Economic Observation: Strong Export Of Cambodia'S Textile Industry Drives Economic Recovery

In June this year, the World Bank highly appreciated the remarkable recovery of Cambodia's economic activities in the first quarter of 2024. Although domestic demand remains depressed, the recovery of service industry and goods export has injected new vitality into the economy. Data shows that Cambodia's economic growth rate will be 5.6% in 2023, and it is expected to increase slightly to 5.8% in 2024, and continue to rise in the next few years. It is expected to be 6.1% in 2025, and 6.4% in 2026. This series of optimistic forecasts are mainly based on the strong recovery of clothing, tourism goods and footwear exports, which will become an important engine to promote the sustained economic recovery.

In the first quarter of 2024, the number of international tourists has achieved a substantial growth, and has recovered to 84% of the pre epidemic level. At the same time, the export of clothing, tourism goods and shoes has also experienced a significant rebound. With its important position, ASEAN has become Cambodia's second largest export market after the United States. In addition, foreign investment in manufacturing and agriculture also contributed to the economic recovery. Thanks to the decline in food prices, the inflation rate even dropped to zero in March.

However, in October, the International Monetary Fund (IMF) adjusted Cambodia's economic growth forecast in 2024 to 5.5%. Nevertheless, the main driving force for growth is still the recovery of the clothing industry and tourism. The IMF predicts that the inflation rate will remain at about 1.5% and may rise to around 3% in the future. Looking back at the first half of the year, the inflation rate averaged 1.6% year on year. IMF suggests that structural reform should be adopted to promote diversification of growth drivers and further improve productivity.

From the trade situation from January to September, Cambodia's export performance was particularly impressive. In January, the total export of clothing and accessories, footwear, leather and fur products and some processed textiles reached US $970 million, accounting for half of Cambodia's total export value of US $1.97 billion, accounting for 49.2%. Compared with January 2023, this figure has increased by 21.6%, mainly due to the recovery of the global economy, the reduction of textile stocks and the recovery of the tourism industry. These factors together promote the strong demand for GFT products in the United States, the European Union, Japan, Canada, the United Kingdom and other markets.

By the end of February, Cambodia's textile exports had exceeded 1.6 billion US dollars, a sharp increase of nearly a quarter year on year. This growth also benefited from the significant increase in shipments to RCEP member countries. In 2024, from January to May, Cambodia's exports of clothing, footwear and tourism goods (GFT) reached 4.97 billion US dollars, an increase of 20% year on year. Among them, clothing and textile exports totaled US $3.63 billion, up 22% year on year, marking a reversal after 18 consecutive months of decline.

GFT industry covers about 1680 factories, providing employment opportunities for nearly 918000 workers, most of whom are women. During this period, footwear exports reached 620 million US dollars, up 10% year on year; The export volume of tourism commodities was 730 million US dollars, up 18.8% year on year. In these five months, Cambodia's total trade reached 19.2 billion US dollars, up 12.5% year on year.

Looking back to 2023, Cambodia's total textile exports will be 8.76 billion US dollars, a year-on-year increase of 24.5%, accounting for 44.2% of the total export revenue. Among them, the export revenue of knitted clothing (code 61) was 5.03 billion US dollars, up 21.5% year on year; Non knitwear (code 62) was US $2.35 billion, up 31.9% year on year; Other textiles (code 63) reached US $160 million, up 37.7% year on year; Footwear (code 64) was USD 1.21 billion, up 22.4% year on year. This year's export growth benefited from Cambodia's political stability, especially in comparison with Bangladesh and Myanmar. In addition, such factors as new investment laws and policies, rich skilled labor resources, continuous improvement of transportation infrastructure, and the increase of international buyers also contributed to this growth.

In terms of clothing export market, Canada is still Cambodia's fourth largest market, second only to the United States, Japan and Spain, the top three markets, accounting for 8.3% of total exports. In the first six months of 2024, Cambodia's clothing exports to Canada totaled $450 million, with pants and shorts accounting for the largest proportion, reaching 36.1%. In other clothing categories, knitwear accounted for 16.4% of the total clothing exports with a value of 74.217 million dollars; The value of T-shirts is 38.56 million US dollars, accounting for 8.5%; The value of shirts is 30.112 million US dollars, accounting for 6.9%; The value of overcoat is 20.969 million US dollars, accounting for 4.6%.

It is worth mentioning that the four-year EU-SWITCH clothing project was successfully completed in May. The project aims to promote sustainable energy practices in Cambodia's clothing industry. It is funded by the EU SWITCH Asia grant program and implemented jointly by the Global Green Growth Institute (GGGI), TAFTAC (Association of Textiles, Clothing, Footwear and Travel Products), and Geres with Cambodia's Ministry of Environment (MoE) and MISTI (Ministry of Industry, Science, Technology and Innovation). The event attracted more than 100 participants, introduced the achievements of the project in detail, and provided a valuable exchange platform for exploring the future of sustainable garment production in Cambodia.

The EU Switch Clothing Project has significantly improved the environmental sustainability of Cambodia's clothing industry by providing technical assistance in the form of energy audit, capacity building, technical guidance and improving financing channels. During the implementation of the project, the "Green Factory Demonstration Plan" was developed, which was a voluntary tool recognized by the Ministry of Education and the Ministry of Industry and Trade, and adopted by TAFTA for implementation. In addition, the project has also successfully brought together departmental stakeholders, providing them with better access to funds.

Looking ahead, the workflow plan for 2024-2025 has been formulated. The National Steering Committee held its first meeting in June 2024, and identified two priority work processes as key focus objects, which are expected to have a far-reaching impact on Cambodia's green economy transition. The first is to enhance the government's technical capacity in economic outlook and fiscal policy to support policymakers to make scientific decisions based on data; Second, promote the circular economy, especially reduce the use of disposable plastic products, and promote the garment industry to follow the 4R principle (namely, reduce, reuse, recycle and recycle) to support the implementation of the 2023-2028 Environmental Recycling Strategy.

In September 2024, the project of "Strengthening the Sustainable Management Capacity of the Textile Industry" funded by the German International Cooperation Agency (GIZ) jointly held a seminar on "Human Rights Due Diligence (HREDD) of International Buyers and Report on Sustainable Development Requirements" at TAFTA. At the meeting, 45 enterprises participating in the "green factory demonstration project" were commended. The training at the seminar covered three core objectives of environmental data management, energy efficiency, and work and data management, which are indispensable key elements of international sustainable development standards.

Finally, the National Minimum Wage Commission (NCMW), a body composed of equal representatives of trade unions, employers' associations and the government, has raised the minimum wage standards for the textile, clothing, footwear and tourism products industries in 2025 through Prakas 211, which will take effect on January 1, 2025. From January 1, 2025, the new minimum monthly wages of regular workers and probationary workers in Cambodia's textile, clothing, footwear and tourism products industries will be adjusted to US $208 and US $206 respectively. In addition to the minimum wage, workers can also enjoy attendance bonus, transportation and accommodation allowance, meal allowance, overtime pay and year-end bonus for workers from the second to the eleventh year of work.

(Source: website of Ministry of Commerce)