Myanmar's garment industry is growing fast. But is it worth the risk?

By Synnove Vandal

Chinese factory worker wages jumped 64 percent from 2011 to 2016.

China's stance as a low-cost manufacturing destination is a thing of the past. Instead, the country has shifted focus to high-end manufacturing.

But as China strives to move up the value chain, those who reveled in low production costs are scrambling to keep up.

Garment production requires a fair amount of manual labor. And many garment producers have already started exploring other ASEAN countries.

Until recently, Myanmar hadn't been a common relocation destination. But of all ASEAN countries, Myanmar has the lowest monthly minimum wage in the textile sector.

And now that Myanmar is free from decades of sanctions, its apparel industry is growing rapidly.

But lingering effects of the sanctions and human rights issues are still prevalent in Myanmar. Those considering the country for garment production should be aware of the risks.

Lifted sanctions have propelled industry growth

Myanmar faced economic sanctions from the U.S. and EU for over 20 years. The sanctions shuttered a growing garment industry and included:

• Visa bans
• Restrictions on financial services
• Prohibitions of imported goods from Myanmar
• Bans on new investments in Myanmar

Because Myanmar couldn't export to the U.S. or EU, it relied heavily on Japan and Korea. In 2014, the two countries accounted for 67 percent of Myanmar's total garment exports.

But in 2013, the EU lifted economic sanctions, except for those on arms, and granted Myanmar Generalized System of Preference (GSP) trade privileges. This means Myanmar enjoys duty-and-quota-free access to the EU market. Three years later, the U.S. lifted almost all additional sanctions.

This opened doors for investment in Myanmar's garment industry. And last year, the EU accounted for almost half of the country's garment exports.

Now that global garment exports are growing, the country is working to attract investors.

In 2017, Myanmar implemented a new investment law that:

• Eliminates discrepancies between local laws and laws applying to foreign investors
• Offers taxation and land use rights incentives for foreign investors

A newly formed Myanmar Garment Manufacturers Association (MGMA) offers resources and a host of factory information on Myanmar's garment industry.

Most foreign investors and manufacturers are tempted most by Myanmar's low wages. As of 2015, Myanmar's monthly minimum wage was only $67. This compares to:

• A $153 monthly minimum wage in Cambodia
• Monthly minimum wages ranging from $107 to $156 in Vietnam

Limitations of Myanmar garment production

According to the MGMA, Myanmar's garment product export revenue doubled in the last two years. While the trajectory is promising, issues remain.

Brands especially concerned about social compliance may have a hard time ensuring Myanmar factories meets their social standards.

Sanctions were lifted because Myanmar improved business and government practices. But just last month, the EU sent a mission to reinvestigate human rights issues.

Depending on the outcome, the EU may revoke Myanmar's GSP access. U Ye Min Aung, Union of Myanmar Federation of Chambers of Commerce and Industry vice chair, told The Myanmar Times:

If the EU halts the GSP and EBA for Myanmar, there will be an enormous impact on trade and foreign investments in the country.

And the U.S. has already re-imposed some sanctions because of “ethnic cleansing” against Rohingya Muslims.

Even if Myanmar's sanction situation improves (again), infrastructure is limited.

Small family businesses comprise 83 percent of the new economy, making it hard to find reliable partners and establish efficient logistics.

If you're willing to take a chance, Myanmar's garment industry offers a wealth of opportunity. But for many, lingering issues will outweigh the benefits of low production costs.

Follow the link below for more information on garment manufacturing in Myanmar.

Threading the Needle: the Rise of Myanmar as a Garment Manufacturing Alternative – Mike Vinkenborg, ASEAN Briefing

Synnove Vandal is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.