Garment factories shutter on rising wages, land leases

A total of 14 factories in Yangon’s industrial zones may cease operations within the next two months due to the rising cost of land and employees. Most of the factories are run by garment manufacturers.

The shuttering of the factories could leave over 3000 jobless, said Daw Sandar Min, regional representative in Yangon and chair of the Finance, Planning and Economic Affair Committee under the Yangon regional Hluttaw.

“We will meet with the businesses from the Yangon industrial zones to learn why they want to shut down, as the consequences will have a large impact on the economy on the micro level,” Daw Sandar Min said.

U Myint Soe, chair of Myanmar Garment Manufacturers Association, reckons the main reason garment investors are throwing in the towel is rising production costs, particularly wages.

Earlier this year, the National Committee for the Minimum Wage set the country’s daily minimum wage at K4800 (US$3.60) or K600 per hour for an eight-hour day despite objections from both labour and employers. This is up by more than 30percent from K3600 before.

Myanmar’s low level of wages is among the top reasons foreign manufacturers choose to set up base in the country. Now that the minimum wage has risen though, “I see that many businessmen, including the locals, are thinking twice before investing in manufacturing-intensive sectors like garments,” U Myint Soe said.

Rising land costs are also a problem. During her recent visits with six garment factories, Daw Khine Zar Aung, chair of the Industrial Workers Federation of Myanmar (IWFM), said some manufacturers have been forced to move out of the industrial zones as a result of rising land leases.

“The garment industry is under pressure from having to raise the minimum wage. At the same time, productivity, which is already lower than other countries in the region, has not improved. As a result, many garment businesses no longer want to operate here,” said U Myint Soe.

Seduno (Myanmar) Fashion Company, which is run by a Chinese investor, is a recent example. Earlier this month, the firm closed its factory citing low production, the inability to export in time, rising land and factory rentals and higher minimum wages as the main reasons for ceasing operations.

Foreign investments

As a whole though, foreign direct investments in garment manufacturing are still looking robust. According to data provided by the Directorate of Investment and Company Administration and Ministry of Commerce, foreign direct investments into the manufacturing sector are the third highest in Myanmar.

Manufacturing in Myanmar mainly consists of garments, which represents the country’s second largest export. In 2016-17, the industry exported garments worth some $2.2 billion.

According to Myanmar Garment Manufacturers Association, there are 400 garment factories including over 170 run by foreigners. Over 60 pc of these investors are Chinese. Myanmar-produced garments are mainly exported to Japan, EU, South Korea, US and back to China.

And, with trade tensions rising between China and the US, financial experts and industry watchers in Myanmar are now expecting the Chinese to move more production activities into the country, resulting in more Chinese factories opening up in Myanmar.

Source: Myanmar Times

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