More paper shuffling than progress?

The Industrial Zone Law was enacted in May 2020 to revamp the operations and regulatory procedures of existing and future, industrial estates in
Myanmar in the hopes of catching its more industrialised neighbours.To do so, clear and well thought out policy is essential to fix and improve Myanmar’s industrial parks that are beset by opaque land ownership and speculation, squatters, poor electrical and transport infrastructure and usually a lack of waste water treatment plants.

Instead, the new law puts a heavy focus on forming seemingly endless committees at national, then state/regional level, without creating a centralised and full-time bureau – as is common within the region – with the power to grant subsidies, streamline procedures (including customs or port clearances)and regulate the sector. The law presently reinforces the concerns stated in a recent IFC Report “Creating Markets in Myanmar”, which states that the country is “still burdened by red tape and lengthy process that can be linked to controlling transactions rather than facilitating firm’s growth”.

In order to emulate the rapid industrialisation enacted by South Korea, Thailand and Vietnam, significant investments are required to upgrade decrepit infrastructure, build bigger and better industrial estates and find a way to improve the existing but inefficient estates.

Improvements to Myanmar’s industrial sector are critical given the rapidly changing global socioeconomic landscape resulting from Covid-19. Future economic
growth is far from assured with many big economies tipping into recession. A post-COVID-19 world is certain to be a markedly different place and manufacturing
and supply chain trends may be accelerated or perhaps blown off course.

There are already serious rumblings around the world of a sharp pivot away from the China Plus One industrial policy, which was to build manufacturing in China
and one other nation to access cheap wages, tax incentives and tap into the enormous domestic market of China.
Already companies were rethinking the policy as the incentives to do business in China lessened courtesy of rising wages and the reduction or shifting of subsidies.China’s handling of the outbreak, as well as serious supply disruption to the “world’s factory” may encourage Western and Japanese companies to shift production out of China, a move that could benefit Myanmar and Southeast Asia.

The Industrial Zone Law that was passed in May 2020 aims to address the myriad of issues faced by Myanmar’s industrial parks but sadly the legislation does little
to tackle the core issues and could even be a significant step backwards for its industrialisation.
To compete for manufacturing investment in a post-COVID world and kickstart its industrialisation Myanmar needs higher-quality manufacturing zones that can
encourage more than “Cut-Make-Pack” (CMP) garment factories, which represents a large percentage of Myanmar’s recent manufacturing investment.
CMP manufacturing is the first step in industrialisation and is relatively low investment and highly labour intensive, providing countless thousands of low wage jobs and lifting those workers – and their families – from poverty.
But is also a trap because almost all the raw materials are imported and little value is added before export. It is also vulnerable to external shocks, as seen by the onset of the COVID crisis, which started as an input crisis – factories here could not get enough raw materials to meet their orders.

Myanmar needs to target greater Free-on-Board (FOB) manufacturing, which captures the lion’s share of the manufacturing process, allows for more control as well
as greater economic benefits. An innovative industrial policy focused on developing higher-grade domestic textiles and garment accessories would go some way to
moving the country up the value-added ladder and lessening dependence on outside suppliers.

The country could also incorporate evolving environmental trends such as circular manufacturing, including the use of eco-friendly fibres and other products, to
leverage Myanmar’s enormous agricultural potential. A number of factors hamper progress, namely intermittent electricity, poor transport infrastructure, labour
skills and limited financial capacity but professionally managed industrial zones could go some way to address these problems.Before 2020, tectonic changes have been taking place in the manufacturing sector with advances in technologies, trade rifts, environmental and social concerns by consumers as well as a shift away from China. And then came COVID-19, which may have accelerated these changes. Effective industrial policy in the 21st century needs knowledge, dynamism and the power to make positive changes in order to adapt and prosper in the new economic reality. The proposed bureaucratic smorgasbord of ill-defined, toothless committees will likely fail to achieve this and may even result in a few steps backwards.Time to think again.Tony Picon and Stuart Deed are founders of Picon-Deed, a property consultancy with a focus on Myanmar.

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Source : Myanmar Times

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