Global downturn threatens Cambodian garment success

By Ek Madra


PHNOM PENH (Reuters) - Mon Moeun, one of thousands of Cambodians pulled out of poverty by a job in the garment trade since foreign investors arrived in the 1990s, may be back rearing pigs soon after a collapse in demand from Western countries.

Many garment factories in Cambodia are closing as shoppers in the United States, Europe and elsewhere cut back on clothing purchases due to the global financial crisis.

Garments are Cambodia's biggest export earner and its economy may shrink this year due to the drop in demand.

Moeun and his wife have suffered a double blow. They used to earn $80 a month each as garment workers, sending half of it back to support their 8-year-old son living with Moeun's parents in the southern province of Takeo.

Then, three months ago, their factories shut without notice.

"We see hard times ahead when we get back to the countryside, raising pigs and planting vegetables to make a living," said Moeun, 39, chatting with friends under a tree near a shuttered factory on the outskirts of the capital, Phnom Penh.

More than 1,000 workers were owed pay when South Korean-owned Da Joo (Cambodia) Ltd. closed. It has become an all too familiar story.

At its peak, Cambodia's garment sector boasted almost 300 factories employing 340,000 workers, many of them women from the countryside.

Foreign companies started to move into the impoverished Southeast Asian country after U.N.-sponsored elections in 1993, fuelling an economic revival after 30 years of civil war and the horrors of the Khmer Rouge "killing fields" in the 1970s.

The monitoring of work conditions by the International Labor Organization helped lure brands such as Adidas, Nike and Gap, keen to avoid bad publicity from sweatshops. Cambodia's membership of the World Trade Organization from 2004 provided another boost.

Factories sprang up where once there were green rice fields around the capital and garments became Cambodia's biggest export earner. They brought in $2.78 billion in 2008, but that may drop about 30 percent this year, said Kaing Monika, spokesman of the Garment Manufacturers Association in Cambodia

(GMAC).

Exports of garments to the U.S. market dropped nearly 40 percent in January compared with a year earlier. Some 70 percent of the clothes go to the United States, 25 percent to Europe and the rest mainly to South Korea and Japan.

So far about 20 out of 291 factories, owned mostly by Taiwanese, Chinese, South Koreans and Malaysians, have closed their doors, Monika said. Other factories, at best, were running at 70 percent of capacity now. Some had no orders at all.

Some 70,000 workers have been laid off since last year and another 100,000 jobs are under threat over the next two years, according to the country's leading Labor union, Chea Mony.

Another laid-off worker, 28-year-old Sar Bunthoeun, said his mother would suffer now he can no longer send back $40 a month. "I'll return to my old job as a barber. It's my fate," he said.

ECONOMIC SLUMP

The sector represents about 16 percent of Cambodia's GDP, so the factory closures will hurt, with a ripple effect in the countryside as the money sent home by garment workers dries up.

The International Monetary Fund says the economy could shrink 0.5 percent in 2009 and the garment trade slump is a big factor.

But Kang Chandararot, director of the Cambodian Institute of Development Study (CIDS), said even if the double-digit growth of recent years was out of reach, 4 or 5 percent may be possible thanks to a bountiful rice crop in 2008/09 and the record $950 million in aid pledged by international donors for 2009.

"Cambodia could use the aid of nearly $1 billon to invest in infrastructures to stimulate its economy," Chandararot said.

People surviving on less than $1 a day are deemed to be living in poverty. Garment workers earn on average $2.7 a day so the loss of these jobs will hurt.

"More people will be pushed into poverty," said Huot Chea of the World Bank in Cambodia.

Historical data is lacking in Cambodia, but the World Bank says 45 to 50 percent of the people lived in poverty in 1994. Prime Minister Hun Sen says that was cut to 30 percent by 2008 thanks to the garment sector, tourism and agriculture.

Analysts doubt the job losses will undermine the grip on power of Hun Sen, who has run the country for 23 years, but some are worried about social problems.

"The massive layoffs of workers could lead to social unrest, with more armed robberies or drug smuggling," Chandararot of the CIDS said.

And he foresaw land disputes as people returned to the countryside. "What is most likely is that they will fight over the land needed to make a living in the future," he said.

Hun Sen called on aid donors at a meeting on March 12 to join with the government to provide a social safety net to help workers who had been laid off. He also said the government would try to find new export markets in the Middle East and elsewhere.

Opposition leader Sam Rainsy has urged the government to make foreign-owned factories deposit funds with the Treasury so that workers can get what they are owed in the event of bankruptcy.

There have been reports of looting of machinery but, in some instances at least, it's more a question of workers and management trying to find ways to pay wages.

Chhen Mey, 30, was a supervisor at a factory of Malaysian-owned L.A (Cambodia) Garment Pte. Ltd, which closed in late 2008 with the loss of 2,180 jobs.

Reuters reporter saw L.A workers carrying sewing machines onto trucks, heading for auction. "If we don't sell the machines, we'll have no money to pay the unpaid workers," Mey said.

Albert Teoh is the director of a Malaysian-based company with three factories that used to export goods worth over $160 million a year under the 'Target' brand and employed 12,000 workers.

He is worried that in the next few months most of the subcontractors for the factories will have folded.

"There's no way to make profits. How to survive the crisis is our main priority, really," Teoh said.