Cambodia to Prioritize Combatting Coronavirus Impact on Economy Amid Raw Material Shortages

cambodia-garment-industry-raw-material-shortage-mar-2020.jpg Cambodian workers sit down for lunch during a break in front of their factory in Phnom Penh, March 2, 2020.

Cambodia’s Prime Minister Hun Sen on Wednesday announced that his government is placing a priority on combatting the impact of the novel coronavirus (COVID-19) on his country’s economy, which he said is expected to last for a year or more.

COVID-19 has caused a severe disruption to the global supply chain originating in China, where more than 80,000 people have been infected and nearly 3,000 people have died since authorities warned of the outbreak early this year.

Authorities there have since scrambled to contain the spread of the virus, putting quarantines and travel restrictions in place that have created a dearth of raw materials that Cambodia’s crucial garment industry relies on to keep its factories operating and its workers employed.

Speaking at an event in the capital Phnom Penh, Hun Sen said that as of Wednesday “there are 18,000 workers who lost their jobs” and “at least 20 factories that have suspended production” in Cambodia due to lack of raw materials.

“Our top priority is to fight against COVID-19—this is all we need to focus on,” he said.

The prime minister said that the government will “cut 50 percent of expenditures to all ministries,” and 25 percent of funding to the Ministry of Foreign Affairs, Ministry of Commerce, and the Council of Ministers, in a bid to shore up resources to fight the impact of the virus, although “civil servants will continue to get their pay checks.”

Cambodia’s economy can expect to “take a hit for at least one year,” he added, without providing details.

Hun Sen appeared to downplay the number of laid off workers and factories that have suspended operations, which Ministry of Labor spokesman Heng Sour recently said had nearly reached 20,000 and more than 30, respectively.

Heng Sour also warned earlier this week that in March, at least 200 factories are expected to face raw material shortages, and as many as 160,000 workers would be affected due to the COVID-19 outbreak.

Owners’ plea

Hun Sen’s comments came as Cambodia’s Garment Manufacturers Association (GMAC) and Footwear Association submitted a joint proposal with Cambodia’s Ministry of Industry, calling on the Chinese government to urgently send raw materials to certain factories facing the risk of suspending their operations.

Ken Loo, secretary general of GMAC, told RFA’s Khmer Service that Chinese suppliers had begun the process of sending around 60 percent of raw materials for Cambodian garment and footwear production—such as cloth, cotton, glue, and buttons—earlier this year, but shipping was temporarily suspended due to the COVID-19 outbreak, which also caused several factories in China to close.

He said that the longer it takes for China to send raw materials, resulting in production setbacks in Cambodia, the more factories will be forced to close their doors.

“It won’t be easy to order raw materials from China, because it will take several months for them to ship to Cambodia,” Loo said.

“We’ll have to check the quality of the raw materials, because we aren’t able to buy them as soon as they are needed, and now, we don’t yet know whether companies may increase the cost of shipping.”

Nguon Channara, a deputy secretary general of the Footwear Association, said that some shoe factories had suspended productions for “a short time” due to lack of glue, plastic, and buttons deemed essential to the production of footwear. The lack of any one raw material affects production as a whole, he said.

The Footwear Association official said he was unable to predict when any raw materials China’s government sends might arrive in Cambodia, as COVID-19 continues to spread.

“For the [Footwear] association, we had a meeting with the Ministry of Industry last week, and the government has agreed to ask the Chinese side to speed up the sending of raw materials once Chinese factories begin processing products for export,” he said.

Attempts by RFA to contact Ministry of Industry spokesman Um Sotha and Foreign Ministry spokesman Kuy Kuong went unanswered Wednesday, as did attempts to reach China’s ambassador to Cambodia, Wang Wentian, about the government’s proposal on the urgent sending of raw materials.

However, Ministry of Labor spokesman Heng Sour told local media that the shortage of raw materials had caused some factories to ask for a suspension of operations.

Ath Thun, president of the Cambodian Labor Confederation (CLC), said the shortage of raw materials had severely impacted factories and workers, and could lead to longer-term losses for the industry.

“We don’t yet know whether [the factories] will be able to survive the expected hit to production over the next two months,” he said.

“If they are not able to restore production to normal levels, it will seriously affect the industry.”

EBA suspension

While the outbreak of COVID-19 in China has thrown production for Cambodia’s garment industry into disarray, observers have suggested that even tougher losses are in store for factories and workers when combined with an expected drop in orders from buyers in the European Union in anticipation of a return to tariffs on some Cambodian imports.

The EU in mid-February announced plans to suspend tariff-free access to its market under the “Everything But Arms” (EBA) scheme for around one-fifth of Cambodia’s exports, citing rollbacks on human rights—a decision that would reinstate taxes on garments and footwear beginning Aug. 12, unless it is overturned by the bloc’s governments or its parliament.

The suspension, which Hun Sen has shrugged off and called an attack on Cambodia’s sovereignty, will result in a loss of around U.S. $1.1 billion of the country’s annual U.S. $5.8 billion in exports to the bloc, some 75 percent of which are made up of clothing and textiles.

Reported by RFA’s Khmer Service. Translated by Samean Yun and Pheap Aun. Written in English by Joshua Lipes.

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