Cambodia Country for sale

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

Adrian Levy and Cathy Scott-Clark
The Guardian,
Saturday April 26 2008

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."