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Wages not cutting into exports

A garment worker tags items of apparel and performs final quality checks at a factory in Phnom Penh’s Por Sen Chey district last year.
A garment worker tags items of apparel and performs final quality checks at a factory in Phnom Penh’s Por Sen Chey district last year. Vireak Mai

Wages not cutting into exports

Despite industry concerns that a minimum wage increase to $128 earlier this year would hurt Cambodia’s garment exports, the garment and footwear sector – a mainstay of the economy – showed robust growth for the first half of 2015, netting around $3 billion, according to an International Labour Organization bulletin.

The Cambodia Garment and Footwear Sector Bulletin, released earlier this week, reported that the sector’s shipments grew by around 13 per cent, compared with the same period last year, with garments alone accounting for more than $2.7 billion of these exports.

The footwear sector, though much smaller with revenues of around $282 million in the first half of the year, recorded a strong 46 per cent year-on-year growth, with garments growing a more modest 10 per cent.

Matthew Cowgill, chief technical adviser for the ILO’s regional office for Asia and the Pacific, said that the previous ILO bulletin in July was “tentatively positive” that the 2015 wage hike had no impact on the sector, while with the new second quarter data “it still appeared that growth in the industry was solid”.

“There doesn’t appear to be any obvious evidence of significant effect on the second quarter [for exports],” he added.

Cowgill said that while the minimum wage has continued to increase over the last few years, from $80 in 2013 to $128 in 2015, an examination of the data shows growing employment, new factory openings and rising exports – with no significant evidence to prove wage hikes are hurting the sector.

However, he said, the ILO bulletin states that there could be a point in the future where a rapid increase in the minimum wage could lead to negative effects becoming apparent.

“We make no prediction at all about the level of the minimum wage at which the negative effects might become apparent,” Cowgill added.

Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia (GMAC), said that any visible effects of the 2015 wage hike would only be apparent in the second half of the year.

“Exports are up, but that’s looking at the first six months,” he said. “Orders for the first six months were probably placed before the minimum wage was announced.”

According to the bulletin, Cambodia’s minimum wage in 2015 was higher than its competitors, such as Sri Lanka and Bangladesh, but lower than heavyweight garment exporters, such as China, the Philippines and Thailand. But, these countries, the bulletin said, continue to have higher aggregate labour productivity than Cambodia.

Following tripartite wage negotiations, the government agreed in October to set a new minimum wage of $140 effective January 1, 2016. This despite factory owners demanding a smaller increase, claiming that worker productivity did not correlate to past increases in the minimum wage.

Loo said garment factory owners have made attempts to provide their workers with better technology and training to increase productivity on the factory floor, but there has been little cooperation from workers to improve the situation.

“Any investment in training and better systems will not have the intended effect if we do not have the cooperation from workers,” he added.

Pav Sina, president of the Collective Union of Movement of Workers, said most workers were interested in improving their productivity and enhancing their skills.

He added that the bulletin’s findings were encouraging and good for workers, and were contrary to what factory owners have claimed so far.

“What GMAC has claimed is just a forecast, but what the ILO has said is based on research and analysis,” he added.

The bulletin also highlights that Cambodia was the world’s eighth largest garment exporter, increasing its market share to 1.8 per cent in 2014, from 1.6 per cent in 2013. Mainland China continues to dominate global garment exports with a 54.5 per cent share.

The sector continues to be one of Cambodia’s largest employers, with more than 600,000 workers, 86 per cent of which were female.

ADDITIONAL REPORTING BY SOR CHANDARA

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