More FDI essential for substantial increase in garment exports

The study called for an expansion of training in the garments sector to tackle shortages of high-level skill as well as complementary reforms in finance and trade policy.

The briefing paper Foreign direct investment and economic transformation in Myanmar, written by Stephen Gelb, was published in June 2017 by Supporting Economic Transformation (SET).

Funded by the UK Department of International Development (DFID), SET is an Overseas Development Institute-led (ODI-led) program which aims to provide practical policy support to governments and their partners in development countries. The Overseas Development Institute is a London-headquartered think tank specialising in international development and humanitarian issues.

The briefing paper is a summary brief of the ODI report of the same title. The report explores the potential for FDIs, including from China, to contribute positively to economic transformation and poverty-reducing growth, focusing mainly on garments and construction.

In value terms, China is the largest foreign investor in Myanmar, and power and oil and gas are the largest sectors, based on data provided by the Department of Investment and Company Administration (DICA). But Chinese and Hong Kong investments are substantial in the garments sector as well.

The briefing paper argued that FDIs in Myanmar’s garments industry has been significant and that the sector is a major job creator.

As of mid-2015, about 55 percent of registered garment firms in the country were known to be fully or partly foreign-owned, according to data from the Myanmar Garment Manufacturers Association. Among them, a quarter came from China, 17pc from Hong Kong, 29pc from South Korea and 12pc from Japan.

The publication stated that foreign-linked firms supply almost all garment exports, and these have surged in recent years. The lifting of EU and American sanctions helps further boost export growth.

The industry creates a lot of jobs, with around 200,000 employed in total in mid-2015, and a quarter of the workforce were hired in Chinese and Hong Kong firms. However, the paper argued that these foreign-linked garment firms have produced few benefits, linkages or spillovers in Myanmar beyond export and job creation.

It further pointed out that the foreign-owned firms have very few local managers, reflecting the country’s shortage of high-level skills.

The publication argued that FDIs are essential in the garments sector.

“… Myanmar cannot meet its [garment exports] target in either sector [garments or construction and infrastructure] without substantial numbers of new mid-size firms.

“Since competitive local firms have not emerged in large numbers, more FDI is essential in both sectors, and China is the most likely source, given its economic size and geographic proximity,” it stated.

It recommended the country to ease entry restrictions and get rid of “cumbersome procedures”, which discourages transparent formal entry by international businesses.

“Myanmar should further ease entry and undertake active investment promotion in garments and other labour-intensive exports such as footwear…

“Entry of Chinese and other foreign garment assemblers could also be encouraged through engagement with buying firms, especially global retail or apparel corporations,” it noted.

Additionally, three solutions were suggested to tackle Myanmar’s shortage of entrepreneurial, management and technical skills in the garments sector. The short-to-medium term measure is “labour circulation” – the movement of foreign and domestic skilled employees from international businesses to existing and new local ones. Entrepreneur support policies should also be made available to foreigners as well as the Myanmar diasporas.

In the longer term, the country should develop tertiary educational institutes which are dedicated to the garments industry in order to increase the supply of managers and technicians in the sector.

The paper called for various financial and trade reforms, such as making access to trade credit possible for garment exports and providing tariff-free fabric imports to both free-on-board (FOB) and cut-make-package (CMP) producers.

Foreign direct investment and economic transformation in Myanmar also analysed the FDIs in construction and infrastructure sectors.

Source: Myanmar Times

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