Recent data from the International Labour Organisation say that despite implementing a $128 minimum wage in January, the Kingdom’s garment and footwear sector has grown by over 10 per cent in the first quarter this year, although experts suggest a wait-and-see approach to determine its full impact.
In the first of a newly launched quarterly bulletin on the sector’s performance, the International Labour Organization (ILO) said Cambodia’s garment sector grew by 9.3 per cent to $5.8 billion last year, employing over 600,000 workers in 640 factories.
The report, released during the resumption of talks on a further wage increase for next year, also points out that despite concerns that this year’s wage increase could lead to a “collapse of export volumes”, the industry grew “favourably”.
Matthew Cowgill, chief technical adviser for the ILO’s regional office for Asia and the Pacific, said that while the ILO doesn’t take a position on the appropriate level for the minimum wage, the sector has performed well.
“Employment has continued to grow. Factories, on net, have continued to open,” Cowgill said.
While there is maybe not a visible impact of the wage hikes in the first quarter, Cowgill said that any impact will be reflected in upcoming bulletins.
“And it is entirely possible that any impact could be felt with a delay,” he added.
“That is conceivable and I don’t rule that out.”
Tripartite discussions – involving the government, labour unions and manufacturers – are currently underway, with unions pushing for an increase in the minimum wage, based on a government study which concluded that a living wage for workers was between $157 and $177.
GMAC’s secretary general Ken Loo said first quarter growth numbers would not necessarily be indicative of the wage increase’s impact on the sector, and that it could be seen in the following quarters.
“Any impact that the minimum wage increase has will not be reflected in first quarter exports,” he said.
According to Loo, it would have been ideal to first wait and assess the impact of January’s wage hike before discussing the any future wage increases.
“The reality is that the government has already committed to an annual review, so we will have to deal with the situation,” he said.
“Ideally we should wait.”
Loo added that while wage pressures have made Cambodia’s garment sector less competitive compared to other garment manufacturing countries, like Bangladesh, Myanmar and Sri Lanka, improving productivity can help offset some of the cost.
“Will it offset all the cost? No,” Loo added.
While increased competition from a country like Myanmar – which has been on the reform path lately – is a worry, Srey Chanthy, an independent economic analyst, said investors who view Cambodia’s economy as more than just cheap labour will not fret about wage increases.
“Exploitative investors always have problems with increased wages,” he said.
“Good investors are happy to make normal profits.
But exploitative investors only want economic profits.”
According to Chanthy, while the garment sector will do well in the short- to medium-term, there still needs to be a push to diversify the economy away from its reliance on garments.
“Whether or not the delay in diversification into other value-added industries occurs depends entirely on the will and effort of the government to diversify away from the garment sector.”