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Living with rising costs – Cambodians pay the price for economic growth

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Source : National Bank of Cambodia

Living with rising costs – Cambodians pay the price for economic growth

While its neighbours experience low inflation, the Kingdom’s inflation remains steadfast but that just means citizens have to face up to higher living costs, knowing that there is no turning back

It has become difficult to stretch the dollar, more so as economic growth slides with the crippling of key economic pillars in Cambodia.

Two years ago, $30 was more than enough to feed her family of five for a week.

“I could get a whole chicken for about 35,000 riel ($8.60), fish or pork, vegetables and some fruits but $50 is not sufficient now,” said mother of three Mai Kimheng, 53, who lives in Boeung Trabek, 20 minutes south of Wat Phnom, often cited as the centre of Phnom Penh.

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It pays more to put food on the table now, says homemaker Mai Kimheng who spends about $50 a week on groceries versus $30 two years ago. Sangeetha Amarthalingam

The homemaker had just finished her weekly grocery shopping at the Tuol Tompoung market as she sat down to have a breakfast of nom banh chok (Khmer soup noodles), priced at 7,000 riel ($1.70).

Back in the day, say five years ago, a sumptuous bowl of Khmer noodles, decked with pork, spring rolls, fragrant herbs and clear soup, would cost around 4,000 riel ($1).

But a steady trade deficit over the years and up to April this year, which revealed a deficit of 2.5 trillion riel ($600.7 million), has inadvertently driven prices up. In May, the balance on trade showed a surplus of 389 billion riel, according to data by National Bank of Cambodia (NBC).

The cost of goods is subject to variables including foreign exchange rate, stock availability, and market prices.

However, Dr Jayant Menon, visiting senior fellow at the Institute of Southeast Asian Studies-Yusof Ishak Institute in Singapore said it is not unusual for developing countries like Cambodia to be running trade and current account deficits.

“It allows Cambodia to grow faster than it would otherwise, as it can draw on the savings of foreign countries to fuel more rapid development. As long as trade and current account deficits remain sustainable as they currently are, there is no concern,” he said.

Cambodia spends nearly $1 billion annually for the import of meat such as pork, chicken and duck, and vegetables from Thailand, Vietnam and China, a report in cambodianess.com said.

The largest expenditure of $400 million per annum is for the purchase of pigs where 8,000 of them are slaughtered for daily consumption while $200 million is paid for vegetables.

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Poultry trader Chap Pao (right) sees a growing market for local free range chicken or Kampuchea chicken as the government pushes for more local produce. Post staff

“The price of pork and vegetables has risen by an average of five per cent in the past few years which is why a quick breakfast might not be as cheap as before,” said a 40-year-old marketing executive, who declined being named.

The rise in living cost is a natural progression of economic development, particularly for Cambodia which has enjoyed an average of seven per cent growth for over 10 years.

It remains categorised as a least developed country (LDC) with preferential tariff treatment conferred by the US and EU, although it achieved lower-middle-income status in 2015. It hopes to migrate out of the LDC category in about five years.

But whether the rise in the cost of living is proportionate to income standards is another issue altogether.

According to the marketing executive who earns about $600 a month, price increases have been subtle, albeit apparent during festive seasons and Covid-19 because of the shortage of supply.

“I have noticed that although the price comes down after the season is over, it does not necessarily fall to pre-season rates,” he said.

The gradual increase in the price of foodstuff is but one example of inflation.

Unlike its neighbours – Thailand, Malaysia, Singapore and Indonesia – which have recorded narrowing inflation, Cambodia’s consumer price index (CPI) recorded a five-year high of 182.36 in June this year, pushing core inflation to 3.2 per cent.

Earlier this year, inflation hit 3.6 per cent but moderated to around two per cent in the following months as efforts were made to keep the rate under three per cent.

The NBC statistics shows that the index, which indicates the inflation rate, has in fact been on an uptick since 2015.

This persistence has been driven by expanding wages in selected economic sectors, and increased demand for imported products and locally produced consumer goods, said economist Dr Chheng Kimlong who is also the director of the Asian Vision Institute’s Centre for Governance Innovation and Democracy.

