Investment in the garment and footwear sector, one of Cambodia’s economic pillars, is growing at a slightly slower pace in 2019 compared to last year, according to an official from the Garment Manufacturers Association in Cambodia (GMAC).
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The deceleration is likely the result of the European Union’s decision to review Cambodia’s Everything-but-arms (EBA) status as well as increases in the sector’s minimum wage.
Some investors may start adopting a wait-and-see approach given these factors, Kaing Monika, GMAC deputy secretary-general, told Khmer Times yesterday.
He said the industry is still receiving foreign direct investment (FDI), but that investment growth has decelerated.
“Of course, we are facing a few major internal challenges, but there are also a few external factors that are helping Cambodia,” Mr Monika said, bringing up the trade war between the US and China.
“The trade war is a global concern, but it turns out to be in favor of Cambodia as factories need to relocate out of China to avoid possible tariffs.”
He said other factors leading firms to relocate out of China are wage increases and an insufficient labour supply, particularly in low-value industries like garment and shoes.
During the first four months of this year, 25 new factories joined the association, compared to about 40 during the same period in 2018. The number of members, including garment, footwear, and travel goods, is now close to 600, he said.
“While garments is still doing ok, the footwear sector is doing better with the local expansion of existing factories. Factories are recruiting more workers,” he said, adding that currently, and in the near future, the best performing sector is travel goods, which enjoys privileges under the US’s Generalised System of Preferences since 2016.
Mr Monika said exports of travel goods to the US under Chapter 42 were up 100 percent in the first two months of the year, compared with the same months in 2018. A total of $111 million were exported, he said.
During the whole of 2017, $186 million worth of travel goods were exported from Cambodia to the US, while in 2018 that number rose sharply to $416 million. Mr Monika said this year it could exceed $600 million.
He pointed out that the Trump administration has not taken any action to review Cambodia’s GSP status, adding that if India loses its own GSP with the US, firms will need to chain their supply chains, which could benefit Cambodia.
India shipped over $300 million worth of goods to the US under Chapter 42 of the GSP in 2018.
“The time period under which President Trump can withdraw GSP for India begins on Monday – so we will see if he follows through or delays the decision, but there is a period of uncertainty that is an opportunity for Cambodia to attract additional sourcing on travel goods, according to GMAC’s lobby firm based in Washington,” he added.
Van Sou Ieng, recently re-appointed as president of GMAC, said during the association’s annual meeting on Saturday that investment in the manufacture of travel goods will see double-digit growth in the next two years.