Thursday, June 19, 2008

Business Competition in Cambodia

I just got a call from Sipha, one of the women at Bloom. She has been approached yet again by someone wanting to pay her to copy our bags. This time it is someone from Siem Reap. I am aware of this shop at the Center Market (Psar Kandal), which currently carries one piece each of Bloom recycled ricebags. I was unhappy when I came across this shop and had wanted to pick a fight with them because I knew these people had snipped off the Bloom cloth labels which we sew onto each bag, and replaced the Bloom label with the shop's paper tags which they string onto the bag straps. In the end I didn't pick a fight because I thought, well, at least they are buying our bags and they have to sell them at a higher price (they sell between US$3 to US$5 more per bag). In fact, an English couple just told me they decided to buy from us because the bags are exactly the same, yet ours is cheaper. Of course they are, given we are the original manufacturer.

So now, this Siem Reap proprietor is offering Sipha money to copy Bloom bags, the very bags Sipha sews during her work hours. I am really upset because this is not the first time it has happened and I've decided to write about this.

The first time it happened was a few months back, with a silk shop at the riverside in Phnom Penh. The woman proprietor had gone to the Bloom shop at the Russian Market in Phnom Penh and purchased one of our silk bags. She then asked Sipha to make the exact same design for her and pay her for each bag she sews.

I'm fortunate I am close to the Bloom women, so Sipha came to me to discuss this before agreeing to sew the bags (if she was a bad person, she would take on the job without even letting me know). Her point, and the point of the silk shop owner, was that even if Sipha doesn't sew the bag, someone else would (because the silk shop would outsource to another sewer), so why shouldn't Sipha make that extra money instead of another person?

I know the Bloom women are hardworking and want extra income. Because they work 5 days a week, 8 hours a day, weekends are free. Sipha wanted to use the weekends to make extra money.

At that time, I had explained to Sipha that people who pay piece rate can sell the bags cheaper and make a profit, because they do not have fixed overhead costs, such as salaries, the rent for the workshop, sewing machines, electricity etc etc. Bloom is a social enterprise and I want to pay staff a living wage, regardless of whether the bags sell or not. This contrasts with the majority of businesses in Cambodia, which pay workers piece rate. If the bags sell, they hire workers to sew. If they don't, the business doesn't have to worry about fixed costs such as salaries etc. In this way, the business owner reduces his/her risk. Almost all the businesses here operate this way, including a big one near Phnom Penh's Russian Market which supplies to the US, and which claims to be a Fair Trade shop.

It is one of the most frustrating things working in Cambodia. Not the competition, but the lies. I have written about this previously, in the context of NGOs, about how stupid, lazy people just take things at face value, not doing due diligence, not bothering to find out the truth. Are the organisations that claim to be Fair Trade really Fair Trade? How can a company that pays piece rate say they are fair to workers? Piece rate work means no sick leave, no holidays--you don't work, you don't get paid. Which developed country would accept this as fair to its workers? At Bloom, workers get 14 days annual leave (same as Singapore law) plus 16 days public holidays (Chhorvy, the Hagar NGO re-integration manager told the Bloom women that is more than what *she* gets, at an international NGO, which is the 16 days public holiday. I'm sure Chhorvy was just being nice though!).

So what of Sipha? I had allowed her to sew the silk bags, because I was sympathetic to her arguments. This time however, I put my foot down. It is unfair to her co-workers at Bloom if she trains at Bloom and she knows which bags sell well and she liaises with another shop on the outside to copy our bags. If we cannot make Bloom work, I explained to Sipha, everyone will be affected. To be fair to Sipha, she understands everything I say, it is just that she wants to make extra money for herself and her four children. It is not easy on her as well. Now that she has a skill it is only right that she makes more.

Very early on, when I explained the savings plan to everyone at Bloom (how I would subsidise sewing machines for them, if they save for the machines), I said you will then be able to sew at home and make bags for other shops and become small business people--just make sure they are not Bloom's designs! At that time, everyone agreed, but that's the thing about life. We may have good intentions, but truthfully we often do not know how we would react unless faced with the actual situation.

My plan is two pronged. One is to make sure I sell enough bags that I can let Sipha (and the other women) work overtime on weekends and two, keep coming up with new and better designs. We will be so far ahead of them that the competition can just eat our dust!

Tuesday, June 17, 2008

Social Entrepreneurship and SIngapore Students

This is an email interview I gave to four students from Anderson Junior College (AJC) in Singapore who are planning a project on social entrepreneurship. "All of us chose this project because we strongly believe that it is possible to infuse business with a social motive and an excellent example would be yourself," wrote one of them, Sophial Foo.

It's an interesting project, combining theory and practice. I was interested to learn that JC students (17-18 year old) are actively thinking about social enterprises. In Sophial words: "A brief outline of our project; social entrepreneurship is a relatively new industry in Singapore and our project aims to raise awareness and at the same time develop a spirit of social entrepreneurship on JC students. We have come up with a 3-phased programme. In Phase 1, the students will attend a talk on social entrepreneurship. In Phase 2, the students will visit poor elderly people once a week for a month. In Phase 3, students will set up their own "mini-businesses" and the profits will go to the organization supporting the poor elderly people that they visited."

Really fantastic.

Anyway, here's the Q and A:

1. After visiting Cambodia and witnessing a mother trying to sell of her child for money, what made you give up your job to start a social enterprise? Was there a reason? Why not the convention method in Singapore, donation drives etc?

