The garment industry will to continue to decline next year as consumer demand diminishes and international safeguards that have protected Cambodian exports are removed, several speakers at an industry conference said Thursday.
Cambodia’s garment industry produced 4.6 percent less revenue for the first 10 months of the year compared to the same period in 2007, according to the Commerce Ministry figures distributed at the conference.
In the same 10-month period export volume growth decreased from 39 percent in 2006 to 15.5 percent in 2007 to only 2.5 percent in 2008, according to ministry figures.
“Revenue is dropping and this is alarming…. The garment industry is struggling,” said Kang Chandararot, executive director of the Cambodia Institute of Development Study, which helped organize the conference in Phnom Penh.
“It is hard to assess the magnitude of the effects,” he said.
Still, some effects are clear, Kang Chandararot said.
The garment industry can no longer accommodate new workers as it has done for more than a decade, when it fueled Cambodia’s economic boom, he said. Jobs are now actually in danger in the garment sector, he said, adding: “This is a crucial point for the economy.”
In addition to the global financial crisis hurting the country’s garment industry, speakers said Thursday, there is the pending removal of safeguards in the US that limit Chinese textile imports, which have helped small countries like Cambodia compete with the world’s garment giant.
Those safeguards will be lifted at the end of this year, just as the European Union lifted similar safeguards in 2007.
Ingeborg Wick, a researcher for Sudwind, a German non-profit that focuses on global economic issues, said the lifting of the safeguards will allow more brands to consolidate the sources of their products which will reduce costs. Good infrastructure, higher, faster productivity and access to high quality textiles will become increasingly important factors for garment sector competition, she said.
“Everybody wants to be a winner but not everyone can win,” she said, adding that Cambodia will lose an important advantage as a result.
Mean Sophea, director of the trade preference department at the Ministry of Commerce, said competition is a concern, and Cambodia needs to encourage more investment in the industry to become more competitive.
“How can we compete with countries that are so much bigger and stronger than us?” he asked. “The industry is a pie and the smaller and weaker will get a smaller piece than the stronger and smarter,” he said.
Kang Chandararot, however, said the financial crisis is likely to have more of an impact on Cambodia’s garment industry than the safeguards. The industry still has a relatively high profit margin, so profits will decrease in the absence of safeguards but that alone shouldn’t decrease the number of exports to the US, he said.
“The lower purchasing power in the US [due to the crisis] will have a large impact,” he said, also adding that more investment is needed in the industry.
Cambodian investors only finance 7 percent of the garment industry compared with the more than 70 percent being financed by South Korean, Taiwanese, Hong Kong and Chinese firms, he said.
“The capital coming in to the sector will be less than before or dry up,” he added.
Other signs of decline include 20 factories that have closed down this year, said Cheat Khemara, a strike coordinator for Garment Manufacturers Association of Cambodia.
As of July 2008, more than 62,000 garment workers had lost their jobs in 2008, according to the Ministry of Commerce. More than 400,000 people depend on the sector for employment, according to CIDS.
“There is a very limited amount of orders right now,” Cheat Khemara said. He also warned that strikes are on the rise, which in such a delicate economic environment could discourage investment.
For the first seven months of the year there were 66 strikes compared with 48 strikes in 2007, Cheat Khemara said, adding that many were illegal.
Chea Mony, president of the Free Trade Union, said Thursday that more laws protecting workers rights would prevent strikes. He also said that the outlook for the industry was “serious.”
“The garment industry is in a decline,” he said.