“Shipping and transportation costs including “unnecessary costs” occurring during transportation, backwardness in storage and inventory recovery, and lack of economies of scale in value chains, for instance, have partially contributed to the growth of the index,” he said.

Jayant finds that although monthon-month (m-o-m) inflation numbers may bounce around with an upward trend of late, annual inflation has been low and manageable overall.

“It is a significant positive achievement for an economy in transition like Cambodia . . . [compared to] many other transitional economies, Cambodia has avoided episodes of hyper-inflation which can seriously affect growth and dampen consumer and investor confidence.

“This low inflation outcome is also aided by the high level of dollarisation which limits the ability to finance the budget deficit by printing money,” he said.

This year, the government expects inflation to be 2.8 per cent and 3.1 per cent in 2021 on the likelihood of a hike in oil price.

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Souce : Asian Development Bank. Asian Development Outlook (ADO) 2020 Supplement (June 2020)

Sixth costliest city in SEA

The CPI, which measures the weighted average of prices of a basket of goods and services, was mostly underpinned by food and non-alcoholic beverages, restaurants, and alcoholic beverages, tobacco and narcotics in June.

The data showed a year-on-year (y-o-y) surge in the price of fresh fish (11.4 per cent), dried and preserved fruits (10.5 per cent), prepared and preserved vegetables (8.9 per cent), and root vegetables (8.5 per cent).

In contrast, the transport component, which usually records increased prices, fell nearly eight per cent to 105.39, following the below-zero plunge in the US sweet crude price in April, compared to last year.

Having said that, the CPI growth has been steadfast as reflected by the continued economic activity among Cambodians despite rising Covid-19 cases in that period.

“The [progressive] increase [from April] in food and non-alcoholic beverages [to 5.7 per cent in June] was so notable that it might have offset the lower fuel price.

“[It] could be that people rushed to stockpile food supply due to fear of border closure and suspension of production, and perhaps the suspension of production per se, as a consequence of the Covid-19 pandemic,” said Sim Dara, research department head of Yuanta Securities (Cambodia) Plc.

But all this active purchasing behaviour is largely evident in larger cities, which raises concerns over a possible disproportionateness in living standards among Cambodians as the Kingdom races to achieve upper-middle-income status in 2030.

This year, the Numbeo Current Cost of Living Index by City (2020) identified Phnom Penh as the sixth most expensive place to live in Southeast Asia, after Singapore, Makati (Philippines), and Bangkok, Phuket and Pattaya (Thailand).

The Serbia-based database site gauged data derived from average expenditure on rent, restaurant and groceries.

Last year, its mid-year index ranked Phnom Penh as the fourth costliest place to live in, edging out cities in Malaysia and Vietnam.

For Pannasastra University student Sok Lyna, 23, the high cost of living is palpable.

The international relations undergraduate who comes from Takeo province said she spends about $10 a week to buy groceries which she shares with her roommate.

“We can cook three meals out of it but it would be basic things like dried fish, eggs and some pork and vegetables. We take turns to buy cooking ingredients every week.

“Sometimes we eat out but we don’t spend more than $5 a day. I cannot spend too much because I need to pay for rent and books, buy petrol for my motorcycle, and also send money home to my mother and grandmother, who are farmers, in the village,” said Lyna, who works part-time in a café.

She earns about $150 working in the café, an amount which in comparison to rural income is huge.

“Just imagine this. On days when my mother does not cook, she will spend about 2,000 riel (50 cents) on a mixed vegetable soup from the shop.

“She and my grandmother will eat it with rice and some dried fish. That is village life. When I send home $20, that is a lot of money,” she said.

This brings to focus a study by the Asian Development Bank (ADB) in 2014. While it acknowledged a drop in income poverty, many families continued to teeter just above the poverty line.

“With a very large share of the population focussed at the bottom of the income distribution, the poverty rate is highly sensitive to where the line is drawn,” it said.

