U.S. Downturn Dragging Globe Into Recession [-Cambodia has lost 30,000 jobs in the garment industry]

World Bank Predicts Economy Will Shrink for First Time Since 1940s

Monday, March 9, 2009
By Anthony Faiola
Washington Post Staff Writer

The world is falling into the first global recession since World War II as the crisis that started in the United States engulfs once-booming developing nations, confronting them with massive financial shortfalls that could turn back the clock on poverty reduction by years, the World Bank warned yesterday.

The World Bank also cautioned that the cost of helping poorer nations in crisis would exceed the current financial resources of multilateral lenders. Such aid could prove critical to political stability as concerns mount over unrest in poorer nations, particularly in Eastern Europe, generated by their sharp reversal of fortunes as private investment evaporates and global trade collapses.

In its report, released ahead of a major summit of finance ministers in London this week, the World Bank called on developed nations struggling with their own economic routs to dedicate 0.7 percent of the money they spend on stimulus programs toward a new Vulnerability Fund to help developing countries.

The report predicted that the global economy will shrink this year for the first time since the 1940s, reducing earlier estimates that emerging markets would propel the world to positive growth even as the United States, Europe and Japan tanked. The dire prediction underscored what many are calling a mounting crisis within a crisis, as the downturn that started in the wealthy nations of the West washes over developing countries through a pullback in investment, trade and credit.

"We need to react in real time to a growing crisis that is hurting people in developing countries," World Bank President Robert B. Zoellick said in a statement. Action is needed by governments and multilateral lenders "to avoid social and political unrest."

The report said that 94 out of 116 developing countries have been hit by economic slowdowns. The World Bank projected that the economic crisis will push around 46 million people into poverty in 2009 through job and wage cuts, as well as declining flows of remittances, the money that foreign workers send to their families. Net private capital flows to emerging markets are plunging, set to fall to $165 billion this year -- or 17 percent of their 2007 levels. Falling demand in the West is sparking the sharpest drop in world trade in 80 years, sending sales of the products and commodities of poorer nations spiraling down, the report said.

That decline is touching off a wave of job losses. Cambodia has lost 30,000 jobs in the garment industry. In India, more than half a million jobs vanished in the last three months of 2008, including cuts in the gems, jewelry, auto and textile industries, according to the World Bank.

As a result, the report estimates that at least 98 countries may have problems financing at least $268 billion in public and private debt this year. It noted a worsening in market conditions could raise that figure as high as $700 billion. Additionally, only one quarter of vulnerable developing countries, the World Bank said, have the ability to launch their own stimulus programs or to independently finance measures such as job-creation or safety-net programs.

To help them, multilateral lenders will need to dig deep. The World Bank remains well financed and is positioned to almost triple spending to $35 billion this year. But it warned the scope of the need in the developing world will exceed the combined ability of major multilateral lenders, and it called on governments in major nations and the private sector to pitch in more.

For instance, its sister organization, the International Monetary Fund, recently received $100 billion more from Japan, but is still asking more affluent nations to come up with an additional $150 billion to replenish its rapidly diminishing funds. While the World Bank aims to reduce global poverty largely through long-term projects in the developing world, the IMF is charged with offering bigger, more immediate bailouts to countries on the verge of economic collapse. The list of countries fitting that description has soared in recent months.

In November alone, the IMF parceled out $50 billion to nations in crisis -- the most the institution has ever spent in a single month. With more nations, particularly in Eastern Europe and Central Asia, facing serious trouble, the IMF is preparing to hand out tens of billions more. It is hoping to raise more funds from Western nations and other cash-rich countries such as China and those in the Middle East.

The concern now, however, is that the scope of the crisis may be so vast that even an extra $150 billion may not enough. Some fear that nations in Western Europe such as Austria, Ireland and Spain -- believed to have graduated from IMF lifelines decades ago -- may soon require bailouts, taking funds that would have been spent on poorer nations. It could also prove difficult to raise more money from hard-hit countries including the United States and Britain, where politicians and citizens may decide that charity begins at home.

