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Cambodia garment factories close amid political uncertainty

Posted by pakin On August - 23 - 2016

Political uncertainty in Cambodia has forced the garment and footwear industry to look to alternative countries to meet production needs, forcing more than 70 factories to close and a sharp drop in orders, a senior official from the Garment Manufacturers Association in Cambodia (GMAC) said.

Speaking at a press conference before the 6th Cambodia International Textile and Garment Industry Exhibition and Machinery Industry Fair in Phnom Penh on Monday, Ly Tek Heng, the GMAC operations manager, painted a worrying picture of the first eight months of the year, the Khmer Times reported on Tuesday.

“I think the political situation has affected business, both businessmen and investors. When one country has instability in politics, it is difficult to make investments and there are concerns, especially from buyers,” he said.

“The political issues, illegal demonstrations and competition from the other garment and footwear exporting countries such Vietnam, Bangladesh and Myanmar has deterred investors from investing in Cambodia and has made buyers reluctant to order products from Cambodia.”

He said that in the first eight months of this year, more than 70 factories had been shuttered, while only 20 new ones had opened. This came as orders from buyers for footwear and clothing made in Cambodia dropped by almost 30%, forcing not only closures, but the slashing of hours for workers.

The decline in orders has had a knock-on effect within the industry, leading to a decline in orders for machinery used to make clothing and footwear, warned Akai Lin from Chan Chao International, which organised the fair.

“For the last few years, the demand for machinery in manufacturing has been great, but now it is decreasing slightly due to factory closures, leading some buyers to wait for the political situation to improve before making orders,” he warned.

Commerce Ministry spokesperson Soeng Sophary on Monday downplayed the news, telling the Khmer Times that the closure of factories did not mean the industry was under threat. She blamed global insecurity for the closures, citing the upcoming presidential elections in the United States, the recent referendum in the United Kingdom where just over half the population voted to leave the European Union, as well as the high price of electricity.

“Cambodia is a small country which depends on garment exports, and as such is affected by outside issues as our export market focuses on the UK and US. The factory closures are maybe due to changing demand in the EU and US. The economic waves in foreign countries have an impact on Cambodia,” Sophary said.

“However, it is not only the impact from outside the country, but also domestically, since investors are looking for profit with low operational costs. So if the operational costs in other countries are lower than Cambodia, they could turn to those countries. We have an issue on electricity and labor costs that we be must be alert to,” she said.

She stressed that it was too early to judge whether the industry was in trouble, as the 70 closed factories need to be compared with the 20 which have opened, which may be bigger or more important.

In contrast to GMAC’s figure of a 30% drop in buyer’s orders suggesting trouble in the garment sector, recent figures released by the ministry paint a far healthier picture. The ministry stated that total garment and footwear exports in the first quarter of this year have increased by 39% to $2 billion.

The EU was the largest market, taking $717.8 million in goods, followed by the US at $419.2 million and $41.7 million to Canada.

In 2015, total exports in the sector were $6.3 billion, a 7.6% growth over 2014, with 699 factories ‒ from 73 in 2014.

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