Obstacles facing Burma's textile and clothing sector
Burma's garment industry has huge potential to contribute to national economic growth, both as a foreign exchange earner and a massive job provider. However, in order to achieve its full potential, the sector needs to overcome a range of obstacles, outlined here by Jozef De Coster.
The World Bank recently forecast that the Burmese economy would grow by 6.3% during the 2012-13 financial year, compared with 5.5% the year before.
Theoretically the garment industry - Burma's only industry presently connected to international trade networks - has huge potential to contribute to national economic growth, both as a foreign exchange earner and a massive job provider.
However, in order to achieve its full potential, the sector needs to overcome a range of obstacles, a few of which are outlined below.
- Outdated infrastructure and unreliable electricity supply. Garment manufacturers in Burma cannot hope to compete successfully in global markets while ‘productive quality' remains below that of countries like Vietnam, Cambodia, Laos and Bangladesh. ‘Productive quality' is for a large part determined by infrastructure: roads, ports, airports, water and electricity supply, telecommunications, customs administrations - all of which determine turnaround time and all of which score badly in Burma.
For investors in energy-consuming textile factories, it's particularly frustrating there is no immediate solution in sight to bridge the gap between electricity supply and demand. At the end of 2012, the Yangon Electricity Supply Board announced it would cut electricity in several industrial zones in the Yangon region from 1 January 2013 (seven hours a day from 4pm to 11pm).
All textile factories and nearly all garment factories have to generate at least part of the required electricity by burning diesel. According to a JETRO enquiry, total energy costs for garment factories in Burma amount for 30-40% of total labour costs. And on top of this, the country's unstable electricity voltage accelerates the depreciation of machinery.
- Reliable data is difficult to find or non-existent. Even basic information like the number of garment companies, employment, salaries, productivity and export performance, domestic production and consumption of cotton/yarns/fabrics/garments, is difficult to find in Burma. Official figures often differ greatly from estimates made by researchers.
Here are some plausible figures for Burma's garment industry:
- There are currently more than 200 garment exporting companies, nearly all of them private companies;
- Together they employ more than 100,000 people.
- Garment exports increased from US$490m in 2010 to US$770m in 2011;
- In 2012 garment exports may have exceeded the all-time high of US$868m reached in 2001.
- Japan, the EU and Korea are the main destination countries. However, it can be expected that the US - the top importer of Burma-made garments before 2003 - will re-take this position.
- In 2011, Burma's imports of knitted fabrics and other textile fabrics officially amounted to US$78.8m, of which US$70.5m (89.5%) originated from China. But fabrics for the local market often enter the country unregistered via the Chinese and Thai borders.
- FDI (foreign direct investment) in the garment industry mainly originates from South Korea, Taiwan, Hong Kong and China.
- Data on the textile industry is also vague and outdated. Output of this mainly state-owned industry (which has been open to privatisation since 1995) seems to consist mainly of cotton yarn (relatively stable at 14m-16m lb annually), cotton fabrics (19.9m yards in 2009-10), towels (2.8m pieces in 2010), gunny bags (1.6m in 2010) and fabrics for the production of traditional longyi's, not of fabrics for export-oriented garment manufacturers.
Myanmar Textile Industries (MTI), which operates under the umbrella of the Ministry of Industry, lists 33 factories (from spinning to garment manufacturing).
- Lack of government vision on future industry development. According to Aung Win, vice-chairman of the Myanmar Garment Manufacturers' Association (MGMA), coaching the transition of the industry from Cutting-Making-Packaging (CMP) to FOB-delivery of garments is now the primary goal of MGMA. The main obstacle, says Aung Win, is the lack of experience that local companies have in the field of marketing, merchandising, sourcing, logistics.
Private sector entrepreneurs are not used to viewing the government as an ally. However, it is obvious that the government could play a key role in the transition from CMP-level to FOB-level as desired by the garment industry. Burma, a relatively important producer of cotton (and to a much lesser extent of kenaf and jute), has an outdated textile industry into which investments could be directed to support the expanding garment export industry.
A sector vision should be developed and strategic choices made. For instance, does it make sense (or not) to create special incentives or adaptations to import duties in order to favour investments in spinning/knitting/weaving/dyeing units, in industrial laundries (there are only two washing facilities in Burma), in the manufacturing of trims and packaging materials...? Perhaps a first step here is the recent decision by the Ministry of Commerce to pass a bill that will allow all imports and exports to proceed without licenses from 1 April.
- Lack of knowledge about social compliance. Burma is still on the 'watch list' for child labour. The withdrawal of American apparel companies following the US import ban in 2003, as well as many European ones (among them Triumph, C&A, Arcadia Group, British Home Stores), means the country's manufacturers have little knowledge about international standards for social compliance. So there is a lot of catching up to do in educating, training and auditing.
- Red tape, corruption, massive tax evasion. The last annual Corruption Perception Index (Transparency International, December 2012) listed Burma as 172nd of 176 countries reviewed. Notoriously corrupt countries like Bangladesh (144th position) and Laos (160th) did better than Burma.
Reportedly fearing an American invasion, in 2004 the military rulers started building a new capital - Nay Pyi Taw ('Royal City') - some 320km north of Yangon (formerly called Rangoon), thus creating a dysfunctional split between Yangon - the industry and business centre of the country, including the textile and garment industry - and the official decision-making centres.
At 3% of GDP, tax revenue in Burma is extremely low. However, levying export taxes, as the government did for some time, restrained export growth. Burma should increase its tax revenue by other means. The big problem is that many businesses are unregistered and, according to the weekly newspaper Eleven, only half of registered firms pay taxes.
Click here to read an accompanying article on transforming Burma into a competitive sourcing hub.
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