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Logo of Phnom Penh Post newspaper Phnom Penh Post - The rich, the poor and the income gap

The rich, the poor and the income gap

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The Hummer crawls to a stop in a Phnom Penh street. The uniformed driver hops from

the vehicle and crosses the road to buy a plastic bottle of petrol.

A Hummer parked outside Phnom Penh's new Paragon Cambodia shopping center. According to unofficial estimates there may be up to a dozen Hummers in the country, with sources suggesting they are imported "informally" from the US and are often "second-hand".

Motodops point and laugh as the driver tops up the empty tank. Inside the SUV, teenage

girls squirm in embarrassment.

The Hummer, Arnold Schwarze-negger's favorite auto and America's classic symbol of

conspicuous consumption, is the vehicle of choice for some of Phnom Penh's nouveau

riche - those families who have benefited most from the last decade of economic growth,

corruption or both.

In 2006, Cambodia enjoyed its third year of double-digit economic growth, continuing

a "robust" trend that makes it one of the best performing economies in

the region. Growth is set to continue this year, with 9 percent predicted.

Signs of wealth abound in Phnom Penh: modern apartment buildings rise out of bulldozed

squats; a new shopping center trades in luxury goods; even the one or twoLamborghini

- valued at $250,000 each - can be seen parked and heavily guarded outside night

clubs popular with the new elite.

It's sometimes easy to forget that 35 percent of the population live on less than

$0.45 per day, mainly because 92 percent of the poor live in rural areas - at the

end alongrugged, poorly maintained roads where the Hummers rarely go.

The laughter as the monstrous SUV ran out of petrol was a rare moment of equality

in a country increasingly marked by the opposite.

Poverty Reduction Slow

According to the World Bank, Cambodia enjoyed an average annual growth of 8.2 percent

over the decade from 1993 to 2004, but overall poverty decreased from 47 percent

to a mere 35 percent - just above 1 percent per annum.

Other experts claim that even this low assessment overstates the case.

Ear Sophal, a Cambodian development specialist, argued in the April edition of the

Asian Journal of Political Science, that there was "lack of robustness"

in the World Bank's findings and suggested a poverty reduction of 4 percent was more

accurate.

In any case, as a large proportion of the population live marginally above the poverty

line, the figures are sensitive.

As Sophal noted, if the 2004 poverty line of 1,826 riel was increased by a mere 10

percent - just 183 riel - the poverty rate would jump from 35 percent to 41.6 percent.

What is clear is that poverty reduction has been painfully slow relative to economic

growth, and further, inequality has significantly increased.

The average per capita consumption of the richest 20 percent of the population -

the urban elite - has risen by 45 percent over the last ten years, compared to an

8 percent rise for the poorest quintile. Economic indicators of disparity make the

country one of the most unequal in the region.

The urban-rural divide has also widened. In Phnom Penh poverty fell by over half

from 11 percent to 5 percent in the decade to 2004, but rural poverty fell only 9

percent from 43 to 34 percent.

Rural-Urban drift

The three pillars of economic growth - the garment sector, tourism and construction

- are grounded in Phnom Penh and Siem Reap town, and according to the Cambodian Development

Resource Institute (CDRI), which will release a major report on the rural economy

next month, this concentration is causing a rural-urban drift that is changing rural

livelihoods - and not necessarily for the better.

"Opportunities for the rural poor in urban centers consist of mainly casual

unskilled jobs, usually during the dry season, such as construction, moto driving

or security guards" said Chan Sophal, senior researcher at CDRI. "As well

as women working in garment factories. These workers send remittances home - with

garment factory workers in particular sending a large proportion of their wages.

But these wages are not making a significant impact on rural development."

According to the CDRI study, which focused on ten villages across the country over

a three-year period, migrant labor was an increasingly significant aspect of rural

livelihoods, with some 13 percent of rural households receiving remittances from

family members in 2004.

This figure is likely to have increased in the last three years, with the continued

expansion of the urban economy and the limited economic opportunities of rural communities.