"I'm worried about what happens when you see that a Greece or an Ireland that might need bailouts," said Simon Johnson, an MIT economics professor and former IMF chief economist. "Where is the money going to come from?"

US apparel stores look to save cost by moving production from China to SE Asia, i.e. Cambodia

Fashioning Ways to Hold Down Prices

FEBRUARY 3, 2009
By NICHOLAS CASEY
The Wall Street Journal

After steep discounting on its tops, khakis and jeans ate into its margins last year, American Eagle Outfitters Inc. is trying to reengineer the way it produces clothes.

It hopes to recalibrate its costs with moves that involve everything from changing where a garment is made (fewer Chinese factories and more Indian villages) to how it's shipped (less use of air freight) to how it looks (no patterned pockets in many jeans).

Many retailers fear they will be forced into still more rounds of price cuts as the economy continues to sputter. "Eighty percent off is the new normal," says Allan Haims, a retail consultant and former president of Wet Seal Inc.

Other teen chain stores are also growing wary of slipping prices. Abercrombie & Fitch Co., which has tried markdowns since the holidays, says its brand would be harmed if it tarnished its high-end image with more price cutting. And Aéropostale says it's looking to timed promotions to drive traffic rather than lowering price tags for good..

Fire-sale prices please shoppers but they depress store margins. American Eagle's gross margins for its fiscal third quarter, ended Nov. 1, fell 6.4 percentage points to 41% of sales. Analysts believe that after the latest tide of markdowns during the holiday season, the margins at its 954 stores have declined further.

American Eagle hopes to cut its manufacturing costs significantly. Recently, the company began moving some production out of China, where wages are on the rise, and into cheaper labor markets in Cambodia and Vietnam, which are increasingly able to make hoodies and T-shirts in their factories. American Eagle is still moving cautiously in Southeast Asia, but it believes it can shave 4% to 8% from its per-garment production costs at its Chinese factories.

Next year about 10% of embroidering will be done in India, another new territory for the company. India "is really emerging for us," says Chief Executive Jim O'Donnell, who recently hired an agent there to scout the countryside for small operations that specialize in embroidery and bead sewing at lower costs than those in China.

But shifting to less costly production carries its own risks, says Kimberly Greenberger, an analyst at Citi Investment Research. China is still tops in manufacturing talent, she says, and "there are definitely quality issues that are coming up" in places like Vietnam and Cambodia.

Mr. O'Donnell concedes that "the countries have very limited infrastructure," but he says he's confident time will eliminate the kinks.

Historically, when hot-selling items ran out, American Eagle would "fast track" more, flying them into New York for about four times the cost.

This year, the company plans to use that option as little as possible, instead relying on shipping goods through Los Angeles and, buoyed by the recent drop in fuel prices, trucking them to distribution centers.

Even the way stores get their merchandise is evolving. In past years, distribution centers replenished each store's clothes garment by garment. This year, the company is bundling many of its lines in prepackaged kits that include a small, two mediums, two larges and an extra large -- a set that can go directly from the delivery truck to a display table.

American Eagle plans to entice its customers with brighter colors, hipper silhouettes and ruffles on women's tops for spring. But it's cutting out a few things it hopes its teen customers won't miss: the ribbon that lines the waistband of its khakis, for example, and the color pattern on the material used for its jean pockets.

Changing pockets and eliminating ribbon saves only eight to 10 cents a garment, the company says. But eliminating relatively invisible features allows designers to add hip, visible details -- like embroidery on the back pockets of denim jeans -- that are more likely to lead to sales.

While it seeks savings, American Eagle has to be careful not to cut too much. Swamped by low-end competitors like Old Navy, the specialty retailer realizes "we can't be the cheapest in the mall," says Mr. O'Donnell. "If they wash it twice and it falls apart, they'll say it's not a good shirt," he says. "There's a fine line between price and value."

