News

The evening of 7th October saw the conclusion of a secret ballot between government, union and employer representatives to decide upon a figure to submit to the government’s wage-fixing Labour Advisory Committee.  Whilst the employers’ proposed figure of $133 per month (a $5 increase) received the most votes, this will do little to assist the Labour Advisory Committee in reaching a consensus figure as the vote was boycotted by four independent unions.

Ath Thorn, president of the Coalition of Cambodian Apparel Workers’ Democratic Union, said that his and three other unions walked out due to the influence of pro-government unions: “We are sure some unions are favorable to the Cambodian government … They are not working in workers’ interests.” The other three unions that walked out were the Cambodian Alliance Trade Unions, Collective Union of Movement of Workers and the National Independent Federation Textile Union of Cambodia.

Employer representatives and at least one independent union criticized the boycott for undermining the process. In any case the consequences may be minimal – last year, the Labour Advisory Committee ultimately decided on its own figure, which was subsequently increased by Prime Minister Hun Sen.

The annual process to determine the minimum wage for Cambodia’s garments sector has been completed – 2016 will see an increase of $12 per month to $140.

Whilst the negotiation process overseen by the Labour Advisory Committee was unable to produce an explicit consensus, a secret ballot saw a majority of the committee’s delegates (including representatives of government, employers and unions) vote for the government’s recommended figure of $135. Unions had been pushing for $160 but at least some of them appear to have agreed to vote for the government proposal. The Ministry of Labor and Vocational Training finally issued Prakas no 409 prescribing a minimum wage of $140 per month after Prime Minister Hun Sen mandated an addition $5 increase.

The International Labour Organization issued a statement praising the parties involved in the process, acknowledging “the genuine efforts by all parties to reach a tripartite consensus”.

A report by the Ministry of Commerce shows the EU to be increasing in importance as a destination for Cambodia’s exports.

Cambodia’s exports overall increased by almost 20% in the first half of 2015, from $3.28bn in H1 2014 to $3.9bn. The rise was in part driven by a 32% increase in garments sales to the EU, which more than compensated for a decrease in exports to the United States (7% for the garments industry and 40% for textiles).

Benefitting from the Everything But Arms policy, rice exports to the EU were up 22% in H1 2015. Rice shipments to the US, which does not offer this privilege, dropped by almost 60 per cent.

Smart Axiata, Cambodia’s second-largest mobile telecommunications company and a EuroCham member, has announced a partnership with Facebook to encourage more Cambodians to connect to the Internet. The partnership is aimed at increasing access to information around healthcare, education, employment and business opportunities.

Khmer Times interview with Anne Rose Dingemans, director of online jobs portal Everjobs Cambodia, about the current status of the Cambodian education system as ASEAN Economic Community approaches.

Points out that whilst a tertiary school enrollment rate of 15.8% (2011) may seem low, this has increased from just 3.3% in 2005 so shows promising growth. Comments on the long-recognized need to align curriculums with skills needed in the workplace and for greater numbers of students to take technical degrees such as engineering, sciences and medicine. Employers often cite ‘soft skills’ like innovation, critical thinking and problem-solving as areas that need to be developed.

Cambodia has one of the lowest unemployment rates in the world (0.3%, World Bank 2013), demonstrating that the job market is big enough to absorb the estimated 200,000 graduates each year. However, opportunities can be somewhat limited which results in high employee turnover rates and lower levels of productivity.

With ASEAN integration pending, there is a need to focus on a Mutually Recognized Skills Framework with other ASEAN countries. Ms. Dingemans doesn’t see regional integration as a threat to Cambodian workers – “Cambodia has been for years a liberalized regime in terms of employing foreigners within and outside the Asean region. Therefore, employees from the AEC should not represent a new hazard for the local workforce, but a new opportunity for them to work out of Cambodia and bring back the knowledge learned abroad.”. English will be the lingua franca within ASEAN hence the importance of ensuring that Cambodian students have a strong level of English as a second language.

A World Bank economic update for East Asia and Pacific published 5th October places Cambodia’s likely GDP growth for 2015 at 6.9%, which would be 0.2% down on 2014’s growth levels.

The slight deceleration is attributed to increased price pressure on garment exports and sluggish agricultural growth, given this year’s lower rice production numbers. The construction sector remains very strong. In 2014, construction accounted for 2% GDP growth compared to 1.2% for garments and 0.1% for agriculture. For the first half of 2015, construction material imports were up 39% year-on-year, reflecting a construction ‘boom’, though some analysts expect a slowdown over the coming months due to increasing supply levels and, potentially, economic headwinds from China.

Adverse climatic conditions have had a negative impact on the agricultural sector. The sector lacks diversification and is heavily dependent on rice. The harvest for rice was diminished and delayed this year due to later rainfalls. Whilst the government intends to reduce agriculture’s share of GDP, it remains a vital part of the economy that is particularly important for poverty alleviation and economic distribution.

