Least Developed Countries Report 2007(1)
The contents of this press release and the related Report must not be quoted or
summarized in the print, broadcast or electronic
media before 19 July 2007, 17:00 GMT
(1 PM New York, 19:00 Geneva)
Trade preferences have been used as an important international policy mechanism to support export development in LDCs. A number of them attracted FDI and developed garments exports under the arrangements of the Multi Fibre Agreement. But technological upgrading of products and processes has not necessarily followed. The increased exports that resulted have often featured products of limited sophistication.
In Cambodia, for example, FDI inflows increased from US$149 million in 2000 to $381 million in 2005. The expanded investment came from firms in both developed and developing countries lured by high profits in the garment industry. Over 50% of Cambodian garment manufacturers were Chinese owned in 2000-05.
Garments now account for 15% of Cambodia´s GDP and for over 70% of the country´s manufacturing value added. Two-thirds of Cambodia´s exports are garments, which experienced an average growth rate of 18% per annum from 2000-05. The rapid evolution of garment manufactures has had a poverty alleviating effect through increased employment in the textile sector. From 2000 to 2005, the number of workers in the textile and garment industries doubled -- from 161,000 to 285,000
The Multi Fibre Agreement ended in 2004 and although there are some transitional arrangements, the sustainability of garment exports in a number of countries is in question. Notwithstanding the current buoyant export market, Cambodian garment manufacturers need to develop their own capabilities to compete in world markets. The country´s currently poor infrastructure; the long time between the placement and the delivery of orders; and the relatively higher wages (average of US$21.8 per month) compared to those of other regional garment competitors such as Myanmar ($20) and Indonesia ($20.2) are hampering Cambodia´s long term ability to face foreign competition.
Cambodia is not sufficiently investing in developing local capabilities in the sector. One important indicator is the amount spent on adaptive design and engineering (such as adapting fabrics to produce wrinkle-free garments or participating in fashion designs). As a share of total sales, the amounts spent on such improvements to garment products were only 0.005 per cent in Cambodia in 2005, compared with 0.012 in Indonesia (2001) and 0.022 in Thailand (2001). Another indicator is a low level of spending of training which was equivalent to only 0.26% of the total payroll in Cambodia (2005), as against 0.35% in Indonesia (2001) and 0.40% in Thailand (2001).
In summary, despite the increases in foreign investment, employment, and exports of garments, Cambodia is doing little to improve the technological capacity of its garment industries. This is a precondition if Cambodia aims to keep and expand its current market share in garments over the long term.
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