Myanmar’s garment industry is poised to surge

Myanmar’s garment industry is expected to receive US$4 billion in foreign investment this year, following three consecutive year’s of record-breaking growth as the industry poises itself to become a major playing the global garment supply chain, officials and industry executives say.

Aung Naing Oo, secretary of the newly revamped Myanmar Investment Commission, forecast that $4 billion of investment would flow into the labour-intensive industry this fiscal year, adding that it and the telecom sector were seeing the swiftest rise in foreign investment.

Khine Khine New, a joint secretary general of the country’s largest business association – the Union of Myanmar Federation of Chambers of Commerce and Industry – agreed, saying foreign investors had identified the telecoms and the garment industry as having immense potential for growth.

Khine Khine New, who is also secretary general of the Garment Manufacturers Association of Myanmar, said the garment production was the fastest growing sector in the manufacturing industry last year.

Total investment in the sector shot up from US$300 million fiscal 2011-12 to $1.9 billion in fiscal 2012-13 and $4.1 billion in the last fiscal year, she said. She also said that most factories were cutting, making and packing (CMP) suppliers.

Should the industry receive $4 billion in investment this year it will double in size. Khine New said foreign investment was widening, from predominantly South Korean investors to investment from mainland China and Japanese firms.

Industry analysts have said that garment manufacturing is shifting from China to Southeast Asia, and Bangladesh, due to rising costs in China and labour shortages. Vietnam and Cambodia have been the prime beneficiaries of this shift in Southeast Asia, but rising labour costs and concerns over red tape in Vietnam, as well as more than a year of sometimes fatal labour unrest in Cambodia, have global buyers looking at Myanmar as a fresh production hub.

Myanmar also allows 100 per cent foreign investment in the garment industry, as well as joint ventures with existing manufacturers and potential ones.

Khine Khine New said exports were increasing to the European Union, Japan and the United States, with shipments to the US beginning only last year.

US-based retailer Gap announced in June that it had begun production in Myanmar at two factories on the outskirts of Yangon. It is producing vests and jackets for the company’s Old Navy and Banana Republic brands.

The EU’s inclusion of Myanmar in its Generalised Scheme of Preferences last year also allows Myanmar garments and footwear unfettered access to the world’s largest market. The EU imposes no quotas or tariffs on all goods made in Myanmar except for weapons and ammunition.

This incentive could also draw manufacturers from Thailand to set up factories in Myanmar, industry analysts say.

The country has a long history of making yarn, fabric and garment. According to the Myanmar Garment Manufacturers Association (MMA), exports from the nation’s 200 garment factories, 195 of which are privately held, reached US$770 million in 2011.

The key export markets are Japan (US$348 million) and South Korea (US$232 million), with remaining exports going to Brazil, Argentina, South Africa and Turkey. Since the US has planned to lift most of the trade sanctions on Myanmar, the garment manufacturers anticipate a lot of demand in the coming years. Prior to the sanctions, about 85% of the nation’s exports were apparel and textiles of which an estimated 25% went to the U.S. Currently; Japan is Myanmar’s largest garment customer, with shipments of US$243m taking a 34% of total clothing exports.

Nineteen foreign companies entered Myanmar’s garment industry in last eight months of 2012 and some of Thailand’s top garment manufacturers are planning to shift to Myanmar soon, according it Insight Alpha.

Outsourcing labor to Myanmar offers significant cost savings to western manufacturers, as Myanmar workers are among the lowest paid in Asia, earning an average US$2 per day versus US$20 per day in neighboring Thailand, the consultancy said.

Investment and tax incentives in special economic zones are also attracting interest, the consultancy said. These include five-year holiday on tax, custom duty exemptions on imported machinery and equipment as well as the value of the machinery being considered as part of the capital investment requirement.

It warned, however that a significant amount of education and training were needed to bring factories up to a level to meet international standards required by major retailers and brands.

This education and training is already underway with assistance from the EU, the International Labour Organisation (ILO) and Japanese agencies.

Steps have also been taken to prepare the legal basis for the implementation of a Better Factories program here, which will allow ILO monitors to assess factories for compliance with labour laws and its conventions. This will provide Western brands some confidence that their images will not be tarnished if they outsource production to Myanmar factories, industry analysts say. These steps include a minimum wage law and another covering occupational health and safety, as well as efforts to eliminate child labour.

The ILO is helping develop a legal framework for the industry, enforcement mechanisms, and a more nimble association for factory owners as well as trade unions, its liaison officer in Myanmar, Steve Marshall, told local media last year. A major goal, he said, is a labour market that is “cooperative rather than confrontational”.

Fong Ngai, director of the Hong Kong Economic and Trade Office for ASEAN, said Cambodia has been a major beneficiary of the shift in garment production from China to Southeast Asia, with 56 Hong Kong-owned factories employing 35,000 workers in the country. “There is no reason why we cannot duplicate that in Myanmar,” he said in an interview.


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