January garment revenues down $180m from last year.

Garment industry unravels
Written by Chun Sophal and Hor Hab
Wednesday, 11 March 2009

January garment revenues down $180m from last year.

Garment exports - the country's chief source of foreign exchange - contracted in January to less than a third of their value compared with the same period last year, the Ministry of Commerce announced Tuesday.

Ministry officials added that January tourist arrivals also dropped 2.19 percent compared with the number of foreign visitors coming to Cambodia 12 months earlier, in a sign that another key economic driver was flagging in the face of the global financial crisis.

Speaking at a charity golf event in Phnom Penh, Minister of Commerce Cham Prasidh said that garment exports generated revenue of only US$70 million in January, compared with $250 million in January 2008, a situation the Ministry of Finance acknowledged was a troubling signal of tough times ahead.

"We recognise that the garment and tourism sectors have been affected to some extent," said Ouk Rabun, a secretary of state at the Ministry of Finance.

Last week the International Monetary Fund (IMF) projected that, after years of growth, Cambodia's gross domestic product would shrink by 0.5 percent this year in the most negative assessment yet of the Kingdom's economic health.

This contraction comes largely due to falling demand for Cambodian garments, the IMF said.

"Garment exports are under pressure due to sharply lower retail demand in the United States and the European Union," the IMF said, adding that the highly uncertain outlook for 2010 was tied to regional and global growth.

Cambodian garments to the US generated 62 percent of total revenue for the sector in 2008, while the EU was the next-largest market at 20 percent of revenue.

Cham Prasidh held out hope that consumers would begin spending money again by the end of the first quarter.

"I hope that garment exports will recover in March because consumers - facing constraints due to the crisis - could resolve their problems and start purchasing again," he said.

However, most analysts have projected a prolonged drop in global demand, a view backed by the Kingdom's garment industry, which is facing increasing uncertainty from buyers.

Officials with the Garment Manufacturers Association of Cambodia [GMAC], which holds accounts with large Western brands - including Gap, Nike and Adidas - said that in previous years orders were placed in October for the 12 months ahead.

But given the downturn, these companies are now placing orders on a monthly basis, GMAC officials said, predicting that things will get worse before they get better.

"We don't know about the purchase orders for the year," said GMAC labour officer Cheath Khemara. "Purchase orders have not dropped to an alarming rate at the moment, but it will be even more serious come June because the effects of the economic downturn will likely have spread by then."

He acknowledged that the big international brands had decreased their orders, but refused to give figures. "I am very worried about this decline in purchase orders," he said.

The Free Trade Union of Cambodia said Monday that more than 20,000 garment workers have already lost their jobs this year, with another 10,000 at risk of becoming unemployed as more garment factories face closure.

Tourism, another pillar of Cambodia's economy, also appears to have had a rough start as fewer people travel, the IMF said, citing "cuts in discretionary spending".

Some 218,691 tourists arrived in Cambodia in January, down from 223,581 visitors during the same period in 2008, Tourism Minister Thong Khon said Tuesday.

"We will track this decline in tourism numbers and will try to prevent a prolonged downturn. We will try to attract short-haul tourists to balance out the decline," Thong Khon said.