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Chinese garment firms eye Myanmar as low-cost hub
27
Jun '16
Courtesy: HKTDC Research
Courtesy: HKTDC Research
Thanks to soaring production costs in China coupled with surge in labour wages, Myanmar's garment sector is emerging as the last low-cost production frontier for factory relocation and diversification in Southeast Asia.

This, together with the difficulty in hiring garment workers and the Chinese government's policy of upgrading its manufacturing sector with a strategic shift towards higher value-added industries, has driven many garment manufacturers in the Pearl River Delta (PRD) to relocate and diversify their factories to Southeast Asian countries such as Myanmar. that have a reasonably good supply of lower-wage labour, according to a report by HKTDC Research.

At a competitive minimum wage of around $90 per month, Myanmar not only has a good supply of low wage labour, but trade privileges such as the Generalised System of Preferences (GSP) in the EU, market and strategic location at the China-India intersection make it an increasingly popular among Chinese manufacturing companies, says the report titled 'Myanmar Rising: Opportunities in Asia's Final Production Frontier'.

With the grant of GSP benefits in 2013, the EU has become an increasingly important driver of garment export growth for Myanmar. In 2014, the EU took a 23 per cent share of Myanmar's total garment exports. With enhanced prospects of the US further relaxing sanctions and even granting GSP benefits, the Myanmar Garment Manufacturers Association (MGMA) anticipates that its garment sector will experience exponential growth in years ahead, creating around 1.5 million new jobs from its current level of approximately 250,000 and generating $12 billion in export value by 2020.

Multilaterally, Myanmar is a WTO member and its Most Favoured Nation (MFN) status allows it to export at low tariff rates to other member countries. Yet, preferential treatments seem to be more important in driving the growth of Myanmar's garment exports over the past few years.

Myanmar also offers lower import tariffs than many of its ASEAN peers, with the average MFN applied tariff at 5.6 per cent in 2013. Generally, the country's low import tariffs on items needed in the manufacturing process help the country keep its production cost-competitive relative to the neighbouring countries, the HKTDC Research report said.

Currently, garment manufacturing for exports account for a large chunk of Myanmar's non-agricultural exports, and processing trade in the form of “Cut-Make-Pack” (CMP) operations is pivotal in Myanmar's manufacturing sector.

The report is based on a recent field trip to Myanmar by HKTDC Research. It provides an update on Myanmar's broad economic and policy setting against which the new democratically-elected government is operating, with its strong emphasis on economic reforms to attract FDI, harmonisation of investment regimes, and the development of special economic zones (SEZs) as also infrastructure.

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