Prime Minister Hun Sen warned against a steep and sudden rise to the minimum wage in Cambodia’s crucial garment sector at an investment conference in Phnom Penh on Monday, during which government and business leaders were mostly positive about the impact of Cambodia’s coming integration with its neighbors in the region.
The prime minister’s cautionary note came amid tense negotiations between the government, factories and unions over a new monthly minimum wage for the garment industry, which earned more than $5 billion last year. The government on Monday pushed back a vote on a new minimum wage from Friday to next month.
When unions failed to get their way during wage talks in December, they launched nationwide strikes that briefly crippled the industry and ended with the deaths of at least five workers when military police fired into a crowd of protesters in Phnom Penh on January 3.
Some of the same unions are threatening to stage mass strikes again if the current minimum wage of $100 isn’t raised by $77 this year.
Stepping into the fray Monday, Mr. Hun Sen sided with the factories, who are pushing for a more modest $10 wage hike, warning that a more significant raise might drive investors out of the country, as has happened in China.
“I would like people to know clearly that this minimum wage can be a risk,” the prime minister said in his opening remarks at the conference, which was hosted by the International Business Chamber of Cambodia.
“Since China and Thailand increased wages for their workers, there were difficulties immediately for industrial operators who became less competitive because of higher costs, making investors think of moving to a new location,” Mr. Hun Sen said. “So Cambodia has to take this opportunity to think about a proper minimum wage and wait for investors looking for new places to invest.”
The prime minister conceded that Cambodia had a lot of catching up to do with its neighbors, from building up its network of roads to bringing down the price of electricity, the highest in the region. Cambodia also wasted 246 megawatts of capacity this rainy season, he said, because the country lacked the transmission lines to distribute it.
“That shows that we have the car, but not the roads to drive it,” he said.
On the subject of actual roads, Mr. Hun Sen said it was crucial that Cambodia become the thoroughfare of choice between Bangkok and Ho Chi Minh City once the Asean Economic Community is realized at the end of 2015 and trade barriers begin to fall.
“Connecting the two poles will create an opportunity for Cambodia to integrate into the regional and global production chain and contribute to the growth of Cambodia’s industrial sector,” he said. “And investors can take advantage of Cambodia’s low-skilled and young workforce.”
The event’s keynote speaker, Prudential Asia chairman Donald Kanak, said Cambodia’s demographic dividend—a large, young labor force—would prove a major advantage for the country, along with rising incomes and a favorable investment climate.
“These things are all adding up,” he said. “Cambodia’s story is extraordinary…and there’s no question that the word is getting out. Cambodia’s brand, if you will, is growing.”
“The macro story is of a very young and dynamic country,” agreed Faisal Ahmed, country representative for the International Monetary Fund.
Mr. Ahmed said the government’s priority, in order to maintain rapid growth amid a global economy predicted to stay sluggish, should be to focus on raising government revenue, which remains comparatively low for the region.
“Investors look at the quality of the economy, and revenue mobilization is one quick, easy proxy measure of how things are going,” he said.
Mr. Ahmed said the low wages Cambodia has been relying on to attract investors would prove less of an advantage with time, and that the country needed to focus on raising the productivity of its workforce.
Van Sou Ieng, chairman of the Garment Manufacturers Association in Cambodia, said Cambodia’s deficiencies, from its aging infrastructure to its unskilled workforce, were actually a boon, as they made the country a blank slate for investors.
“The opportunity in Cambodia is huge because everything is missing and everything is needed,” Mr. Sou Ieng said.
“Also, the mentality of Cambodians is strange, they love to learn,” he added. “They know they start from zero year, so every little thing you can teach them, they are eager to learn.”