The changing landscape of Cambodia’s Manufacturing Industry

Cambodia has been an emerging developing country for the past ten years with the growth of the apparel and textile industry.   

Let’s look at some facts. 

  • Because of Cambodia’s open-door policy to investors, the nation has made about 7% per annum increase
  • They are the world’s eighth-largest exporter of garments and footwear
  • They export around USD $9.2bn with two main buyers; the EU (USD $4.7B) and the USA (USD $2.4B)

All of this has been helped by preferential international market access to the US and the European Union (EU).

In the first seven months of 2019 Cambodian exports to the US have seen strong growth: apparel up 6.4% to US$1.45bn, footwear up 33% to US$244m, and travel goods (sports bags, backpacks, handbags, wallets) up 138% to US$493m.

But as with ever-emerging economy focused on price, there are challenges with imminent changes. 

Wages

Last week Cambodia raised next years minimum wage for workers in the textile and footwear industries has risen from USD $140 in 2016 to USD $182 in 2019 and is set to rise to $190 per month in 2020, which is an increase of 4.4%. 

Pav Sina, president of the Collective Union Movement of Workers, said the agreement fell short of their $195 target.   But after a union vote the new offer was accepted

“Even though this figure is not what we wanted as our position, it is positive, as Cambodia is in the midst of uncertainties of the trade preferences,” Sina said.

“If our wage goes higher than countries in the region, we will also suffer,” Sina said.

“We are always concerned about rising wages [for fear of losing their competitive advantage], but we also understand that we just have to go up in line with inflation and other factors,” Ken Loo, Secretary-General at the Garment Manufacturers Association of Cambodia (GMAC), told Reuters on Friday. 

Global pressures 

Cambodia has been feeling the pressures from the European Union (EU) over its human rights and political record.  In February, the EU started a process that could suspend the country’s special trade preferences. 

Drastic political actions prompted the EU to reexamine Cambodia’s preferences with Prime Minister Hun Sen’s party’s holding all seats in parliament. The opposition leader Kem Sokha has been arrested and his party has been dissolved.  

Cambodia benefits from the EU’s “Everything But Arms” (EBA) trade program, which allows the world’s least-developed countries to export most goods to the EU free of duties.

The EU accounts for more than half of Cambodia’s exports. In February, the EU began an 18-month investigation that could lead to the EBA suspension. 

Opportunities

Other positive improvements include compliance, better pay, fewer worker faintings, and higher productivity. 

Cambodia is the flagship programme of the Better Work initiative jointly implemented by the International Labour Organization (ILO) and the International Finance Corporation (IFC), which also operates in Bangladesh, Ethiopia, Indonesia, Vietnam, Jordan, Haïti and Nicaragua, with plans to expand further in countries like Egypt, Myanmar and Pakistan. 

Sara Park, deputy program manager of Better Factories Cambodia – which monitors more than 580 exporting factories with 750,000 workers – points out that Cambodia is the only country where the compliance program is mandatory. In other countries the initiative – which is held in high regard by reputable brands as by independent labor unions – is voluntary. 

Conclusion

Cambodia is an emerging center for the apparel and footwear industries with lots of success stories.  With ongoing training efforts, productivity is becoming more efficient.   

It is close to China for raw materials and support with manufacturing and infrastructure.  

But, the unstable political situation could reverse much of this progress. 

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