Minimum wage debate must be resolved to continue Myanmar's manufacturing growth

Myanmar instituted sweeping increases to the national minimum wage in 2018, boosting the rate to MMK4800 ($3.40) per eight-hour day, up from the MMK3600 ($2.55) rate set in September 2015. The changes come as Myanmar’s fast-paced growth draws an increasing number of rural workers into the larger cities for employment in the surging garment and light manufacturing sectors. Faced with high inflation — which World Bank figures estimate will reach 8.8% in 2018, up from 5.5% the previous year — and a depreciating local currency, workers across the country demanded that wages keep pace with an increasing cost of living.

Myanmar’s workers are among the lowest paid in South-east Asia, according to figures published in February 2018 by the National Wages and Productivity Commission in Manila. The Philippines and Myanmar’s monthly minimum wages were the lowest, at around $80 per month, compared to $110 in Laos, $140 in Cambodia and $147 in Vietnam.

The proposal to increase the minimum wage came in January 2018 from a panel of representatives from the government, labour and management. Labour representatives had advocated an increase to MMK5600 ($3.96) per day, while managers requested that the daily minimum wage be increased to MMK4000 ($2.83). The compromise proposal, which affects enterprises with over 10 workers, was subject to a 60-day public debate period and ratified by the government in May 2018.

Cost Competitiveness

The effect of the minimum wage increase is expected to be felt most in labour-intensive manufacturers such as garments. After the announcement, the Myanmar Garment Manufacturers Association said countermeasures, such as reducing compensation for overtime, would be necessary, and that 14 factories could close due to rising costs, threatening almost 3000 jobs in the short term. The association also cited the need for financing of new infrastructure and machinery to reduce non-labour costs.

The association argued that higher wages could harm the competitiveness of Myanmar’s nascent manufacturing sector. According to Owen Lippert, former senior policy fellow at the Fraser Institute in Canada, the authorities should prioritise preventing exploitation and workplace abuses. They should also avoid legislating increases to the minimum wage, as this “artificially inflates wages to appear to fight poverty risks, drives away jobs and does nothing for poverty. On the whole, wages are best settled between workers and employers without either seeking help from the government,” he told OBG.

Steady Growth

Despite initial warnings from the garment association, Myanmar’s minimum wage increase appears to have had little or no impact on manufacturing growth in 2018. The Asian Development Bank projected industry and services would grow by 8% in 2018, an acceleration from 5.9% the previous year. This increase outpaces the overall forecast GDP expansion of 6.8%.

Myanmar’s economy has been among the region’s best performers in 2018, but it faces challenges in 2019 that could negatively impact the sector moving forward. Conflict in Rakhine State has damaged investor sentiment and threatens trade access.

The EU announced in late 2018 it would reassess Myanmar’s preferential trade status due to concerns about the conflict, which would have an immediate impact on the garment sector.

Manufacturing is also hindered by inflation, human resource capacity issues, difficulties transferring funds inside and outside of the country, and reforms that are not keeping pace with economic difficulties.

Notwithstanding these challenges, growth in the country’s manufacturing sector is expected to continue as Myanmar workers are given a higher wage to offset the increases in the cost of living.