American Eagle's choices make sense to Gabe Rosen. "I'm wearing khakis now and I had no idea" there was a ribbon on them, says Mr. Rosen, a 27-year-old employee at a Silicon Valley startup, who says he is more "sensitive to the outside look of my clothes."

In US, Cambodian Businesses Hurting

By Taing Sarada, VOA Khmer
Original report from Washington
06 January 2009

The economic downturn has begun hurting the US businesses of many Cambodian-Americans.

“The clients won’t come, if there are a lot of layoffs in their work,” U Makara, who runs a sushi restaurant in the state of Michigan, said recently. “Sushi food is kind of an expensive food.”

People who had come in to eat two or three times per week were now coming only once a week, he said, adding that he had yet to lay off his own staff.

U Makara has 15 sushi branches throughout big groceries store in Michigan. Making them work during an economic crunch meant having twice-weekly sales.

He is not alone.

Im Sonith, a Cambodian living in the state of Alabama, owns two grocery stores. His businesses have been hit by the crisis as well, though he too is weathering the storm by putting his goods on sale.

“I have discounted some of my grocery products,” he said. “The grocery companies have increased their product price, because the gasoline price had increased, so they continued to increase the price of goods. I dare not increase the price like them because people do not have very much money to spend. I sell just to break even.”

Since the middle of 2008, many US businesses have been on the decline, with major banks declaring bankruptcy and many people unable to afford houses they purchased. Lately, restaurants, bars, grocery stores, supermarkets, car companies and furniture stores are quiet and empty. At least 2 million Americans have lost their jobs, and the auto industry is facing major problems.

Mouy Chomreun, who has lived in America since 1975, has three businesses: cars sales, car maintenance and taxi rental. His car sales and repair businesses have fallen off 80 percent over last year, he said.

“Compared to last year or the year before, my businesses for renting cars and taxis is normal, but my auto mechanic business and my car sales business have decreased so much,” he said, adding that he planned to stop selling American-made cars and start selling those made in Japan, such as Toyota.

“Now people are afraid of paying for their rent, rather than fixing their cars,” he said. “For my old customers, who always came to my garage, when I tell them that the repair cost will be between $400 and $500, they are afraid of the cost. It is not like before.”

Apparel Slowdown: Cambodian garment workers worry about future prospects

PHNOM PENH, July 13, 2008 (AFP) - Sath Vanny sits anxiously at the door to her tiny one-room hut in the factory district of Cambodia's capital.

She left her hometown in the southern province of Takeo seven years ago to work at a women's shirt factory, sending most of her earnings back to help the family farm.

But a slowdown in orders has the 25-year-old worried about her job.

Overtime work has fallen off as Cambodia's textile sector, the country's biggest industrial employer, struggles against stiffer global competition and slowing demand.

More than 10 Chinese-owned factories have moved to cheaper markets, leaving hundreds of thousands of garment workers -- mostly young women like Vanny who support their impoverished families -- facing destitution.

"I was told that we didn't have as many orders as we used to, but with the basic wage I don't have money to send to my parents," says Vanny, who now earns less than 60 dollars per month.

"I can't imagine living without a factory job. I am so worried about my family," she adds, wiping away tears.

The garment industry earns 80 percent of Cambodia's foreign exchange earnings and employs an estimated 350,000 people in more than 300 factories.

The industry thrived after a unique labour-friendly deal with the United States in the 1990s.

Under the deal, Cambodia passed new labour laws, encouraged labour unions and allowed the International Labour Organisation (ILO) to inspect factories and publish its findings.

In turn, the United States cut tariffs on Cambodian garment exports, buying 70 percent of all of the country's textiles.

Cambodia maintained its higher working conditions after the deal expired in 2005, and garment-making has made the economy one of the fastest growing in the region. But it does not look built to last.