I had already given up my job and was travelling around the region when I came to Cambodia (I didn't quit my job to come here to do this). The reason I decided on a social enterprise is because I thought long and hard about the problems I saw and what the best way to help would be. I decided it was by providing fair paying jobs to adults. You can help children but if their parents don't lead stable lives, their children will never be stable. The people in desperate situations are that way because of grinding poverty. You can donate money and throw them a fish now and again, but I decided it would be better to teach them to fish. With a good job, people feel more secure, have confidence in the future and can start to think about dreams and plan to achieve those dreams.

2. What do you think about the current status of social entrepreneurship in Singapore?

I haven't been living in Singapore for the past 2 years so I have no idea what the situation is like now. I am aware there are government initiatives like Social Innovation Park but I have no idea how successful it is in promoting social entrepreneurism. At the end of the day, I think social entrepreneurism is not something that can succeed through prodding and incentives. You have got to want to do it badly enough to be committed to principles of fair play while at the same time be fully aware you will be facing the same pressures that apply to "regular" businesses.

3. Do you think that there is a mindset issue in Singapore? (Singaporeans would rather donate to charities and don't really believe in the sustainability of social enterprises)

It is funny, I met a Cambodian man who told me about his friend who studied in Singapore and therefore knows many Singaporeans. He said these Singaporeans will not be "used to" Cambodia, because it is unclean and hot and without paved roads etc etc, so they would rather donate money than come here. The thing that struck me was how earnest he was, when telling me this, like there was no judgement at all, merely stating a fact. I don't know how to describe how I feel about this. It seems to me there is such a big divide--between the people who live in poor and those in rich countries. I was struck at how poor people feel ashamed of their lives, when it is not something they should be ashamed about. It is often not their fault that they ended up in such a situation.

4. What are your thoughts on the future development of social entrepreneurship in Singapore?

I have no idea. I do think, though, that wealth affords people the luxury of contemplation, and as Singaporeans become richer and can afford to think beyond bread and butter issues, there will be more people questioning what they want out of life. And for many people, this questioning will lead them to doing charity work. You see it already in people in their 50s and 60s and older, who are established and want to help others. At the end of the day, I think many, many people realise that this is what is really important in life: spending time with the ones you love and helping others achieve their dreams--not your 5 Cs (note to readers not familiar with Singaporeans' obsession with the 5 Cs: Cash, Credit Card, Condominium, Car and Country Club membership). "All my possessions for a moment of time." - Elizabeth I's last words.

Many people, Singaporeans and others, have told me they admire me, or envy me, and wish they could do the same. I get the feeling that there are so many people who would like to do what I am doing, but there are things stopping them. If Singaporeans would be more confident in themselves and pursue what they want instead of living out the scripts handed to them by society, their parents and friends, I think there will definitely be more social entrepreneurs in Singapore.

5. What do you think about our project? In your opinion, would it be good or effective to raise awareness in this way?

I think it's very exciting and would love to see you succeed in your project. That would be so brilliant, if you can support, or contribute to supporting the old folks home. It's not a nice thing to always have to beg for donations and money. I used to get calls from fundraisers, when I was working, and you could tell they did not enjoy pestering you, but they had to do it because they just need the money. So good luck with the project!

6. Do you think our project is feasible?
Yes, for sure. You just need passion and dedication to make it succeed.

Monday, June 09, 2008

Singapore and Cambodian governments, jobs and aid

I got a called from the Al Jazeera TV station last week. It was their office in Kuala Lumpur in Malaysia, and they wanted to do a story on foreign aid and its impact on Cambodia. The researcher came across the blog and thought I'd be perfect for a contrarian view on foreign donations. This is because I state categorically that Bloom is NOT an NGO and why we refuse to register as one. Anyway, the TV station's panel discussion will take place in Phnom Penh on Wednesday (I have no idea when the show will be broadcast) and I have to miss it because Alan is away and I need to look after my dogs, which always come first.

I did reply to their question on why I disagree with the huge amount of donation this country receives (see below). At the end of the day, what is more effective in helping this country is not aid, but jobs. I am optimistic that eventually, Cambodia will make it. Khmers want to learn English and the government is trying to make this place more conducive for business. I am not sure the government bothers too much about improving the average Cambodian standard of living through foreign investment, but whatever--that improvement in the average Khmer life *will* happen. A happy consequence of FDI.

The former developing countries that have succeeded, like Singapore and South Korea, did so not through aid, but through industry. I cannot comment on South Korea but I've always thought that one of the reasons Singapore succeeded is precisely because we lack natural resources.

In resource rich countries like the Gulf states and African nations, there is really no compelling reason for the government to invest in its people. They can get rich simply through the land--oil, forests, plantations etc. You will find that these countries I mention do not bother with educating its people. In fact, in many ways, it makes sense for these governments NOT to educate its people--educated people tend to be troublemakers, challenging the status quo.

Contrast this with the case of Singapore, which has nothing--no land, no rice, not even our own water (we import this from Malaysia). There is no other way for the government to get rich, except through its people. That is why the Singapore government invested in our education and training--to make us a diligent workforce that would attract foreign investors. One of the ways the government can then make money is through taxation. A cynical or pragmatic view of politics? People often tell me how good the Singapore government is, for investing in our education, but I was never convinced that "good" means "altruistic" in this case.

