Burma, the poorest country in South East Asia, is seen as having untapped garment production and sourcing opportunities thanks to its low labour costs, large workforce and beneficial access to rich consumer markets. But it also faces considerable challenges if it is to become competitive. Jozef De Coster reports.

Burma (also called Myanmar) undeniably has some major advantages as a manufacturing location for garments, including its low labour costs, job-hungry workers, and duty- and quota-free access to the European market.

Additional benefits are the country's long history in textile and clothing production, technical assistance from the Japan External Trade Organization (JETRO) and its Ministry of Economy, Trade and Industry (METI), and the size of the domestic market (which exceeds 60m consumers according to most estimates).

As one of the ten ASEAN member countries working towards the ASEAN Economic Community (AEC) by 2015 - along with Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam - Burma will also benefit from the harmonised customs system and single market of 600m people.

The country is situated in the region south of China that, according to many observers, will gradually take over part of the enormous Chinese production of price-competitive goods like garments and footwear. 

The European Union's Generalized System of Preferences (GSP) and the lifting of sanctions by both the US and EU, are also likely to help the garment industry in Burma to "achieve tremendous growth," says Win Aung, president of the Myanmar Federation of Chambers of Commerce and Industry (UMFCCI).

But up to now the Burmese government has remained silent on strategy for the textile and clothing sector. Will its focus remain on CMP (Cutting, Making, Packaging) or will there be development of a competitive textile-garment supply chain?

Democratic shift
Ruled since March 2011 by a hybrid military-civilian government, Burma will probably continue the democratic shift pursued by reformist President Thein Sein and supported by opposition leader Aung San Suu Kyi.

But the challenges for political, economic and social transition are daunting. Fifty years of military rule have left Burma a very poor country, plagued by corruption and bureaucracy, with weak education and public health systems, feeble banks and questionable courts.

One-third of the population lives below the poverty line and three-quarters get by with no electricity. Hundreds of thousands of citizens suffer state-sanctioned abuses, often directed against ethnic minorities, such as forced labour, land grabs and village raids. And in June and October 2012, sectarian violence flared up in western Myanmar.

The UK business advisory company Maplecroft said in its ‘Human Rights Risk Atlas 2013' that despite reforms over the past 18 months, the risk to foreign investors concerned about their public image remains "extremely high" in Burma.

Worker unrest
For the garment industry, it will be difficult to find a balance between benefiting from the country's very low labour costs and keeping workers satisfied. Sewing operators in Yangon now earn MMK1,100 per day (US$1.3), giving a monthly wage of around US$33.

According to JETRO researcher H Kudo, wages for garment workers in August 2012 in Ho Chi Minh City (Vietnam) were double that of garment workers in Yangon.

Workers apparently feel the time has come to improve their pay and working conditions. According to The Myanmar Times, workers from around 70 garment factories held strikes between 1 May and 30 July 2012 to demand higher salaries and better conditions. A labour law introduced in October 2011 allows workers to strike and to form labour unions.

Despite initiatives like the training centre established by the Myanmar Garment Manufacturers' Association (MGMA) and the technical school founded by JETRO/MITI from Japan, finding and keeping skilled garment workers is a problem in Yangon, the centre of Burma's garment industry.

Manufacturers complain that workers, once they have acquired skills, often quit and move to factories along the Chinese and Thai borders in search of better pay.

Trade preferences 
The formalities of the abolition of economic sanctions against Burma by the EU, US, Canada, Australia and New Zealand may also take some time. However, it's reasonable to expect that Burma will eventually enjoy the same trade preferences as countries like Laos, Cambodia, Bangladesh.

Apart from the EU and the aforementioned countries, other countries that have granted GSP benefits to Burma include Japan, Switzerland and Turkey. Burma also enjoys tariff preferences granted by South Korea (preferential treatment for LDCs) and India (duty-free tariff preference).

But it remains a competitive handicap that Burma has been out of global sourcing networks for nearly a decade (2003-2012).

Foreign investment
The flood of reforms introduced by the Burmese government in 2011 and 2012 won a double reward from the outside world: the suspension of sanctions and a rush of foreign investors.

However, in spite of the keen interest from foreign firms, few investment decisions were taken ahead of the introduction of the new Foreign Investment Law (FIL) on 1 November 2012.

The main highlights of the FIL are the opportunity for foreign investors to lease land for a period of 50 years, a guarantee against nationalisation, a five-year tax exemption and up to 100% ownership. It also substantially empowers the Myanmar Investment Commission (MIC), which may decide not to extend all benefits to all investors.

While small local garment manufacturers will have a tough time improving their efficiency to a level where they can compete effectively with foreign funded firms, medium and large local garment manufacturers could benefit enormously from joint ventures with foreign companies.

According to the Myanmar Textile Garment Directory for 2012, the three largest companies are Korean foreign direct investments: Myanstar Garment with 2,000 machines, Myanmar Hae Wae (1,900) and the joint venture Myanmar Daewoo International (1,500).

However, not all large companies are included in the Directory, such as the outerwear manufacturer Poscelin Co Ltd, which is headquartered in Hong Kong and employs more than 2,000 workers in Burma).

As well as nine firms with more than 1,000 machines, there are also 25 medium-sized garment companies with 500 to 1,000 machines.

Three Japanese groups (Mitsubishi, Marubeni, Sumitomo) have also reached an agreement with the government to jointly establish a special economic zone, ‘Thilawa', in Yangon's Thilawa Port, which operates 80% of the country's imports and exports.

Another ambitious Special Economic Zone project is under construction in the southern deep seaport city Dawei. An open tender has also been launched for investment in a third Special Economic Zone project, in Kyaukphyu, in the troubled western region of Rakhine state.

Click here to read an accompanying article on the obstacles facing Burma's textile and clothing sector.