The Kingdom of Cambodia has witnessed remarkable economic growth over the past two decades, driven primarily by its thriving garment industry. However, recent years have seen a growing recognition of the need to diversify the economy and reduce reliance on the garment sector, which is susceptible to global economic fluctuations and labor market pressures. In this context, the non-garment manufacturing sector in Cambodia has emerged as a promising avenue for the Kingdom’s economic growth and development.
Growth Trajectory: Non-garment Manufacturing Sector in Cambodia on the Rise
The non-garment manufacturing sector in Cambodia has experienced significant growth in recent years. According to the General Department of Customs and Excise of Cambodia (GDCE), exports of non-garment products have increased at an average annual rate of 19% between 2010 and 2020, reaching a value of $4.5 billion in 2020. This growth has been fueled by a combination of factors, including:
- Investment in Special Economic Zones (SEZs): The establishment of SEZs has attracted foreign direct investment (FDI) in non-garment manufacturing, particularly in sectors such as electronics, footwear, and furniture.
- Government Support Policies: The Cambodian government has implemented various policies to promote the non-garment manufacturing sector, such as tax incentives and infrastructure development.
- Rising Labor Costs in Neighboring Countries: Cambodia’s relatively lower labor costs compared to neighboring countries like Vietnam and Thailand have made it an attractive destination for non-garment manufacturers.
In 2023, Cambodia’s non-garment manufacturing exports increased significantly, reflecting the country’s success in diversifying its export portfolio away from textiles, according to senior government officials (source).
“The Kingdom exports a wide range of non-garment manufacturing products, including electronic components, bicycles, auto parts, furniture, leather, plastic, and other industrial products.”
“The country’s key exports fell in the first four months of this year due to an economic slowdown in its major markets.”
According to a report from (GDCE), exports from the non-garment manufacturing sector in Cambodia increased during the period, with electrical machinery and equipment and parts exports rising by 94 percent to $979 million. This accounted for about 14 percent of the total export of $7,234 million.
Meanwhile, Cambodia’s garment exports decreased by 28 percent year-on-year to $1,394 million in four months. Travel goods exports also decreased by 23 percent to $515 million, while footwear exports fell by 23 percent to $436 million. (source)
Challenges and Opportunities: Navigating the Path Forward in the non-garment manufacturing sector in Cambodia
Despite its promising growth trajectory, the non-garment manufacturing sector in Cambodia faces several challenges:
- Skill Development: The shortage of skilled labor in specific industries poses a constraint for further expansion.
- Limited Manufacturing Technology: Access to advanced manufacturing technologies remains limited, hindering the sector’s ability to compete in high-value-added products.
- Infrastructure Gaps: Inadequate infrastructure, particularly in transportation and logistics, can increase production costs and hinder market access.
Despite these challenges, the non-garment manufacturing sector presents numerous opportunities for Cambodia’s economic growth:
- Diversification of Export Products: Expanding the range of non-garment exports can reduce reliance on a single sector and enhance resilience to global economic shocks.
- Higher Value-Added Products: Transitioning from low-value-added garment manufacturing to higher value-added non-garment products can boost export earnings and generate more skilled jobs.
- Integration into Global Supply Chains: Cambodia’s strategic location in Southeast Asia and its participation in initiatives like the ASEAN Economic Community (AEC) can facilitate its integration into global supply chains for non-garment products.
- Embracing Diversification: A Strategic Imperative spurred by the non-garment manufacturing sector in Cambodia.
Moving away from the garment sector and embracing the non-garment manufacturing sector in Cambodia has become a strategic imperative for the Kingdom’s economic diversification and long-term growth. By focusing on developing capabilities in high-value-added manufacturing, Cambodia will be able to create more sustainable and resilient economic growth, generating higher-paying jobs and improving living standards for its citizens.
What does the government say about the non-garment manufacturing sector in Cambodia?
H.E. Dr. Heng Sokkung, Secretary of State at the Ministry of Industry, Science, Technology, and Innovation (MISTI), said that non-garment manufacturing exports have significantly increased in the last couple of years, outpacing the growth of garment manufacturing exports.
“The Cambodian Industrial Development Policy 2015-2025 has boosted investment in technology in the production chains, and we have seen an instant increase in the export of non-garment manufacturing products,” Sokkung told a local newspaper.
He said that there is good momentum to develop labour-intensive industries into skills- or technology-based industries.
“The Ukraine war slowed down world economic growth and adversely affected exporting countries like Cambodia in sectors such as garments, footwear, and travel goods,” he added.
