Garments segment supports development of Myanmar's manufacturing sector

Garment manufacturing has been the driving force behind the development of Myanmar’s manufacturing sector. The Myanmar Garment Manufacturers Association (MGMA), the primary trade association supporting the industry, estimates the segment employs 450,000 workers, more than 90% of whom are women, across its 600 member factories. Garment exports rose from $349m in 2010 to $4.6bn in 2018. The MGMA maintains the industry is on track to create 1m jobs and meet the target of $10bn of exports under the Myanmar Garment Industry Strategic Plan 2014-24. The auto industry is another emerging industry that has become a focus point in government policy.

Competitive Advantages

Myanmar’s garment industry is mostly in final production using imports of raw materials, also known as cut-make-pack (CMP) operations. Materials are primarily sourced from China. The EU is the largest importer of Myanmar garments, with trade valued at $1.23bn in 2017, while Japan, South Korea and the US are important secondary markets.

More than three-quarters of factories are either foreign owned or joint ventures, allowing the industry to make products for famous international brands including Primark, H&M, GAP and Muji. Recently, the US-China trade war and rising domestic labour costs have galvanised Chinese businesses to set up shop in Myanmar. Some 80% of CMP investments are from China. However, the influx has not been without problems. In October 2018 several hundred garment workers at a Chinese-owned factory in Yangon went on strike over pay and conditions after 30 coworkers were dismissed without notice.

Nevertheless, investments are driving industry growth across the country, with Ayeyarwady Region in particular attracting strong interest. In January 2019 Ayeyarwady Development Public Company signed a contract with Hong Kong-based China Textile City Network to invest $100m across 50 garment factories in the China-backed Pathein Industrial City, which has multiple industrial zones, a river port for cargo ships weighing 10,000 tonnes, and commercial and residential areas. The city is part of the China-Myanmar Economic Corridor scheme, under which China is actively developing logistics networks, including ports, linking Kunming to Mandalay and Yangon via the Ayeyarwady River. Elsewhere in Ayeyarwady Region, Maubin Development Public Company is developing an industrial zone with Shanghai Yangon Investment Company that plans to host 42 garment factories and create approximately 70,000 jobs.

Diversification

Myanmar’s small but high-potential automotive industry is also gathering momentum as the government presses on with a campaign to restrict vehicle imports through non-tariff barriers, including regulations on sales, prices and licence plates, and a total ban on right-hand-drive cars, designed to encourage automakers to set up assembly factories in the country. The government has also waived duties on imports necessary to manufacture completely knocked-down or semi-knocked-down cars, though the former have yet to catch on because the market is not large enough to sustain the necessary investment.

Toyota Myanmar’s $52.6m facility in the Thilawa Special Economic Zone is expected to open in February 2021 and will produce 2500 Toyota Hilux pick-ups each year. Suzuki, which already operates a local plant in the zone, is the market leader for new cars, while Nissan, Hyundai, Kia and Ford complete the list of major automakers producing cars locally. There is significant potential for further growth, as in 2018 there were only 1.2m vehicles on the road and 17,500 new car sales.

Further development of Myanmar’s assembly industry will require increased investment in education and training of local managers to improve the skills base and keep a lid on wages; improvements in infrastructure to cut logistics costs; and the continuation of ongoing reforms to the banking and legal frameworks in order to provide investors with access to local funds and loans.