The latest wave is sweeping through the Kingdom’s society and key economic sectors, thwarting growth just as it was on recovery mode

"We are still evaluating [economic losses],” was the brief yet grim answer Meas Soksensan, Ministry of Economy and Finance (MEF) spokesman offered as anxiety gripped key economic sectors in the latest wave of Covid-19 infections.

As of May 6, 114 people had died while positive coronavirus cases have surged to 17,621, more than 30-fold from the cases registered on February 20, when the first community transmitted case was detected this year.

A strain on the national budget is starting to show as the MEF has asked the government to revise its expenditure for 2021.

In doing so, it can free up some $90 million to address Covid-19 priorities including cash outlays and food aid, Soksensan was quoted as saying, while assuring that it would not affect the sub-national budget.

It is understood that so far nearly $2 billion has been expended under the Covid-19 budget since last year.

Going forward, even as factories and businesses are opening up along with logistics services after a three-week lockdown, fiscal losses registered over the course of two months since February 20, is likely to blot the balance sheet.

Added to that, rising cases and slow business recovery could very well hinder gross domestic product (GDP) growth, no thanks to the existing risks in key economic segments.

One such industry is the garment manufacturing sector.

As the days go by, a veil of anxiety beguiles the sector, having been inadvertently hit hard by the virus.

Up to May 3, about 1,673 workers from 206 factories tested positive, Ath Thorn, president of Confederation of Labour Cambodia said, quoting official figures.

“Garment workers [make up] a large share of Cambodia’s Covid-19 cases,” he pointed out, adding that more than 17,000 workers remained in quarantine after coming into contact with infected persons.

With spiralling cases, the government instituted three weeks of lockdown in Phnom Penh and surrounding Kandal province, which ended on May 5 but grounded activities in 690 factories.

From the outset of the latest wave, the government and manufacturing executives have been on alert.

Aware of the growing threat of widespread infections as villages housing factory workers in Phnom Penh and surrounding districts became vulnerable, a mass vaccination was ordered early April.

A total of 110,000 workers have been vaccinated with the first dose and more than 10,000 people have received both doses.

“But Cambodia’s estimated 850,000 garment workers have yet to be vaccinated,” Thorn remarked.

In the meantime, Covid-19 cases pile on, placing workers and their families in danger of contracting the virus as the government presses on with its vaccination campaign.

As of May 5, over 1.5 million people had received one or two doses nationwide including compulsory inoculations in red zones as the Kingdom prepares to receive another one million doses this month.

Questions to Labour Ministry spokesman Heng Sour were not replied.

Previous news reports quoting him stated that factories in the yellow zone – a territory with the lowest risk, would re-absorb an approximate 200,000 workers as the lockdown is lifted.

However, the future of the $7 billion garment industry hangs in the balance, given that orders for export have been stunted due to factory closures and a disruption in logistics during the lockdown period.

Last year, the garment, footwear and travel goods segment, which saw the cessation of 129 factories, recorded overall drop in export revenue as demand fell overseas.

In the first quarter ended March 31, 2021, exports slipped 6.5 per cent year-on-year to $2.4 billion, data by Cambodia’s General Department of Customs and Excise showed.

The largest employment sector with nearly one million workers, has been the government’s biggest direct revenue contributor, representing 17 per cent of GDP in 2019.

With the closure and supply disruption during the lockdown and workers affected by Covid-19, it is likely to eat into the industry’s earnings.

“There is nothing that GMAC [Garment Manufacturers of Cambodia] can do,” said secretary-general Ken Loo, when asked how it would recover its losses from the period.

“We are discussing with the government about reopening measures and how to allow factories to reopen as soon as possible,” he commented earlier this week.

But this predicament was fathomed by the association when it sent out a notice in mid-April urging stakeholders “not to punish” them for delayed orders due to the lockdown.

The latest blow to the industry is even more palpable following the 20 per cent tariff preference loss, a policy that was withdrawn by the EU under the Everything but Arms scheme last August.

The partial revocation by the bloc’s commission was adjudged after finding that Cambodia allegedly failed to uphold democracy in the last general election and respect human rights.

Despite the drop in EU exports, once Cambodia’s largest export market, the US market absorbed shipment of garment, footwear and travel goods from Cambodia.

Data by the World Bank showed that exports to the US rose 7.6 per cent year-on-year to $2.7 billion between January and September last year.

But the sector’s current predicament sullies any effort to recover losses, further compounded by continuing exorbitant ocean freight costs.

While it presumably had a clear impact on the sector, GMAC’s Loo conceded that it could not be estimated, adding that he had “no idea”.

Lost earnings

To date, many people are not yet able to return to work as pandemic measures such as red zones, travel restrictions and quarantine are retained in critical areas.

For factories, only 50 per cent workforce, comprising those who are fully vaccinated or have received the first dose, is allowed on a two week rotation basis.

Granted, last year was disappointing for trade and commerce but the current predicament has knocked off further earnings which industry players say will remain unrecoverable.

“Garment and rice exporters are experiencing many delayed shipments and should such delays persist, buyers may hedge their orders in Cambodia,” said David Van, senior associate public-private partnership of Platform Impact Co Ltd.

In a message earlier this month, he alluded that hedging would not fare well for the industry as that would mean that shipment is inconsistent.

“[Buyers] might shift their orders from elsewhere and once orders are gone to other competing countries, they won’t come back,” he opined.

Cambodia Freight Forwarders Association president Sin Chanthy attested to this as some 50 per cent of shipment including garment, and agriculture products such as rice were stuck at the ports, although it was worsened by high ocean freight costs.