The industry grew only 8.0 percent last year after suffering a dismal fourth quarter that saw orders plummet by nearly half, according to the World Bank. It previously enjoyed growth of up to 20 percent.

Apparel exports have declined since October, mainly due to the US economic slowdown, according to Cambodia's commerce ministry.

Exports to the United States slipped 1.44 percent in the first quarter, compared with the same period last year, to some 500 million dollars, it added.

Meanwhile factory owners are looking abroad for greater productivity and lower costs, says Cambodia's Free Trade Union (FTU).

Sok Vannak, who has been working at a factory for almost 10 years, says her Chinese bosses often threaten to move the factory to Vietnam, where costs are cheaper.

"They warn us all the time. I'm afraid that it could come true," says the 27-year-old.

"I have no land to farm. Without the factory we will have a hard time surviving," Vannak says.

Garments are a shifting industry, says Kaing Monika, manager at the Garment Manufacturers Association of Cambodia. Many manufacturers could move to Vietnam, Bangladesh or India, he adds.

"Production costs -- oil and power -- are high in Cambodia, and the demand for higher wages also put the country's garment industry in danger," he says.

Factory owners complain about a proliferation of labour unions and illegal strikes, but workers say they merely want proper wages.

About 27,000 garment workers have quit in the last year in search of higher pay, according the FTU.

Some have gone to look for work in rural areas where the cost of living is lower, while others have found work at karaoke parlours where they're in danger of falling into prostitution, says FTU president Chea Mony.

Next year will bring even more competition when US restrictions on Chinese textile exports are scheduled to end.

"China and Vietnam are still our direct competitors, and so far we have nothing special to offer buyers. That is why we're very concerned," says Oum Mean, of Cambodia's labour ministry.

"To counter this competition, we must increase productivity, quality and extend our reputation as having high labour standards," he says.

US Economy Woes Concern Cambodia: Expert

By Sok Khemara, VOA Khmer
Washington
07 March 2008

With the US economy in decline and Vietnam a member of the World Trade Organization, a leading economist warned Thursday the government must diversify its economic activity.

Chab Sotharith, executive director of the Cambodian Institute for Cooperation and Peace, said Cambodia must pay attention to the US economy and other potential hazards.

The US, Cambodia's top buyer of garment exports, could be facing a recession, having spent much money on a costly war in Iraq and facing a housing market plunge, Chab Sotharith said Thursday, as a guest on "Hello VOA."

Cambodia's economy, meanwhile, which is held up by tourism, garments, construction and agriculture, has seen much growth in recent years, he said.

US recession not to hit Asia badly: Lee

IANS (India)

Singapore, Feb 18: Buoyed by bustling growth in China and India, Asia will not be "unduly disadvantaged" if recession hits the US, Singapore's first prime minister Lee Kuan Yew has said.

"I believe this may be the first time where the US economy catches a flu and we are not going to catch influenza - I hope," the city-state's founding prime minister said Sunday at a Singapore Airshow leadership dialogue.

The Chinese and Indian economies were unlikely to dip below 8, 9 or 10 percent growth, Lee said. While 40 percent of intra-Asian trade is bound for the US, even if the US cuts its imports by half, Asia would not be too badly hit.

Focusing on the aviation industry, Lee said he was confident that Asia would continue to soar. With new airports being built and more people taking to the skies, Lee forecast "enormous growth in Asia in the next 10, 20 years, more in Asia than in any other part of the world".

He was more sceptical on liberalization going forward. Countries that are not doing so well will want their flag carriers to grow stronger first before they open up, he said.

Citing some progress, he noted that by December the Association of South East Asian Nations (Asean) would lift all restrictions on flights between capital cities.

Asean includes Singapore, Thailand, Malaysia, the Philippines, Indonesia, Brunei, Laos, Vietnam, Cambodia and Myanmar.

The six-day Singapore Airshow featuring the giants of the manufacturing industry starts Tuesday.