So what do we make of the many, many governments in countries such as the US, Canada, Australia that have both natural resources and a firm belief in education? They're smart enough to recognise the country can only be as powerful as its people are? I don't know. I *do* know it has taken the west hundreds of years to get to where they are, and they had the industrial revolution which empowered many people, economically. Perhaps they had to invest in education because of pressure from their by now economically powerful people? I don't know the answer but the history of education should tell us, which is why I will go investigate.

Anyway, here is the gist of my answer to Al Jazeera:

"I believe regular and constant handouts create a dependency mentality that is ultimately detrimental to people--and not just Cambodians. You can draw comparisons with the welfare system in developed countries, which I think discourages work and independence, replaces pride with poor self-esteem and marginalises instead of integrating people into economic and community life. All over the world, welfare benefits have created people who are dysfunctional--whether the indigenous people in the US, Australia or Canada. These "beneficiaries" are often stuck in a cycle of drug and alcohol abuse, violence and despondency.

"I believe there is value and honour in work, and it is work that often makes life interesting and worthwhile. We feel a sense of achievement when we create something of value and we share a sense of belonging when we work alongside other people. With Bloom, we are taking small steps for Cambodians to learn a skill and a trade so they can produce and sell quality products that people all over the world want, thereby, be part of the international trading community."

Saturday, June 07, 2008

Almost Three in Four Cambodians have paid a bribe in 2007

And 20 to 30 per cent of Cambodia's land is owned by 1% of the population (!) From

Also, a 2007 survey conducted by Transparency International, 72 percent of Cambodians reported paying a bribe to receive a public service. This percentage is the highest in the Asia-Pacific region and second only to Cameroon (79 percent) internationally.

I wonder if this includes the parents who send their kids to school. Cambodian children who attend state schools have to pay 500 to 1000 (USD0.25) riels everyday to their teacher, ostensibly for extra tuition classes. And no wonder, considering teachers here earn a pitiful USD50 a month (less in the provinces).

More information about Cambodia's corruption can be found in this UPI Asia article by Lao Mong Hay, a senior researcher at the Asian Human Rights Commission in Hong Kong who was previously director of the Khmer Institute of Democracy in Phnom Penh, Cambodia.

I was interested in the topic after reading about Cambodian activists who submitted an anti-corruption petition with over one million signatures to parliament in May.

Cambodia is ranked 162 out of 179 countries in Transparency International's 2007 corruption index--an appalling statistic, considering Zimbabwe ranked 150.

From the UPI Asia article: "Another survey conducted two years later by the Economic Institute of Cambodia in Phnom Penh showed that in 2005 the private sector paid “unofficial fees”—that is, bribes – to public officials amounting to US$330 million, an amount it said was “2.5 times higher than that of official payment” and “represented also about 50 percent of the total government budget revenue in 2005.”

In 2006, the World Bank suspended contracts with Cambodia after finding evidence of corruption and fraud in 43 contracts. But this was reinstated In 2007, apparently the World Bank was happy with the good governance framework the Cambodian government came up with.

Privatisation has made things worse. Fully or partially privatised sectors include transportation, health care, education, bank but also agricultural public companies such as the rubber plantations, the fertilizer company, fish export company. "The process of privatisation has resulted in many of the state-owned companies, as well as much land concessions, being awarded to high-level politicians and their cronies. In fact 20 to 30% of Cambodia's land is owned by 1% of the population.

"Cambodia is a cash-based economy, which also makes corruption easier. Many business transactions are made in cash. Only 1% of working capital comes from the commercial banks."

Friday, June 06, 2008

Cambodian prostitutes protest police crackdown

In yesterday's news: Two hundred prostitutes protested peacefully in Phnom Penh. They said they had been unlawfully detained, and then beaten and raped by guards at the rehabilitation center where they were held. I quote from the AP article

"Some of them (the sex workers) were beaten and gang raped by the center guards, and most of the time they did not use condoms," said Chan Dina, a 31-year-old prostitute and member of the Cambodian Prostitute Union, a sex workers' advocacy group.

"Pich Sokchea urged the government to end the crackdown because it was affecting the livelihood of sex workers, many of whom were forced into the profession by poverty and debts. "We are people who sacrifice everything for the sake of our families and for our livelihood."

"Police Lt. Gen. Khieu Sopheak, the Interior Ministry's spokesman, dismissed claims that police committed violence against sex workers and said none was mistreated in the crackdown. He defended the crackdown, calling sex work unacceptable in Cambodia."

The Interior Ministry's spokesman comment epitomises the hypocrisy that exists in this country. Publicly, Khmer officials and society condemn the sex trade, but privately, many of them engage in it, visiting prostitutes, taking on mistresses (make no mistake- this is also sex trade) and even making money from it.

From a BBC programme: "A few months ago, another foreign group working to protect children from the sex industry organised a raid on a brothel. It turned out the place was owned by a particularly powerful policeman."

Human rights groups estimate that out of as many as 100,000 prostitutes in Cambodia, one third are underage (younger than 18).

Thursday, June 05, 2008

Real Estate Boom in Cambodia's Capital

"Since Cambodia is still a very poor country that has never seen so much investment capital flying around, the trend is unnerving some observers. "Where is the money coming from? Cash coming out from under the mattresses, cash coming from overseas," says John Brisden, vice-chairman of Acleda Bank, the largest bank in Cambodia. He calls the real estate boom "very unusual" because much of it is not being financed by bank loans. Are there signs that the boom may be running its course? Brisden doesn't see a sudden popping of the bubble. Instead, he says, "people envision a slowdown. The scenario is a lot of empty high-rise properties but no forced sales." Businessweek

I met a woman in Phnom Penh whose landlord sold the Sisowath Quay property for USD3.5 million last month. This woman ran a fairly large restaurant on his site and had to move. USD3.5 mil! How can the buyer think he can make back the money? Cambodia's average income is still USD50 a month.

