Cambodia’s Garment Exports Fall as Demand Drops in U.S., Europe

By Daniel Ten Kate and Carole Zimmer


March 18 (Bloomberg) -- Cambodia’s garment exports are declining as a global recession crimps demand in the U.S. and Europe, cutting into an industry that supports a 10th of the Southeast Asian country’s population.

In January, garment exports plunged 25 percent from a year earlier to $185 million, said Mean Sophea, who heads the Commerce Ministry’s Trade Preferences System Department. Over the past decade, they grew at an average pace of 28 percent per year, according to the World Bank.

“I’ve never seen garment exports drop this much,” Mean Sophea said by phone from Phnom Penh, the capital. “The government is trying to reduce expenses for exporters, but we have seen a lack of demand from the U.S. and Europe.”

The U.S. and Europe take more than 90 percent of clothes made in Cambodia. Southeast Asia’s second-smallest economy may shrink 0.5 percent in 2009, the International Monetary Fund said March 6, revising down its 4.8 percent growth projection made a month earlier.

The proportion of garment shipments to total exports is higher in Cambodia than any country except Bangladesh and Haiti, according to World Trade Organization data. Some 70 percent of the country’s clothes were shipped to the U.S., where it was the eighth-largest supplier in 2007, the World Bank has said.

Lost Jobs

About 30,000 Cambodian garment workers, or a 10th of the total, lost their jobs in the past year as factories closed, the World Bank said in a March 8 report. The industry accounted for 17 percent of Cambodia’s gross domestic product in 2007.

The garment industry took off 10 years ago after Cambodia signed a trade deal with the U.S. that linked market access with improved labor standards in its factories. Exports went from almost nothing in 1994 to $2.7 billion two years ago.

The money earned every month by those who sew and stitch jeans and T-shirts for retailers such as Gap Inc. and Stockholm- based Hennes & Mauritz AB supports as many as 1.5 million Cambodians, said Douglas Broderick, resident representative of the United Nations Development Fund in Phnom Penh.

“There’s a whole community around the garment sector, little vendors, landlords, food stalls,” he said. “All those people will get hit.”

Sary Muong, a Cambodian garment worker earning less than $2 per day, has struggled to provide her family basic goods like food and clothing. The 34-year-old single mother makes a monthly salary of $55 that supports her parents and 8-year-old daughter.

“Just look at the factories,” Sary Muong said from a one- room shack with no running water or toilet in Phnom Penh where she lives with her sister. “They’re closing. The living standards get worse and worse.”

Labor Standards

Cambodia’s garment industry has built a reputation for good labor standards over the past decade that the Commerce Ministry says contributed to its growth. In 2001, the government, garment factories, labor unions and the International Labor Organization, a UN agency, agreed to set up a monitoring agency called Better Factories Cambodia.

It files semi-annual reports on working conditions in factories that go to buyers like Nike Inc., Wal-Mart Stores Inc. and Adidas AG. Still, the higher labor standards haven’t stopped retailers from demanding ever lower prices, said Roger Tan, a factory manager and secretary-general of the Garment Manufacturers’ Association of Cambodia.

“Every factory is cutting costs now whether they like it or not,” he said. “The whole world is in deep trouble. Nothing should surprise anyone now.”

The government, reliant on overseas aid to finance a quarter of the national budget, has said it will extend tax breaks for clothing manufacturers to help reduce costs. Even so, Cambodia remains “increasingly affected” by the global slowdown, the IMF said, adding that its 2009 growth forecast may be revised again.

The world economy will shrink this year in a slump that is the worst “in most of our lifetimes,” Dominique Strauss-Kahn, the IMF’s managing director, said March 10. The World Bank, which also expects a contraction, said two days earlier that global trade would decline by the most in 80 years.

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Carole Zimmer in New York at czimmer2@bloomberg.net.