Cambodia: Labor Unrest Amid Political Uncertainty

5 MINS READJan 2, 2014 | 11:33 GMT
(Nicolas Axelrod/Getty Images)
Anti-government protesters gather Dec. 29 at Freedom Park in Phnom Penh, Cambodia.

Cambodia's textile and garment industry, a linchpin of the country's emerging economy, faces an uncertain future. Violent protests calling for higher wages rose in 2013, but now aggrieved garment industry workers have joined forces with anti-government protesters, who have denounced the electoral victory of Prime Minster Hun Sen since July. Though their goals differ, both groups hope to advance their causes through continued demonstrations.

Though Cambodia has seen plenty of large-scale strikes from garment workers before, the current unrest is complicated by the country's tenuous political situation, with the opposition slowly gaining momentum and increasing the pressure on the long-ruling Cambodian People's Party. The loose affiliation between the opposition party and garment industry workers, along with the growing strength of opposition-affiliated trade unions, will force the ruling party to reconcile its political viability and the country's economic vitality. And as the political impasse persists, the garment industry may fall victim to a fierce competition in which sustained economic disruptions threaten Phnom Penh's ability to guarantee its competitive advantage to foreign investors.

On Dec. 24, the government raised wages from about $80 per month to about $95 per month, the second such raise in the past year. The raise would have taken effect April 1, 2014, but garment workers and labor unions leaders, who wanted $160 per month, were unsatisfied with the government's offer. Following the announcement, as many as 30,000 laborers took to the streets to voice their anger. In response, the government agreed to increase wages to $100 per month.

The strikes immediately gave some momentum to ongoing anti-government demonstrations, led by Cambodia National Rescue Party head Sam Rainsy. Rainsy and his supporters refuse to acknowledge the July parliamentary election results. (Though the Cambodia National Rescue Party won an unprecedented 55 seats, it claims it actually won more.) The opposition will continue to escalate calls for a recount and for reforming an electoral system widely seen as instrumental in the ruling party's two decades of political domination.

Meanwhile, in anticipation of widespread violence, garment factories were advised to suspend operations temporarily, prompting nearly 400 of the country's 600 garment factories to stop production over the past few days, according to reports. The halt in production will likely drag on as government and trade unions continue their emergency negotiations. Meanwhile, pro-government protests organized by a few government-affiliated trade unions are also scheduled to counter the opposition movement.

Taking a Toll

A latecomer to global export-oriented manufacturing growth, Cambodia's garment industry has developed rapidly since the 1990s following a period of political upheaval. Growth was fueled by low wages and lax labor regulations that secured low production cost for foreign investors. Along with two decades of relative stability and economic opening under Hun Sen, these factors compensated for Cambodia's poor infrastructure, high utility prices and systemic corruption. Until the end of 2012, the minimum wage in Cambodia was kept at $61 per month, making the country a possible beneficiary for some of the low-end manufacturing leaving China.

By global standards, Cambodia's garment industry is relatively small, accounting for only 1 percent of total global garment exports. (By comparison, Bangladesh accounts for 4.8 percent, Vietnam for 3.2 percent and Indonesia for 2 percent.) Nonetheless, the industry is vital to the Cambodian economy, accounting for 80 percent of export revenue, 18 percent of gross domestic product and roughly 33 percent of industrial employment. Meanwhile, foreign investment into the industry — 92 percent of which is foreign-owned — makes it one of the best means available for offsetting Cambodia's $2.65 billion dollar trade deficit. However, it has created a web of business elite that the ruling party favors in its patronage network.

Cambodia: Labor Unrest Amid Political Uncertainty

Strikes in Cambodia's Garment Industry

But as the country has continued to rely heavily on the garment industry, low wages, poor working conditions and a loose regulatory environment have taken a toll on the industry. According to an estimate from the Garment Manufacturing Association in Cambodia, garment workers went on strike 131 times from January to November — more than three times the number of strikes from 2010 and 2011 and already more than all of 2012.

Meanwhile, accidents resulting from collapsed garment factories reminded Cambodians of the squalor in which they work and the lack of their overall safety. Some accidents came just days after the Savar Building collapse in Bangladesh. These reminders helped the opposition party gain popularity in the July parliamentary elections.

Collateral Damage

The anti-government and wage protests are becoming problematic for Phnom Penh. The Cambodian economy can ill afford disruptions in the supply chain, and the growing strength of the opposition has forced the government to reconsider its position on labor relations. In doing so, it may have to sacrifice its cost advantages and its relationships with factory owners.

In fact, because it was a campaign season, the government had to raise wages repeatedly in 2013. In March, it raised the minimum wage from $61 per month to $80 per month. Now, that figure is $100 per month. The raise has now put Cambodia's labor costs well above some of its regional rivals. The minimum wage in Bangladesh is $38 per month, while the minimum wage in Laos is $78. In Vietnam, minimum wages range anywhere from $89.3 per month to $127 per month. By comparison, China's is $250 in the coastal regions and nearly $300 in Shenzhen.

The labor protests also show the polarized position of labor unions in the country's garment industry. With the state's high dependence on this industry, garment workers and trade unions have emerged as prominent social forces and have given rise to a higher degree of political competition. Over the years, the ruling party has established government-sponsored trade unions to counter the opposition's attempts to reach out to garment workers, thereby denying the opposition additional political support.

But as the opposition gains strength, the ruling party is losing some of it prominence among workers and labor unions. As wage disputes remain unresolved at such a crucial time politically, the ruling party has limited space to maintain the country's manufacturing prowess and to appease foreign factory owners. Cambodia's security apparatus is closely linked to the ruling party, so security has been tight around the protests. If it opts to crack down on the protesters, the government could lose even more political support at a very vulnerable time.

Of course, neither the ruling Cambodian People's Party nor the Cambodia National Rescue Party is willing risk damaging the garment industry. However, the industry could become collateral damage in their political competition. Despite the instability throughout 2013, garment and footwear exports still posted a year-on-year increase of more than 22 percent in November. But as a recent survey shows, the country's rampant corruption and poor infrastructure have made Cambodia one of the least popular destinations for foreign investment among Association of Southeast Asian Nations members. Although the country has been resilient in the face of unrest and disruptions to business in the past, political uncertainties will only further discourage investors as the country declines in cost advantage.

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