Cambodias garment exports reached a record high last year

Cambodia's garment exports reached a record high last year

Transparent reporting of garment factory compliance in Cambodia is helping to improve conditions for workers, a new study has found, despite rising costs, labour unrest and increasing competition in the sector.

The 32nd Synthesis Report from the International Labour Organization's (ILO) Better Factories Cambodia (BFC) initiative looks at working conditions and respect for worker rights across 393 factories during the year from May 2014 to April 2015.

Compliance uptick
According to the report, the assessments, which comprised four on-site person days, management, union and worker interviews, and factory observations, found a reversal in the downward trend in overall compliance levels with labour standards and legal requirements seen during 2010-2013.

"One year of public reporting has demonstrated important improvements, amongst others on severance payments, emergency preparedness and around payment of bonuses," the report noted. Through its BFC initiative, the ILO launched an online transparency database in March last year, showing how individual garment factories measure up on key working conditions.

More specifically, the latest data shows improvements in areas such as correct payment of 5% severance pay (+10%), moving from 37% compliance in the last synthesis report to 47% in this report; access paths free of obstruction (+9.5%), up from 37.8% last year to 47.3% this year; and management keeping one complete and accurate payroll (+8%), moving up from 59% compliance to 67% compliance.

"There is growing evidence that public reporting has created the intended dynamic: factories are making changes and, in the aggregate, improvements are being made in key areas of non-compliance," the report added.

Negative change
But while overall compliance levels have shown a slight increase, there are areas with positive as well as negative change, the report found.

"Positive changes are most commonly due to greater commitment on the part of the employer to address working conditions, increased worker-management cooperation at the factory level and greater commitment or pressure from the buyer with the factory to make change," the report authors explain. "Negative changes can be due to a decline in the factory’s business, leading them to de-prioritise working conditions, change in management or not sustainably addressing working conditions."

The top ten non-compliance issues remain the same as those of previous years and include, amongst others, overtime and issues around Occupational Safety and Health (OSH). For the former, ensuring overtime does not exceed two hours per day remains high at 76%. Non-compliance on this issue, the report says, is primarily due to both factory practices as well as pressure from actors along the supply chain.

The areas of negative change, however, are mainly associated with OSH, and include chemicals not being used in a separate area of the workplace (-7.55%), workers undergoing medical exams before being employed (-3.10%), providing proper clothing and equipment to workers using chemicals(-3.81%), acceptable dust levels (-5.74%), acceptable heat levels (-3.78%), and chemicals not being properly stored in separate areas of the workplace (-4.44%). The report also found smaller negative changes with respect to issues around wages and contracts.

Positive strides
The issue surrounding wages in Cambodia's garment sector, however, has taken positive steps forward in the last 12 months. In 2014, the ILO supported the Cambodian Government in creating an institutional framework for minimum wage based on tripartite negotiations. The framework allows for yearly minimum wage adjustments, and in October last year was increased to US$128 per month for regular workers and $123 per month for probationary workers. The rise, which came into force in January this year, represents a 28% increase over the 2014 rate.

At the time, the ILO called on global brands that source their products from Cambodia to help the industry to absorb the associated cost increases. The group estimated that global brands would need to increase their FOB prices by between 2.4%-3% to cover the shortfall between factories’ likely productivity gains and the projected increase in labour costs.

Cambodia's garment and footwear industry performed well throughout 2014 and the first months of 2015, despite rising local production costs, the ongoing impact of labour unrest at the start of 2014, and strengthened competition from regional neighbours Bangladesh, Burma and Vietnam.

But strikes fell by more than 25% in 2014, down from a record 147 a year earlier, with the number of lost work days falling by 40%.

As a result, exports reached a record high of $5.82bn last year, around 9.3% higher than in 2013. And although footwear exports are gaining in importance - up 23.9% to $438m - garments still dominate the sector with exports worth $5.38bn in 2014, up 8.3% year-on-year.

The momentum appears to be continuing into 2015 too, with the first quarter seeing an increase of 10.6% in garment and footwear exports to $1.49bn, over the comparable period a year earlier. Garments accounted for $1.35bn, and footwear $137m.

The number of garment and footwear factories has also seen steady growth, reaching 626 at the end of 2014. Of those, 558 were garment factories and 68 footwear; an increase of almost 100 factories over a single year.

According to Ministry of Commerce figures, this growth continued into the first quarter of 2015, with 640 factories effectively operating at the end of March.

Fundamental rights
Further positive findings from the report related to child labour, with a strong drop in the number of confirmed under-aged workers in the factories suggesting that collaboration between the Garment Manufacturers Association in Cambodia (GMAC) and BFC is helping to address this issue.

In the current report, it stands at 3%, compared with 4% last year and 9% in 2011. For the period in question, there were 28 confirmed cases of child labour in garment factories last year, down from 65 in the last report. In footwear factories, this fell to 2 cases from 9 in 2014.

The BFC did, however, note: "We undertake a sample check in each factory to assess compliance on child labour. As such, BFC conduct investigations on the suspected cases that are a result of this sample and thus the prevalence of child labour in the garment and footwear sectors is likely bigger than the factory-level data in this synthesis report indicates."

Moving forward
Despite the fact there are still many issues that need attention in Cambodia's garment and footwear industry, the findings suggest the fall in compliance levels that started in 2010 is now on the reverse. And these improvements are having a positive impact on businesses.

The BFC, however, says that while it will continue to focus its effort on increasing compliance levels through independent monitoring and increased factory support, these efforts must be supported by "concrete, measurable actions" by industry players to complement individual factory efforts.

Suggestions include the government making effective use of enforcement mechanisms to uphold the provisions in the labour law, particularly in factories with low compliance; GMAC fostering a culture of compliance among its members; unions using the data to engage manufacturers in dialogue to find solutions to factory and industry-level problems; and international buyers using the report to engage suppliers and help drive improvements in factories.

"For its part and within its mandate, BFC will continue to look for ways to increase collaboration with its partners to deepen impact," it said. "In doing so, it will focus on those areas where it can lever most change, such as the delivery of advisory services at factory level and public reporting."

In next year's report, the BFC said it will cover the period 2013-2015, and will design a three-year strategy aimed at further increasing compliance levels in the industry.

Click here to view the 32nd Synthesis Report on Working Conditions in Cambodia's garment sector.