Cambodia likely to see a slower percentage of growth, at around 5 percent this year compared with 7 percent in 2016, Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia said at the annual Cambodia Textile Summit.

According to data from the Customs Department, Cambodia exported $7.3 billion worth of apparel and footwear products in 2016. The sector accounts for more than 70 percent of the country’s total exports with the vast majority of its products destined for the EU, US and Canada.

While Ken Loo generally positive about the industry’s health warned that the increase of the minimum wage – going from $153 a month to $170 a month effective January 1 – would cause the Kingdom to gradually lose its competitive advantage as a low-cost destination. He urged the government to help reduce the cost of doing business, warning that manufacturers will soon need to increase productivity to remain competitive in the foot loose industry.

He added that 25 new factories had opened in Cambodia this year while 53 had shuttered operations.

Eric Tavernier, CEO of We Group Ltd, a French firm that operates a garment factory in Sihanoukville, explained that the price difference associated with the minimum wage hike was marginally symbolic in a regional sense as productivity remained a paramount concern.

On the paper monthly salary is 60 percent cheaper in Cambodia compared to China, he said. But the production speed in Cambodia is only 35 percent compared to 75 percent in China, which at the end of the day only makes Cambodia 30 percent cheaper when efficiency is factored in.

According to the latest economic outlook released last week by the International Monetary Fund, the Kingdom’s garment sector would grow at a slower pace owing to increased competition from neighbouring countries. However, the IMF said that preferential US trade access for specific travel-related items could help prop up the sector in the near-term.

Enjoy Ho, president of the textile enterprise association at the Chinese Chamber of Commerce in Cambodia, said that the Kingdom’s advantages for attracting investment into the garment sector remains its abundance of cheap labour and preferential trade status under the EU’s Everything But Arms scheme and duty-free access to the US for travel goods.

However, he opined that the minimum wage hike would surely jeopardise the sector if worker productivity does not increase.

With the increasing of the minimum wage, they are struggling to keep the same order price compared to previous years, they have very small survival space.

The Cambodian government needs to act quickly on cutting down electricity costs or lowering import and export fees to reduces the burden on factory owners and avoid factories from closing down.