Cambodias garment exports rose by 6.5% to US$5.7bn last year

Cambodia's garment exports rose by 6.5% to US$5.7bn last year

New figures show Cambodia's garment and footwear exports continued to see strong growth during 2015, albeit it at a slower rate than the year before and with footwear far outpacing clothing. Despite an increase in exports, garment prices overall remain on a downward trajectory – although those shipped to the European Union went up for the first time in four years.

The latest data on industry exports, employment and factory openings are included in the most recent Cambodian Garment and Footwear Sector Bulletin released by the International Labour Organization (ILO).

They also appear to show that a rise in wages has not dented trade. Not only did minimum wages increase from US$128 to US$140 at the beginning of the year, but workers' average monthly wages jumped 20.7% to US$175 in 2015, up from US$145 the year before, once a range of mandatory allowances were factored in.

However, the ILO warns: "While there do not appear to have been negative effects from past increases, Cambodia's minimum wage was low by international standards. It is possible that there could be a turning point beyond which future increases could negatively affect employment...[and] this will remain an important issue to monitor."

For the year as a whole, total garment and footwear exports reached US$6.3bn, up 7.6% over the $5.8bn booked a year earlier. Even so, this is slower than the 9.6% growth seen between 2013 and 2014.

The footwear sector continued to accelerate with a 21.8% surge in shipments to US$538m, while exports of garments rose by 6.5% to US$5.7bn.

The European Union (EU) remains the largest market for Cambodia's garment and footwear exports, with a 46% share, while the US accounts for 30%. The remaining 24% were destined for other markets, mainly Canada and Japan.

Despite the strong export performance, Cambodian garment producers faced the challenge of a continuing decline in the prices paid by their buyers, especially in the US and Japan. The average price of garments (per dozen) sold to the US in 2015 was 29% lower than in 2005. Similarly, prices for garments sold to EU markets were 18% lower in 2015 than in 2005.

But there was a slight price recovery of garments sold to the EU and Canada, with year-on-year rises of 1.1% and 6.0% respectively. The slight increase in the EU price was the first recorded in four years.

While garment and footwear remains the backbone of Cambodia's exports, accounting for 78% of total merchandise exports, this has fallen from 82% in 2010 as the country's economy diversifies.

The Industrial Development Policy (IDP) 2015-2025 – officially launched in August 2015 – aims to reduce the export share of garments and footwear to just 50% of total merchandise exports by 2025.

New investments and factory openings

The government's push to promote other sectors of the economy may also be responsible for a drop in new factory openings last year.

According to the Cambodian Investment Board (CIB) there were 124 new investment projects across all sectors approved in 2015 – of which 72 were in the garment and footwear sector, worth US$377m in fixed assets. This figure marks a decline of 17% in value terms compared to the same period of 2014.

Foreign direct investments in the sector were largely driven by investors from mainland China, who accounted for 34.6% of the total, followed by the UK (29.5%), Taiwan (10.3%), and Hong Kong (10.0%). The rest came from Japan, Korea, Malaysia, Seychelles and Cambodia itself.

Most of the garment and footwear projects approved during the year were in the form of sole ownership (87.5%), with joint ventures accounting for the remaining 12.5%.

There were 75 newly opened garment and footwear factories in 2015, while two factories closed – giving a net increase of 73 new factories during 2015, of which 68 were garment and five were footwear. This net increase was a little lower than that of 2014, which saw 98 net new garment and footwear factories. And both the number of factory openings and closures was lower in 2015 than in 2014.

In line with this growth, employment also increased solidly, rising 10.4% to reach more than 620,000 workers.

Other developments

Other policy changes that have affected workers in the sector over the past year include:

  • The Government raised the monthly salary tax threshold from US$125 to US$200, effective 1 January 2015.
  • Since January 2015, the state energy provider (Electricité du Cambodge), has ensured that workers' rented rooms are directly connected to state electricity at a price of 610 riels/kilowatt (approximately US$0.15) for consumption of less than 50 kilowatts a month. This was in response to allegations that some landlords were charging workers an inflated price.
  • A similar connection has been arranged for workers to access state-supplied water.
  • On 6 July 2015, the National Assembly passed a rent control law for low-income earners, prohibiting landlords from increasing rental fees for two years after a contract is signed. In part, the law was intended to protect garment and footwear workers from rent increases which are believed to occur in response to minimum wage increases.
  • The National Social Security Fund (NSSF), a government-run social security scheme that covers workers' work injuries, work-related illness and travel-related accidents, was broadened from 6 January 2016 to include health insurance. Employers must contribute 0.8% of the gross wage to the NSSF.

The bulletin also outlines the process and criteria used to adjust Cambodia's minimum wage. Click on the following link to read more:

Cambodian Garment and Footwear Sector Bulletin

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