Cambodia, which has been a growing base for manufacturing apparel in Asia, has weathered the Covid-19 crisis well, with roughly 300 cases and zero deaths as of the time of publication. The industry, however, was hit by the cancellation of orders as the Western world went into lockdown. Exports in Cambodia’s garment sector dropped by 5.4 percent to around $3.78 billion in the first half of this year from more than $4 billion in the same period in 2019, according to the ministry of labor and vocational training.
There have been other setbacks, as well. Torrential rains and flooding in October put on hold the work of more than 80 garment factories, while in August, European Union sanctions took away the preferential treatment under “Everything But Arms” (EBA)—the trade arrangement for Least Developed Countries—due to “serious and systematic concerns related to human rights ascertained in the country.”
The Asian Development Bank has recently changed its forecast for Cambodia from a 5.5 percent contraction in gross domestic product in 2020 to a 4 percent contraction, and expects the growth to rebound to 5.9 percent in 2021.
Ken Loo, secretary-general, Garment Manufacturers Association in Cambodia (GMAC), spoke to Sourcing Journal about some of the important issues facing the industry, including the expected wage increase in 2021.
Sourcing Journal: Coming close to the end of the year, how have factories in the garment sector in Cambodia survived Covid-19?
Ken Loo : We currently have 600 active members, these are all exporters in the apparel industry as well as in the travel goods industry. Of these, 505 are apparel factories. This year data from the ministry of labor is that 95 factories closed, but also at the same time new factories have opened—58 new members—so the net decrease is of about 40 factories.
Every year factories open, and factories close. This number is bigger than previous years and we will assume it is in part because of Covid-19.
SJ: How far have the floods in October impacted production at factories?
KL: An approximate 80 garment factories were affected by the floods. This includes factories that had some form of flooding, but also those that could not function because of the roads around the factories being flooded and workers could not come to work.
It was due to an exceptional amount of rainfall because of a typhoon in the South China sea, so that flooding issue is over.
SJ: Did you find a substantial change in business at the factories in the last few months? Has more business from other countries shifted to Cambodia?
KL: Our exports were down in May, June, July—but late August and early September the exports have picked up a little. This is in line with what happened globally as most Western countries went into lockdown and towards the third quarter started to open up again and retailers and brands started to reposition with business picking up again.
The situation regarding Covid -19 in other countries has also affected us in a positive way, because what we see is that there are orders moving from Myanmar into Cambodia because the Covid situation in Myanmar is worse than Cambodia.
But having said that, prices are still no good, we are accepting quite ridiculous payment terms.
SJ: At the same time, there was the withdrawal of the preferential situation with the European Union in August?
KL: It definitely makes the situation harder. It is a partial withdrawal, but we still enjoy duty free tariff lines on 80 percent. But with this, some manufacturers are going to find it harder to compete and they will have to see whether they start to produce other products, whether they find other buyers, or find other solutions.
SJ: Factories are now working at almost 80 percent capacity?
KL: Yes, factories are working but the factory owners may not necessarily be making any money. We are accepting orders at a loss, and if you ask why are we doing it–the point is that if we don’t have orders then we lose more. In this way, at least we get to feed the workers and less amount is lost than stopping work altogether.
SJ: Yet, a lot of workers lost their jobs over the past months.
KL: About 60,000 workers lost their jobs due to factory closures. So yes, labor has certainly been affected. Most factories are located within 50 kilometers of Phonm Penh so it is a mixture of migrant workers and workers from the provinces.
SJ: Are you still looking at an increase in labor wages for 2021?
K.L.: At this time the minimum wage is $190. From January 1, 2021 it will go up to $192. There is an annual review of the labor wage but the adjustment depends on the actual situation.
SJ: Does the fact that Cambodia has active trade unions make it easier for labor/factory owners?
KL: Trade unions doesn’t necessarily mean problems for factory owners. Some trade unions are trouble makers, they have their own agenda, etc. Obviously, others are much more constructive.