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Myanmar Micro, Small and Medium Enterprise Survey 2019

Executive summary 

The manufacturing sector should be seen as the backbone of Myanmar’s economic development. A well-functioning productive industry has the potential to generate high-quality and poverty-reducing employment, fuel growth through enhanced productivity and improve the opportunities for trade in the globally connected economy of which Myanmar has recently be- come a more active member. However, a country’s manufacturing sector is constantly evolving and transforming. Its success pivots on a deep appreciation of both the current state of the sector and changes that have occurred. This understanding can facilitate both timely and fact- based policy decision-making. Until recently, research into Myanmar’s manufacturing sector has been limited. This report – the second edition in the series – offers a unique and thorough insight into how well the sector is performing and evolving during a period of broader economic change.

The Central Statistical Organization of the Ministry of Planning, Finance and Industry of Myanmar (CSO) in collaboration with the United Nations University World Institute for Development Economics Research (UNU-WIDER) and the Development Economics Research Group (DERG) at the University of Copenhagen, with financial backing from the Government of Denmark, released the first descriptive report of its kind in Myanmar’s history in 2018. The report was based on a large quantitative enterprise survey undertaken in 2017.

However, the ‘Towards Inclusive Development in Myanmar’ project relies on rigorous ongoing enquiry to achieve its ambitious objectives of improved evidence-based policy-making and deep analysis. Therefore, in 2019, CSO and researchers from University of Copenhagen returned to Micro, Small and Medium-sized enterprises operating in 35 townships across Myanmar’s fourteen states and regions as well as the Nay Pyi Taw Union Territory. They once again explored issues pertaining to business practices, owner characteristics, production and technology characteristics, sales and cost structure, access to finance, taxes, employment, net- works, and economic constraints and potentials. During the face-to-face interviews, enumerators met with firm owners, managers, and thousands of their employees to learn of their experiences working in this sector.

The survey conducted in 2017 included interviews with 2,496 enterprise owners and 6,722 of their 32,671 employees, while the sample in the 2019 survey comprises 2,497 enterprises and 5,227 of their 34,435 employees.  The surveys are statistically representative of more than 71,000 registered manufacturing firms in Myanmar. Over the period of study, just 9 per cent of the firms interviewed in 2017 had exited because of firm closure. This edition reports on a matched employer-employee datasets and balanced panel of some 2,268 enterprises, which participated in both phases of the study. Whilst some outcomes are similar across both phases, there have been broad and important changes over the relatively short period between surveys. Some of the key outcomes are reported briefly below and provide essential insights for government and policymakers, domestic and international investors and all parties engaged in supporting Myanmar in achieving future prosperity.

A systematic approach is applied throughout the report in the descriptions of manufacturing firms’ productivity, sectoral linkages, investment, external finance, employment, and business constraints. First, data is presented at the economy level. Then, information is provided to look at differences across the country’s states/regions, amongst three size categories (micro, small and ‘medium & large’, denoted medium+) and between eight aggregated industrial sec- tors. Data is also presented on a small set of 98 firms, denoted Myanmar Tigers. These are firms that have demonstrated high labour productivity growth between the two rounds of data collection.

The report shows that the manufacturing sector is more productive in 2019 than it was in 2017 and this is mainly explained through a deepening of capital intensity. However, this outcome is not borne of the same reasons across firms of different size categories. On average, enterprises of all sizes have increased their capital intensity while simultaneously employing more full-time labour, but the extent to which this has happened varies with firm size. The largest firms, the medium+ enterprises, have achieved both the highest growth in capital intensity and the largest positive change in full-time employment from 2017 to 2019. The 98 Tigers have increased their capital intensity across all firm size categories and aggregated industrial sec- tors and, by their nature, are the firms that have been the most productive amongst their peers in the last two years.

Outcomes in terms of both the level and growth of labour productivity is also diverse when considering geographical dispersion, firm size and the industrial sector in which the firm operates. These outcomes are pertinent for policymakers when deciding how to direct a package of support for future growth. Industrial zones have been at the forefront of the country’s efforts for this sector. The report evidences that productivity growth rates are not higher for the average (non-Rice mill) manufacturing firms located inside Myanmar’s industrial zones. How- ever, the small and medium+ firms located in the zones have had markedly higher increases in employment compared to same size firms outside the industrial zones, and for medium+ firms this has not had negative effects on labour productivity growth.

Finally, a detailed statistical decomposition analysis shows that the majority of the increase in labour productivity between 2017 and 2019 may be explained by changes in inputs in production–especially intermediary inputs. The result highlights the importance of well-functioning input-markets in Myanmar’s manufacturing sector. The increased capital intensity also contributed positively to the productivity increase, illustrating the importance of investments in the sector.

Well-functioning input-markets are important for three reasons. First, linkages between firms in the manufacturing sector go hand-in-hand with economic specialisation, which may improve productivity. Second, there is a potential for knowledge and technology diffusion, which offers the benefits of improved competitiveness and productivity. Third, well-functioning in- put and output markets are foundational for firms to survive and grow their businesses, while dysfunctional markets impose considerable constraints on firm growth.

