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Weakening dollar hurts garment industry

The Lao garment industry is struggling to survive as the US dollar continues to fall against the kip, posing a big challenge for exporters.

“We are going through the most difficult time in 20 years,” President of the Lao Association of Garment Industry, Mr Onesy Boutsivongsakd, told the Vientiane Times yesterday. He urged the sectors concerned to support the industry in these troubled times, especially as it is one of the top five foreign exchange earners.

The US dollar is continuing its slide against the kip. Over the past year it has fallen in value from 8,000 kip to 7,713 kip yesterday. In 2000, the dollar was worth 10,000 kip. The rising value of the kip against the dollar is the result of strong economic growth driven by the mining and hydropower sectors.

Mr Onesy said the garment industry wasn't only suffering from the rising value of the kip but also the high cost of labour after the government increased the monthly minimum wage from 348,000 to 626,000 kip last year.

He said the garment industry could not bargain for higher prices for its products because the global economic slowdown meant that demand was lower worldwide.

Mr Onesy said one of the most urgent steps the government needed to take was to rein in rising prices, as it was the rising cost of living that had forced the government to increase the minimum wage.

He could not say whether it was likely that any garment factories would close as a result of the fall in the dollar.

Analysis shows it is only garment factories that export to US and European markets that are encountering difficulties because these markets are experiencing lower demand, and contracts are written up in dollars. Factories that export to Thailand, China and Japan are not affected by the fall of the dollar against the kip, as these countries' currencies have increased in value and contracts are written up in local currencies.

Economists at the National Economic Research Institute said the government should provide assistance to the garment industry to help businesses survive as conditions get tough.

They said the closure of garment factories would mean several thousand workers would be laid off. At present, the industry employs more than 20,000 people nationwide.

According to a report from ADB, the export value of the garment sector was US$173 million in 2012, about a 25 percent drop compared to the previous year. The declining export value of the garment sector is due to lower demand in US and European markets and a shortage of labour to boost output.

 

By Times Reporters
(Latest Update April 11, 2013)


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