As we discussed in a previous article, the cost of living is low in Cambodia.
This is one of the freest markets in the world when it comes to small businesses. The government simply doesn't have the sophistication or desire to enforce obtrusive regulations on the little guys. It's only when you start making real money that someone will come knocking, and even that can be less worrisome than it sounds.
Phnom Penh is a place which compels entrepreneurship from residents. Anyone with a ground floor apartment is a business owner, almost by default, so the place is saturated with small, usually family-owned businesses, including our cafe. The cafe would not be financially sound were it not for the fact that we make it our home in order to save on rent.
Previously, we saw how this highly competitive, mostly free market is the catalyst for tight margins and low consumer goods prices. Here, I'd like to go into a bit greater detail on the general cost of living in Phnom Penh, Cambodia, one of the most efficient markets in the world.
At one point recently, Cambodia had the highest mobile subscription rate per capita in the world. The telecom market has been one of Cambodia's most fiercely competitive since its nascent days when it seemed like new mobile and internet providers were springing up every week. Eventually, cries from observers began ringing the hollow refrain, "there is too much competition," and the government responded by introducing a regulatory scheme and fixing prices. The industry experienced a period of consolidation shortly thereafter and now it is rare for new players to enter the scene.
On the bright side, Cambodian phone companies don't currently require you to sign a contract, and phones are not 'locked', which means you are free to buy whatever phone you like and use it with any provider by purchasing their sim card. Your sim can then be 'topped up' with a scratch card from your provider, sold everywhere in Cambodia. I can't imagine there being a more fluid market than that for mobile phones, phone cards, and data plans. Phone sellers and re-sellers are everywhere, and pretty much every retail shop in the country has phone cards for sale if you need to top-up your sim.
Prices for internet access are reasonable in Cambodia. At our cafe we pay $75 for 6 months of wired connectivity including equipment rentals and good bandwidth. Some mobile internet plans start at $5 per month at not-too-bad speeds in Phnom Penh, and wireless and 3G coverage in the province is surprisingly good in many places.
Gasoline prices in The Kingdom are a bit higher than average, recently running about $0.80 per liter ($3 per gallon). That's nothing to complain about considering Cambodia produces no petroleum domestically. Major Gulf of Thailand drilling plans fell out of the news last year after Chevron sold its stake in a Cambodian-controlled bloc, so don't expect Cambodian gas production to outperform global averages any time soon.
Cambodia has been experiencing a steady increase in electricity consumption for quite some time. Just five years ago there were hardly any power lines in the countryside, but now don't be surprised to find most places on the grid.
A large chunk of what gets consumed in Cambodia is supplied from neighboring countries like Vietnam. However, In the last few years Chinese companies have completed several major hydro-electric projects in Cambodia, helping to alleviate the demand. In fact, the electrical grid has suddenly become stable in Cambodia when contrasted with the frequent rolling blackouts of just a few years ago.
Electricity prices, as might be expected, are slightly higher than regional averages. We pay $0.25 per kilowatt-hour, but it can cost less depending on where you live in Phnom Penh. At our house in Takeo province we pay $0.30/kwh.
Cheap prices are only half the story in Phnom Penh. The other half is convenience. Imagine living in a city where everything you need is right around the corner from you, regardless of where you are. Recently, I had some leather dress shoes tailored for $25 and the hardest part was deciding which of the several shoe-makers to choose in our neighborhood. When I tore my dress pants, I took them to a tailor one street over and had 3 pairs cloned for a total of $55.
If you buy your clothes off the shelf then you'll have no trouble finding a retail store near you, not to mention the many open-air markets in town, each with dozens of clothing stalls. Name-brand outlets are all over Phnom Penh (don't ask me if they're legitimate) and there are several western style malls dotting the city, as well. From a simple man's perspective you won't have trouble finding anything you need.
It's true that Cambodia is not a place where you should go for major medical procedures, but things are changing and the day will come when that is no longer true. In the meantime, neighboring Thailand is a popular destination for medical tourism and Vietnam is loaded with quality doctors as well. As for most medical necessities, however, you could do a lot worse than Cambodia. I recently went to the emergency room to get about 10 stitches and the total cost was $25; no lines, no paperwork, paid cash, out in no time. Try and beat that.
I'll give you some more perspective on how out-of-control prices for basic services have gotten in the West. In Phnom Penh it costs $10 to get your teeth cleaned - no insurance, no appointments. $10 is less than the insurance copay in the USA. But we're not talking about some back alley operation here. I walked in on a weekday with my girlfriend recently and we were serviced immediately, each with a dentist and an assistant, in a clean, westernized, sanitary environment. You really could not tell the difference between the procedure here and what you would encounter in the West except for the lack of bureaucracy and waiting. And, oh yeah, there are 3 dental clinics within a block of our cafe.
Need a pharmacy? They are everywhere, too. Not only are the prices for generic medicines extremely cheap, you don't need a prescription to get what you need.
One last note, my friend had crossed eyes since birth so I volunteered to pay for his corrective eye-surgery. It cost me less than $150 for the procedure including the several follow-up visits. The ophthalmologist did excellent work and, of course, insurance was not required.
There is very little that has me concerned in terms of basic medical care in Phnom Penh. Just don't expect to find me booking an appointment for bypass surgery here if I need it.
In closing, here are a few brief examples of cheap prices in Phnom Penh. All of these things can be found within 1 block of our cafe:
You can achieve a quality of life in Cambodia very close to what you're accustomed to from the West for much less money and with greater convenience. An entrepreneurial society and a lightly regulated economy keep margins tight and prices low. This is great news for consumers, but not the greatest news for cafe owners!
Let's talk about food prices in Phnom Penh, Cambodia. It's cheap living, but let me give you some background before we dive in. I run a few small businesses including a cafe and a pepper farm. In the six years since I moved to Cambodia the exchange rate hasn't budged, staying around 1 US Dollar to 4000 Cambodian Riel the whole time. US Dollars are accepted everywhere in Cambodia (and often preferred) thus simplifying our discussion of prices.
Cambodia is a place where consumers are highly sensitive to prices. Combine that with low barriers to entry for businesses and a highly entrepreneurial society and what you get is a very efficient system of price-discovery for any given good or service. This means that profit margins are razor thin. That has been my experience with my cafe, where our customers would balk were we to raise drink prices by as little as a nickle. So let me give you an idea of exactly how thin those margins can be from my experience with Coin Cafe.
We sell a cup of coffee for 2000 Riel (That's 50 cents, but coins do not circulate so Riel notes are required for amounts under $1). Sounds cheap, right? Well, there is a girl with a stand around the corner from us who sells it for 1000 Riel. There must be a dozen places that sell coffee within 3 blocks of us, and that would be true for any given location in Phnom Penh. It's the Wild West of cafes!
Coffee is cheap, especially in South-East Asia where Vietnam is the world's second largest exporter. The primary growing regions in Cambodia, the mountainous provinces bordering Vietnam, Mondulkiri and Rattanakiri, have not enjoyed nearly the same renown as their neighbor. Having sampled several of the local brews on a recent trip to Mondulkiri I can tell you it is not for lack of quality. Vietnamese brand coffee beans, in spite of traveling across borders, enjoy greater penetration at coffee shops across Cambodia than the domestic stuff. The reasons for this anomaly are many, but let's just say the Cambodian coffee market, like most other domestic food production, is light-years behind the more mature markets of neighboring countries. Significantly more capital and expertise will be required before Cambodia can reach it's potential.
In keeping with the theme at our cafe of selling Cambodian products, we offer coffee produced in Rattanakiri Province, the Northeastern-most region of Cambodia. 500 gram bags are $4 at Coin Cafe or you can visit the retailer, Cafe Nation Shop near O'Russei Market, and pick up a bag for $2.50.
