Myanmar is counting on investors from Taiwan to support the country with capacity building and technical assistance – including in textile and garment production – even as its beneficial trade access to the European Union (EU) is under review.

Reflecting this, the Union of Myanmar Federation of Commerce and Industry (UMFCCI) and Taiwan’s Chinese National Federation of Industries have signed two memorandums of understanding facilitating technology transfers and training programmes for workers, supervisors and technical staff at factories across the country. The agreements were signed in mid-2018 and are now being implemented. 

At present, there are around 40 Taiwanese textile and clothing manufacturers in Myanmar, most of which are large-scale, such as Tah Hsin Industrial and Wedtex. 

Observers say such support from Taiwan, and mainland China, is badly needed in Myanmar, especially in building backward linkages.

“Local textile production to supply exporting garment factories only makes economic sense for very large investments, which are – at least currently – all Chinese firms with a few factories already in the country,” says Matt van Roosmalen, an analyst with Emerging Markets Consulting with a focus on the south-east Asian garment supply chain.

“The government could also do more to incentivise local textile production, as currently all the tax incentives are skewed towards importing production inputs rather than sourcing them locally. Therefore, foreign direct investment will be absolutely necessary to develop the textile industry; only they have the required capital and expertise,” he adds.

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By GlobalData

The importance of boosting sustainability through upstream investment is likely to grow as exports have become Myanmar’s second largest export item after natural gas exports. The Myanmar Garment Manufacturers Association (MGMA) is predicting that the value of Myanmar garment exports will have hit US$2.7bn in 2018, up from US$2.1bn in 2016 and just over US$900m in 2015.

Indeed, the Myanmar government has listed the processing and export of garments as one of the seven key industries in its national export strategy, as it tries to reduce the country’s foreign trade deficit by increasing overseas sales of its manufactured goods.

In order to attract foreign investment and expand employment, the government has introduced preferential treatment and policies, especially in industrial parks surrounding Yangon, Myanmar’s economic centre.

Justin Huang, secretary general of the Taiwan Textile Federation, has welcomed Taiwan being given a key role in this expansion, noting that the MoUs have been driven by the desire of Taiwanese textile investors to escape labour shortages in Vietnam and Cambodia, where Taiwanese textiles companies have been heavily engaged for many years. Labour shortages are particularly pressing in southern Vietnam amid continually accelerating foreign direct investment inflows.  

“The newest Taiwan-invested facilities for apparel making are in Myanmar, not Vietnam and Cambodia, owing to Myanmar having fruitful labour resources,” Huang told just-style.

“The MoUs entail Myanmar workers receiving Taiwanese training to make them fit to operate the machinery in these new factories,” he adds. Huang says the training should get underway in earnest during 2019. 

According to a recent Chinese-language report by the Taiwan Textile Research Institute (TTRI), opportunities for Taiwanese textile firms in Myanmar are rapidly emerging, with demand for intermediate materials being large. TTRI noted that Myanmar enjoys tariff-free concessions for exports to fellow Association of Southeast Asian Nations (ASEAN) member countries, as well as duty-free access to the European Union through the Everything But Arms (EBA) agreement. TTRI forecasts that US brands will increase orders placed in Myanmar, as the US began to gradually lift economic sanctions and re-granted GSP to Myanmar in January 2017.

“It is expected that European and American brands – including sports and outdoor brands – will place more orders in Myanmar. As Taiwan’s high-quality functional fabrics are recognised by European and American international brands, Taiwanese garment manufacturers in Myanmar are expected to win more orders from Europe and the US,” TTRI said.

However, its projections were made before the EU started reviewing Myanmar’s GSP access to its markets amidst continued human rights concerns.

Myanmar is still a relatively small apparel supplier to the EU, which imported US$213m worth of apparel products from Myanmar in 2017 – just 0.8% of the total, according to the resource by just-style strategic planning tool. Conversely, the EU absorbs 47% of Myanmar’s garment shipments. But in October last year, the European Commission said it was considering steps to remove EBA benefits from Myanmar over the Rohingya crisis.