According to Chea Vuthy, deputy secretary general of the Council for the Development of Cambodia (CDC), the Kingdom is expecting a boost in Japanese foreign investment due to major garment companies shifting to Cambodia as their manufacturing and procurement bases.
This is due to “rising labor costs and the zero Covid-19 policy of the Chinese government,” said Vuthy, adding that other Southeast Asian and nearby countries like Vietnam, Bangladesh, and Indonesia are also benefiting from this shift. Said labor costs have reached around $670 monthly for average factory workers in Guangzhou, China, while the minimum wage for same sector in Cambodia will be $200 by 2023.
Vuthy revealed this development during the European Chamber of Commerce in Cambodia (EuroCham)’s Responsible Business Hub event in Phnom Penh last week, which also launched the Garment, Footwear, and Travel (GFT) Sector Brief Issue No. 1.
Among the major companies making the shift are Adastria, Aoyama Trading, and Matsuoka Corporation Aside from the rising costs, the move is also in line with the Regional Comprehensive Economic Partnership (RCEP) as it will allow Japan to take advantage of existing exemptions from textile import tariffs.
From 81% in 2011, Adastria’s China-based production fell to 59% in 2021.
For Matsuoka Corp., a contract manufacturer under Fast Retailing, production was at 50% last March and is planning to decrease even more to 29% by 2025. Instead, the company will increase production in Bangladesh to 34%, and 28% in Vietnam.
Other reasons cited for these shifts are the depreciating yen and price increase of raw materials in China, making the RCEP, which came into effect last January, a new lifeline for the affected companies.
GFT market set for more growth
In addition to these shifts in manufacturing and procurement bases, the GFT Sector Brief also mentioned growing interest from the government in promoting green and renewable energy investment as well as skills development in order to upgrade resilience and diversification of the Cambodian market.
This is playing to the Kingdom’s strengths, as the garment sector has been the backbone of the local economy for more than two (2) decades: prior to the covid-19 pandemic, GFT represented an average of 10% of Cambodia’s annual GDP.
At present, there are also feasibility studies being conducted for more Free Trade Agreements (FTAs) between Cambodia and Japan, India, and Bangladesh, which if ratified would further open opportunities for the country’s GFT exports and other commodities.
