Logo of Phnom Penh Post newspaper Phnom Penh Post - US economic downturn threatens garment industry

US economic downturn threatens garment industry

US economic downturn threatens garment industry

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Falling US orders, spiralling transportation costs and low worker productivity are putting the nation’s top export earner and leading employer at risk of job loss

AFP

The garment industry employs some 360,000 workers, many of whose jobs will be put at risk if US export orders continue to decline.

GETTING DRESSED

Cambodia exported US$967.9 million worth of garments to the US in the first five months of 2008, with Vietnam exporting $1.9 billion and China $12 billion, according to the US Commerce Department. The US buys 70 percent of all Cambodian garment exports.

T

HE once-booming garment sector has stagnated due to the impact of the US economic slowdown on export orders and the toll that spiralling costs are taking on margins.

The Garment Manufacturers Association  of Cambodia (GMAC) has predicted the sector's growth would slow from 20 percent in 2007 to just five percent this year, spelling trouble for Cambodia's largest export earner, which employs some 360,000 workers.

‘‘The health of the garment sector is threatened this year and it is time for serious concern. The question is how we will survive with giant competitors like China and Vietnam," said GMAC external affairs manager Kaing Monika.

The past decade has seen industry growth of more than 10 percent per year but the US slowdown, spiralling costs and what employers say are overzealous trade unions and low worker productivity, are hurting the sector.

Kaing Monika said the sector grew only three percent in the first half of 2008.

"The slowdown only started to hurt us recently, but we expect demand for clothing to fall further," he told the Post on Monday.

The US slowdown has been especially damaging to Cambodia because, unlike those in neighbouring Thailand, Cambodian garment makers have failed to diversify to export markets in Europe, Russia and the booming Middle East

About 70 percent of exports go to the US with only 24 percent going to the EU. The US slowdown is expected to lead to further declines in Cambodia, with clothing sales dropping 5.5 percent in July alone.

Power prices hit home

Rising energy costs were also taking a toll on the sector, as most garment factories rely on expensive diesel generators to power their plants.

"Electricity costs were about five percent [of total costs] a few years ago, and seven percent in July 2007, but they are now 10-15 percent," said Kaing Monika. Electricity rates were significantly higher than in neighbouring Vietnam and Thailand, he noted.

With pricier fuel, shipping costs have risen and logistics companies have become less reliable. "Trucks are refusing to go to the port unless they have full containers. This is slowing the process down and leading to expensive delays," Kaing Monika said.

Frequent strikes and what employers say is low worker productivity have also taken a toll.

Cambodia has lost its reputation because of too many unions and too many strikes.

"Cambodia has lost its reputation because of too many unions and too many strikes," said GMAC president Van Sou Ieng. "A Chinese worker produces 100 to 120 shirts per hour, a Vietnamese worker produces 60 to 70 shirts per hours, and a Cambodian worker produces between 30 and 40 shirts per hour."
Free Trade Union president Chea Mony said that  the industry itself was to blame for many of the strikes because it sponsored pro-management puppet unions.

Shifting the blame, Van Sou Ieng said, "International buyers have put a lot of pressure on us. Before they gave us 90 days to deliver. Now they give us only 60 days. If we don't deliver, they choose other countries like Bangladesh."

Oum Mean, director general at the Ministry of Labour, disagreed with GMAC's gloomy prognosis for the garment industry, saying, "The number of factories has actually increased and everyone is employing more workers."

There was some hope for a garment sector pick-up with China and Vietnam diversifying away from garments and into heavy industries like cars, Oum Mean said.

"Cambodia also has preferential trade access to the west with lower taxes, and quotas," he added.

Additional reporting by George McLeod

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