Asian garment makers tailor their plans to meet falling US demand

February 11 2008
By Raphael Minder, Amy Yee, Amy Kazmin, Tom Mitchell and,Robin Kwong
Financial Times (UK)

An expected downturn in US clothing demand is adding to the woes of Asian garment makers already struggling because of rising costs and stronger currencies.

In China, which just three years ago was entangled in a trade dispute with the US and the European Union over export quotas, concerns have switched to the spiralling costs that are eroding its competitive advantage.

"Costs are hitting us," says Henry Tan, chief executive of Luen Thai, a large Hong Kong-based manufacturer with operations in China. "Sales to Europe are not so bad because the euro is strong, but sales to the US are very difficult."

Chinese manufacturers have been facing double-digit annual wage increases over the past few years. More recently their headache has come from the renminbi's appreciation, which Beijing has allowed to gather pace this year as it seeks to curb inflation.

Manufacturers now "have to compete on brand rather than on volume", says Chen Wenjiang, president of Haining Grand Double Eagle Garments, a leather-jacket maker based in China's eastern Zhejiang province.

Garment makers face a similar challenge in India, where an appreciation of the rupee that started last year has seen an estimated 500,000 jobs - out of a total workforce of 55m - cut in the textiles industry, the country's second-largest em-ployer after agriculture.

Since September Indian exports to the US have slowed by 5-6 per cent. This makes it likely the government will miss its initial $160bn (€110bn, £82bn) export forecast for the fiscal year ending in March, according to G. Bujpal, at the commerce ministry.

The slowdown has emboldened the clothing industry in its calls for government relief. A proposal to give tax refunds to exporters and reduce interest rates on loans is under consideration, as is a government plan to create special investment regions for textiles and open more training institutes.

The difficulties are also spreading to smaller Asian garment producers such as Cambodia and Bangladesh, which until recently had been riding a textiles boom.

And some observers are predicting the troubles will yield a shake-out in the textiles sector.

More factory closures will cause pain in the short term, but will help ensure that "the balance of power will shift and we may get more bargaining position", says Ken Loo, secretary-general of the garment manufacturers' association in Cambodia.

Furthermore, a switch away from the old quota system, under World Trade Organisation rules, has allowed buyers to move to what has become known as "reverse bidding", where factories in different countries compete for orders by offering the lowest price, says an official from the International Labour Organisation.

The export downturn is affecting working patterns. In the Indian textile hub of Tirupur, which has as many as 800 export-oriented factories that have already introduced steep job cuts, the working week is now down to four or five days, from the traditional six, because of falling orders, says Arumugam Sakthivel, vice-president of the Federation of Indian Export Organisations (FIEO).

Orders are shifting from India to Asian rivals such as Sri Lanka, Bangladesh, Vietnam and Thailand, according to the FIEO.

US buyers could accelerate this transfer of production to lower-cost centres, according to executives, as any downturn in domestic retail demand will force them to reconsider their cost structures.

"China's costs are going up, so perhaps some US companies will take a closer look at Vietnam and other Asian countries and decide to get less of their supplies from China," says Barry Chan, a partner in a manufacturer that has annual turnover of $100m, 70 per cent of which gets exported to US customers such as Liz Claiborne and Old Navy.

But not everybody can afford to switch overnight, especially for more upmarket brands, where quality controls are almost as important as costs, warns Ricardo Carreira, a Los Angeles-based partner in Chesler & Associates, a supplier of Chinese textiles to US companies.

While Wal-Mart and other general retailers could reduce orders from China by a few percentage points this year, he believes that kind of reduction is unfeasible for design or contemporary fashion suppliers.

"Sure, everybody is now worried and trying to squeeze down the factories for lower prices. But eventually there's a limit," Mr Carreira says. "Retailers have solid partnerships and real infrastructure in China, and you can't just walk away from that."

Asian garment producers, meanwhile, are trying to wean themselves from US demand and the dollar by targeting instead stronger economies such as Australia and denominating trade to Europe in euros.

