Cambodia's biggest industry-garment, shoewear and leather-employs some 1 million people and accounts for nearly three quarters of its merchandise exports. However, this industry is beset with problems.

Compared to three years ago, many more cars, gas powered tuktuks and hurried motorcycles fill the roads of Phnom Penh. High buildings arise everywhere in the city centre. So, you may think that Cambodia is on the fast lane to become an upper-middle income country by 2030, as is the ambition of the government. But wait, first some serious obstacles have to be overcome.

Let's focus on the obstacles faced by Cambodia's Number One industry: the garment, shoewear and leather industry, which is employing some 1 million people (included the workers in nonregistered firms) and which accounts for nearly three quarters of Cambodian merchandise exports.

It's clear that in a country with 15.3 million inhabitants (according to the Population Census 2019), one million workers and their families form, at least potentially, a political force to reckon with. That's why Prime Minister Hun Sen since 2017 visited a lot of garment factories allowing workers to take selfies with him. It's also clear that Cambodia's economy is over-dependent on the garment sector and should urgently diversify.

This year, Cambodian exports of garments, shoewear and bags will approach $10 billion, which puts the Kingdom of Cambodia on #8 position among the major exporting countries of these products. This is an amazing performance for a country that lacks a basic cotton and textiles industry of any importance and is beset by huge energy and infrastructure problems.

But for brands and retailers who were happily sourcing from Cambodia, for the manufacturers in Cambodia and their suppliers, and for the workers and their families, the future of the Cambodian garment industry is bleak. Here are some reasons why.

Speculative investments

The garment industry is part of a national economy which nowadays is neither well-balanced nor sustainable. It's true that since the late 1990s Cambodia has enjoyed an impressive economic growth of around 7 per cent annually. But what kind of growth? Look at capital Phnom Penh, which is hastily developing as if insightful books like The Death and Life of Great American Cities (Jane Jacobs, 1961) were never written. Jacobs warned that big money can shape cataclysmic, rather than gradual and beneficial changes in cities.

That's what is happening in Phnom Penh. In 2017, Cambodia's massive construction boom reached $18 billion, nearly matching the country's GDP of $22 billion. Besides useful investments in infrastructure improvements spurred by BRI (the Chinese Belt and Road Initiative) there was over-investment in real estate projects. Recently, the World Bank recommended that the Cambodian government should closely monitor the construction and real estate boom in the country by developing policies that could help reduce speculative activity.