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Keeping the garment sector healthy

Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia discusses the state of Cambodia’s garment industry and the effects of the global financial crisis on the Kingdom’s most important export industry.

Could you tell us about GMAC, when was it established and why it is so important?
GMAC was formed in 1996, basically to allow all garment factories which were present at the time to have a voice to make representation to the government. Most garment factories at the time were [owned by] foreign investors.

Today, we have 255 members comprising all the exporting garment factories in Cambodia. Any factory that produces garments for exports has to be a member of GMAC.

How many garment factories operate outside of GMAC?
We do not have the exact figure, but I think there are about 100 factories. These factories either produce for the local market or act as subcontractors to exporting factories.

How much employment does the sector provide?
The industry employs approximately 290,000 workers directly. At the height of the industry before the financial crisis, in January 2008, the industry generated employment for 350,000 workers.

How has the global financial crisis affected the garment industry?
The garment industry is export-oriented. Almost all the garments produced are exported. During the crisis, there was an effort to diversify, and currently the US market accounts for 65 percent, Europe 25 percent, and another 10 percent to other countries such as Japan, Canada, etc.

The problems of the industry did not arise … because of the crisis. The crisis basically made these challenges more obvious, [such as] corruption. In addition, we have some well-documented infrastructural deficiencies.

What infrastructure deficiencies most affect the garment sector? How can they be corrected?
One of the main deficiencies is the high price of electricity. In Cambodia, the [cost] is about US$0.20 a kilowatt-hour, while in China and Vietnam it is about $0.08. If we want to compete with these two countries, then this becomes an important issue to resolve. Other challenges like compliance are not significant problems – we always comply with the law.

Moreover, in Cambodia we have to import all our raw materials for production.

Another major problem that we face here is the unions. First of all, there are simply too many unions. We have member factories that currently have more than 15 registered unions. Most unions don’t respect the law and often compete among themselves, causing the factories to suffer. GMAC supports the labour movement, but we need to ensure all unions follow the law, and in particular not disrespect the law by conducting illegal strikes.

Some say our garment industry has not yet escaped the nightmare of the crisis. What is your view?
We don’t know if the crisis is over or not – nobody knows. But I can say there are still a lot of challenges as mentioned above.

What did GMAC do during the economic slump?
During the crisis, GMAC of course lobbied the government to provide assistance to help us tide over.

Samdech Prime Minister Hun Sen suspended the payment of the 1 percent Advance Profit Tax for all GMAC members for four years from 2008-2012.

The government reduced our mandatory contribution to the National Social Security Fund for the period of 1 January 2009 to 31 December 2010.
Garment factories currently pay 0.5 percent of the 0.8 percent of salary mandated under the law while the government subsidises and pays for the remaining 0.3 percent.

Generally, our garment exports have relied on the US market, but its economy was hard-hit during the crisis. How are we diversifying?
Garment factories in Cambodia are contract manufacturers. We do not own any brand and rely on major international brands to place orders with us. We export our products to the destinations as dictated by our buyers.

The Cambodian government recently approved an increase in garment workers’ minimum wage from $50 into $61. How does this impact the industry? Would GMAC support or consider any further increases?
Of course, this definitely affects our members. But we feel that it is time to review the minimum wage as per our agreement made in 2006 during the previous adjustment in the minimum wage.

GMAC honoured our commitment to review the minimum wage in 2010, and we have done so, even though such an increase in wages would result in even greater pressure on the industry because of rising costs of raw materials and continued decline of our selling price.

The Labor Advisory Committee decided the new increase in the minimum wage would be effective from October 2010 through to 2014 and that the next review will be made in 2014.

What competition do we face from other countries?
Our main competitors are Vietnam and Bangladesh because they target the same market segment. Bangladesh is also a [UN-designated] Least Developed Country, and has similar trade preferences to us, but Vietnam is not. But Vietnam has other advantages like higher productivity and fewer unions. Both Bangladesh and Vietnam also has a supply of locally produced raw materials.

Chinese labour costs are growing higher in the garment industry. Could this attract investors to Cambodia?
In China, not only are labour costs going up but it is also increasingly difficult to attract workers to garment factories.
We have to make sure that we show a condusive investment climate. Even as Cambodia’s costs are also on the rise, if we can ensure such increase is less than that of our competitors, and that other factors remain stable and predictable, I am sure we will be able to attract many investors.

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