companies looking to invest in Cambodia,” he adds.
Others believe that motivations for Chinese investment in Cambodia are primarily pragmatic. Jerome Luciani-Khao, Deputy General Manager of IBL, a French construction firm that has operated in Cambodia since 1991, suggests that developers are now starting construction operations in Cambodia because they have reached saturation point in their own countries.
What’s more, the Chinese are often seen to be building properties with only the Chinese investor market in mind. “There is already an oversupply of the luxury condominium market in Phnom Penh,” says Wheble, of Knight Frank. “The mass market cannot afford these units.”
They don’t like them either, says Kimleang Kean, Managing Director of the real estate development firm Urban Living Solutions. Kean states that Khmer people do not actually want to live in the condominium style housing that many foreign investors are building. He firmly believes that the future of construction will be in building affordable homes that target the emerging middle class.
“It’s the market,” says Kean. “Targeting rich foreigners is no longer the game. Affordable housing is recession-proof. It won’t make you rich, but it is a start.”
Kean is building affordable, ‘trendy’ housing with a young, emerging middle class in mind. He says that he wants to create housing that preserves the neighbourhood feel he remembers from growing up in a small shop house, in an alleyway behind Monivong Boulevard. He blames the influx of foreign construction projects with gated communities and lack of communal spaces for the loss of community in the capital.
Kean is not alone in focussing on housing that meets the needs and values of Cambodian buyers. Luciani-Khao, too, says demand from investors to build affordable housing in Phnom Penh is growing, and others are stepping in to fill a gap not addressed by Chinese investment. 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 $70,000-$100,000.
The current, Chinese-led construction model doesn’t only neglect the interests of buyers, but even during the boom, it extends few benefits to workers.
26-year-old Hourt, who works in the fast-developing Koh Pich (Diamond Island) in Phnom Penh says it’s difficult to make a good living in construction. Despte being a skilled worker with expertise in electrical wiring, he still only earns “enough to survive [$9 a day].” The biggest issue, he says, is the separation between Khmer and Chinese workers.
“The problem is [that] Khmer workers are not given so much value but Chinese workers can get $60 a day,” says Hoyt. “But the maximum for the highest skilled Khmer worker is $20 a day.”
Despite criticism both of China’s motives, operational behaviour and choice of projects, there is fear over what would happen if the investment were to slow.
“When we speak about a boom we can speak also about a crash. It’s something that can happen,” says Jerome Luciani-Khao – although he is eager to stress that he is confident in the economy of Cambodia to withstand fluctuations in investment.
Miguel Chanco warns that Cambodia should be wary of the Chinese investment bubble in particular.
“Here at the EIU we expect economic growth in China to slow more markedly than in recent years after the party congress next month, as the authorities there take more aggressive measures to tame what we see as unsustainable build-up in debt,” explains Chanco.” On a case-by-case basis these measures could significantly impact the prospects of some Chinese-backed project[s] in Cambodia.”
Keang says that he has already begun signs that China is putting the brakes on their construction.efforts.
“You can see the projects are slowing down,” he points out. ”Now they are taking their time. They are not stopping, which is good, but they are slowing down.”
If Chinese investment were to continue to slow, however,Cambodia may find it very difficult to find enough alternative commercial investors. “The cost of doing business is high in Cambodia,” says Wheble, speaking from experience.
Luciani-Khao agrees.
“Don’t think that everything will be cheaper in Cambodia,” he says. “Everything is imported. You have to work with people who know the country. If you work with an architect in Singapore, a quantity surveyor in Vietnam and a project manager in Thailand, then your target cost may be $5 million and in the end the project will cost you $15 million.”
If alternative investors are not found to fill the void, Cambodia could face a looming housing crisis. Current estimates suggest Cambodia’s population will grow by by more than 50 percent, leading to a population of 7.9 million by 2030. According to government figures, the capital will require an additional 800,000 homes in the next 13 years.
Worse, the oversupply of unaffordable luxury condominiums left by the Chinese will do little to help as the city struggles to house nearly a million new residents.
“There won’t necessarily be a decline in prices as these guys [Chinese investors] are cash buyers, so they will just hold onto it,” says Wheble. “My view is that there will be a period of stagnation. Prices will not go up or down. For it to be sustainable it needs to be driven by local demand,” adds Wheble.
A potential crash could also lead to a dramatic rise in unemployment in the capital. According to figures released by the MLMUPC, there are between 48,000 and 50,000 people employed each day in construction in Phnom Penh, plus an additional 23,000 casual workers.
And pessimism is spreading through the ranks. Asked how he feels about his career in the industry, construction worker Ry, from Kampong Speu, says he is only “30% hopeful for the future.”
That said, while a slowdown in construction could prove highly disruptive in the short term, a slowdown in Chinese investment might just be the curveball the city needs to take stock of what its citizens really need, and to seek assistance in making it happen. To stop sending illusions of prosperity soaring into the skyline, and instead look at what needs to be built and fixed down on the ground.
Photo by Paul Szewczykon Unsplash
Naga News 