Fung Business Intelligence | 2 Jun 2015

Asia Sourcing Update May 2015

WORLD BANK PREDICTS CAMBODIA’S ECONOMIC GROWTH TO S LOW SLIGHTLY

In its East Asia and Pacific Economic Update released in April, the World Bank predicts that the real GDP growth in Cambodia will moderate slightly from 7.0% yoy last year to 6.9% yoy in 2015 and 2016, and 6.8% yoy in 2017. The slowdown is attributable in part to the concerns over reduced competitiveness in the garment industry and the modest growth in the agricultural sector amid weak agricultural commodity prices.

The garment industry, which accounted for 77% of the country’s total exports last year, is facing increasing challenges. The 28% wage increase at the beginning of this year makes Cambodia’s garment exports less competitive among its neighbouring sourcing countries. At the same time, the appreciation of the US dollar, to which the Cambodian riel is pegged, also makes garment exports to the EU – the largest export market for Cambodia’s garments – less competitive in euro terms.

According to Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia (GMAC), only 13 new export-oriented garment factories opened in 1Q15, compared to 40 exportoriented factories opened in the same period last year. While the World Bank’s prediction is among the least optimistic, the Asian Development Bank and Cambodia’s Prime Minister both forecast that Cambodia’s real GDP growth will accelerate to 7.3% yoy in 2015.

GARMENT EXPORTS GROW 11% YOY IN 1Q15

Cambodia exported US$1.73 billion worth of garments in 1Q15, up by 11% over the same period last year, according to data from the Ministry of Commerce. The figure points to a possible recovery of the garment industry, which grew a mere 4% yoy in terms of export value in 2014 due to falling orders.

By export destination, Cambodia’s garment exports to the EU increased by 16% yoy to US$680 million in the first quarter, while those to the US fell 1% yoy to US$537 million. Garment exports to other markets rose 21% yoy to US$521 million, indicating that the country’s efforts in diversifying its export markets have started to pay off.

The EU has accounted for an increasingly large share in Cambodia’s garment exports, overtaking the US as the largest export market for Cambodia’s garments. This is due mainly to the duty-free privileges granted by the EU to Cambodia under the “Everything but Arms” arrangement.

As labour strikes over minimum wage have gradually subsided, the growth of garment exports is likely to accelerate in the rest of the year.

VARIOUS PROJECTS UNDERWAY TO BOOST ELECTRICITY SUPPLY

Cambodia’s state energy provider Electricité du Cambodge (EDC) announced in March its plan to develop a high-voltage distribution network that can enhance the transmission capacity in a number of provinces along the Tonlé Sap Lake.

The project, funded by a concessional loan from China, will include the construction of a distribution network connecting Battambang, a province in north-western Cambodia, to the Siem Reap, Kampong Thom and Kampong Cham provinces. Another network will also be constructed to connect the Kampong Speu province to Takhmao, a city in the Kandal province, via a circular-grid network crossing the Tonlé Sap Lake, upper and lower Mekong River and Bassac River. To be completed over the next three years, together the new grids will extend the existing networks by about 450 kilometres in length.

To meet the growing domestic demand for power and reduce the reliance on imported electricity, Cambodia has been actively developing electricity generation capacity by coal and hydropower.

The Russei Chrum Krom River hydroelectric dam has begun operating in January. With power generation capacity of 338 megawatts, the dam is so far the largest hydropower station in Cambodia. It is the fifth dam built by Chinese investors in the country. The sixth one, with power generation capacity of 246 megawatts, will also become operational later this year.

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