However, in addition to suspended operations and low productivity during the lockdown, Chanthy estimated economic loss to be around 70 to 80 per cent.

“I think even [with] the lifting of the lockdown, we cannot recover the losses because up to now, we [the logistics sector] have already lost about 60 per cent [of revenue], if not more,” he said.

Like other industries, the logistics sector abided by the two per cent employment order during the lockdown period, which meant fewer staff for trucking services and processing of documents.

“Many employees were also not able to work because they either lived in red or orange zones and other provinces,” Chanthy said.

Dumping lettuce

Admittedly, the lockdown was pertinent to flatten the curve, but industry players stressed that there should have been more planning prior to the decision.

For instance, the problem of food shortages occurred within red zones although there was enough food to go around.

“What exasperated the food shortage was the total supply chain disruption since day one of the lockdown due to the incoherent approach among various state entities enforcing [the order],” said Van of Platform Impact.

The lack of coordination also resulted in losses recorded by the agriculture sector, in particular vegetable smallholders, who make up 80 per cent of subsistence farming in Cambodia.

Many had to contend with up to 50 per cent drop in selling price, said Theng Savoeun, director of Coalition of Cambodian Farmers’ Community.

“For smallholders, that is a huge loss. It was a difficult period because they could not supply to the markets because of travel restrictions and the lockdown in the capital city and surrounding districts,” he said.

On the flipside, vegetable prices within the lockdown areas rose between 20 and 30 per cent because of limited supply.

“As it is, smallholders don’t earn much under normal circumstances. When they could not supply the markets, many just sold off the produce cheap before it started to rot,” he said.

In actual fact, the agriculture segment – the only segment which recorded growth last year – has been under pressure from the first quarter of this year as sales dropped by 40 per cent due to Covid-19, Sok Sotha, founder and managing director of Cambodian Farmer Federation Association of Agricultural Producers said.

The situation worsened in the last three weeks as supply to wholesale markets was cut and traders could not meet farmers for re-contracting as a result of travel restrictions.

In Kandal province’s Sa’ang district, one lettuce farmer reportedly dumped hundreds of tonnes of his produce after failing to market them as authorities cracked down on traders within lockdown areas.

Sotha said eventually farmers had to reduce harvest while pleading local governments to take their produce to supply households affected by Covid-19 and quarantine centres.

“Only a small volume was effectively sold to collective markets. Those who harvested large quantities faced losses and suffered damages,” he related.

These losses, he opined, would take a minimum of three to six months and up to three years for farmers to recover if the situation does not abate.

But what the lockdown revealed for Sotha was that despite a significant drop in vegetable imports from Vietnam and Thailand because of border closures, local farmers did not profit from it because sustainable farming policies are not strongly advocated in Cambodia.

“It is a fact that we need a critical policy that supports them [in terms of] water, climate change, specific electricity tariffs for agriculture, financing and agriculture standards and markets.

“We have some existing policies [but] we need the government to implement them,” he said.

Fair share of impact

The path to restore economic growth is proving to be a challenge as cases continue to surge while Cambodia races to inoculate 20 per cent of the population. It now stands around 15 per cent.

The MEF forecasts four per cent GDP growth this year, coming off a record contraction of 3.1 per cent last year.

The Asian Development Bank echoed a similar prediction for 2021 but contended the projection is subject to revision if risks persist.

Earlier last month, economist Dr Chheng Kimlong of independent think tank Asian Vision Institute estimated economic loss of more than $300 million when Covid-19 cases started to surge from the February 20 community outbreak.

His assumption based on business closures and curfew imposed then was that losses would expand if the economic fallout lasted.

Judging from the current scenario including the lockdown, his estimation of larger losses might be on point.

Although Penn Sovicheat, spokesman for the Ministry of Commerce disagreed, particularly in the context of exports.

“For sure, there [is] disruption over exports because of Covid-19 but the situation is controllable. For garment export, the disruption [was related] to factories in lockdown [areas] but not all.

“We still exported [despite] delays. However, GMAC and the government have coordinated with the buyers to accommodate the issue,” he said via a social messaging app.

Sovicheat remarked that every economic sector experienced a “fair share” of the impact from the pandemic, similar to global experiences.

“The most important point is that we still maintained a normal relationship with buyers, and factories [continued to] operate except for [those located in] lockdown zones,” he reiterated.

In addition, Sovicheat said Cambodia’s trade representatives stationed abroad maintained contact and “good relationship“ with big buyers to gain their “understanding and tolerance” on any delay caused by the pandemic.

The prioritisation of vaccination for workers is another factor to ensure factory workers are able to work, albeit with precautionary measures on production lines.

It is a notion shared by the ASEAN+3 Macroeconomic Research Office (AMRO) Asia, which acknowledged the challenges faced by Cambodia.

It said business closures and job losses due to the pandemic, if prolonged, might diminish the strength of recovery in coming years and leave lasting damage to the economy’s productive capacity.

However, it recommended that faster vaccination and more targeted and flexible policy measures will support recovery.

For instance, coordinated efforts to address structural constraints should be accelerated to enhance competitiveness and resilience of the economy.

“Efforts to promote domestic industry development and attract more quality foreign direct investment into priority sectors to diversify the economy are crucial, as the pandemic has exposed the risks of relying on a few export products and markets,” it said.

While the recommendations are sound, Cambodia has to first take stock of its losses and strengthen its policies before it can fire up its economy once again.