But relief for producers may be most likely to come from domestic markets, especially for Chinese producers that can start supplying more affluent consumers at home, rather than abroad.

Haining Grand Double Eagle exports 80 per cent of its output, says Mr Chen. But "in five years' time we will be exporting only 20 per cent overseas and selling 80 per cent in China".

Reporting by Raphael Minder, Amy Yee, Amy Kazmin, Tom Mitchell and Robin Kwong

Cambodian Garment Sector Under Threat

02.05.08
Associated Press

PHNOM PENH, Cambodia - Cambodia's garment industry expects to see a decline of orders from American retailers amid fear of a slowdown in the U.S. economy, a Cabinet minister said Tuesday, as he warned the country's top export sector by value faces tough times.

"I am concerned that our garment sector would face some problems," Commerce Minister Cham Prasidh said. "Now that the U.S. economy may head into a decline, purchasing orders from U.S. retailers may also decrease."

He said last year's garment exports to the U.S. were worth more than US$1.9 billion (euro1.3 billion). The figure represents about two-thirds of Cambodia's total exports of clothing products in 2007, Cham Prasidh said.

Anti-dumping measures the U.S. has imposed on the import of Chinese goods have so far helped sustain Cambodia's garment export industry.

But at the end of 2008, the U.S. will phase out the measures against China as well as a monitoring mechanism on imports from Vietnam, another competitor, compounding pressure on the Cambodian garment industry, Cham Prasidh said at a press conference Tuesday.

"Competing for that market has not been an easy task," he said.

Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, agreed that the industry is facing "a very difficult" time and "stiffer competition" ahead.

Cambodia currently has 300 garment factories that employ 355,000 workers.

Cambodia ranks 12th among the 25 top countries from which the U.S. imports textile products, according the U.S. Census Bureau.

Trouble looms ahead in Cambodia's garment sector, one of Hun Sen's economic pillar

Fourth quarter Cambodian garment exports plummet 46 percent: official

PHNOM PENH (AFP) -- Cambodian garment exports plummeted 46 percent in the fourth quarter of last year, industry officials said Thursday, warning of factory closures and jobs cuts in one of the country's key sectors.

An economic downturn in the United States, which buys 70 percent of all Cambodian textiles, and continuing domestic labour disputes contributed to the plunge, said Van Sou Ieng, chairman of the Garment Manufacturers' Association of Cambodia (GMAC).

Until last year, the sector had enjoyed annual growth of up to 20 percent, he added.

Export growth for the entire year stood at only 2.4 percent, Van Sou Ieng told AFP, adding that the outlook for 2008 "surely was not good."

"Definitely some factories will close, some people will lose their jobs," he said.

Cambodia's garment industry is the impoverished country's largest source of income, providing 80 percent of its foreign exchange earnings and employing an estimated 350,000 people.

Despite heavy competition within the region, namely from China and Vietnam, Cambodia has won over buyers in the US and Europe with its labour-friendly image.

But the end of US restrictions against Chinese textile exports in 2009 and greater productivity in Vietnam are likely to erode Cambodia's position, industry officials warn.

Deteriorating labour relations are also weakening the sector, Van Sou Ieng said.

"The immediate solution is improving industrial relations," he said.

"If we can convince our colleagues from the unions to cooperate and be more serious and productive, we might be able to maintain some permanence," he added.

Industry officials said an estimated 1,100 separate unions are operating in Cambodia's 300 garment factories, with some manufacturers having to deal with as many as seven workers' groups at one time.

"It is impossible to manage," Van Sou Ieng said, adding that frequent illegal strikes have cut heavily into productivity and driven away foreign buyers.

"It is a serious black mark on the industry," he said.

Labour leaders have disputed factory owners' claims, saying they are greatly exaggerating the number of strikes and that workers are simply lobbying for fair wages.

Minimum wage for garment workers hovers around 50 dollars per month.