To me, property prices here are driven by speculation, and are not grounded in reality. When there are empty high-rise properties, it will cause a ripple effect, driving down rents and sale prices of other properties, affecting the entire economy (see how home prices have affected the US economy now)--even if as the Acleda Bank guy believes, there will be "no forced sales" of those high-rises owned by the filthy rich.

This same woman also told me how her landlord got to be so rich, basically by squatting in villas that were empty after the war. After the Khmer Rouge were defeated, people started straggling back to their home towns only to find them deserted and destroyed. Those who squatted are benefitting now. The sad thing is this Khmer woman blames her father, "a true communist", she said, for not being clever enough to grab more property when others were doing so. She believes the land grabbers are the smart ones, whereas people like her father, who concentrated on building the country after the war, are the stupid ones--working all their lives for "nothing".

Tragic. It is just like my family back in Singapore and Malaysia who think: if you are so clever, why aren't you rich? And conversely, if you are rich, you must be clever. To me, clever are people who come up with a medical cure, or invent something useful--not people who become rich by accident or by cunning. But it is a sad fact, as one of my Khmer friends confirmed. His family blames him for taking on an NGO job that doesn't pay as well as a job in a private company. My friend does it because he is kind and wants to help his country, but gets no thanks from his family.

More from Businessweek:

"The Phnom Penh skyscrapers, which will be more than three times higher than the tallest existing building in Cambodia, are the most dazzling projects. And the most controversial. The developer of the $240 million Gold Tower 42, Yonwoo Co., expects construction to take three and a half years to complete. Already, says Teng Rithy, sales manager for Gold Tower 42, "high-ranking Cambodians and some foreigners from other Asian countries" are plunking down deposits. "We are 80% sold out," he boasts.

"But residential skyscrapers are a new concept in a country that not too long ago was still giving away property, not trying to market a 40th-floor condo for $1.6 million. "I feel it's a little bit early for that," says Sung Bonna, head of Bonna Realty, one of the leading real estate firms in Cambodia. "They said it's going to be a success. But I don't know. If it doesn't happen, it is not good for us."

"Bonna says the whole idea of a real estate market in Cambodia is so new that no one can predict how it will turn. "We used to share property, not sell it. After the Pol Pot regime, however many properties you want, you can take all of them." He says there is a need for more modern restaurants, office buildings, and commercial centers, but the supply and demand for residential properties is in balance."

Update: June 7: I just saw this message on

"Posted: Sun May 25, 2008 6:00 pm Post subject: Property prices
Across the Jap bridge they are asking $200,000 for properties they sold for $60,000 only 2 years ago.
In America you can buy a 5 bedroom detached with swimming pool that cost $450,000 2 years ago for $180,000 now.
My house in the UK has dropped in value by $80,000 in the past year.
Where the fuck do they get these prices from in Cambodia."

My sentiments exactly.

Wednesday, June 04, 2008

Country for sale

Very depressing and long article--makes me want to get out of this place. I normally don't post entire articles but this one should be read by all. The real information comes halfway down so look out of it. Respect to writers Adrian Levy and Cathy Scott-Clark for succeeding in doing a really good investigative piece.

The Guardian newspaper.
Saturday April 26 2008
Country for sale.
Adrian Levy and Cathy Scott-Clark

Almost half of Cambodia has been sold to foreign speculators in the past 18 months - and hundreds of thousands who fled the Khmer Rouge are homeless once more. Adrian Levy and Cathy Scott-Clark report

Sang Run, his hair stiff with sea salt, chugs out into the Gulf of Kompong Som in his weather-beaten turquoise boat, looking for blackling. He scours the shallow, blue water, waiting for a shoal to appear, before skimming his net across the water. He does the same every day, taking his catch to auction on Independence Beach in Cambodia's southern port city of Sihanoukville.

It looks like a scene Sang Run was born into. But 20 years ago the beach was deserted, and he was a schoolteacher in Mondulkiri, a forested province hundreds of miles away in the east of the country. Back then, he could talk all day about palm sugar and betel nuts. He was something of an amateur botanist, but had never seen the sea - nor had any of the group who today gather around his silvery haul flapping in the sand on Independence Beach. Former nurse Srey Pov, who runs a Khmer restaurant along the beach, also came from a province many miles away. She still cannot swim, she says, shrugging. Heads nod around her. Cambodia is a nation that would drown if their boat tipped over; it is also a country whose citizens mostly do not belong to the places where they have ended up.

The Khmer Rouge saw to that, eviscerating the kingdom after coming to power. It was a movement that drew inspiration from Mao's Cultural Revolution, collectivising all the land; but it grew to love terror more than ideology. The ferocity of the regime sent more than 300,000 rushing into exile. At least two million urban Cambodians were route-marched into the paddy fields to near certain death. Worst hit was the Eastern Zone, bordering Vietnam, where Sang Run came from. Its people were derided as "duck's arses with chicken's heads" as the Khmer Rouge grew to mistrust the Vietnamese and accused Mondulkiri people of being disloyal - too sympathetic to their neighbours across the border. Their names were added to those who were to be purged; the catalogue of "crimes" became so long, so general, that anyone could stand accused. The wave of random violence and retribution that scythed through the countryside for three years, eight months and 21 days killed one in five of the population.

