Concern in Cambodia as orders for garments wind down

Cambodia exported US$6.6 billion worth of garments, footwear and travel goods in the first half of this year, up by 40 per cent from the $4.72 billion logged in the same period last year. - PPP

PHNOM PENH (The Phnom Penh Post/Asia News Network): The commerce ministry and apex garment makers’ body have expressed concern over a decline in purchase orders from Western nations, Cambodia’s main garment export market, after members of the association reported reductions and revisions in contracts.

Speaking to The Post, Garment Manufacturers’ Association in Cambodia (GMAC) secretary-general Ken Loo commented that the unstable global environment and increasing likelihood of an economic downturn in Western countries, which constitute some of the biggest buyers of Cambodian garments, have sparked “serious concern over the export situation for the second half”.

He said that some of the “many” GMAC members that reported reductions and revisions in orders have gone so far as to seek advice from the association’s legal team on the procedures for partial suspension of production.

Loo affirmed that GMAC is conducting an “extensive survey among all members” to more accurately gauge the situation surrounding the purchase orders.

He pointed out that employers are now “going through a huge jump in labour-related costs”, with contributions to a new pension scheme for private sector workers set to be carried out from Oct 1 and the to-be-determined sectoral minimum wage to take effect on Jan 1.

“This double cost increase is serious enough to be worried, not to mention other issues like higher logistics cost and higher cost of compliance which is increasing [yearly]”, buoyed by buyer demand, he said.

He argued that while export growth is typically regarded as positive, figures can be misleading and don’t account for the net incomes of the businesses involved, after all costs are deducted.

“Statistically, the sector profit margin is running very low reflecting from the ratio of value added versus wage plus other labour-related costs,” Loo said.

For example, only 39 per cent of companies in Cambodia made a profit last year, 43 per cent lost money, while 18 merely broke even, he said, citing a study by the Japan External Trade Organisation (JETRO).

Going forward, Cambodia must take a proactive and cautious approach to issues that could put more cost pressure on companies, he suggested, adding that the Cambodia Garment, Footwear and Travel Goods Sector Development Strategy 2022-2027 launched in March has to be “followed through in speedy and forceful manner to help cushion the coming downturn, which is very real”.

Ministry of Commerce spokesman Penn Sovicheat told The Post that his ministry sympathises with GMAC’s concerns over the Ukraine conflict and other issues affecting Western countries that could jeopardise the flow of purchase orders for Cambodian textile-related products.

Although acknowledging that a protracted struggle in Ukraine could reduce European purchasing power, Sovicheat remarked that Cambodia has undergone similar experiences during the worst of the Covid-19 crisis.

Offering a solution, he called on exporters to look to destinations closer to home, and partners through free trade agreements (FTA), as Covid, the Ukraine crisis and soaring shipping costs hamper trade with more distant markets.

Hong Vanak, a researcher at the Royal Academy of Cambodia, underscored that the problem of dwindling orders from Europe requires public and private stakeholders to work together and explore new markets and recalibrate trade strategies with existing ones to facilitate the export of manufactured goods, thereby avoiding serious repercussions.

“Reduced spending in Western countries may be a factor in the decline in orders from this market. Therefore, stakeholders should also reflect on expenditures, such as transportations costs among other things, and make it easier for producers to pump out more,” he said.

According to the General Department of Customs and Excise, Cambodia exported US$6.6 billion worth of garments, footwear and travel goods in the first half (H1) of this year, up by 40 per cent from the $4.72 billion logged in the same period last year.

“Travel goods” is a designation that includes suitcases, backpacks, handbags, wallets and similar items.