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Made in Myanmar

The success of recently concluded Manufacturing Myanmar’s – the only dedicated manufacturing solutions trade show in the country- second edition reaffirmed the country’s reputation as a great launch pad to build business partnerships. The trade show was attended by more than two thousand companies related with manufacturing machinery, equipment, hardware and supplies. The event proved that Myanmar’s manufacturing sector possesses great potential and, in future, it will be a key economic driver for rapid growth. Large multinational companies (MNCs) such as Lafarge and Ball Corporation have invested in the country’s manufacturing sector mainly to cater to local demand.

Myanmar’s strategic location has made the country look important to investors who are seeing it as a manufacturing unit with highest potential returns. The country is located between two economic giants – China and India, and offers access to a 2.3 billion consumer base across all its neighbouring countries. Additionally, in the domestic market, opportunities abound for investors in the booming automotive, construction and electronic sectors, with demand being largely met through imports currently. Yangon, the capital of Myanmar, offers a strategic port to companies who are looking for a manufacturing base in Asia without having to go through the Malacca Starits. Singapore Exhibition Services launched its newest edition to a successful series of manufacturing technology shows during Manufacturing Myanmar in October 2015. Many other wellknown brands and small and medium-sized enterprises from across the globe also participated in Manufacturing Myanmar. China and Western countries are also showing interest in Myanmar market due to nation’s rich natural resources which include gas, minerals, oil and teak wood which is considered world’s finest. According to the International Monetary Fund (IMF), there are significant untapped opportunities in the domestic market, which is gradually transitioning away from being a primarily agriculture based economy. The industrial sector’s share of GDP in Myanmar increased from 11 % in 2008 to 21 % in 2014.

During the military government, Myanmar had made lucrative deals with its neighbouring countries- China, India and Thailand – for the energy export. Despite the sanctions placed by the U.S., European Union and some other countries, Myanmar had traded with non-sanction nations. Thailand, still, purchases about 30 percent of its gas from Myanmar. About 85 % of the nation’s exports were apparel and textiles of which an estimated 25 % went to the U.S. prior to the sanctions which was Myanmar’s largest export market. U.S. sanctions against Myanmar’s military-led government resulted in a 60 % decrease in the value (the United States imported approximately $356.4 million of clothing and other goods from Myanmar) of exports from Myanmar by 2005 compared with Cambodia, which had 90 percent growth during that time. China, with its massive workforce and superior supply chain, became the location of choice for apparel manufacturing. Significant garment and other manufacturing moved to China, resulting in a huge drop in exports for many Southeast Asian countries.

Cheap labour is another factor that has lured the foreign and domestic investors to Myanmar. Manufacturers increasingly are eyeing the nation’s ample low cost labor force. Myanmar still has cheaper labor than virtually any other country in the world, so despite its infrastructure shortcomings, it remains attractive to labor intensive industries. In Yangon, local salaries for factory workers average about 60,000-80,000 Kyat (US$ 70-95) per month and usually less in other parts of the country. Although a new minimum wage bill was approved in March 2013, till date, Myanmar’s daily minimum wage rates have not been enacted. Daily rates currently vary anywhere between USD $0.50 (National Wages and Productivity Commission) and USD $2.3 for certain labour sectors. Minimum monthly salaries for  labour in the developing Thilawa SEZ were temporarily increased to around USD $65. In addition to these low salaries, many manufacturing businesses find Myanmar workers to be diligent and competent.

Wage increases in China grew by an average of 10 to 15% annually during 2000 – 2009, while wages in ASEAN countries increased more modestly. The Asian Development Bank’s August 2012 report states “If the wage rate increases in the PRC continue to outpace those elsewhere, investors may start looking at other countries in the region to locate or relocate their investments.”

The changing economics of production and distribution, along with shifts in consumer demand and the emergence of “smart” products, are pushing manufacturers to explore radically new ways of creating and capturing value. In fact, manufacturers are feeling the pressure—and gaining the ability—to increase both speed to market and engaging customers. Numerous factors are leading manufacturers to build to order rather than building to stock. In this environment, mediators that create value by holding inventory are becoming less and less necessary.

Development of the banking system in Myanmar that followed political and economic reforms has boosted manufacturing growth by providing viable financing solutions for trade. Recently, ANZ bank announced that it has received the approval license to operate in the country and intends “The changing economics of production and distribution, along with shifts in consumer demand and the emergence of “smart” products, are pushing manufacturers to explore radically new ways of creating and capturing value” to provide banking services to diverse growing sectors in Myanmar. It also said that it intends to focus on the growing manufacturing sector.

With various trade finance options available, manufacturing factories in Myanmar can now also trade with other countries. As the CEO of a major oil company has said, “With increasing the availability of letter of credit schemes provided by banks, it is now easy to perform trading activities with foreign counterparts as the letter of credit is the main vehicle for trading in international market”.

Myanmar is facing some challenges in the manufacturing sector. The country is in dire need of power, which is essential for industrial development. Currently, almost all manufacturing companies are using back-up power generators due to unsteady and low-voltage of electricity. At present, Myanmar has approximately 30 % of electrification rate and is expected to achieve 100 percent electrification rate by 2030, supported by a $400-million financial aid from the World Bank.

Despite the problems, Myanmar has been successful in attracting significant inflow of FDI in the manufacturing sector owing to variety of benefits offered by the government, coupled with favourable political and economic changes. The country could possibly be the next manufacturing hub if investments are channelled effectively to imperative infrastructure development and human resource training programs.