• Economics

Factory Closures and Suspensions on the Rise

• By Meng Seavmey
• August 16, 2023 11:59 AM

PHNOM PENH – Since the year started, factory suspensions and shutdowns have kept increasing across the country, with garment workers being laid-off or temporarily suspended, leading them to rely more and more on unstable and temporary jobs to try to make ends meet.

According to data collected by the Center for Alliance of Labor and Human Rights (CENTRAL), at least 20,000 workers have been suspended or laid off from February to July, said Khun Tharo, the organization’s program manager.

While the number of layoffs has been on the rise since early 2023, it gained pace in the weeks prior to the general election, which took place on July 23, according to Tharo. In some of Cambodia’s biggest factories, up to 20-to-30 percent of the workforce has been laid off, and workers say they have lost 25-to-30 percent of their income compared to 2022.

Aligned with Tharo’s statement, Say Sokny, the vice president of the Free Trade Union of Workers of the Kingdom of Cambodia (FTUWKC), said the situation is getting more serious than it was earlier this year because more factories have started to suspend operations.

Some factories the union is involved with are planning to cut down working hours due to a decrease in orders, affecting nearly 5,000 workers, she said.

A factory in Kampong Chhnang province has been suspended since June and will not resume its activities before September while two others in Phnom Penh have had to stop operating on Fridays and Saturdays until the end of the year, according to the data Sokny sent to Cambodianess on Aug. 11.

Prior to ceasing activity or suspending operations, factory owners have to let the Ministry of Labor and Vocational Training know about the situation so that compensation schemes for workers can be set up.

“[But] some factories did not follow the conditions required by the Ministry of Labor when they laid off or suspended the workers,” said Tharo, from CENTRAL.

Based on a dedicated cash relief scheme that started in April to support laid-off workers from the garment industry, suspended workers receive $70 monthly, of which $40 come from the government and $30 from the employer. The base salary in the industry is $200 per month in 2023.

Cambodia is home to 1,077 garment, textile and footwear factories that provide jobs for around 760,000 workers in the country, said Kong Sang, president of the Textile, Apparel, Footwear and Travel Goods Association in Cambodia (TAFTAC – former GMAC) on Aug. 11 during the Cambodia Business Forum 2023.

According to Sang, the garment sector contributed 10 percent to the country’s economy in 2022, with exports worth $12.5 billion, or 60 percent of the country’s total export value. But garment exports went down 18 percent in the first half of 2023, compared to the same period last year.

Additionally, at least “15 factories have requested to suspend operations or close lately,” said Ath Thon, president of the Cambodian Labor Confederation (CLC), during a live stream discussion with the Voice of Civil Society on Aug. 15.

Labor Ministry’s Spokesperson Heng Sour did not respond to reporters' questions to confirm such numbers and TAFTAC’s General Secretary Ken Loo said he had no data on the number of factory closures.

Decline in orders from the West

One of the reasons that stand behind these continuous layoffs is the decline in orders from the U.S. and the European Union (EU) – Cambodia’s two biggest export destinations – because of the growing inflation in the West caused by the invasion of Ukraine by Russia.

Say Sokny of FTUWKC said the suspension and closedowns take root in the instability in demand and supply caused by the two major crises the world has been through since late 2019 – the COVID-19 pandemic and the war in Ukraine.

The loss of some trade benefits with the U.S. and the EU doesn’t help the industry to export its products either. While the Everything But Arms (EBA) trade preference from the EU was partially lifted in August 2020 for “serious and systematic violation” of human and labor rights principles, Cambodia’s access to the US Generalized System of Preferences (GSP) was suspended in December that same year.

“The matter is getting more concerning, and the number [of closures] will increase if the related problems are not addressed,” Sokny said.

Khun Tharo from CENTRAL said the decrease in orders might also have been triggered by the unclear political situation following the national election.

“The concern is that the European Union will take more actions on the government as the democratic and the [civic] spaces are shrinking. If there are more sanctions, it will affect the workers’ livelihood as some factories will suspend [operations] or close down the productivity chain in a more exclusive manner,” he said.

Workers remain highly vulnerable

These continuous disruptions in workers' employment are having a direct impact on their livelihood, recalling that workers in the garment industry remain highly vulnerable, despite being part of one of the most structured sectors in the country.

While many Cambodian households have taken a loan from a microfinance institution, the decrease in income caused by the continuous stop-and-go of garment factories makes it hard for them to pay back their debt on time.

“As a civil society group, [we call on] the government to set out a clear method in responding to the EU’s statement and decision [to partially lift the EBA trade preference],” Tharo said.

A factory worker in Pursat province, who asked not to be named, has been suspended twice since the beginning of the year. The first suspension lasted three months, from January to March and the second suspension started only one week ago.

But the factory announced the suspension was due to a lack of orders and did not inform the workforce about a potential date of returning to work, he said.

While his employer has already given him the $30 monthly compensation he is owed as per the compensation scheme, the worker said he has not yet received the $40 from the ministry.

During the previous period of suspension, he had to work as a construction worker to earn enough to pay for his family's daily expenses and loan repayment.

But the job did not pay him on a regular basis because there was no clear work schedule.

All in all, the money he was able to earn at the time was not enough to cover his family's expenses, which amounted to almost $200 a month, even if he cut back during that difficult period.

“However, things were getting a little bit better when I returned back to work full-time at the factory. I could repay the debts and loan,” he said, adding that the salary was helping him at least on those expenses although it was not much.

Nevertheless, the 42-year-old Pursat resident said he expects it to be more difficult this time because the factory had announced its suspension again without a clear date of returning.

“The main issue is to repay the loans because both my wife and I got suspended and lost our stable incomes,” he said. While he had hoped to find a job in the construction industry, he had to change his plans as building sites came to a standstill due to the village's economic downturn.

“I am currently finding snails and fish to sell, which does not profit much. But it is at least enough for the children’s expenses at school,” he said.

 

Ou Sokmean contributed to the story.