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Source: www.asiaecon.org |

ASIA BUSINESS- BUSINESS PROBLEMS IN CAMBODIA


Cambodia, one of the poorest nations in Southeast Asia, is facing two major problems that, if not dealt with, may rupture its already unstable economy. The government must deal with two worsening problems that have had a significant impact on the country’s economy. First of all, Cambodian migrant labor business is quickly declining. This has caused the country’s remittance earnings to fall. Secondly, construction investment is falling and does not show any signs of improving. A change in policy may be the best solution to address both of these issues.


Cambodia, one of the poorest nations in Southeast Asia, is facing two major problems that, if not dealt with, may rupture its already unstable economy. The government must deal with two worsening problems that have had a significant impact on the country’s economy. First of all, Cambodian migrant labor business is quickly declining. This has caused the country’s remittance earnings to fall. Secondly, construction investment is falling and does not show any signs of improving. A change in policy may be the best solution to address both of these issues.

As the global economic crisis worsens, low-wage countries such as Cambodia have experienced sharp declines in migrant labor. In fact, Asia business in migrant labor is declining all over Southeast Asia. The number of Cambodian workers in Malaysia and Thailand fell about 10% in 2008. This could affect Cambodia’s remittance earnings, which are estimated at $300 million per year. According to the Ministry of Labor, working abroad ultimately reduces poverty in Cambodia and improves the workers’ livelihood.

Cambodia sent 2,654 workers to Malaysia in 2008 as compared to 3,219 in 2007. Likewise, as the business fell, about 4,000 workers found employment in Thailand in 2008, down from about 5,600 in 2007.

The decrease in Cambodian migrant workers to Malaysia and Thailand may have fallen because the salaries they earn in these two countries are minimal. Asia business workers in Malaysia and Thailand earn an average of $150 per month. In contrast, workers in Japan and South Korea can earn up to $900 and $600 per month respectively. The number of Cambodian migrant workers to Japan and South Korea actually increased in 2008. For example, legal workers in South Korea increased from 95 in 2007 to 2,400 in 2008, and 3,447 more are preparing to accept positions.

The shift to sending more workers to countries that pay higher salaries will probably prove to have a positive effect on Cambodia. The larger salaries should result in more money in remittances being sent back to Cambodia. In 2009, the government may change its policies to encourage more Cambodians to find employment in Japan and South Korea.

Another area of concern in Cambodia is a drop in construction investment. In the first eleven months of 2008, construction investment in Cambodia fell 12.5% as compared to last year. The construction business pulled in $3.2 billion in 2007 but only $2.8 billion in 2008.

The drop in construction investment has led to a loss in jobs and stalled projects. About 30% of construction projects have been either canceled or scaled back. In the first eleven months of 2008, Cambodia had a total of 1,869 construction projects, down from 1,942 in 2007. Cambodia’s major construction sites such as Camko City, IFC Tower, and Gold Tower 42 are now progressing at significantly slower speeds.

According to the Minister of Land Management Im Chhun Kim, the steepest drops are in projects funded by foreign direct investment (FDI). As the world faces difficulties and the Cambodian real estate market remains stagnant, FDI will probably continue to decline. The government’s restrictions on bank loans for construction have further aggravated the situation in Cambodia. Asia business institutions, not just construction, will have a difficult time dealing with additional loan restrictions.

The decline in Cambodia can be attributed to a decrease in property prices and the contracting global economy. In fact, Asia business is shrinking throughout the entire continent. Dropping property prices and a weakening global economy have taken a toll on the international construction business. The Dow Jones Construction and Materials Index was down about 44% in 2008.

The year of 2008 proved that cheaper construction material is not the key to increasing construction investment. The costs of construction materials fell drastically in the second half of 2008, yet investment continued to decline. Materials costs dropped from 30 to 40% since June. For example, steel was down to $650 per ton as compared to $1,100 per ton in June. Although the cost of building was cut due to lower material costs, the number of investors continued to decline.

The construction business will probably not experience any improvements unless the government tweaks its policy. Relieving the bank loan restrictions would contribute greatly to the health of the business. In addition, the government may grant foreigners the right to own condominiums and apartments. This should also bolster investment in construction.

Source: www.AsiaEcon.org

Source: www.asiaecon.org |


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