VZCZCXYZ0005
PP RUEHWEB

DE RUEHPF #1540/01 3520959
ZNR UUUUU ZZH
P 180959Z DEC 07
FM AMEMBASSY PHNOM PENH
TO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHKA/AMEMBASSY DHAKA PRIORITY 0124

UNCLAS SECTION 01 OF 02 PHNOM PENH 001540 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB/TPP/ABT--CLEMENTS 
COMMERCE FOR OTEXA--D'ANDREA 
 
E.O. 12958: N/A 
TAGS: ECON KTEX ETRD ENRG CB
SUBJECT: GARMENT FACTORIES AND TOP BUYER GIVE CAMBODIA'S 
GARMENT INDUSTRY MIXED REPORT 
 
 
PHNOM PENH 00001540  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  Recent conversations with a senior 
executive from The Gap--the top buyer of Cambodian 
garments--and the Secretary-General of the Garment 
Manufacturers Association of Cambodia (GMAC) yielded 
different perspectives on the garment industry.  Ken Loo of 
GMAC explained that after a strong start to the year, a 
dramatic loss of garment orders in October and November means 
that overall garment exports will remain at 2006 levels, the 
first time since the mid-90s that the garment industry hasn't 
grown by a healthy margin.  Meanwhile, Gap executive Janet 
Rivett-Carnac told the Ambassador that Gap has increased its 
orders in Cambodia by 15-20% this year, though a slowdown in 
US consumer spending may be lowering garment orders 
worldwide.  End Summary. 
 
¶2.  (U)  Ken Loo of GMAC was decidedly downbeat in his 
assessment of the industry, explaining that after expanding 
by 15% during the first six months of the year, sharp 
reductions in orders will mean that overall garment 
production will stay flat in 2007.  The garment industry has 
been particularly hard hit the past two months, with October 
2007 orders 35% lower than October 2006, and November orders 
down 55% over the previous year.  So far, this not yet led to 
more than a handful of factory closures or layoffs, but 
workers who normally work the maximum allowable overtime are 
working no overtime, and at some other factories, workers are 
idle.  Workers rely on substantial overtime income and are 
frustrated by the downturn, which comes just as rising 
gasoline prices take a bigger bite out of their paychecks. 
 
¶3. (U) Loo cited Vietnam as Cambodia's keenest competition, 
explaining that after several months of uncertainty over U.S. 
monitoring of textile export levels, buyers have recently 
begun to increase their purchasing in Vietnam as the U.S. 
Congress appeared to become less concerned about potential 
Vietnamese dumping.  However, Cambodia still has an edge in 
labor supply, Loo said, explaining that factories in Vietnam 
and China are having greater difficulty recruiting workers 
and must now open further from cities, where there are fewer 
competing job possibilities.  While three Cambodian factories 
have closed this year, 12 new factories have opened.  These 
factories are mostly owned by Koreans who are shifting their 
investments from the Philippines to Cambodia.  In addition, 
Walmart, Kmart, and Sears have all shifted some production 
from Bangladesh to Cambodia as political and labor unrest and 
natural disasters have made it difficult for Bangladeshi 
factories to deliver their products on time. 
 
¶4.  (SBU) Janet Rivett-Carnac, Vice President and General 
Manager of International Sourcing for The Gap, told the 
Ambassador December 17 that Gap's purchases in Cambodia had 
increased by 15-20% over last year, to a total of USD 400 
million.  When told about the dramatic slowdown in garment 
orders in Cambodia, the Gap executive said she suspected that 
there had been a significant slowdown in garment production 
worldwide due to lower consumer spending in the U.S. 
Cambodia is likely not the only country with idle factories, 
she said.  She predicted that the percentage of products that 
Gap sources in Cambodia will continue to rise, though the 
total volume of products that Gap buys may well decrease in 
the coming year, potentially leading to lower absolute levels 
of Gap garments produced in Cambodia.  The Gap also expects 
to increase their presence in Vietnam. 
 
¶5.  (U) While Cambodia is overall well-positioned to retain a 
strong stake in the global garment industry, the high cost of 
electricity is the biggest obstacle to garment sector 
expansion, Rivett-Carnac said.  However, she was encouraged 
by news from Commerce Minister Cham Prasidh that transmission 
lines will bring electricity from Vietnam to Phnom Penh 
within the next 12 months, halving electricity costs.  (Note: 
 Although Minister Prasidh confirmed this statement to us 
separately, this is the first that the embassy has heard of 
this plan and we are working to learn more.  End Note.) 
 
¶6.  (SBU) Comment:  While the Cambodian economy is slowly 
diversifying away from its over-reliance on garments, and 
within the garment sector away from a strong dependence on 
The Gap and other American buyers, the iconic San 
Francisco-based retailer remains a critical player in the 
Cambodian economy.  Their orders account for 6% of the 
nation's GDP and more than 15% of all garment exports.  While 
it seems clear that Cambodia's garment industry is suffering, 
most likely it is sharing in the pain of a global slowdown in 
garment production.  While there are legitimate concerns 
about Cambodia's long-term competitiveness, the strong 
performance in early 2007 and opening of new factories 
 
PHNOM PENH 00001540  002.2 OF 002 
 
 
indicate that, for the moment, Cambodia remains a contender 
in the textile world.  End Comment. 
MUSSOMELI