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High minimum wage hurts competitiveness

High minimum wage hurts competitiveness

Dear Editor,

I refer to the letter from Sam Rainsy, minority leader of the National Assembly published on June 29.

Excellency Sam Rainsy noted that “it would be only fair and socially responsible to recognise that, in terms of living standard, Cambodian workers still have a long way to catch up with their counterparts in many countries, especially Vietnam”.

This comment was made with reference to my statement in an earlier article that the current minimum wage in the garment and footwear sector in Cambodia is already high and that demands for $177 per month are unreasonable and will hurt the sector’s global competitiveness.

My comments referred to the economic realities of the wage demands, while his remarks focused on the social aspect.

Ideally, we would like to pay our employees more and continue to receive orders from the buyers.

The truth is that we are losing orders to our competitors in Vietnam and Bangladesh because the prices that they can offer are much lower than ours.

We all have to realise that in the real world, buyers are free to source from any country and are not obliged to source from Cambodia.

If our factories are unable to offer a competitive price to attract the buyers, then the business will simply go to another factory in another country that can.

Sam Rainsy also pointed out that “workers’ salaries represent less than 20 per cent of total production costs and are not the only – and not even the main – factor affecting the industry’s competitiveness”.

He states that other inefficiencies in our economy such as high transportation costs, energy costs and unspecified “corruption-based costs” are the real culprits.

It is vital to point out to all your readers that in apparel manufacturing, raw materials often account for about 60 per cent, labour represents about 20 per cent and all other costs make up the remaining 20 per cent of our total production costs.

In Cambodia, all of our raw materials are imported, which means workers’ salaries make up the single largest component of costs incurred locally by the factories and actually account for almost half of all these local costs that include transportation, energy and other so-called “corruption–based costs” mentioned above.

To raise the minimum wage to $177 as demanded by some trade unions would result in labour costs accounting for up to 35 per cent of total production costs.

This would be impossible even if we immediately eliminate all other so-called “corruption-based costs”.

We should all work towards creating an enabling environment for business and attracting more investments to Cambodia.

As the demand for workers increases, the forces of supply and demand will naturally cause wages to rise.

On the other hand, the current practice of setting an unrealistically high minimum wage without any consideration for economic factors such as productivity and competitiveness will only act as a deterrent for investors and lead to lower demand for workers.

This surely does not contribute towards achieving the long term sustainable development of Cambodia!

Ken Loo
Secretary-general
GMAC

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