While many migrant workers continue to use jewellery stores, money-lenders and taxi

drivers, to remit their money, there's been significant growth in domestic bank transfers.

One of the Kingdom's leading banks, Acleda, has seen domestic transfers double each

year for the past six years. Last year, $565 million was transferred domestically.

This year the bank is projecting a billion dollars in transfers - or about 15 percent

of GDP.

According to Acleda, about 50 percent of the transfers flow in and out of Phnom Penh

- with 65 percent of those running out of the capital to the provinces and 35 percent

coming into the city. The remaining 50 percent flow between provinces.

Of the total number of domestic transfers through Acleda last year, about 37 percent

were less than $500 - which constituted about 3 percent of the annual dollar amount.

The remaining transfers were small to large business or corporate remittances.

Vann Sarouen, Acleda's Siem Reap provincial manager, said while the major flow of

transfers was from Siem Reap town to the capital for business, there had been a sharp

increase in small transfers, with about 30 percent of total outward remittances less

than $100.

"These small amounts are from seasonal workers who live in other provinces,"

Sarouen said. "More people are beginning to trust the bank instead of using

private means."

Little "spillover" from money flow

Despite the increase in money flow, the CDRI study suggested there was limited "spillover"

to the 85 percent of the population who live in the countryside. Sophal said the

average annual remittance equated to about $80 per household, which is less than

10 percent of household consumption.

"The amounts being sent by migrant workers are not going to make a miracle -

$20 to $30 per month is not going to improve livelihoods significantly," Sophal

said. "In the large part it is simply aiding the subsistent lifestyles of the

dependent families. It's preventing them from falling deeper into poverty, which

is of course a positive thing -without the jobs they would be worse off - but it

rarely leads to sustainable improvements."

Sophal said of those living above the poverty line, about 30 percent were only marginally

above. For these families, sudden shocks such as theft, corruption, crop failure

- but particularly health problems - could quickly reduce them to destitution.

"It's these families who benefit most from remittances as the extra income enables

them to subsist and to cope with such shocks," Sophal said.

When two or three family members were selling their labor - for example, two daughters

working in garment factories - then families could be brought out of poverty and

even save, Sophal said.

But according to the CDRI study, only about 10 to 20 percent of families were able

to improve their situation through labor selling and remittances.

"Not everybody is able to save and for those that can the savings are either

used for security or for asset building: more livestock, a moto, a TV, bicycles and

especially home improvements. It's usually only the already well-off or upwardly

mobile families that use savings to establish small businesses," Sophal said.

To improve a thatch house - a sign of poverty - to a wooden house with a tin roof,

would take an average family up to seven years of saving, and remittances could contribute

to this, Sophal said.

"But while their living condition has improved, the family may not have diversified

their income source, which is the key to prosperity. It's not aiding long-term development.

In the main the incomes from remittances are not even a short-term solution to poverty

reduction, they are merely a stop-gap," Sophal said.

But remittances are often used to provide family members with an education.

Though educational attainment figures in Cambodia are some of the lowest in the region,

with only 18 percent of men and 9 percent of women in the work force with more than

a primary school education, primary enrolments in rural areas have increased by 50

percent in the past decade and lower secondary enrolments by 62 percent.

Despite the government's 2000 introduction of a universal free enrolment policy up

to Grade 9, the CDRI study found that "informal" payments for schooling

at all levels were a financial burden on many families.

Garment factory workers who spoke to the Post, proudly boasted they were helping

send their siblings to school.

Key Ratanak, 19, from Kompong Cham, lives in a tiny one-room apartment in Phnom Penh's

outskirts, with four other girls from her village. They all work in the same garment

factory and over a 60-hour week, including overtime, make about $60-70 per month.

They send about $20-30 home every two months through relatives or a taxi.

"The money makes life a little easier for my family as they can buy more food,"

Ratanak said. "And it helps keep my brothers and sisters in school."

But according to the CDRI study, poor households in rural areas have not been the

major beneficiaries of the garment sector's growth.

Most garment factory jobs require "informal" recruitment fees and literacy,

which excludes the poorest families, especially as it's girls who leave school first

to help their family. Over 70 percent of the Cambodia's entire female work force

are illiterate or have less than a primary school level education.