Two years ago, a study by the bank showed that 12.9 per cent of the 16 million population lived below the national poverty line.

Of that, 8.8 per cent of the employed population is male who fall within the category of below $1.90 purchasing power parity per day whereas women made up 7.7 per cent of the population.

However, Yuanta’s Dara who agrees that the lower-income segment might feel the effect of inflation greater than the higher-income segment, said data in the Cambodia Socio-Economic Survey (CSES) showed that the average disposable income per capita more than doubled between 2010 and 2017.

“[It] shows a y-o-y increase of 13 per cent compared to the CPI increase of 24 per cent in that period [which was] 3.2 per cent per year,” he said.

According to CSES, 25 per cent of households with the lowest income witnessed their disposable income triple in that seven-year period.

“The data revealed that the rise in income is significantly greater than the rise in the cost of living,” Dara remarked.

‘. . . chillies and spring onions’

The 15-day Pchmum Ben celebration (prayers for the ancestors) is currently underway, culminating on September 16.

Over at the Russian Market, widely dubbed as a tourist market, activity is abuzz as regular shoppers add fruits and flowers to their list, which will be expended when they visit the temples during this religious festival.

Despite the uptrend in prices, about 1,000 to 2,000 riel for some items, locals are inclined to buy for the lack of cheaper alternatives but traders try to compensate customers by value-adding.

”I usually give them some chillies and spring onion or lemongrass as a gesture of thanks for shopping at my shop,” said vegetable trader Chhan Sopheak, 35, who is helped by her two sisters.

Her stall is replete with colourful produce which makes their way from the Thai and Vietnam borders daily.

The import is part of the 56 per cent of one million tonnes of vegetables that are consumed by Cambodians per year.

“I charge my customers according to the daily market rate. If the exporters increase the price, I have to do the same. As it is festival period now, prices are up a little for some products but we throw in some free goodies for our shoppers,” said the trader who has been in business for 10 years.

Coffeeshop owner Sa Kanika, 30, practices a similar strategy by charging her customers 1,000 riel less for a cup of ice latte and offering a free cuppa after 10 purchases.

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Sweetening the taste . . . Neal Vannet (pictured) and his sister Sa Kanika knock off 1,000 riel of the coffee price although the beans cost more. Sangeetha Amarthalingam

She does this despite the slight increase in coffee bean prices which is about $12 to $16 per kilogramme of imported beans from Vietnam, Laos or Thailand.

“Of course coffee is cheaper at roadside stalls which don’t use the machine to make drinks. It ranges between 2,500 riel and 3,000 riel.

“But I use a coffeemaker, so my prices are slightly higher but I knock off 1,000 riel from the stated price on the board,” she said, pointing to the price list on the wall.

Reducing the impact

The high reliance on imports is debilitating but the government is making some effort to promote local agriculture entrepreneurship.

For example, pig imports have reduced to around 4,000 since February to raise domestic farming which will need to cater to the annual demand of 153,000 tonnes of pork.

It is the same with vegetable production where farmers are encouraged to grow more. A total of 682,000 tonnes in 2019 met 64 per cent of the domestic needs but the harvest is expected to grow to 716,100 tonnes this year. This will cover 67 per cent of the annual demand.

But truth be told, these are just some measures to keep inflation in check. If the economic downturn ensues, there will be more pressure on the people including those who are unemployed and minimum wage-earners.

Kimlong echoes this concern. “The government has long stabilised the inflation rate, yet external shocks and stringent border closures imposed by several countries have destabilised the macroeconomy.

“Rising costs of living and continued reliance on imports without strengthening domestic production capacities will impede the goal of achieving upper-middle-income status,” he said.

A number of ways to reduce the impact on the people include developing local micro small and medium-sized enterprises and an industrial base featuring agrotechnology, biotechnology and manufacturing tech.

“[This is] not to substitute imports but to promote and diversify exports, expand income and employment opportunities in agrarian and modern sectors, provide fiscal and non-fiscal incentives and support for the private sector.

“[It will help] attract foreign direct investment and spur domestic investment,” Kimlong said.

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