COVID-19 Crisis Causes Sharp Decline in Overseas Orders... Cambodia Garment Industry Faces Mass Layoff Threat

Accounting for 35% of GDP, Employing 920,000 People

Reduction and Suspension of Orders from Overseas Brands

$500-600 Million Supply and Corporate Tax Exemption Measures

Vietnam and Myanmar Also Facing Order Cancellation Crisis

[Image source=Reuters Yonhap News]

[Asia Economy Phnom Penh Correspondent An Gil-hyun] The garment industry concentrated in Cambodia, as well as Vietnam and Myanmar, is facing a mass layoff crisis due to the spread of the novel coronavirus infection (COVID-19). This is because global clothing consumption has sharply declined, leading to a continuous decrease in orders.

According to local media on the 7th, the Cambodian government stated that "exports of garments to Europe and the United States are in a very worrisome situation." They seriously assessed the situation where some companies in the US and Europe that placed orders for garment production are refusing to accept already completed products, citing weak demand. The Cambodian Garment Manufacturers Association also appealed earlier this month to fulfill purchase contracts, including product acceptance and payment.

The Cambodian government is paying special attention to the garment industry because it accounts for more than one-third of the country's Gross Domestic Product (GDP). This reflects concerns that if the garment industry collapses, it could spread to the entire national economy. Last year, Cambodia's garment industry exported $9.32 billion worth of clothing and footwear, equivalent to 35% of the country's GDP, and employed 920,000 people.

The Cambodian garment industry faced a critical moment earlier last month due to a suspension of raw material supplies. Factories resumed operations thanks to emergency raw material shipments from China, averting the crisis temporarily, but now face a greater threat due to active lockdowns and quarantine measures in the US and Europe. Clothing brands such as Zara, H&M, Mango, J.C. Penney, and Primark have reduced or completely stopped orders.

The UK clothing, footwear, and gift retail chain 'Marks & Spencer' announced it would reduce clothing orders by $118 million, and 'Primark,' one of the largest discount clothing retailers in Europe, canceled dozens of orders placed with Southeast Asian factories.

Simon Wolfson, CEO of the UK clothing brand Next, said, "People are staying at home, so they are not buying clothes," predicting a sales decrease of $1.1 billion.

Vietnam and Myanmar are also in crisis. In Myanmar, international labor organizations have urged a halt to purchases from local garment factories connected to the military. As a result, Esprit stopped subcontracting at two garment factories owned by Myanmar Economic Holdings, a major military conglomerate, in August last year.

Vietnam, the world's eighth-largest garment exporter, has recently seen dozens of garment companies face order cancellations from Europe and the US. This is expected to deepen export declines in the first half of the year. Last year, Vietnam's textile and garment exports amounted to $36 billion, accounting for 15% of GDP.

Given the severity of the situation, countries are scrambling to prepare tax relief measures to save the garment industry. Cambodia plans to inject $500-600 million into commercial banks to encourage emergency loans and announced a 50-100% corporate tax exemption for six months for the affected garment sector.

However, the scale of government support is small, and the garment industry itself is small and lacks sufficient liquidity. Therefore, if the COVID-19 crisis prolongs, mass closures and unemployment are expected to be inevitable.

This content was produced with the assistance of AI translation services.