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Strong growth to continue in Myanmar’s garment industry

Myanmar is expected to continue displaying high growth potential in garment manufacturing, according to London-based research agency Fitch Solutions.
Fitch Solutions Country Risk and Industry Research on July 14 predicted that Asia, consisting mainly of Vietnam, Bangladesh, Cambodia and Myanmar, would remain
the dominant players in textile manufacturing in the region.
The positive outlook is supported by the large and mostly young populations and low labour costs in these countries, with further benefits to be gained from the ongoing global supply chain shift away from China.

Myanmar boasts the lowest cost of labour in the apparel manufacturing sector, even when compared to regional players like Cambodia, Vietnam and Laos, according to
research by the NYU Stern School of Business in 2018. Myanmar’s minimum textile monthly wage could be on par with, or lower than Bangladesh, one of the lowest in
the world.Besides the low-cost labour, Jason Yek, senior country risk analyst of Fitch Solutions, said Myanmar’s proximity to China, its special market privileges granted by the EU under the Generalised Scheme of Preference (GSP) and low logistics and transport costs all “work in Myanmar’s favour.” This all helps to position its apparel industry for strong growth in the coming years.

“We expect Myanmar’s growth to be driven by lower value basic garment exports which manufacturers will find more challenging to turn a profit on in Bangladesh and
Cambodia, where production costs are comparatively higher,” Mr Yek said.

The research company, however, cautioned against the risk of the EU’s withdrawal of GSP over the ongoing human rights violations in Rakhine.
“Given that 60 percent of apparel exports from Myanmar go to the EU at present, this will pose a major setback to the industry over the near term should it happen,” the report said.

The outgoing EU ambassador to Myanmar, Kristian Schmidt, has repeatedly warned Myanmar against taking its market privilege access to the EU, which is the largest
single market, for granted. The bloc has yet to make a final decision.
Another potential headwind for Myanmar is an overly strong local currency that could negatively impact external demand for local-made apparel products.
“The low-value apparel which is driving Myanmar’s export growth will also be subject to a higher degree of price sensitivity from external buyers relative to higher value apparel,” Mr Yek said.

Over the past decade, Vietnam and Bangladesh have captured the lion’s share of the global apparel export market and have become the second and third largest garment exporters after China. With China rising in the value chain and pushing out low- to mid-range manufacturing, Vietnam and Bangladesh have emerged as the major beneficiaries.

“[The trend] will be exacerbated by rising trade protectionism globally and geopolitical risks attached to operating in China, as relations between China and the West deteriorate,” the report said.

Myanmar is only just emerging as a major regional player in the industry over the past decade, but it is growing fast. Based on Fitch Solutions’ estimate, apparel exports in Myanmar grew at a compound annual growth rate of about 37pc between 2010 and 2019.

Nonetheless, Myanmar’s share of global apparel exports is still very low at only 1pc in 2019 despite having risen from 0.1pc in 2010, putting it slightly behind Cambodia at 1.4pc and significantly behind Bangladesh at 6.1pc.

Looking ahead, Fitch Solutions said Myanmar, as well as Bangladesh, Vietnam and Cambodia, are poised to benefit most from shifts in manufacturing in the
industry.“[The four countries] benefit from being close to raw material sources in China and India, having a large low-cost supply of labour, sufficient trade links with China and the rest of the world, and most importantly for some, the economic support of China,” the report said.

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