VZCZCXRO1567
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0580/01 2250922
ZNR UUUUU ZZH
P 130922Z AUG 09
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 1056
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHC/DEPT OF LABOR WASHINGTON DC

UNCLAS SECTION 01 OF 02 PHNOM PENH 000580 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB, DRL, P, D 
 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ELAB EAID PREL CB
SUBJECT:  GARMENT JOB LOSSES ON THE RISE 
 
REFS: A) PHNOM PENH 525 
      B) PHNOM PENH 409 
      C) PHNOM PENH 277 
      D) PHNOM PENH 276 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (U) SUMMARY:  Since the global economic slowdown hit Cambodia's 
garment sector last year, over 60,000 workers have lost their jobs. 
An additional 30,000 or so have seen their incomes reduced as hours 
and overtime are cut.  However, the raw unemployment numbers do not 
reflect the full extent of the crisis's effect on Cambodian workers 
and the livelihoods of the estimated 12% of the population that they 
directly and indirectly support which could have greater 
consequences for Cambodian society at large.  END SUMMARY 
 
As Exports Fall, Job Losses Rise 
-------------------------------- 
 
¶2.  (U) Cambodia's garment industry is the key engine of growth for 
the economy, representing 80% of export revenues and an estimated 
30% of total GDP in 2008 (Ref C).  Given the sector's heavy 
dependence on U.S. demand (about three-fourths of the sector's 
exports go to the United States) and growing competition from 
regional players such as China, Bangladesh, and Vietnam, exports 
have fallen and the number of laid-off workers is rising (Ref C). 
The Ministry of Commerce estimates that total exports fell 26% year 
on year for the first quarter of 2009.  Garment exports in 
particular have dropped 20% in the first five months of 2009, and 
the Ministry of Commerce expects garment exports to decline at least 
30% this year.  Over 60,000 workers have already lost their jobs, 
with continuing job losses every month.  (NOTE:  There have been 
some new factory openings, but too few to offset the number of 
closures.  END NOTE.) 
 
¶3.  (U) Facing declining orders, some factories at first tried to 
adjust by relocating to less expensive areas farther from Phnom Penh 
in an effort to cut operating costs.  Those garment workers who 
could not relocate found themselves out of a job.  Now, the sharp 
decline in orders from the U.S. has quickened the pace of factory 
closings within Cambodia.  Garment factories are over 90% 
foreign-owned (e.g., Taiwan, Hong Kong, China, and Korea), which 
combined with the highly transportable nature of the cut and sew 
industry, contributes to the ease of factory closures. 
 
¶4.  (U) The pace of factory openings, closings, and layoffs has made 
it difficult to accurately capture figures representative of the 
current state of garment sector employment.  At its peak in 2008, 
the garment industry had over 300 effectively operating factories. 
In April, 470 factories were registered with the Ministry of 
Commerce (261 effectively operating) with 290,439 employees on the 
payroll.  This represents over a 14% decrease in workers from the 
339,346 a year ago.  Ministry of Commerce statistics for June 2009 
show 474 registered factories (258 effectively operating).  In 
contrast, in June 2008 there were 447 registered factories (307 
effectively operating). 
 
¶5.  (U) In July of this year, the Free Trade Union of the Workers of 
the Kingdom of Cambodia estimated the number of unemployed (since 
the global crisis began to impact the sector last Autumn) at 63,000 
workers.  (NOTE:  Numbers produced by the World Bank and the Garment 
Manufacturers Association of Cambodia (GMAC) reflect this estimate. 
END NOTE.)  However, the Royal Government of Cambodia (RGC) has 
rejected these claims and asserts that when accounting for 
workers're-absorption into the labor market, the unemployment figure 
is closer to 20,000.  When including workers whose hours have been 
decreased, the number of workers affected increases to 90,000.  July 
figures released by GMAC estimate that one in six Cambodian garment 
workers have lost her job since the beginning of this year (Ref C). 
 
Salaries and Benefits Decline 
----------------------------- 
 
¶6.  (U) Some of these factories close their doors only to reopen 
them under a new name and/or new location to take advantage of tax 
incentives.  (NOTE:  To attract foreign investment, Cambodia extends 
tax-exempt status to new factories for 5 years with the possibility 
of a 3-year extension.  END NOTE.)  These factories also tend to 
reopen with fewer employees, opting to select those that have asked 
for little or no leave, have no known union affiliation, and are 
younger.  Opening as a new factory also has the additional benefit 
of effectively wiping out all seniority pay bonuses for older 
employees as they are technically now "new" employees, effectively 
cutting out as much as $10-15 from a previously "senior" employee's 
monthly salary.  Some factories have responded to the slowdown with 
unannounced closings, effectively eliminating workers' opportunities 
to claim severance pay packages as required by Cambodian law. 
Others have temporarily suspended production, closing down for weeks 
 
PHNOM PENH 00000580  002 OF 002 
 
 
or months at a time but paying either little or no salary to 
workers. 
 
Over 1 Million Livelihoods At Risk 
---------------------------------- 
 
¶7.  (U) Job losses and reduced salaries in the garment sector have 
broader consequences for Cambodian society because unemployment in 
the garment sector has a multiplier effect that affects the 
livelihoods of entire families and communities.  While approximately 
290,000 people are directly employed within the garment industry, 
the World Bank (WB) estimates that garment industry wages support an 
estimated 1.7 million people in Cambodia, which translates to 
approximately 12% of the population.  Over 95% of garment workers 
are young women, many of whom remit 30-50% of their wages to support 
family members in the provinces (Ref A). 
 
Comment 
------- 
 
¶8.  (SBU) Without a sharp recovery, current unemployment trends and 
hiring practices have the possibility of severely undercutting 
Cambodia's recent achievements in poverty reduction.  These factors, 
coupled with the current economic and political climate (Refs 
B,C)and Cambodia's growing need to supply new jobs for 270,000 
youths entering the work force each year, are a potential source of 
social friction and local unrest.  While lower living standards are 
the norm for many within Cambodia, such conditions have been 
accepted with the expectation of continued progress.  The global 
economic crisis has curtailed this progress and the historic issues 
of low skill and educational levels have limited the number of 
options available to many of the unemployed.  Laid-off garment 
workers have been forced to turn to more risk-prone ways of making a 
living (Ref D).  SEPTEL will discuss the impact of job losses on the 
workers themselves and examine the options available to them after 
factory closures. 
 
ALLEGRA