Do you want fresh milk with your coffee? Well, that's a problem. All the dairy in Cambodia is imported from neighboring countries and a 2-liter jug of milk (half a gallon) will run you $4.30 from the supermarket. That's expensive enough to preclude most eateries from keeping it on-hand, especially smaller places like ours. Instead, we use condensed, sweetened milk which is ubiquitous in Cambodia for it's longer shelf-life and cheaper price. I'll admit that iced coffee with sweet milk can be a delicious treat but it troubles me that there is such a small market for the real deal, especially in largely agrarian Cambodia.
Until recently, Cambodia has lacked the expertise to produce domestic dairy products at a commercial level. However, I'm excited to report that a new dairy farm has recently sprung up on the outskirts of Phnom Penh and is poised to take the city by storm. I've walked the facility and tested the milk and, in my opinion, it is outstanding. The company is still in its nascent stage, limiting distribution and marketing until the details have been ironed out. In the meantime, we sell it at the cafe for $2.50 per liter. Get more information on the farm or order some for yourself by visiting www.khmerfreshmilk.com.
Beer, our best seller at the cafe, and probably all of Cambodia at large, sells for 2500 Riel. That's right, a mere 63 cents will get you a can of the local brew and our lovely staff will even open it for you, free of charge! We buy a case (24 cans) for $13. Do some math and that's $2 profit per case. We have to sell 24 cans of beer just to make $2, and that is BEFORE subtracting expenses! That sounds like a great deal for the consumer, right? Not so fast. If you are the average Khmer person (Khmer, the ethnicity of most Cambodian people), what is stopping you from buying a case yourself, or buying single beers from the convenience store for slightly less? The street where we operate is packed with cheap alternatives, and most people are outside drinking with friends and family anyway (public drinking laws? Not here).
I have to mention that there are at least a dozen breweries that have come online in the last 5 years. Remember how regulations are low, margins are tight, and society is entrepreneurial in Cambodia? Those factors are at play in the beer market. And now, believe it or not, these factors have spilled over into the budding, craft brewing scene. You heard right, home-brew distilleries are popping up in Cambodia and many are flying under the radar. While distributing menus for my cafe in Tuol Sleng neighborhood I stumbled on one such operation whose first batch will be ready this week! Believe me, these guys know what they're doing. More about them can be found here.
Let me tell you a bit about cost-effectiveness in Cambodia. Our menu is packed with delicious dishes whose ingredients we keep tucked away in our fridge. But we couldn't possibly maintain an inventory for all those sumptuous delights on-hand at all times because food spoils and we do not do enough volume to justify it. If you were to order, say, mushroom-cream steak, chances are we probably don't have the mushrooms, the creamer or even the steak available on-hand. No problem, we simply fire up the motorbike and go to one of the many markets nearby. The cost to you for this guaranteed freshness wouldn't exceed 5 minutes. Isn't that neat? This is how things work in Cambodia: take the moment as it comes.
Steak is the priciest dish we offer. In Cambodia, all of the good beef is imported. We buy Australian beef at $14.50 per kilo of "oyster blade". The domestic beef industry consists mostly of family operations doing their butchering in open-air market stalls. The meat is often tough and stringy but passable when cut into small pieces for stir-fry or BBQ. So you won't hear many locals complaining about poor quality steak right now because that's not how they usually eat their beef. And believe me, they eat plenty of it. One of the best and most ubiquitous pieces of local nightlife comes from beer gardens. You can't spit outside the tourist areas without hitting one. You can get a big plate of BBQ beef (with rice of course) and a pitcher of beer for $4. What else could you want?
Cambodia isn't all coffee and beer. In a follow-up piece I'll discuss some of the other non-food prices in the neighborhood, like energy and entertainment. The sky is the limit for this country, let's hope the cost of living doesn't follow suit.
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