Cambodia Investment Review

A sustainable garment industry is ‘critical’ for Cambodia’s economic development in 2023

A sustainable garment industry is ‘critical’ for Cambodia’s economic development in 2023

Aaron Woolner

A sustainable garment footwear and travel (GFT) goods sector is ‘critical’ to Cambodia’s future growth even as the Kingdom looks to diversify its economy into producing higher value products, according to H.E Dr Huot Pum, the Under Secretary of State at the Ministry of Economy and Finance (MEF).

Dr Pum was speaking at the launch of the first in a series of GFT sector briefs, which was published by Eurocham’s Responsible Business Hub Cambodia (RBHC), in conjunction with a number of other stakeholders.

In March this year, the MEF published its ‘GFT Sector Development Strategy 2022-2027’, which contained five goals: to promote investment in value-added products and supporting industries, better working conditions, increased diversification of GFT products, and improved skills training.

Read more: Cambodia launches first-ever Responsible Business Hub for adhering to global supply chain compliance

Dr Pum highlighted the latter area being as critical given the 50,000 job losses among GFT workers during the pandemic.

‘We want to change the GFT sector’s way of doing business to one which is more sustainable, more high tech, and with more value added. And at the same time, how can we re-skill a worker in those sectors to move to the middle management level?,’ said Dr Pum.

“We don’t want them to get stuck in the sector for another 10 to 20 years and retire without being able to support themselves. Because if they can support themselves, then the government can use its limited resources on other sectors instead,’ he added.

Change the GFT sector’s way of doing business

The importance of the GFT sector was demonstrated by opening speaker H.E. Sok Chenda, Secretary General of the Council for the Development of Cambodia (CDC), who described it as the backbone of the country’s economy for more than two decades.

Quoting from the RBHC sector brief, Mr Chenda said that in the decade ending in 2019, the country’s GDP grew by about 7% a year, with roughly a quarter of that growth coming from the apparel industry.

Dr Pum said the authorities wanted to change this number. 

“Frankly speaking, the government wants to diversify the economy, it doesn’t want to rely on the garment sector alone, but other non-government sectors such as electronics or automobiles. If Cambodia wants to stay competitive it has to diversify its economy.”

Fellow speaker Massimiliano Tropeano, a garment and sustainability expert, agreed that the economy was not yet diversified enough but said that the short-term outlook for Cambodia’s GTR sector was positive, with production now equal or even higher than its 2019 levels and export growth potentially reaching 17% in 2022.

However, he cautioned over the impact of global economic headwinds on the local economy, saying that Cambodian factories are already seeing a drop in orders as a result of geopolitical factors.

“According to the WTO, demand has lost momentum in the second half of 2022. It’s not a phenomenon that Cambodia is facing alone but its impact is already tangible here in terms of how many orders the garment factories have received in the last three months. Some production managers are saying this is now a serious situation.”

Cambodia needs a GSP to maintain its competitive advantage

Speaking on a later panel, Ken Loo, general secretary of industry group the Textile, Apparel, Footwear & Travel Goods Association in Cambodia (TAFTAC), was also downbeat over the short-term outlook for GFT firms due to the failure to restore the lapsed General System of Preferences (GSP) agreement with the US.

Loo said the US Congress was unlikely to pass this measure before the middle of 2023, putting domestic producers at a disadvantage versus other producers in the region.

“The US accounts for 43% of our exports and is the biggest single market. Cambodia needs a GSP to maintain its competitive advantage over countries like Vietnam but it is likely to take at least another five or six months to get it. The short-term outlook doesn’t look that bright,” said Loo.

Read more: Balancing sustainability and profits in Cambodia’s garment sector      

The sector brief was published by RBHB in conjunction with several partners: German development agency GIZ, Fabric Cambodia, TAFTAC, the International Labour Organization, as well as EuroCham itself, and it is intended to be the first in a regular series of reports on the industry.

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