Thousands of jobs will be lost and Cambodia’s ailing economy will show slower growth in the coming year as the country’s vital textile industry loses privileged access to US markets, the World Bank predicted on Tuesday.
The World Bank’s economic outlook for East Asia, released on Tuesday, projected a slide in Cambodia’s gross domestic product growth from 5.2 percent last year to 2.4 percent in 2005, and a jump in its unemployment rate from 13 percent to 15 percent.
The projections for Cambodia were the most dire of the Bank’s assessment for the major East Asian countries. Though economic growth is expected to slow this year, most countries in the region appear to have recovered from the financial crisis of 1997, the Bank reported.
Cambodia’s projection centers on the expiration of the US garment quota system—the engine behind the country’s growth in recent years—for an economic slow-down that started last year.
“Next year, the termination of the Multi-Fiber Agreement is expected to lead to negative growth in the garments sector; given the importance of garments to the manufacturing sector, this decline will reduce real GDP growth to around 2.4 percent in 2005,” the report stated.
“Growth in services and construction are also expected to slow, but the impact will likely be somewhat offset by the tourism sector, which is expected to grow by 15 percent,” it stated.
GDP growth has steadily decreased since 1999 and is dropping to 4.3 percent this year. The Bank also reported no change in overall poverty numbers.
The predictions echo widely held worries that the garment sector could collapse, jeopardizing jobs for the industry’s 240,000 workers. It also seemingly contradicts repeated assurances from government officials that the garment sector is ready to weather competition with manufacturing powerhouses such as China and India.
Fears of an economic fallout from the loss of the US trade arrangement arose again in recent weeks when two garment factories, together employing some 8,800, closed their doors, if only temporarily.
Still, much of the government’s strategy to mitigate an exodus in the garment sector is sunk in probabilities, as Cambodia lobbies the US for a trade agreement favorable to Cambodian manufacturers and tries to promote Cambodian goods on the world market as labor-friendly.
Commerce Ministry Secretary of State Sok Siphana said he hoped other factors could ease the transition as well. China already has reached its capacity for textile orders for next year, meaning factories here could meet the excess demand, he said.
“We are optimistic,” Sok Siphana told reporters at a news conference to release the Bank’s report.
The Economic Institute of Cambodia, an independent research group, also sounded a more positive note by putting this year’s GDP growth rate at 7 percent, but expected it to drop to
3.5 percent next year.
In its own economic outlook, the institute reported Tuesday that investment increased in the garment sector this year and that factories continue to receive orders for 2005. It’s probable that larger factories will expand their operations, while smaller ones will close, said EIC director Sok Hach. He added, however, that the economic outlook is “completely unclear.”
“Within the next six months, we will see what happens with the garment factories,” Sok Hach said.
Sok Siphana and Bank officials both pointed to agricultural development as a potential source of economic growth, even as the Bank reported a slowdown in that sector and a day after Prime Minister Hun Sen warned of serious drought and food shortages.
The Bank also urged for quick reforms to attract private investment. Cambodia is among the most corrupt business places in Asia, with business owners paying about 6 percent of their sales in bribes, according to a Bank report earlier this year.