"The rapid growth of the garment sector has benefited many households, but these

have not necessarily been poor households and very rarely the poorest," Sophal

said. "Ultimately, there is very little linkage between growth in the urban

areas and growth in the rural areas. The wages earned in construction and garment

factories are not 'poverty reducing' wages - it simply isn't enough to make a significant

impact."

Rural-rural inequality

The CDRI study found that not only was urban growth and labor migration failing to

"spill over" into rural development, but there was rising inequality in

and between rural communities.

While communities in good locations with fertile soils and access to irrigation prosper,

isolated communities, without good roads and access to markets and other out of village

opportunities, are in decline.

Sophal said areas adjacent to the Tonle Sap and plateau and mountainous areas, including

Kratie and Kampong Speu, were suffering significantly higher levels of poverty than

the rest of the country, with rates of up to 56 percent.

The study also found significant inequality emerging within villages.

"A village study group told us that the rich keep on getting richer: they're

increasing the price of pots and jars they're trading. While the poor get poorer:

they keep on decreasing the price of charcoal and firewood they're producing,"

Sophal said.

The poorer communities were previously reliant on natural resources as their 'safety

net', but with the degradation of forests and fishery stock through over exploitation

and the increasing concentration of land and resources in the hands of the rich,

these villages were now facing increasing poverty and destitution.

Sophal said in these villages the 'rich' are able to take control of the natural

resources in collusion with the authorities.

"The poor bear the brunt of weak governance and corruption, while the rich either

pay up or actively use corruption and impunity to their advantage, with natural resource

dependent communities the most affected," Sophal said.

Sophal said landlessness and land concentration were an increasing problem for rural

communities. In 2003, 70 percent of land was owned by the richest 20 percent of the

population. With that trend continuing, there are now large tracts of fenced off

land in rural areas owned by the wealthy for speculative purposes that remain uncultivated.

Poorly defined land laws mean absentee owners are reluctant to lease the land for

fear the lessees will later claim title.

With a lack of plots to cultivate, selling labor has become an increasingly important

source of income for the poor. The very poor sell labor within the village, often

for credit and then part payment, while those with the capacity migrate either to

the urban centers or the Thai border regions.

According to CDRI, an increasing number of rural Cambodians are crossing the Thai

border to work for one to two month periods or longer, in agriculture, construction

and other unskilled work. The migrants can earn up to $150 per month and can remit

about $100 to their families after several months work.

Other migrants are daily workers: either cart-pullers, who bring back goods from

Thai markets, smugglers, or laborers who cross in the morning and return late at

night.

Exact figures on Thai migration are largely speculative as much of the movement is

informal but some estimate up to 200,000 or more migrants cross the border each year.

Of the villages studied in the CDRI report, about 70 percent of adults engaged in

wage labor outside of the village from March to September - including 14 percent

in the Thai border regions and 8 percent in Thailand. This figure fell to 37 percent

from October to March.

But Sophal said the migration within and without the country was more a consequence

of "push factors" - poverty, population growth, natural resource depletion,

unemployment, landlessness and land concentration - than the "pull" of

opportunity or demand.

"It's mainly a function of necessity not of choice and reflects the failure

of rural development strategies," he said.

Growth fails to reduce poverty

The failure of rural development and the consequent increase in migration has economists

concerned.

According to the World Bank, Cambodia will not achieve its Millenium Development

goal target of halving the 1993 poverty rate by 2015 with its current growth rates

- unless more growth comes from agriculture.

Prime Minister Hun Sen, in his opening address to the Second Cambodian Economic Forum

(SCEF) on May 9, which focused on the rural economy and agricultural development,

highlighted the country's robust economic growth but said "improving Cambodia's

rural economy and livelihoods remains a daunting challenge."

But Hun Sen said the government had "multiplied its efforts to implement the

agenda for poverty reduction which is the core of all national policies and strategies."

Keat Chhon, Minister of Economy and Finance, said agricultural development was central

to the government's five-year Rectangular Strategy for development.