Sang Run's family all vanished, but he survived, hiding in the forests, living off what he could pluck and hunt. When the Vietnamese invaded in 1978 - overthrowing the Khmer Rouge a year later - Sang Run found his way, like thousands of others, to Cambodia's 300-mile long shoreline. Stretching between Thailand and Vietnam, the region had been a Khmer Rouge stronghold, controlled by Pol Pot's notorious commander, Ta Mok, who was known as The Butcher. In the 80s, when the fishing shacks and noodle stores went up along the Sihanoukville coast, there was no development plan. There had never been a tradition of thriving fishing communities along the coast - few Cambodians lived there except in the old French colonial towns. The shoreline had been empty - miles of palm-fringed beach front interspersed with the few port towns, including Kep, Sihanoukville and Ream.

Survivors began to build new lives there, learning to love the sea. Some took boats to a nearby archipelago of 22 coral-fringed, uninhabited islands, building up clusters of villages on atolls with names such as Rabbit, Snake and Turtle. Within 10 years, the whole coastline had been patchily settled by newcomers, among them a former farmer, Soch Tith, a stocky man with corncob hands, who was sick every time he got in a boat, but still found his way to faraway Koh Rong, the largest of the islands - 7,800 hectares of jungle. There he cleared small patches to grow fruit.

By 2006, these communities had schools, political representation, and many householders even had papers, stamped by the Sihanoukville governor, Say Hak, which guaranteed them the permanent right to stay under the 2001 Cambodian Land Law. The central government in Phnom Penh had in the 90s designated the entire coast and its islands as State Public Land that could not be bartered or developed.

Then, during the past couple of years, a disturbing wave of rumours swept the coastal communities. Sang Run says that in September 2006 he heard that Snake Island, half a mile out to sea, had been secretly sold to Russians. He did not check. Cambodians ask little from their government; a wariness of authority is a legacy of years of blood-letting under Pol Pot. In any case, it was a familiar story. Shortly after Hun Sen, Cambodia's prime minister, came to power in 1985, frenzied landgrabbing began: influential political allies and wealthy business associates raced to claim land that the Khmer Rouge had seized, gobbling up such large chunks of the cities, forests and paddy fields that Cambodians used to say the rich were eating the country. By 2006, the World Bank estimated that 40,000 had been made homeless in Phnom Penh alone. But, until now, no one had bothered with the coast. Sang Run paid no particular attention to the Snake Island rumour. He should have - it signalled a radical new course for the Cambodian government.

Three months later, Sang Run was out in his boat at 7am when disaster struck his village. He arrived back at 11am to find bulldozers had flattened his home and those of the 229 families who lived beside him. He heard from neighbours that it had happened in an instant. Uniformed men, sent in by governor Say Hak, used electric batons to chase terrified residents from the burning ruins; three of Sang Run's neighbours were knocked unconscious. Village Number One - a mundane name that failed to capture the beauty of its uninterrupted sea views and vegetable gardens that ran to the beach - had been erased. Sang Run heard that a hotel was planned, although no information was given to the people evicted from their homes for a further 18 months.

Nurse-turned-restaurateur Srey Pov tells us that, by early 2007, rumours were buzzing around Sihanoukville's covered market that virtually every island in the region was up for sale. Over the following months, Koh Russei and Koh Ta Kiev, Koh Bong and Koh Ouen, Koh Preus, Koh Krabei and Koh Tres were all snapped up by foreigners, who then started negotiating for mainland sites, too, among them public beaches with names such as Serendipity, Occheuteal and Otres. In February, 47-year-old Srey Pov was evicted, too, her Independence Beach restaurant shut down to make way for another rumoured hotel. "All I've got left is the chairs and tables," she says - they're stacked up in the cramped living room of her Sihanoukville home. Former farmer Soch Tith, on Koh Rong, was the last to hear that last month his island had been sold, too, to a British developer.

What none of these people knew was that the troubled kingdom of Cambodia, a precarious debtor-nation underpinned by more than £500m of hand-outs from the international community, had suddenly found itself a refuge for cash and speculators fleeing paralysed western financial markets. As London and New York, overcome by the US sub-prime crisis, began grinding to a halt last year, many in the City had moved on, transferring liquid assets to the east.

Foreign fund managers had started pitching up in Phnom Penh wearing linen shirts and khaki drip-dry jungle wear, alerted by the country's unexpected boom in tourism that in 2006 had seen one-and-a-half million visitors overcome the west's collective memories of Cambodia's recent past to travel to the temples of Angkor Wat. Enticed also by indicators that suggested the feeble economy was turning a corner, super-rich, predominately British, French and Swiss speculators, fuelled by a high-risk machismo, came hunting for profits of 30% or more. Their interest was land speculation: buying up large sites in developing countries that they would then sit on in the hope that, with the influx of tourists, land values would soar.

Hun Sen and his ruling Cambodian People's Party (CPP) have, in effect, put the country up for sale. Crucially, they permit investors to form 100% foreign-owned companies in Cambodia that can buy land and real estate outright - or at least on 99-year plus 99-year leases. No other country in the world countenances such a deal. Even in Thailand and Vietnam, where similar land speculation and profiteering are under way, foreigners can be only minority shareholders.

