Favourable government policies, low wages, shorter sea route and growing garment exports make Myanmar an attractive option for Indian textile entrepreneurs, says Rajesh Kumar Shah
The garment sector in Myanmar has grown enormously since the lifting of economic sanctions by Western nations in 2012, after a gap of 15 years. Today, it employs over 250,000 people and accounts for 10 per cent of export revenues earned by the country.
In 2014, Myanmar’s garment exports were estimated at US$ 1.5 billion in terms of FOB value, which has doubled in the last three years alone. The National Export Strategy (of Myanmar) wants to increase the country’s garment exports to about $4 billion by 2020.
Like Vietnam, Myanmar too is not self-sufficient in raw materials and imports many of its garment sector requirements. Second, unlike Bangladesh which has strong knitwear and woven apparel segments, most of the apparel exported by Myanmar are non-knitwear.
On the other hand, India is rich in cotton, and manufactures various kinds of yarn and fabric in large quantities, which are both supplied to the domestic industry and exported. This presents an opportunity for India to export its textiles, and also to invest in the Southeast Asian country for setting up textile and garment manufacturing units.
India is the fourth largest trade partner of Myanmar (third largest export destination for Myanmar and fifth largest source of imports into Myanmar), according to data with the Embassy of India in Yangon. Trade between India and Myanmar also takes place via third country (Singapore) and across the 1,624 km land border, in addition to direct trade. However, textiles is certainly not among the top traded items between the two countries.
“Trade (between the two) has been small. Almost no garment exports go to India and not too many textiles are imported from India. The vast majority comes from China,” notes Jacob A Clere, project manager, Myanmar Garment Manufacturers Association (MGMA).
Favourable government policies, low-wages, short sea-route between the two nations are some of the reasons that make Myanmar an attractive destination for Indian textile entrepreneurs. In November 2012, the Myanmar government passed a new foreign investment law, which increased the maximum shareholding of foreign parties in manufacturing to 50 per cent. The law allows foreign investors to lease land for an initial period of 50 years with an option to renew. In addition, foreign companies are entitled to tax exemption for the first five years; no tariff is levied on raw materials imported by these companies; and they are allowed to exchange and transfer investments.
In addition, both India and Myanmar have signed and ratified Bilateral Investment Promotion Agreement (BIPA) and Double Taxation Avoidance Agreement (DTAA). These agreements provide for free flow of bilateral investments, and business profits will only be taxable in the source state. Further, some banks like the United Bank of India have signed agreements with banks in Myanmar to facilitate trade between the two countries.
In recent years, the number of garment factories has increased in Myanmar, with many of them having operations in Bago, Pathein and Hpa-An, in addition to Greater Yangon. In 2014 alone, more than 50 new apparel factories sprung up in these areas.
One reason for this quick-paced growth is the low-wage rate compared to other countries in the region. Though there is no official minimum wage, on an average, an apparel worker in Myanmar earns between K85,000 ($85) and K110,000, depending on skill levels. Currently, the Myanmar ministry of labour, employment and social security in partnership with the Confederation of Trade Unions Myanmar is conducting a survey on prevailing wages, which is likely to be completed in February 2015. However, wages are likely to remain relatively low in Myanmar compared to other competing nations, at least for the next few years, as wages in other countries are also likely to increase along with that in Myanmar.
Another advantage is the shorter sea route. The port of Chennai in southern India is at a distance of 1,145 nautical miles from the port of Yangon in Myanmar, which means finished goods from Myanmar can reach India by spending about five days on sea.
“The Myanmar Garment Manufacturers Association has seen a sharp increase over the last half-year because of interest from Indian textile entrepreneurs in Myanmar’s garment industry. This is partly because of the excitement surrounding the Shipping Corporation of India’s new regular freight shipment between India and Myanmar,” informs Clere.
Commenting on scope of India-Myanmar textile trade, Viren Mehta, head – sales and marketing at fibre2fashion, said, “Although we cater to the worldwide textile and apparel industry, requests from Myanmar for our B2B services were very rare. However, after the announcement of ‘Make in India’ and visit of Prime Minister Narendra Modi to Myanmar in November last year we have started receiving a good number of queries from Myanmar. This shows there is a good scope for expansion of India-Myanmar textile relations.”
Opportunities for India
“We encourage Indian textile entrepreneurs to explore Myanmar. Establish connections, learn about the industry, but don’t expect a quick sale. Many traders have been coming to Myanmar from India hoping for quick business, but it takes time to build trust and establish long-term business relationships,” argues Clere.
Explaining the various business opportunities, he adds, “In this burgeoning industry, there are many business opportunities, but not just for selling textiles. Think about setting up factories or providing the other production inputs needed for garment production – elastic bands, packaging materials, hangers, etc. As this industry reaches a certain critical mass, these inputs to production are more and more in demand.”
Besides a continuous supply of materials, which India can provide, the garment sector in Myanmar will need an increasing number of skilled workers if it is to register a sharp rise in manufacturing and exports. This opens another door for India, especially for skill imparting institutions, to set up garment training facilities in Myanmar. The skills will obviously help Indian companies investing in Myanmar for export to other countries, especially the Far Eastern countries. Japan and South Korea are currently the major importers of Myanmar clothing, and they account for 48 per cent and 33 per cent share respectively.
A note of caution
Myanmar faces constraints like a comparatively weak banking system, infrastructure, training and technology, all of which need a comprehensive strategy and government support to be overcome. Second, garment producers in Myanmar are not used to producing in large quantities, as they mostly deliver orders in small quantities of apparel with specific designs and charge service fees for the same.
On the labour front, however, the International Labour Organisation (ILO) and the governments of the United States, Myanmar, Japan and Denmark together launched the Initiative to Promote Fundamental Labour Rights and Practices in Myanmar, last year. The initiative is aimed at modernising Myanmar’s labour code, improving compliance with international labour standards, and fostering a robust dialogue between the government, business, labour and civil society in Myanmar.
Adidas, which for the first time included a Yangon-based factory in its Global Factory List released recently, says, there are three things to be understood before moving into Myanmar: “First, be patient and invest time; second, it is not a one-time investment; and third, it is clear that the government still has a lot of work to do to build the fundamentals, if worker rights are to be properly protected.”