Cambodia’s garment industry faces widespread shutdowns by the end of March as the coronavirus outbreak keeps textile suppliers in China shuttered, cutting off procurement of raw materials.
Ten factories in the south-east Asian country had already suspended operations by the end of February. “In March, we could see as many as 200 factories and enterprises running out of raw materials,” Heng Sour, a spokesperson for Cambodia’s labour ministry, told reporters on February 27. “The worst-case scenario is that about 160,000 workers will be affected.”
Cambodia’s garment industry employs about a million workers on a full-time basis.
China is the world’s biggest textile producer but many of its factories have been unable to resume operations after the lunar new year holidays due to the spread of coronavirus.
Cambodia procures more than 60 per cent of its textiles from China, said Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia. Shifting to India and other countries for sourcing much of this material cannot be done quickly, he said.
The stalled supply of raw materials also affects the garment industry in neighbouring Vietnam. “It is true that some production is delayed,” Osamu Ikezoe, chief operating officer of Uniqlo Vietnam, told reporters on March 5. Uniqlo, operated by Japan’s Fast Retailing, opened its first store in Hanoi on March 6.
Negotiations with Chinese suppliers of raw materials have ensured that no shortage will occur when the store opens, Mr Ikezoe said. But “as for the future, the production schedule in March and April is partly delayed”.
Uniqlo opened its first store in Hanoi amid concerns over the coronavirus © Tomoya Onishi
Though evidence suggests the rate of infections in China may have peaked, workers there remain subject to transport restrictions and the recovery of logistics in the country has been slow.
Major European apparel brands, including Spain’s Zara and Sweden’s Hennes & Mauritz, are outsourcing production to Cambodian makers. As apparel companies sell seasonal items, a delay in product supplies could lead to missed sales opportunities and damaged earnings.
Cambodia’s garment industry has already been hit by the recent withdrawal of certain trade privileges by the EU. Since 2001, the country has increased exports to the EU under the “Everything but Arms” scheme, which grants a list of least-developed nations zero-tariff and quota-free access to the union’s single market for almost all exports.
Cambodia’s exports to the EU have soared nearly 10-fold, accounting for about 45 per cent of the country’s total in 2018.
But the EU has intensified its criticism of the government and the authoritarian prime minister Hun Sen. The issues include the effective exile of opposition leader Sam Rainsy and the dissolution of the Cambodia National Rescue party, the country’s largest opposition party.
After a yearlong review, the EU decided on February 12 to withdraw some of the tariff preferences granted to Cambodia under the EBA scheme. The withdrawal, which will take effect in August, covers clothing as well as travel gear, sugar and other products valued at about €1bn a year — one-fifth of Cambodia’s total exports.
Cambodia avoided the worst-case scenario of end-to-end sanctions, said Hiroshi Suzuki, chief executive and chief economist at the Business Research Institute for Cambodia, a think-tank in Phnom Penh.
Yet the stresses are mounting, and garment jobs are being lost gradually.
Cambodia’s government has pledged to compensate workers for more than 60 per cent of minimum wages if they lose their jobs. Under the policy, employers pay about 40 per cent of minimum wages while the government covers about 20 per cent.
But as Chinese textile factories appear unlikely to return to full operation anytime soon, labour unions are expressing scepticism about the ability of companies to continue providing this compensation for unemployment.
Cambodia has maintained high economic growth of about 7 per cent under Hun Sen, as his administration actively accepts investment from Chinese companies. But this huge Chinese presence has made Cambodia more vulnerable than its neighbours to supply chain disruptions.
Integrated production from thread to textiles to finished products is an ideal form of business for the garment industry. But the upstream process of making threads and textiles requires heavy investment. Cambodia’s garment industry faces a tough task if it works to reduce reliance on China.
A version of this article was first published by the Nikkei Asian Review on March 6 2020. @2020 Nikkei Inc. All rights reserved
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Source: Economy - ft.com
