Cambodia to Rely on Garment Industry for Economic Recovery

Following the 3.1 percent contraction in 2020, Cambodia's economy expects to grow by 4 percent this year on account of the country's exports, especially in industrial production.

Cambodia's garments, footwear, travel goods, and electronics sectors will become the key driver of the economy's rebound with a 7.1 percent raise.

Specifically, the garment industry export has been central to the country's well being, representing almost 80 percent of Cambodia's total export and circulating approximately USD 5.7 billion worth of clothing each year.

In contrast, Cambodia's service industry is forecasted to recover at a slower pace by a 3.3 percent growth this year as travel restrictions remain in place.

Cambodia is experiencing an uneven pace of recovery across different sectors, worsened by the widening of COVID-19 prolonged outbreaks and economic lockdowns as a containment measure. The country faces the risk of weakening domestic demands and demand for the government to hold its fiscal stance during the volatile period.

Reliance on the Garment Industry

The reliance on Cambodia's garment industry has put the country in a susceptible position during the COVID-19 induced crisis. The global pandemic severely intervened in the sector's operations from both demand and supply directions.

On the demand side, the country's garment exports to Europe sharply declined by 25 percent in the first half of 2020. Similarly, the export to the United States and Japan has also reduced by 26 and 17 percent.

The export level fell again at the end of 2021's first quarter by 6.5 percent to USD 2.4 billion. The fall of export level to Europe also attributes to the withdrawal of the Everything but Arms (EBA) scheme last year as the country allegedly failed to comply with the bloc's democracy and human rights standards.

China's lockdown measures have impacted Cambodia's downstream capacities in sourcing raw materials and maintaining adequate supply chain processes on the supply side.

Cambodia garment industry recovery currently lags as over 1.670 garment workers reported positive, taking up the lion's share of the country's COVID-19 cases and forcing 206 factories to go into lockdowns.

Reopening Factories and Businesses

However, Cambodia has started to open factories and businesses by February alongside manufacturing workers vaccination.

As of May, over 1.5 million people had received COVID-19 vaccinations, and factories in the yellow zone have allowed workers to return to work by a 50 percent capacity noting the workers have received at least their first dose. The Ministry has also expressed its plan to reabsorb over 200,000 workers gradually.

The government, accompanied by GMAC, has coordinated with primary buyers in the garment industry to accommodate project delays and gain tolerance as the country grapples with factory lockdowns.

Moreover, Cambodia also aims to provide more targeted and flexible frameworks to address structural constraints in trading activities to facilitate domestic companies in the global competition as foreign demands regain their strength.

ADB has included USD 1.35 billion and USD 32.4 million in concessional lendings and grants to support Cambodia's recovery from the COVID-19 pandemic.

But the country's road to economic welfare relies on its pace of inoculations to continue domestic business operations and position the industry back as one of the significant players in the global garment industry.