There were other inducements. Many foreign funds - hedge funds, property funds, private equity funds - operating on the outer margins of the financial world thrive on complexity, risk and maximising profit. In Phnom Penh, they found an ideal partner in the prime minister, who has created a unique business environment. Since the mid-90s, Hun Sen and the CPP have declined to enforce money-laundering legislation and have concerned themselves little with the probity of investors. Foreign businessmen were offered nine-year tax holidays, and were allowed to hold their cash in US dollars in banks outside the country.

"Only recently, no one would touch us," Brett Sciaroni, a Phnom Penh-based US lawyer who acts for many new western investors, tells us. "We were dirt. And suddenly we were gold." John Brinsden, a British banker, now vice chairman of Cambodia's national Acleda Bank, agrees: "In 2001, only 200 people came to the government's investment conference. At our most recent, we ran out of chairs."

In July 2007, Hun Sen, gambling on his people's tenuous connection with the land, changed the designation of the southern islands so they could be sold. The forests, lakes, beaches and reefs - and the lives of the thousands of residents - were quietly transferred into the hands of private western developers. Arguing that Cambodia could become a tourist magnet to challenge Thailand, the prime minister began a fire sale of mainland beaches. By March this year, virtually all Cambodia's accessible and sandy coast was in private hands, either Cambodian or foreign. Those who lived or worked there were turfed out - some jailed, others beaten, virtually all denied meaningful compensation. The deals went unannounced; no tenders or plans were ever officially published. All that was known was that more than £1,000m in foreign finance found its way into the country in 2007, a 1,500% increase over the previous four years. It was as if Alistair Darling, the British chancellor, had decided to raise some extra cash by trading the Isles of Wight, Man and the Hebrides, throwing in Formby Sands, the entire Cornish coastline and Brighton seafront - before trousering the proceeds.

It was abundantly clear to observers, including the World Bank and Amnesty International, that by making these private deals, Hun Sen was denying prosperity to most of his people, causing the country's social fabric to unwind like thread from a bobbin. Today, more than 150,000 people are threatened with eviction. Forty-five per cent of the country's entire landmass has been sold off - from the land ringing Angkor Wat to the colonial buildings of Phnom Penh to the south-western islands. Professor Yash Ghai, the UN human rights emissary to Cambodia, warned, "One does not need expertise in human rights to recognise that many policies of the government have... deprived people of their economic resources and means of livelihood, and denied them their dignity." He added, "I believe that the deliberate rejection of the concept of a state governed by the rule of law has been central to the ruling party's hold on power."

It was Hun Sen who, as early as 1989, realised the power of land. Rhodri Williams, a researcher for the Geneva-based Centre on Housing Rights and Evictions, points out that, as Hun Sen privatised the land, "he simultaneously cut off the rights of 360,000 exiled Cambodians, awarding prime slices to political allies and friends." The exiles were Cambodians who had fled the Khmer Rouge into Thailand and beyond in 1975; they had titles to the land, but this counted for nothing when they returned to claim it. Hun Sen said Cambodia should start again.

Although he bathes his speeches in socialist values, even his closest aides told us that Hun Sen was more often than not a pragmatist. He joined the Communist party in the 60s and enlisted in the Khmer Rouge in the 70s, before defecting to the Vietnamese-backed government in the 80s. In the 90s, he embraced the free market. Tourism was not a promising prospect in the early days - the remnants of Khmer Rouge, violently hostile to outsiders, were too much of a risk. When western travellers did begin to explore, they were taking their lives in their hands. In 1994, Briton Mark Slater, Frenchman Jean-Michel Braquet and Australian David Wilson were kidnapped while riding a train through Sihanoukville, and all of them executed. Two years later, Christopher Howes, a British de-mining expert, together with a Cambodian colleague, were murdered as they worked 10 miles north of Angkor Wat.

By 2006, the country seemed safer, and was finally becoming a tourist destination. That September, the CPP received its first foreign offer in the coastal area: a Russian investor living in Phnom Penh wanted to buy an island. This deal would become the template for every developer to come. Alexander Trofimov created a Cambodian shell company to buy Koh Puos, or Snake Island. With cash apparently no object, he proposed to stunned government officials that he would link the island to a mainland beach - known as Hawaii - with a 900-metre suspension bridge. "He also asked to buy Hawaii beach," the official who oversaw that meeting told us. "And we gave it to him." No figures were published. The official claimed he didn't know them.

Locals who used the beach and island were kept in the dark. No one quizzed Trofimov. He produced a book of cut-and-paste designs that he said would encompass a £150m resort consisting of 900 tightly packed villas, a dolphin aquarium, two hotels, a shopping centre and a marina - all crammed into an egg cup-sized island. It was enticing stuff for the CPP, although the project faltered when Trofimov was accused of having sex with underage girls, and jailed this year. However, two more Russian businessmen seamlessly emerged to take up the reins, representing a Cypriot-holding company that, it later transpired, had owned the Koh Puos project from the off.

Arnaud Darc was quick off the mark, too. A quietly spoken and likeable French businessman, Darc had arrived in Cambodia in the 90s, building a hotel and restaurant business in Phnom Penh. In 2006, after hearing from a French colleague working at Sihanoukville's provincial airport that the runway was likely to be extended, he identified two massive beach-front sites totalling more than 220 hectares that he liked the look of. He brought in Jean-Louis Charon, a Parisian real estate tycoon, whose Nexity company is the largest in France, and whose name brought in "40 French high-net worths", as Darc described them; they raised £12.5m to be held by City Star, a foreign-owned investment company. "The maths was easy, and the returns potentially fantastic," Darc said. City Star's land values quadrupled as soon as the Cambodian government confirmed the airport rumours, a spokesman for the Sihanoukville governor's office told us.

