After a United Nations (UN) report this week branded Myanmar’s refugee problem one of the world’s worst humanitarian and human rights crises, David Birnbaum looks at the knock-on impact for the country’s garment export sector. He argues that while Myanmar is one of the few alternatives to China for high value-added, complex and difficult-to-make products, its poor reputation may prevent it from reaching its full potential.
At this moment, Myanmar’s garment industry is in a unique position.
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- It can move forward to become a major garment exporter; or
- It can move backward to return to its previous state.
The choice rests with Myanmar’s garment industry.
To understand the current state of the industry and the challenges it faces in 2018, we must go back 30 years to the beginning. Myanmar’s garment export industry dates back to the late 1980s when Hong Kong and other East Asian transnational garment factory groups, in an effort to avoid quota restrictions, opened branch factories in Myanmar. For the next 20 years the industry moved ahead and prospered. Despite the loss in 1998 of EU GSP+ duty-free access, the sector continued to grow, reaching an export peak in 2001 of $868m.
In 2003, the US imposed sanctions on Myanmar, with the result that most foreign owned operations pulled out. Over the succeeding ten years, many local factories closed, while those that remained were forced to operate in the grey market. The results were sweatshop conditions, depressed wages, excessive overtime and endemic child labour.
The lifting of US sanctions in 2013, coupled with the earlier return to duty-free access to the EU market, brought a revival of Myanmar garment exports as foreign industry professionals, hoping to move from employee to entrepreneur status, opened factories – and, more importantly, some major transnational factory groups decided to give Myanmar a second chance. Regrettably as we can see from the chart below the revival proved to be short lived.
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By GlobalDataThe problem was not the failure of the new foreign-owned factories. Indeed, by 2014 these accounted for over 75% of total Myanmar garment exports. It was simply that Myanmar was proving to be a very difficult place to work. The newcomers recognised that to move ahead they had to show their customers they were following international standards of compliance. However, the persistent presence of child labour did not go over well with responsible importers.
Up to this point, what had occurred in Myanmar was but a repetition of events that have taken place in a number of other countries such as Bangladesh. However, at some point in 2015, Myanmar’s garment export industry underwent a change, unique in the annals of the global garment industry.
To understand what happened – and more importantly, its potential impact on Myanmar’s garment industry – we must look outside Myanmar itself. At this moment, the greatest problem facing the global garment industry is the possibility of a Trump tariff on made-in-China garments. Much has been written on the impact on US based retailers and their customers, but we have not yet considered how the tariffs will affect products.
It is clear that while all products will be affected, the impact will not be uniform. Basic commodities such as T-shirts, cotton pants, underwear and basic woven shirts, while facing difficulties in the short term, should recover quickly. You can make basic products anywhere. As a result, much of the impact will be minimised by increased exports from existing factories across Asia, Africa and Latin America. Furthermore, within 18-24 months, factory expansion and newly built operations should completely replace made-in-China basic commodities.
However, China’s real value is not the vast quantities that it produces, but what it produces. China is a specialist in high value-added, complex and difficult-to-make products. Training a single tasked sewer to work in a T-shirt factory requires 2-3 months. Training a multitasked seamstress to work in a factory producing blazer jackets, suits and coats requires 12-18 months. Furthermore, while a T-shirt may require 8 standard operating minutes (SAM); a 5-pocket jean 15 SAM; knit cotton brief 5 SAM; and woven shirt 20 SAM; a suit, a blazer or an anorak requires 90-240 minutes. To operate in the market for complex fashion goods, you need a large number of highly trained people. Production for these items cannot be moved to Africa or DR-CAFTA.
In fact, there is only one country where factories currently exist with potentially excess capacity and a pool of trained workers capable of producing these sophisticated products. And that country is Myanmar.
In 2017, 52% of all garments exported from Myanmar were either tailored goods or anoraks.
All of which leads us to the big question. Professionals all have access to the same data. We all see that Myanmar is the place to go for quality complex products. At the same time, we also recognise that Myanmar has nowhere near the capacity to satisfy everyone’s needs. Myanmar is the classic seller’s market. By all that is logical, everyone should be rushing to Myanmar to get in on the ground floor. However, there is no rush. Either people fail to see what is happening, which is highly unlikely; or they do see what is happening and, having seen, are unwilling to work in Myanmar.
This is the problem facing Myanmar. Just as the industry has an awesome upside, it also has an equally awful downside.
There are two reasons why customers are reluctant to get involved in Myanmar:
- Rohingya ethnic cleansing: This is a real problem. Once before, the EU took away Myanmar’s duty-free access. This may well happen again. If you have any doubts, consider Sri Lanka, which lost GSP+ privileges in 2010, despite looking a lot better then than Myanmar does today. At the time, Sri Lanka was the only democratic country in South Asia. It had the best social legislation in the region. For 35 years, it had been fighting a terrorist group. If despite all this, Sri Lanka lost duty-free access to the EU, what chance does Myanmar have? More to the point, there is nothing the Myanmar industry can do to alter the situation. If it loses EBA free trade status, it has no choice but to accept the situation and move on.
- Poor compliance: This is also a real problem, but unlike the Rohingya mess that is beyond the control of the industry, improving compliance is something it can do. The Myanmar Garment Manufacturers Association (MGMA) and its leaders have moved forward. Where once they were an obstacle to change, they now accept change. However, acceptance will not be enough. The increased minimum wage is a step forward, but $90 a month is not enough. New regulations governing working conditions are also a step forward, but without enforcement they have little value. The rights of workers to organise is also a step forward, but Myanmar’s labor union movement is a shambles.
The danger is that importing governments may conflate the political problems of Rohingya with what they see as a noncompliant industry. Should that happen, the industry will return to its nowhere position of 2003.
Myanmar’s garment industry leaders must recognise that the problem is not the end of duty-free access to importing countries – but rather the end of access itself.
The sector providing quality complex garments will not be unduly affected by the loss of duty-free access, as importers are already paying duty for these products. The problem is not Myanmar’s complex garment makers, but rather the inefficient factories which, for most part, are local.
Once again, while the industry can do nothing about the government’s Rohingya policy, it can do a great deal to solve the problems of compliance.
To succeed the industry leaders, MGMA, and the factories themselves, must create a new, viable, transparent strategy:
- MGMA must move from the passive position of accepting change to the active role of fostering change;
- MGMA must begin to see international institutions and NGOs as allies in the effort to show just how the industry is moving to greater compliance. The ILO and US Solidarity Center can be of immense help. So too can groups such as Better Work, Greenpeace and the World Wildlife Fund. Not only do they have the professionals Myanmar needs to move ahead, they have the credibility that Myanmar lacks;
- Factories should invite these groups to visit, analyse and provide suggested change. They should follow up to carry out those changes.
The truth is that regardless of events, many if not most of the local factories will go to the wall. The terrible truth is that they will not be missed.
Myanmar’s garment industry faces a stark choice: Move forward to allow Myanmar to become a leading garment exporter, and in doing so allow the inefficient factories to fail; or support the inefficient local factories, and in doing so allow the entire industry to fail.
