Cambodia Textile and RMG Sector Profile

Mohammad Ishaque, Research Assistant, Textile Focus

Cambodia, strategically located in the heart of Southeast Asia, a member of Association of Southeast Asian Nations (ASEAN), is ninth among the top 10 garment exporters. Cambodia’s garment manufacturing industry is largely export-oriented and highly integrated into global supply chains.

Cambodia’s exports are dominated by apparel goods, plays a leading role in the Cambodia’s economy, by employing 575,000 workers, the majority of them women, has contributed 64.83% to total export earnings, were valued at $11.76 billion, by 15% GDP with 18.7% exports change & 23.1% merchandise term change in 2019. According to National Bank of Cambodia (NBC) report, in 2018, the apparel sector, has contributed 58.45% to Cambodia’s total export earnings, were valued at $10.00 billion from $8.05 billion in 2017, rose by 24% from 7.6%.

In chart-1, it is seen that in 2018, Cambodia’s garment exports have indicated a large change with a CAGR of 11.0 per cent, were valued at $10.00 billion from $6.95 billion in 2016 & that’s expected to reach $15 billion in 2021 with a decent CAGR of 9.5 per cent over 2018.

In 2018, The European Union (EU) represents the largest market for Cambodian garment exports, accounting for approximately 44.12 % of the total manufacturing, followed by the United States 26.95%, Canada 11% & Japan 9%.

From chart-2, In 2013, has shown that the US was the largest garment export destination for Cambodia, contributed 40.79% export share, were valued at $1986.80 million to $4967 million export earnings followed by the EU and Japan.

Although, in 2018, the EU became the largest garment export destination for the country with an export share of 44.12%, were valued at $4410.81 million to $10.00 million total exports followed by US and Japan.

Additionally, in 2021, Garment exports to the EU, US and RoW are expected to rise to $6848.69 million, $3453.86 million and $4697.45 millions of total exports $15 billion with CAGR of 10.0, 2.0 and 8.3 per cent from 2018 respectively where 45.66% EU market share ,24.36% USA & 29.98% RoW market share from chart-3.

Whatever, The Cambodian garment sector benefits from the EU’s ‘Everything but Arms-Scheme (EBA)’, which allows low developing countries such as Cambodia duty-free access to the EU’s market for all export goods but in October 2018, The EU announced that it had launched the procedures for the withdrawal of Cambodia’s benefits under EBA over the country’s allegedly poor human rights record. The process is of 18 months which has already begun since February 2019.

Meanwhile, earlier this year, two US senators also introduced the Cambodian Trade Act of 2019 bill, requiring the administration to re-examine Cambodia’s eligibility to access the preferential trade treatment granted by the US under the GSP.

However, Cambodia’s garment exports growed at a slower speed but the sector has contributed significantly, increasing the investment is a key driver of growth of Cambodia’s garment manufacturing industry by creating more jobs in the country. According to Ministry of Commerce (MoC) of Cambodia and International Labor Organization (ILO), in 2018, the workers have employed in the garment sector stood at 548,000, grew by 4.9 per cent from 523,000 in 2017.that’s estimated to reach 633,000 workers in 2021.

The chart-4, has indicated that the statutory minimum monthly wage for 2019 is $182 with average minimum annual wage $672, representing an increase of 7 per cent from $170 in 2018 & forecasting to reach $208 in 2021 with a CAGR of 7.0 per cent which has been rising since 2013;

Additionally, The Cambodian Investment Board has invested for exploring the sector, increased to $235 million in 2018 from $175million in 2016, had jumped by 34.3% in two years & that’s estimated to reach $258 million in 2021, with a CAGR of 3.2 per cent.

According to the Ministry of Labor and Vocational Training (MoLVT) report, in 2018, the number of operational garment factories in Cambodia rose to 625 from 556 in 2016. That’s expected to increase to 745 by the end of 2021, with a CAGR of 6.0 per cent.

Meanwhile, the impact of price index for garments to US & EU has a changed due to Cambodia’s business strategy. In 2018, garment prices to the EU increased by 2% & also increased in the US though it was negligible in 2018 compared to the baseline of 2012.

However, in 2016 most of the export earnings came from manufacturing goods, contributed 33% to the total export earnings of Cambodia.

Whatever, the country’s industrial development was supported by the Multi-Fiber Arrangements (MFA), the garment sector remains at the heart of the Cambodia’s economy, contributing a large percent of export earnings. Garment workers earn a living for themselves and they support others. Garment sector is exploring day by day through the government incentives offered such as 100 percent foreign equity ownership, tax holidays of up to 9 years & exemption from import duty on machinery and equipment.

Meanwhile, Cambodia is at its strongest stage to reach their target in 2021 especially due to their geographic location & political stability with better governance. Although, on moving forward, the sector may face more challenges ahead for having improvement & sustainability such as infrastructural gaps, high energy costs, Cambodia’s minimum wage increased (leading to higher production costs), faces threats from increasingly competitive regional neighbors, the inevitable shift to automation and the potential loss of preferential trade agreements.

Additionally, to achieve sustainability & increase the productivity of the industry, is also supported through various vocational education and training activities conducted by the Ministry of Industry. This program creates competent and productive industrial human resources during its next period.

Cambodia’s garment sector is the backbone of the country’s export-driven through human capital development, employment generation and foreign direct investment (FDI). The growth in the export of garments is driven by the global economy performing better. To ensure the target, there is a culture of compliance in the sector, where workers feel safe, healthy and respected, is vital for productive workplaces and for the overall social and economic development of Cambodia. Creating this culture of compliance will be Cambodia’s focus with its partners during its next strategic phase.