"Our economic policies aim at diversification of the economy with more emphasis

on agriculture and agro-industry," he said. "We need to modernize the agriculture

sector, improve productivity and increase value added of our agricultural products

through agro processing."

But panelists at the forum questioned the implementation of the government's rural

development policies and said greater urgency was needed.

Robert Glofcheski, the chief economist for UNDP in Cambodia, Laos and Vietnam, raised

the specter of uncontainable rural-urban drift as a result of failed rural development

policies and rising inequality.

"Land is becoming so concentrated so rapidly that vast numbers of rural poor

are beginning to seek life in the cities, but the economy has not had the chance

to develop the capacity to host them," he said. "70 percent of available

land is concentrated in the 20 percent of people who are better off and this is dangerous

in a society at this stage of development."

While a certain level of inequality is to be expected in the transition from a centrally

controlled, poor economy to one based on market principles, the forthcoming World

Bank Equity Report suggests that in conditions of sustained economic growth, inequality

should be paralleled by significant overall poverty reduction.

If rising inequality coincides with limited poverty reduction - as is the case in

Cambodia - then the lack of equity not only affects perceptions of the legitimacy

of governance, but can also function as a brake on economic growth, the draft notes

for the report stated.

The World Bank would not comment to the Post about the issues raised in the Equity

Report, but at the SCEF Nisha Agrawal, the World Bank's Cambodia country manager,

described the issue of rural development as the "hottest" in the Kingdom

and criticized the implementation of the governments rural development policy as

"too slow."

"I've been in Cambodia long enough to know when there is political will the

government can move very quickly," she said. "You simply cannot have this

rural urban drift happening without the necessary job creation."

While the incomes of garment factory workers and rice field workers rose last year,

the Economic Institute of Cambodia's (EIC) latest report stated that the wages of

the most vulnerable workers declined.

"Too many rural people are arriving in Phnom Penh looking for work," said

Neou Seiha, the author of the EIC's latest report. "There is an influx of labor

and not enough demand so incomes are falling. And the industrial sector is not providing

enough jobs."

From 1993 to 2004 the industrial sector's share of the economy more than doubled

to 29 percent - driven by the garment sector and construction - but despite this

the sector still only employed about 8 percent of the work force.

The garment sector, which according to EIC produced a massive 91 percent of Cambodia's

exports in 2006, has enjoyed significant growth since the US and EU measure to restrict

China's exports was implemented in March 2005. But with that safeguard set to expire

next year, Seiha said it was likely the sector would slow.

"The garment sector is unlikely to grow and certainly not fast enough to provide

jobs for around 200,000-300,000 young Cambodians who enter the market each year,"

Seiha said. "It will remain in important industry but it will no longer be an

engine of growth."

Despite predicting further economic growth of 9 percent in 2007, Seiha said EIC were

less optimistic about the short-term future unless critical reforms were implemented

to diversify the economy.

"Garment factories import all their raw materials and all the profits go to

the Chinese owners," Seiha said. "The food that tourists eat is imported

from Vietnam, because Cambodia can't guarantee enough production - so are the materials

for construction. There's little linkage from these sectors to other industries that

would create more jobs, growth and poverty reduction."

The EIC report stated that while the industrial and services sectors continued to

grow, agriculture, which is central to the lives of the poor and accounts for 70

percent of the work force, declined significantly, from 13.4 percent growth in 2005

to 4.4 percent in 2006.

According to the World Bank, agriculture grew by a sluggish 3.4 percent over the

decade to 2004. Rice production, which accounts for 88 percent of crops harvested,

remains erratic and is subject to drought and flooding, with only 7 percent of arable

land irrigated - the lowest rate in South East Asia. Paddy yields, though increasing,

also remain the lowest in the region.

"The economy is at a critical stage of development. Land concentration and the

failure of rural development, particularly agriculture, is creating a drift to urban

areas, especially in the dry season," Seiha said. "But the new arrivals

cannot be absorbed. The need for diversification of the economy and a focus on agricultural

development has never been more pressing."

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