It is unsurprising that firms continue to report highly localised sourcing and selling patterns, a fact that is particularly true for smaller firms. Medium+ firms do appear to have an increasingly international outlook, with a greater proportion of transactions taking place across country borders. Interestingly, less than 20 per cent of total output is sold as intermediary products, which suggest that local and international value chains have not yet been established effectively. A statistical analysis shows evidence of learning and knowledge transfer, which comes as a result of linkages between firms, both from customers to suppliers and the reverse, from suppliers to customers. This is an area that provides substantial future opportunity as the sector becomes more integrated in the world economy.

Finally, the data suggests that there are fewer supply constraints in 2019 compared to the situation in 2017. Unfortunately, clear conclusions cannot be drawn on whether this is the result of improvement in supplies or the economic slowdown experienced in Myanmar in recent years.

Turning to investment and borrowing decisions, the data shows that there has been a decline in the total number of firms investing in 2017-2018 compared to the two earlier years. However, increases in the amounts invested means total investment is broadly the same. In 2019, decisions to invest are centred on increasing capacity, which differs from efforts to improve products or processes reported in the 2017 survey. Investments are mainly and increasingly funded through retained profit and personal capital.

Fewer firms borrow money in 2018 than two years before, though many enterprises complain of a lack of access to formal credit. The average loan borrowed from formal sources continues to be small, but the amount drawn down has increased by about a half. Whilst fewer firms borrow from informal financiers in 2019 than was the case two years earlier, the size of informal loans has increased. Borrowers of informal loans pay substantially higher interest rates than they would to banks or other credit providers.

A formal statistical analysis of the effect of increased access to formal credit shows that such access may well induce more firms to invest. However, the likely impact is far lower that indicated by simple correlations of debt and investment behaviour. The analysis indicates that broad based access to formal credit would probably only increase the share of firms investing to about 13 to 15 percentage points.

Interestingly, overall, the 98 Tigers are less likely to invest than other firms are. But there is variation along the lines of industrial sector, with Tigers in the ‘Rice mill’ sector being 80 per cent less likely to invest. Conversely, medium+ Tigers invested 2.5 times more than other firms employing at least fifty people. However, the most striking conclusion is that this successful subset of enterprises is much more likely to invest to expand production than other firms in the sector.

This edition considers issues pertaining to employment from both the perspective of the employer and employee. Employment in the manufacturing sector is characterised by high levels of both gross and net turnover, indicating that worker instability (seen from the employer perspective) and job security (seen from the point of view of workers) may be a concern. On the other hand, it may also indicate a flexible labour market with low search costs. Unpaid family workers continue to be employed mainly by micro family firms, whilst women are more likely to be employed in firms employing at least 50 people. Migration remains a feature of the over- all story of employment in Myanmar, with 11 per cent of employees being domestic migrants. Ayeyarwady Region is the predominant provider of migrant workers, whilst firms in Yangon Region are the main employers of those who have migrated.

Wage levels increased substantially from 2017 to 2019, and salaries tend to increase with firm size. The returns to education in the form of average wage premiums for higher educated employees are low compared to other countries in the region and they fell for the highest educated workers from 2017 to 2019. In 2019, there is still a positive return for employees with high school education and above, though. A large part of the higher wage levels for educated workers can be attributed to the fact that such workers tend to be employed in high wage sectors.

Moreover, male employees are paid substantially higher salaries than female employees even when educational and industry sector differences is taken into account.

Exactly what has driven the large increase in wages across the manufacturing sector cannot be inferred from the statistical descriptions and analyses. However, the large growth in average labour productivity, measured by both revenue and value-added growth per full-time employee lends support to an assertion that the employees simply get a share of the increased value creation.

The changing perceptions of owners regarding constraints to their business are also reported in the current edition. In 2017, owners explained that they were constrained due to lack of access to credit, but that they wanted to invest and expand as a result of facing only limited competition. In 2019, a much larger proportion of owners acknowledged higher competition levels and had a reduced appetite to expand. The increased proportion of firm owner’s reporting reduced demand is a concerning result. It appears to lead to the conclusion that challenging macroeconomic conditions have impeded expansion plans to the extent that the future growth potential of the sector could be substantially affected.

The present report supports the conclusion that the manufacturing sector remains instrumental for Myanmar’s economic growth. However, the changing picture in issues pertaining to productivity, sectoral linkages, investment and finance, employment, and business constraints leads to a need for considerations of renewed policies that support economic growth.

Some considerations include efforts to:

  1. Facilitate the further deepening of value chains, enabling firms to specialise and cooperate for increased productivity.
  2. Make efforts to improve connections to international value chains in food production.
  3. Invest in market-facilitation for sectors in which firms experience input constraints.
  4. Review the effectiveness of the industrial zones; specifically, whether the acceptance of micro firms to such designated areas is in the best interests of the economy.
  5. Ensure that small, medium and large firms are able to access formal finance for investments that could lead to improvements in productivity.
  6. Incentivise training and up skilling opportunities for micro and small firms, particularly when productivity increases amongst these size categories can be achieved.
  7. Gain a deeper understanding of gross worker flows, the provision of contracts and the formation of wages.
  8. Ensure that a fair and inclusive labour market also embraces the gender dimensions in terms of employment opportunities and fair wages.

Source: UNU-WIDER, University of Copenhagen, Central Statistical Organization

 

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