The General Department of Taxation has introduced a new centralized process for tax registration and payments that includes online options. The previous tax databases were mixed between the Ministry of Commerce and various others, which made it difficult for taxation officials to compile reports and manage tax revenue because registration was done at different places.

The new online tax registration system is designed to improve efficiency and ensure transparency. It will make it easier for the government to monitor the taxes it is due, and for businesses to pay them.

A GDT report on Tuesday said it had collected $997 million in taxes during the first nine months of this year, up 25.5 percent over the same period last year. Revenue collected by the GDT does not include that from the Custom and Excise Department, which collects taxes on goods entering or leaving the country. Last year the two departments collected total tax revenue of $2.4 billion, a 27 percent rise over 2013.

According to one CNRP lawmaker, Cambodia is losing $1bn per year in tax revenues due to large conglomerates not being made to pay their fair share. Room for improvement in tax collection is evidenced in this year’s results, where collection has risen 25.5% whilst GDP growth is only around 7%.

Increases in coastal tourism in Cambodia this year are primarily driven by domestic tourism by an expanding middle class. The tourism department in Preah Sihanouk has reported an 11.88% increase to 1.7m tourists for the first 9 months of the year, including a 15% rise in the number of domestic tourists.

Kampot province attracted 1.2m tourists, of which more than 1 million were Khmer. This represents a 40% increase in Khmer tourists in the province compared to the same period last year. More events, such as the upcoming sea festival, are attracting both domestic and international visitors.

Koh Kong province received 76,000 domestic tourists in the first half of the year, up 39 per cent year on year. It received about 12,000 foreign tourists, a 10 per cent year-on-year increase in the first half of this year.

Phnom Penh Property piece profiling the construction sector on the back of a recent World Bank economic update that emphasizes the increasing importance of the industry to Cambodia’s economic growth. Construction now accounts for 2% of GDP growth, compared to only 1.3% in 2013.

The World Bank report recognized the risk of oversupply and a property bubble in Cambodia though praised inter-ministerial coordination alongside monetary authorities to regulate the banking sector’s contributions to the property sector.

Domestic credit growth has increased to 28.1% on the back of the construction boom. Deposit growth has been lower which is likely to restrict the capacity for domestic credit to further increase at the same rate. However, Grant Knuckey, CEO of ANZ Royal Bank, doesn’t believe that a slowdown in domestic credit would have a significant impact upon construction levels: “The industry has been driven by many factors. One is simply that high developer margins, alongside the willingness of local buyers to put down large cash deposits, mean that developers are often taking relatively little financial risk,”

In the long term, the construction industry is not seen as a viable alternative to traditional sources of GDP growth such as garments and agriculture. If construction levels do not reflect demand driven by underlying growth in the real economy there will eventually be excess supply and a correction. 

A statement released by the Finance Ministry has revealed government tax revenues to have increased to $997.31m - for the first nine months of the year – a 25.6% increase on the same period for 2014.

The statement indicated that this increase was due to better implementation of taxation laws and regulations: “The general department of taxation will continue to implement strictly the reform policies of the government including collection of all types of tax, especially profit tax, value added tax [and] special tax on tobacco and alcohol,”.  Both tax-on-profits and salary tax increased by more than 20%.

The Ministry was keen to point out the contributions made by improvements made to tax payment processes. For added convenience, in addition to General Department of Taxation offices, the government has licensed two local banks – Acleda and Canadia – to collect tax payments. So Phonnary, executive vice president of Acleda Bank, said the bank processed more than 700,000 tax-payment transactions in the first nine months of the year, totalling $157 million, up from the $84 million collected for all of 2014.

A separate report by the General Department of Customs and Excise (GDCE) reported tax revenues of $1.14bn for the January-September period, a 17% increase on the previous year. This brings total tax revenues so far in 2015 to $2.14bn.

Monday 5th October saw 12 members of the Trans-Pacific Partnership (TPP), a US-driven trade agreement including Malaysia and Vietnam, agree upon a framework to liberalize trade between members.

Ken Loo, secretary-general of the Garment Manufacturers Association of Cambodia (GMAC), commented on how the agreement would further erode Cambodia’s competitiveness within the garments sector, which is already said to be struggling with increasing labor costs and a lack of productivity. The TPP will eliminate most tariffs in the textiles and apparel segment, save a few sensitive products where tariffs will be eased off over a longer time frame. The concern is that Vietnam will become increasingly competitive for US garments purchasers, making Cambodia more dependent upon the European market for which it receives preferential market access. Garments exports to Canada and Japan have been increasing in recent years yet both are party to TPP.

Rice exporters do not expect to be too heavily impacted as only a low percentage of Cambodian rice exports currently head towards the USA. However, the TPP is likely to hinder any further expansion into the US rice market.

Vietnam’s involvement in the TPP is of particular concern to Cambodia as the two countries compete directly on rice and garments exports. Significantly, Vietnam has recently completed a Free Trade Agreement with the European Union, which will increase price pressures upon Cambodia.

The TPP must still be ratified by lawmakers in its signatory nations before it can come into effect, and is likely to face a battle when it is submitted to the US Congress early next year.