By Joshua Simonidis

Cambodian garment workers’ protest. Source: ILO in Asia and the Pacific’s flickr photostream, used under a creative commons license.

After an uphill battle to press for higher minimum wages last year, Cambodian garment workers are finding that the recently implemented wage hike has not translated into higher take home pay or better living conditions. In addition, authorities have blamed higher wages for causing a decline in orders and garment exports, and for hurting Cambodia’s export competitiveness. While it is easy to blame last year’s strikes and the eventual minimum wage hikes, the main contributing factor for the reduced export growth was uncertainty in Cambodia’s garment industry.

The value of Cambodia’s annual garment exports is approximately five billion dollars and is by far the country’s largest export earner. However, despite their contribution to the economy, garment workers are notoriously underpaid and have to work under dismal conditions. The monthly minimum wage was raised to $100 from $80 in early 2014 in response to massive strikes that began in December 2013, and was increased again to $128 following another series of strikes later in 2014.

Following a year of on-and-off protests and two rounds of wage hikes, garment exports only saw 4 percent in growth in 2014, down from 20 percent in 2013. The Garment Manufacturers Association of Cambodia (GMAC), an organization that acts as an intermediary for garment firms and the Cambodian government, cited strikes, negative media coverage, and minimum wage hikes as factors behind the growth decline. However, these factors are just symptoms of what investors really fear –an uncertain business environment. The garment sector’s priority should be reestablishing stability and reducing risks to minimize this uncertainty. Sudden strikes that shut down production will likely happen again as long as the government and industry leaders continue to keep wages below a living level.

A decrease in orders from fashion brands and garment exports in turn led to lower overtime and take home pay for workers. When coupled with the rising costs of living, some workers reported they were better off before the wage increase, signaling a potential for future strikes.

If the GMAC and Cambodian authorities are concerned about Cambodia losing its share of garment exports, they should find a sustainable mechanism to settle the wage issue with garment workers. In the case of Cambodia, higher wages may not be an industry killer for some time to come because they are still lower than those in many competitor countries.

In its annual Labor Costs Index, risk analytics firm Verisk Maplecroft ranked Cambodia as one of three places with the lowest labor costs. While the index is not solely for the garment industry, it shows Cambodia still enjoys a high level of wage competitiveness among major garment exporters.

Cambodia’s new wage puts it above Bangladesh at $68, on par with Vietnam’s highest minimum wage rate, and below the minimum wage of $156 that firms need to pay in China. Although Cambodia’s new wage is almost twice that of Bangladesh, that country’s garment sector has suffered from a tarnished image due to safety issues such as deadly building collapses.

Many firms have shown commitment to their Cambodian operations through the minimum wage negotiation process last year. During the second series of protests, representatives of eight major fashion brands signed a pledge saying they would support wage negotiations and pay all costs associated with fair wages for workers. There is a public relations premium to be gained from selling products made by workers who are properly treated and compensated.

Once investor confidence in Cambodia’s garment sector can be restored, growth will likely return. In the long term, establishing a livable wage level in an industry on which many Cambodians depend is necessary for Cambodia’s own political stability.

Mr. Joshua Simonidis is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS.