The European Commission on February 12 announced the partial withdrawal of the Everything But Arms (EBA) scheme, citing a severe and systematic violation by Cambodia of principles in the four core human and labour rights.
The suspension affects one-fifth or €1 billion ($1.08 billion) of Cambodia’s annual exports to the European Union.
The Ministry of Economy and Finance on January 30 downgraded its economic projection for this year to 6.1 per cent from 6.5 per cent, citing the impact of the EBA withdrawal and the outbreak of Covid-19 in China.
To discuss the impact that the partial withdrawal of the EBA will have on the Cambodian economy, The Post’s May Kunmakara speaks with In Channy, president and group managing director of Acleda Bank Plc.
How do you think the government will react to the partial withdrawal of trade benefits under the EBA?
The government has a very firm and clear policy when it comes to the EBA. I often say that the EU must consider the situation in other Asean member states before imposing sanctions on Cambodia.
For example, Vietnam and Laos are communist countries, so their human rights situation cannot be better than Cambodia. Why would the EU sanction us but reward Vietnam? It doesn’t make any sense. It proves that the decision on Cambodia is politically motivated.
There are many instances of human rights violations in Asean. In the Philippines, people are sentenced to death without trial, while in Thailand, many newspapers have been shut down and political parties have been dissolved.
Here we have a lot of political parties, media organisations and NGOs, so I think the decision made by the EU is unfair.
Given that a lot of garment workers take loans from banks and microfinance institutions, how would you say the EBA decision will impact the financial industry?
The financial sector will be indirectly affected. The industry that will be impacted most directly is the garment industry. Based on figures from the Garment Manufacturers Association in Cambodia (GMAC), around 40,000 jobs will be affected by the EBA decision and by the coronavirus outbreak in China.
Covid-19 is set to have a huge impact on the garment industry, as fabric factories in China are shutting down, which means sooner or later garment factories here will run out of raw material.
Some local factories are likely to suspend operations as the supply of fabric dries up. I believe the workers that will be laid off by factories that suspend operations will find new jobs with which to support their families, so I don’t think the impact on the industry will be that big.
Given the EBA and the coronavirus outbreak issues, what is the outlook for the financial sector this year?
Our biggest concern is the virus outbreak because it will affect investor sentiment and affect the whole economy. It will impact the hospitality, transportation, and manufacturing sectors, among others.
A good thing here in Cambodia is that we have hot weather. The virus cannot thrive in this climate. China has predicted that the outbreak will be over by April when the temperature there rises.
Let’s talk about the EBA. We all thought that the EU was going to revoke the EBA in full, but it ended up only withdrawing trade preferences on certain garment products.
This means the impact won’t be as severe as anticipated. This is good news for the financial industry, although it is tricky to make predictions because, as I said, the EBA only affects us indirectly.
I think the impact of the EBA on our industry is limited because we are flexible – we can alter our products based on market needs.
Last year, the financial industry grew by about 20 per cent. If this year, we grow slightly less (say below 20 per cent), it would be good news as the International Monetary Fund and the World Bank have warned us of the risk of fast growth.
Also, the industry is now diversifying and doesn’t rely so much on loans to the real estate sector.
This interview has been edited for length and clarity.