The investors could have sold up and come away rich. But this was development with a difference. City Star investors wanted more, but did not want to go to the trouble of constructing anything. They were speculating on the future value of the land, believing that by adding only modest infrastructure, perhaps attaching big-name hoteliers, they would reap vast profits in seven to 10 years. Darc's group continued buying, snapping up 333 hectares on Koh Russei and Koh Ta Kiev, two islands off Ream. Such was the appetite for easy money that City Star raised a further £30m in a matter of days from a second group of French high rollers last July, this time to buy in Phnom Penh.

Darc's model appealed to British investors behind LimeTree Capital, a Hong Kong-based private equity group that in 2007 bought up chunks of beach front near Ream; sites it planned to leave idle for many years until prices peaked. This spring, a third entrepreneur, Frenchman Alain Dupuis, through his Cambodian company LBL International, bought Koh Sramaoch. Soon after, Koh Tonsay, or Rabbit Island, was auctioned off to Chinese investors; 14 fishing families were evicted to make way for a casino and a golf course.

On the mainland, Sang Run returned to the beach to find his village in Sihanoukville destroyed to make way, supposedly, for a hotel. A few hotels have been built, but generally the sites remain empty. The Cambodian economy has grown by more than 24% over 18 months and land values have in some cases risen by more than 100%, so there are fortunes to be made from doing nothing but wait.

Australians Rory and Mel Hunter were the only investors who made an attempt to incorporate into their plans the people whose land they were buying. An advertising executive, Rory had come to Cambodia to work for an agency in Phnom Penh. During a week-long vacation in 2006, he and his wife, Mel, had set out on a diving trip around the Koh Rong archipelago and fell in love with the twin islands of Koh Bong and Koh Ouen, attached to one another by a coral reef and cupped in a shallow strait - they were known collectively as the Sweethearts. "We dreamed of a beautiful resort where people could immerse themselves in a new part of Asia," Mel said. They began negotiations with two village men to buy their houses and those owned by 60 other families. "They thought we were nuts," Rory said. "The two head guys wanted £7,500 each. We agreed and signed the contract in a boat out in the strait. We helped take down their tin shacks, and slowly relocated all the families and their homes to Koh Rong, across the strait." They worked for weeks to clear 20 years of debris, while beginning negotiations with the government to buy the islands themselves.

The Hunters drummed up backing from a handful of British speculators, including a currency broker who (preferring we didn't use his name) tells us why he leapt at the opportunity. "I loved the deal from the start. Let's be honest, who wants 6%? I wanted a deal that would wake me up in the night, sweating. We could make good money," he says over drinks in Phnom Penh, his City suit exchanged for shorts and a T-shirt. "There was a buzz about Cambodia you don't get elsewhere. It's Cambodia, the killing fields and all that stuff. Something different to show your mates back home. I show them the visa in my passport. I have something they don't."

But the Hunters' enterprise would soon be challenged by a cascade of deals involving neighbouring islands. While they worked on retraining local fishermen on neighbouring Koh Rong, British property developer Marty Kaye bought the ground from under their feet. Kaye, who had spent much of his career working on construction in Hong Kong, had spotted the island while planning an £800m luxury tourist development on a nearby Vietnamese island, Phu Quoc. He told us: "I was walking down the beach on Phu Quoc, seeing where we were going to put the golf course, and I spotted another island. No one knew what it was. We looked on Google Earth and it seemed to be Koh Rong, in adjacent Cambodia. I said, 'Let's see if we can get anywhere on Koh Rong, too.'"

Kaye, who runs Millennium property fund, began negotiating. "Here was a chance to buy an undeveloped island almost as long as Hong Kong," he said. "Nowhere else in the world could you create your own kingdom from scratch - unlike the car-crash planning of Thai islands like Koh Samui." The Cambodian government gave him 18 months to produce more details, and he worked on an outline plan whose initial development would cost £100m. When the government signed the deal, it made no mention of the census it had just carried out recording how many thousands of people (the government won't reveal the figures) live on the 7,800-hectare island.

Kaye is not worried: "Two guys and a lawyer will see everyone. But what most of them don't understand is that even if they have papers, they are not worth anything. All of them are registered only locally, not in Phnom Penh, so they will have absolutely no case. Others are just squatters with no papers at all." It helped that Kaye's Cambodian partner was tycoon Kith Meng, a multi-millionaire with interests in banking, mobile phones and real estate - and a close friend of the prime minister, Hun Sen.

"Kith Meng wants everything done yesterday," Kaye said. "We are going to move as fast as we can. It's fantastically exciting, the opportunity to zone the whole island, to see where the luxury exclusive villa plots will be, for the Brad Pitts, etc." It is an investment that gives the present residents of Koh Rong just over a year to make a solid case for keeping their homes or finding new ones.

If they are evicted, places in the area to make a new home are becoming scarce. With all the big islands sold, even smaller outcrops have gone, too, including a clump of rocks known as Nail Island, bought by Ukrainian entrepreneur Nickolai Doroshenko, who has transformed it into a James Bond-style lair, complete with a giant fibre-glass shark that soars over the fortress-like construction. He already owns Victory Beach, in Sihanoukville, a restaurant stuffed with live snakes and a bar that advertises "swimming girls".