H.E. Penn Sovicheat, Undersecretary of State and Spokesman at the Ministry of Commerce (MOC), said that the country continues to receive purchase orders, which gives hope that exports will increase in 2023.
“The war slowed down global economic growth and reduced consumer spending, leading to declining orders for Cambodia. However, purchase orders remain high, giving hope for an increase in exports by the end of the year,” Sovicheat added.
What are the examples of Non-Garment Manufacturing Success in Cambodia?
Some examples are as follows:
- Electronics: Cambodia has attracted significant investments in electronics manufacturing, with companies like Panasonic and Yamaha establishing production facilities in the country.
- Footwear: Footwear manufacturing has also grown steadily, with brands like Nike and Adidas sourcing products from Cambodia.
- Furniture: Cambodia’s furniture industry has gained recognition for its quality and craftsmanship, with exports increasing in recent years.
What are the key takeaways for potential businesses and investors in the non-garment manufacturing sector in Cambodia?
Cambodia’s non-garment manufacturing sector offers promising growth opportunities for businesses seeking to enter or expand in Southeast Asia.
Equally, the government’s supportive policies and the country’s strategic location make Cambodia an attractive destination for non-garment manufacturing investment and the sector’s potential for high-value-added product development and integration into global supply chains presents lucrative opportunities for investors.
As Cambodia’s non-garment manufacturing sector continues to expand, several key takeaways emerge for businesses and investors seeking to capitalize on this promising growth opportunity.
What are the key investor takeaways for the non-garment sector in Cambodia?
- Favorable Market Access and Trade Agreements: Cambodia enjoys preferential access to the vast European Union (EU) market under the Everything-But-Arms (EBA) initiative, which eliminates tariffs on most Cambodian exports, including non-garment products. This preferential access provides a significant advantage for businesses exporting from Cambodia to the EU.
- Strategic Location and Logistics Advantages: Cambodia’s strategic location in Southeast Asia, close to major markets and transportation hubs, offers logistical advantages for businesses operating in the non-garment manufacturing sector. The country’s proximity to established manufacturing powerhouses like Vietnam and Thailand also provides opportunities for collaboration and knowledge transfer.
- Government Support and Investment Incentives: The Cambodian government has demonstrated strong support for the non-garment manufacturing sector, implementing various policies to attract foreign investment and promote sector development. These policies include tax incentives, infrastructure development, and skills training initiatives.
- Growing Demand for High-Value-Added Products: The global demand for high-value-added non-garment products, such as electronics, footwear, and furniture, presents a significant opportunity for businesses in Cambodia. The country’s relatively lower labor costs and improving manufacturing capabilities make it an attractive destination for producing these higher-value goods.
What are the lessons to be learned from neighboring ASEAN countries regarding non-garment manufacturing sector diversification?
Cambodia can learn valuable lessons from its ASEAN neighbors, particularly Vietnam and Thailand, which have successfully diversified their non-garment manufacturing sectors. These strategies include:
- Targeted Industrial Policies: Implement targeted industrial policies to attract investments in specific sectors with high growth potential. Vietnam and Thailand have successfully utilized such policies to foster growth in electronics, automotive, and other non-garment industries.
- Skills Development and Training: Invest in skills development and training programs to ensure a skilled workforce capable of meeting the demands of the non-garment manufacturing sector. Vietnam and Thailand have made significant strides in this area, establishing vocational training centers and collaborating with industry partners to provide relevant skills training.
- Technology Adoption and Innovation: Encourage the adoption of advanced technologies and foster a culture of innovation within the non-garment manufacturing sector. Vietnam and Thailand have made significant investments in research and development, enabling their industries to compete in high-tech sectors.
- Clustering and Special Economic Zones (SEZs): Utilize clustering initiatives and SEZs to create specialized hubs for non-garment manufacturing, providing shared infrastructure, business support services, and access to skilled labor. Vietnam and Thailand have successfully established SEZs that have attracted significant FDI in non-garment manufacturing.
- Regional and Global Integration: Actively participate in regional and global economic initiatives, such as the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP), to enhance trade facilitation and market access for non-garment products. Vietnam and Thailand have actively engaged in these initiatives, reaping benefits from preferential tariffs and market access opportunities.
- By drawing inspiration from these successful strategies, Cambodia can further accelerate its non-garment manufacturing sector’s growth and establish itself as a competitive player in the global manufacturing landscape.
Ultimately, embracing diversification and expanding the non-garment manufacturing sector in Cambodia will create a more resilient and sustainable economic future, generating prosperity for its people and positioning itself as a future competitive player in the global manufacturing landscape.