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Myanmar’s garment sector optimistic

Myanmar’s garment sector recovering from economic suspension

US economic sanctions in 2003 had a significant impact on Myanmar’s garment sector, which hit bottom with exports continuing to slide from 2001 to around US$300 million. In response to positive steps and reforms that Myanmar has adopted since the “civilian” government was sworn in in early 2011, both the US and EU moved to suspend almost all of the economic sanctions against the country in the second quarter of 2012. The opening up of Myanmar has generated many investment opportunities for overseas companies to tap into this resources-rich country, including a plentiful supply of low-cost labour, which will be a boon to export-oriented, labour-intensive manufacturing.

Table: Myanmar’s external trade

Photo: A large scale garment factory hiring over a thousand of workers in Yangon

A large scale garment factory hiring over a thousand of workers in Yangon

Myanmar’s garment sector optimistic about the future

Garment manufacturers in Myanmar have reason to be optimistic about the future. Myanmar’s export performance over the past five years have been chiefly helped by increased demand from Asia, in particular Japan and South Korea. Both provide tariff preferences to garments exported from Myanmar. In 2011, Myanmar’s garment exports recovered to US$770 million, more than double the amount found in 2003. It appears that Myanmar’s garment sector has embarked on a continued recovery even without the benefit of a vast market like the US.

In comparison, Myanmar’s garment exports in 2011 represented less than one-fifth of the US$4 billion reported by Cambodia or 5% of Bangladesh’s US$18 billion for the same year. This suggests that a long road still lies ahead for the continued recovery of Myanmar’s garment sector, so as to realise its full potential as a new frontier for garment manufacturing.

Besides, the Myanmar government has rolled out a series of economic reforms and industry-friendly policies, for example, the reduction and/or elimination of some commercial/export taxes. The Myanmar government is about to promulgate a new foreign investment law, which was passed in Parliament in September 2012.

Chart: Garment exports

Optimism aside, can Myanmar cope with the changes?

Garment factories in Myanmar mostly operate on the basis cutting, making and packaging (CMP). CMP factories are generally small, mostly employing a few hundred workers. However, the industry appears polarized, with the presence of some big players which hire more than a thousand workers per factory, churning out a large amount of CMP clothing destined for export markets like Japan, South Korea and the EU. The country’s garment industry association reports that it has about 240 members, the majority of which are engaged in export businesses.

Photo: Clothing orders from Japan

Clothing orders from Japan

Foreign-invested garment factories are on average larger, with stronger financial positioning and stable orders from affiliated companies in importing countries. It is estimated that more than 4% of Myanmar’s accumulated FDI is directed to the manufacturing sector, in particular garment and footwear, thanks to the competitive wage of Myanmar workers. Foreign-invested factories and their bigger local counterparts, though accounting for a small portion of the sector, are more productive, given their better quality-control staff, many of whom are hired and flown in from places such as Japan, South Korea and Indonesia, as well as China.

Photo: Finishing clothing for export

Finishing clothing for export

One question facing prospective investors is whether Myanmar’s garment sector can cope with a sudden influx of FDI, pushing up wages and costs of other production factors. Generally, this is considered a happy problem, and many in Myanmar’s garment sector look forward to the events being unfolded, for example, how many buy orders will arise and how soon the first batch of garment manufacturing FDI will arrive.

Chart: Major sources of FDI in Myanmar (as of 31 July 2012)

No serious shortage of skilled labour, and supply worries seem overblown

The average monthly wage in garment production is about US$70, though a skilled and experienced worker can easily earn 50% or more than an average unskilled worker. Tapping a good supply of unskilled labour, CMP garment factories train their workers in order to raise productivity. Besides, there are a good number of textile and garment school graduates looking for jobs every year.

Nonetheless, job-hopping among Myanmar workers is common, because factories lack orders or other factories pay slightly higher wages to recruit semi-skilled or skilled labour. A shortage of skilled labour is still reported in some quarters, as workers tend to job-hop in search of higher pay elsewhere, the situation is far from serious. Further, a factory manager can earn more than US$300 a month.

Industry sources note that Myanmar lost a great number of skilled workers to Thailand in the wake of the plunge in garment exports on US sanctions in 2003, many of whom now work in the Thai border town of Mae Sot (about six hours by land transportation from Yangon). The industry is hopeful that even if wages edge up in the event of higher FDI, some migrant workers in Thailand, who may not be paid in accordance with the legal minimum wage there, will be eager to look for jobs in their home country.

Photo: Garment factory workers heading home with their lunch pots

Garment factory workers heading home with their lunch pots

Competition on equal footing with Cambodia and Bangladesh

Myanmar had received GSP privileges from the EU until 1997, which was suspended on the reported use of forced labour. The International Labour Organisation (ILO) lifted punitive restrictions on Myanmar in July 2012 in recognition of the country’s pledge to end forced labour by 2015 and the introduction of a new labour law in March 2012, which allows workers to form trade unions and give them the right to stage a strike. The EU has positively responded to the ILO assessment, paving the way to a reinstatement of GSP privileges to Myanmar. Meanwhile, many garment manufacturers in Myanmar have been grumbling about the country’s lack of equal-footing competition with Cambodia and Bangladesh, which as least-developed countries (LDCs) receive GSP preference from developed countries.

Cambodia, apart from labour costs, has developed a reputation for relatively good labour practices in its large garment factories. This has come on the heels of a US-Cambodia bilateral agreement introduced 1999, which rewarded Cambodia’s progress in protecting labour rights with increased US import quotas for Cambodian textiles. The ILO has since 2001 helped with monitoring and promoting good labour practices in Cambodia.

Productivity of Myanmar workers matching their regional counterparts

According to the World Development Indicators 2011 published by the World Bank, Myanmar has literacy and school enrolment rates higher than Cambodia and Bangladesh, both of which are major emerging garment exporters in the region. Generally, Myanmar workers in garment factories are reckoned to be as productive as their counterparts in Cambodia, and close to 70%-80% their Chinese counterparts.

Myanmar has a population of 58 million, almost four times that of Cambodia, but has garment exports valued at one-fifth of Cambodia’s. While it may take years for Myanmar to ratchet up its garment manufacturing machine to come closer to matching Cambodia, the future direction is clear.

Photo: Made-in-Myanmar clothing ready for export

Made-in-Myanmar clothing ready for export

Content provided by Picture: HKTDC Research
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