The sale of the century continued with the mainland beaches. At the end of January, the Sokha Hotel Group, run by Sok Kong, a Cambodian oligarch and Hun Sen ally, was confirmed as the new owner of the lion's share of Occheuteal Beach, the largest and most popular public dune in the region, which was closed off to make way for a 1,000-room hotel and golf course. The deal was originally negotiated in June 2006 when, local fisherman told us, bulldozers and 10 trucks of armed men demolished 71 homes and 40 local restaurants.

Not wanting to be left out, Say Hak, Sihanoukville's governor, acquired a small island for himself, on which he built a villa and jetty; while Sbaung Sarath, the wife of his deputy, bought half of Sihanoukville's public Independence Beach in February 2008, evicting scores of families in the process. Among them was Srey Pov. She travelled to Phnom Penh with 27 other families to protest, but returned with nothing. "The developer issued a warning," she says. "They threatened to pay the city authorities to get rid of us. We knew what that meant." Independence Beach now languishes behind high fencing, as Srey Pov feared, waiting for the five-star tourists who will enjoy exclusive access to the powder-white sand.

Days later, Sbaung Sarath struck again, securing part of Sihanoukville's Otres Beach, one of the last public dunes, where Queenco, a London-listed casino company, also announced in February that it had bought 56 hectares. Queenco declined to comment on its Sihanoukville project, but it has already had consequences - 100 fishing families have been evicted. They have built a row of makeshift bamboo shacks, held together with plastic sheeting and whatever rubbish they could recycle, along a 200-yard stretch of a nearby main road. On the day we visited, they were drying out from an overnight storm that had filled their ramshackle homes with rainwater.

Aom Heat, 63, used to have a wonderful view over Otres beach and the gulf beyond. She was forced off her land last April. Now all she can see are the hubcaps and exhaust pipes of lorries that tear by. She and many of her neighbours had arrived on Otres Beach after fleeing the Khmer Rouge in the early 80s, building a fishing village they christened Spean Ches, or Burning Bridge. "When the eviction notices were served on us in September 2006, we were determined to fight," she says. She could not bear to lose everything again. "We lodged a complaint with the Senate Committee on Human Rights that ruled it was a matter for the courts." But the Sihanoukville governor's men did not wait for a court order. They turned up at the seaside village in April last year, Aom Heat says, and, "they burned down 26 houses and bulldozed 86 more, destroying all the pots and pans, clothes and food supplies. We were in a blind panic." Thirteen injured men were arrested and jailed, including one of Aom Heat's sons. Although made homeless, they were charged with "wrongful damage of property", and nine of them found guilty without witnesses or evidence produced. Despite having served their time while waiting for the case to be heard, the men were thrown back into jail pending an appeal from the prosecution, who complained they had been dealt with too leniently.

No one can agree what impact the foreign land sales will have on the Cambodian economy because so little information is made public. Although Cambodia is nominally a democracy that has held three general elections to date, and has a nominal opposition party, the CPP parliamentarians and cabinet are remote and dismissive of their people. They are not required to report on their interests or assets, making it impossible to deduce how much Hun Sen and his cabinet have personally benefited - although the World Bank reported last year that corruption, coupled with a lack of transparency, was "choking economic growth".

Since the land sell-offs, members of the government and its allies have been splashing huge sums around. A Korean developer told us that when he marketed Phnom Penh's first skyscraper, the 42-storey Gold Tower project in February, all two dozen £750,000 penthouse suites were bought within 24 hours by "an honour roll of the CPP and its friends in the military". There are other telltale signs, such as the canary yellow Hummers and hi-spec Range Rovers with blacked-out windows that rumble around Phnom Penh, in a country where the average annual income is less than £150.

Simon Taylor, the director of Global Witness, an international NGO that was forced to leave the country last year, having accused the CPP of running a logging racket, paints a depressing picture: "A shadow state has grown up, a government that misappropriates public assets, extorts from businesses and manages an extensive illicit economy. It is administered by senior ministers who are fluent in the jargon of good governance and sustainable development." One of Hun Sen's closest advisers, who requested anonymity, disagrees, telling us: "Hun Sen believes that liberal democracy is unsuited to a country whose skills have been drained and demographics wildly skewed by the Khmer Rouge."

Everything comes down to how much money you have in your pocket, according to Doug Clayton, from Leopard Asia, a fund of Swiss and British bankers that is about to invest £25m in Cambodia. "This kind of money opens any door," he says. How does Clayton pitch the Hun Sen brand back home? "Candidly? In investment circles, no one knows anything about this place. It's off the radar. In our pitch I talk up the new economic figures. I talk up stability." Clayton adds: "When the dust settles, the government here will probably end up looking something like the one in Singapore." There, Lee Kuan Yew served as prime minister from 1959 to 1990. Cambodian pollsters, looking to the general election that will run this July, predict a clear CPP victory, putting Hun Sen at the helm for many more years, too.

What will this mean for people such as Sang Run, who is now surviving in a makeshift home behind Independence Beach? Has the legacy of the Khmer Rouge been purged? Naly Pilorge, director of Licadho, a local human rights NGO, thinks not: "Everyone claims Cambodia has come through the period of barbarism, but the sadism is still bubbling beneath the surface. Extreme violence, greed and disregard for the most basic human rights - of giving people a place to live - are still with us daily. The methods of the past are being used to dictate our future."


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