What to expect from Myanmar’s top five export sectors

Even though Myanmar managed to bring down its trade deficit by US$500 million to $1.3 billion during the period between April 1 and September 30 from the same period last year, the volatile exchange rate and rising oil prices may well continue to drive up import costs in the coming months.

U Yan Naing Tun, director general of the Department of Trade, told The Myanmar Times this month that the trade deficit is necessary as Myanmar wants to draw more foreign investors into the country. “Businesses will need to import the necessary equipment and materials to operate here,” he said.

But exports appear to be improving too. During the April-September period, higher exports from the manufacturing and mining sectors helped to narrow the trade deficit.

In its updated forecast for Myanmar, the Asia Development Bank revised its current account balance deficit, which includes trade, to 3 percent of GDP from 5.4pc for 2018 and to 4pc of GDP from 5.5pc for 2019, suggesting that exports, too, are expected to rise.

With its natural resources, extensive coastlines and labour supply, Myanmar has the potential to lift national exports to more favourable levels. Yet, exports from resource-rich sectors such as agriculture have fallen over the years. What’s holding things back in the major export industries? More importantly, will things improve?

Based on recent interviews with government officials and businesses, here are the recent developments and what to expect in the coming year from the country’s top five export sectors:

Manufacturing potential

The manufacturing industry has helped to narrow the gap between imports and exports for Myanmar in recent years. The garment industry, in particular, has enjoyed rising demand from apparel makers and clothing lines in Europe and Japan.

Myanmar exported $2.7 billion worth of garment products in 2017, according to the Myanmar Garment Manufacturers Association (MGMA). This represents a near doubling of garment export revenue in just two years. Garment export revenues in 2018 are predicted to remain around $2.7 billion.

Demand has risen because Myanmar remains one of the world’s cheapest sources of labour, despite a recent hike in the daily minimum wage to K4800 earlier this year from K3600 before. At around $80, the country’s minimum wage is much less than the monthly wage of $110 in Laos, $140 in Cambodia and $147 in Vietnam.

There are serious risks though. On October 3, the European Union said it is considering trade sanctions on Myanmar over the ongoing humanitarian crisis in Rakhine. If those sanctions are implemented, the country could lose its duty-free access to the world’s largest trading bloc and garment exports would take a big hit.

That’s because close to half of Myanmar’s garment products, manufactured Cut-Make-Pack style, are currently exported to Europe.

Mining boom?

Mineral exports are likely to improve under the new Myanmar Mining Rule enacted in February, U Than Soe, deputy permanent secretary of the Ministry of Natural Resources and Environmental Conservation (MONREC), told The Myanmar Times.

The new legislation allows foreign companies to invest in large-scale sites of more than 500,000 acres (202,000 hectares) as well as medium scale sites of up to 247.1 acres.

MONREC will also allow investments in small-scale mining sites for gold and other precious metals of up to 4 acres, sites of up to 10 acres for other minerals and sites for raw industrial materials and precious stones of up to 20 acres.

Under the new law, new mining activities may commence after the first three stages – exploration, testing and feasibility studies – are conducted to help companies determine the commercial viability and sustainability of the mine.

So far, MONREC has given permission to mining companies from Australia, Thailand and China to commence the three-stage procedure, which could take three to five years to complete. At the regional level though, production activities at small and medium-sized mining blocks in resource rich Sagaing, Mandalay, Kachin, Magwe and Shan are ongoing.

Myanmar enjoys large reserves of mineral resources such as gold, silver, copper, jade and precious stones. Last month, the authorities also approved the import and export of gold through a One-Stop Service Centre now located at the Peoples’ Park in Yangon.

Livestock, fisheries neglected

The livestock and fisheries sector has strong export potential. Yet, it is among the most neglected sectors in Myanmar.

One of the main barriers to growth is the lack of space to expand. “With regards to land for livestock breeding, the industry needs rules and regulations and a comprehensive policy that is both comprehensive and easy to apply. Reform is needed now,” said Daw Hla Hla Thein, vice chair of Myanmar Feed Industry Association.

Land issues exist for fisheries, too. Even though there are plans to establish a 10,000 acre fisheries zone for farming fish in Kungyangon Township in Yangon, for example, progress has been waylaid by delays in obtaining permits to convert land for agriculture into space for fish farms. Ayeyarwady, Mon and Tanintharyi face similar permit issues.

In 2017-18, Myanmar exported just over 570,000 tonnes of fisheries worth US$712 million, the highest amount in history. Yet, that is still much lower than its neighbours.

“The problem is there is no specific master plan or action plan for the development of the fisheries sector,” said U Win Kyaing, general secretary of the Myanmar Fisheries Federation.

Support for agriculture – GAP

Although the agriculture sector has accounted for at least a quarter to a third of export earnings, according to the Food and Agriculture Organisation of the UN, that appears to have fallen to just over 20pc in 2017-18, based on data from the Ministry of Commerce.

U Soe Tun, deputy chair of the Myanmar Rice Federation, said one of the reasons is poor crop quality. Currently, quality seeds distributed by the government barely accounts for 1pc of the total land area allocated for farming, he said.

“Although the government said our country is an agricultural country and to prioritise it, there are weaknesses in seed distribution and systematic growing of crops. There has not been much progress or implementation of plans to improve or produce agricultural products. The government and the private sector are still weak in doing so,” U Soe Tun said.

The other issue is unregulated use of pesticides and other illegal chemicals. “It is important to produce crops that are safe for consumption and which meet export standards. If our produce is sub-standard due to the use of chemicals, it will have an impact on demand,” said U Myint Swe, retired deputy general manager of the Agricultural Department.

Access to financing is the biggest problem for many farmers and help has been forthcoming on that front. According to an October statement from the Ministry of Planning and Finance, state-owned Myanmar Agriculture Development Bank (MADB) will raise crop loans from K50,000 per acre to K100,000 per acre to help farmers cover the cost of production, Last year, loans were raised to K50,000 per acre from K20,000.

Offshore prospects

Last year, Myanmar received more than US$3 billion for gas exports, according to the Ministry of Commerce. That could soon increase.

In August, the Ministry of Electricity and Energy (MOEE) announced it would be opening new tenders for 31 oil and gas blocks -18 onshore and 13 offshore – within the first half of next year.

The aim is to rejuvenate gas production and exports, which have been dwindling on the back of lower investments. The last round of exploration and production tenders was held under the former government in 2014.

In 2017-18, the total value of foreign direct investments fell to US$5.8 billion from $6.7 billion the previous year, according to the Myanmar Investment Commission.

Meanwhile, of the 31 blocks the MOEE intends to offer, 16 were already awarded in previous tender rounds with the the winning bidders subsequently relinquishing their exploration rights to those blocks.

While that raises concerns over the commercial viability of the blocks, recent gas discoveries indicate potential for growth. In September, French national oil company Total reported significant gas findings at the offshore Shwe Yee Htun-2 field in southern Rakhine.

Further testing on the block will be carried out to determine the extent of the deposit, officials said. The Shwe Yee Htun-2 field is part of the larger A6 block that has estimated reserves of up to 3 trillion cubic feet, according to Total.

For now, Myanmar is expected to produce 653,300 million standard cubic feet (MMscf) of gas from its four existing gas fields – Shwe, Zawtika, Yetagun and Yadana – in 2018-19, according to the finance ministry. Most of the gas produced is exported to the country’s neighbours.


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