Questions have been raised about the health of Cambodia’s $6 billion garment sector after local media reported that over 140 garment factories shut down operations last year.

Ministry of Labour spokesman Heng Sour, the source of the figure cited in local media, stood by the number yesterday, stating that the ministry documented 141 garment factory closures in 2016, nearly double the amount recorded in 2015.

However, the figure appeared misrepresented in a local media report, which omitted ministry data that showed 149 garment factories opened during the same period, resulting in a net gain for the sector.

While Sour was unable to comment on the size of the factories included in the data set, or the number of workers employed, he insisted that fears garment manufacturers were pulling out of Cambodia en masse were unfounded.

“The figure [for factory closures] is not a concern for the garment industry,” he said. “We analysed the data and found a balance between factory closures and openings, with the number of new factories still leading. And there is still a balance of workers in the sector with plenty of job opportunities for those seeking employment.”

Industry analysts have been on the lookout for any sign that Cambodia’s garment sector, which comprises over 1,000 factories and provides 600,000 jobs, has become uncompetitive compared to other developing countries. One key concern is that the minimum wage, which has risen swiftly in recent years to $153 a month, could push factory owners to shift their production to lower-cost destinations.

Last August, the Garment Manufacturers Association in Cambodia (GMAC) raised a red flag when its management claimed it had evidence that political uncertainty, labour unrest and a lack of competitiveness was sending garment manufacturers packing.

GMAC secretary-general Ken Loo said at the time that his organisation’s membership rates had dropped, while garment and footwear orders had declined by 20 to 30 percent.

“We have been saying for many years that Cambodia is not competitive and that companies will divest,” he told the Post. “There has been a decline in incoming investors, as well as our existing investors pulling out.”

Women iron at a garment factory in Phnom Penh. Pha Lina

Yang Sophorn, president of the Cambodian Alliance of Trade Unions (CATU), which represents about 10,000 workers, insisted that Cambodia remained an attractive low-cost destination for garment manufacturers despite recent wage hikes. She said the relatively high number of factory closures last year did not indicate a rise in bankruptcies or relocations to cheaper manufacturing destinations.

Instead, she said that the figures likely reflected the widespread practice in the garment sector of owners shuttering their factories whenever their tax holiday expires.

“Most factories close after five years then reopen, sometimes in the same location and other times in new location, with a new name but the same owner,” she said. “They do this because they want to avoid paying taxes to the government.”

Sophorn claims she was personally aware of eight factories in CATU’s membership pool that shut down last year only to reopen under a new name. The loophole allows factory owners to avoid taxes as well as seniority-based salary schedules and benefits.

“We repeatedly asked the Ministry of Labour why it does not record factories that reopen in the same location with the same owner but the ministry has declined to explain,” she said.

Sour, the Labour Ministry spokesman, said if union representatives have any evidence of factory owners abusing the system they should present it to the Ministry of Commerce and the Council for the Development of Cambodia (CDC). He said Cambodia has strict procedures on declaring bankruptcy, and laws are in place to protect workers.

“Even if a factory closes [its management] must settle all liabilities to its workers and other stakeholders,” he said.

GMAC’s Loo said the unions could say what they want, but the organisation’s membership data do not lie.

“Unions have the right to claim that factories are reopening, but our records show GMAC memberships has decreased,” he said, without providing figures. “The number went down because the minimum wage keeps rising while buyer’s orders are falling, so how can factories make a profit? So they have to shut down.”