Economic Institute of Cambodia Inaugural Conference
October 29, 2003

Speech by Mike Keller, Economic and commercial Officer

of US Embassy, Cambodia 

“THE FUTURE OF THE CAMBODIAN GARMENT SECTOR”

Let me begin by saying that I believe the survival of the garment sector, and the employment it provides, is key to Cambodia’s immediate economic future.  Last year the sector represented over a third of GDP and nearly 97% of Cambodia’s recorded exports.  The sector employs a quarter of a million Cambodians in 200 factories.  The growth of this sector from a few dozen factories employing a few thousand workers pre-1999 is due to the quota-labor standard link established by the U.S.-Cambodian Bilateral Textile Agreement.  Garment manufacturers may have come to Cambodia to take advantage of the quotas.  We have to ask ourselves what will make them stay once the quotas are gone? 

No one knows how many other businesses, how many families, how many futures are supported through the jobs in the garment sector.  Suffice it to say that if the sector disappeared overnight, or let’s say in the first six months of 2005, there is nothing on the horizon to replace it. 

I see the future of the garment sector in Cambodia as existing along a spectrum. 

There are four distinct possibilities that co-exist along this spectrum. 

First, the nightmare possibility.  Since that will wake us up, nightmares are supposed to do.

It’s September 2005. Out of 200 factories, only 40 are left employing about 50,000 workers.  Some 200,000 jobs have already been lost.  And they’re never coming back.  Orders are dropping from U.S. and European buyers.  The end of the Multi-Fiber Agreement has meant the end of the garment sector in Cambodia.  By mid-2006, all the modern factories have closed their doors, leaving only the bottom feeders.  One third of Cambodia’s GDP has disappeared over the course of less than two years.  And it’s not coming back.  At least it’s not in the form of textiles and garments. 

What happened?  Was it informal barriers? Too much bureaucracy, too much paperwork?  Corruption?  High energy costs?  Poor infrastructure?  A failure to uphold the labor standards Cambodia has worked so hard on under the Bilateral Textile Agreement? 

Well, it was all of those things.  No one took the threat from China, Vietnam, or the other garment producing countries seriously.  And Cambodia lost.  It lost not because the other countries beat it but because it beat itself by not correcting problems we can all identify today.  It took the one real card it had – its reputation as a safe-haven for workers – and it squandered it. 

The second way station on our spectrum is close to the nightmare scenario but harder to notice.  In this case, there’s not much decline in the number of factories, or employment or even exports right after 2005.  Rather, factories stop expanding; they begin to drift away, in two and threes.  Maybe they drift away so slowly no one in government even really notices.  No one notices that is until we reach the next election when suddenly everyone starts wondering out loud what happened.  By 2008, the number of factories is down to 120.  Employment has dropped to 130,000.  There’s only slow decline, and no prospect of growth.   

What does Cambodia have to show for its decade of garment manufacturing? An aging, declining sector. Again, replaced by what?  Where are the replacement jobs going to come from?  And what happened?  It’s a bit better than the nightmare scenario, but the barriers to growth in the industry haven’t really been fully addressed.  Manufacturers hang on but the smart ones – the ones who saw Cambodia’s greatest advantage in its reputation as an international model for the respect of workers’ rights -- see where the industry in Cambodia is now headed and they begin to move to countries where their concerns are addressed.  There’s no rush for the door but after a couple of years there are not that many people left at the party by 2008. 

Our third visit along the spectrum looks a lot like today.  It’s 2007 or 2008 and there are 200 garment and textile factories, a quarter of a million people employed.  All sorts of ancillary businesses and people throughout the country and economy benefit from these jobs.  Cambodia has continued to work hard on its respect for labor standards.  It’s done some hard work on addressing the informal and formal barriers that might have pushed manufacturers away.  It’s saved the sector and its jobs. 

But so what?  What about the wave of young people who will be joining the job market over the course of the next decade?  You can mention figures like: 60% of the population is under 20 years of age or that 50% is under 15 years of age.  But those are just numbers.  What are you going to do with all those very real people who are going to want jobs and money and families and futures?  How are you going to find work for them?  And if you don’t find work for them, what are they going to do?  Where are they going to go? 

Compared to losing the garment sector quickly or even slowly, stasis sounds great.  But stasis is not going to work when you’ll have several hundred thousand people seeking to join the job market year after year after year.  In 2008, you might have as many new job seekers in that year alone as you have current employment in the entire garment sector.  Where are they going to work?  So, stasis is also clearly not a good option. 

Finally, we arrive at the Promised Land, the best point on our spectrum.  It’s 2008 and the Cambodian garment sector has doubled.  There are four hundred factories, centered around Phnom Penh, attracted to Export Processing Zones at Sihanoukville and Koh Kong.  Factories are moving here from Sri Lanka, from Thailand, from Indonesia.  Employment is near half a million.  New technology is coming in.  Cambodians are being trained as managers.  The sector no longer means just employment but education, technology transfer.  It’s laying the foundation for new sectors. 

Wow.  It sounds great.  It’s also very possible if you care enough to make it happen.  This dream scenario requires drastically reducing corruption, creating a business environment for much cheaper and more reliable energy, fashioning a bureaucracy that helps the private sector, targeting infrastructure changes that actually attract businesses.  It requires making Cambodia truly open for business.   

It also will require making as much noise as you can about the hard work you have done and must continue to do to uphold labor standards.  For the near term, say for the next five years, Cambodia’s garment sector will survive only as long as its reputation as a niche market, as one that respects workers’ rights, survives.   

Ministers must talk about Safe-haven Cambodia.  Buyers and manufacturers must talk.  Workers and unions must talk.  All must try to trademark, to copyright this idea of Safe-haven Cambodia.  No one else is going to do it for you. 

You could totally eliminate all other problems, corruption, high-energy costs, poor infrastructure, etc.  But you still wouldn’t be able to compete with China on a purely cost basis.  You’ve got to play the safe-haven card because for now it’s the only one you’ve got.

Thanks.