On Wednesday, the European Union announced the selective withdrawal of Cambodia’s Everything-but-arms (EBA) trade status after a year-long review of the Kingdom’s human rights and democracy situations. While the EU claimed that the removal “will affect selected garment and footwear products and all travelling goods and sugar”, which will cost Cambodia about $1.1 billion, Heng Sour, Ministry of Labour spokesman, says the EBA cut is not a chief challenge to the country’s economy. Cambodia has more important problems to deal with, he adds.
KT: Can you give us a brief update of the garment sector in Cambodia as it is now certain that there is going to be an EBA cut?
Mr Sour: The Cambodian government and people have not been doing nothing while waiting for the result from Brussels. We have forecast what would possibly happen and arranged several scenarios for dealing with both unexpected and projected challenges. Instead, we are thinking about serious problems we are facing now, which is the lack of raw materials due to the Novel Coronavirus outbreak. It is an emergency situation haunting countries in Asia, including Japan and South Korea. The garment sector in Cambodia, just like those in Bangladesh, Thailand and Vietnam, is also suffering from the same issue. We are working closely with local garment factories, GMAC and other relevant institutions to ensure that there is enough raw material for production.
Currently, we have 1,209 garment factories all over the country employing about 860,000 workers. We see an increase in these figures compared to last year. Meanwhile, according to data from the Council for the Development of Cambodia (CDC), no fewer than 100 new factories shall be added this year. We do not see any negative change in our garment industry.
KT: How many garment factories were closed last year and how many were opened?
Mr Sour: In 2019, 146 factories were closed but the number of new factories was 189. About 50,000 workers were affected by the closures, but the new factories led to an increase of more than 80,000 new jobs. For now, the general concern for garment factory management in Cambodia is to find workers. In Sihanoukville, for example, more than 10,000 jobs have still not yet been filled. The figure in Kampong Speu and Phnom Penh are respectively more with about 8,000 and 20,000. The Ministry of Labour has its hands full helping to find workers for those factories.
KT: Speaking of the raw material issue, GMAC and the Ministry of Labour announced that this will hit garment factories in the next two months, causing some of them to suspend production. How many factories and workers will be affected by this complication?
Mr Sour: Please allow me to clarify. Some garment factories in Cambodia have been worried that if the disruption in the supply chain from China is going to last longer, they will have to suspend their production for three weeks or one month. So far, about 15 factories have come to us to apply for the suspension. There are about 7,000 employees working for them. According to the GMAC, by the end of February, 100 percent of garment factories in Cambodia will have enough raw material for their operations; however, by mid-March, five percent of them will have run out of material and by the end of March, 20 percent will not have material for their operations. Therefore, if the disruption in supply chain goes on until the end of March, about 200 factories will be affected. Yet, we have also received good news from China that 70 percent of the raw material factories have resumed operations.
KT: Let’s get back to EBA. How do you think the EBA cut will affect the current situation of Cambodia’s garment and footwear sector?
Mr Sour: There are more than 1,000 factories operating in Cambodia and not all of them export their products to Europe. Half of those export to the US and 10 percent to Japan and Canada. Among those who sell their products to Europe, 18 percent export to UK, which is no longer a member of the European Union. So, a decision made by the EU has no effect on the British market. Even if the EU removes EBA completely from Cambodia, we would not see big impacts since the Royal Government has introduced overall reforms since the beginning of this term to facilitate business operations in Cambodia, including the alleviation of bureaucratic procedures and reductions in public service fees and utility prices. These reforms will reduce the operating costs for businessmen, which could compensate for the new tariff imposed by the EU. The European customers do not respond to tariff but the final prices. But, when the EU removed preference from selected products, the manufacturers can adapt their production chains accordingly. Emerging automation in the industry, in addition, further contributes to the reduction of operating costs. I am still optimistic that the EBA cut is not going to have a big impact on Cambodia’s economy.
KT: Garment factory workers all over the country are understandably still worried about the future of their jobs. What can you tell them to relieve their stress?
Mr Sour: As I said, the EBA cut will have some effects, which we are prepared to handle. All related ministries and institutions are working based on a scenario that the EBA preference is no longer provided from 2020 onward. We are ready to deal with the worst. So all workers and their families should not be anxious. Chaos can only rise through fake news and rumour.