The European Union is poised to become the largest export market for “Made in Myanmar” apparel this year, three years after the group of nations lifted economic and trade sanctions against the Southeast Asian country.
The surge in exports to the EU and overall growth in the sector comes despite continued concerns over labor conditions and a lack of clarity regarding Myanmar’s wage regulations that have resulted in a spate of strikes at factories around Yangon, the country’s largest city.
Apparel export revenue for 2014 reached an estimated $1.5 billion, up about $300 million from 2013, according to the Myanmar Garment Manufacturers Association. The MGMA said an average of one factory a week opened over the course of 2014. Apparel exports to the EU showed particularly strong growth in 2014, with about $400 million worth of goods reaching the market, more than doubling 2013 shipments.
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Around a dozen factories in Myanmar now produce primarily for the EU. Japan and South Korea, the two biggest export markets for Myanmar-made garments, are forecast to be surpassed this year by the EU, the MGMA said.
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The growth in the sector is part of a larger trend since reformist Thein Sein became president in 2011, which has resulted in foreign and domestic investment shifting from power and natural resources to the wider manufacturing sector. From February 2013 to January 2014, 42 percent of foreign direct investment in Myanmar went into manufacturing, up from 5 percent from 1990 until January 2013, according to the Organization for Economic Co-operation and Development. Domestic investment in manufacturing over the same period jumped to 28 percent from 24 percent.
Aung Naing Oo, director general at the Myanmar Investment Commission, said the government was taking steps to promote the apparel manufacturing industry.
“We have streamlined the procedure [for investment] in this particular sector for easier access, and training programs are in progress to produce skilled labor in this sector in collaboration with the Garment Producers Association and concerned ministries such as Ministry of Industry and Ministry of Labor,” he said.
Major European companies sourcing from Myanmar include Sweden’s Hennes & Mauritz, which works with three factories and one processing facility, and has an office in Yangon. In early January, German sportswear manufacturer Adidas said one of its suppliers had begun producing footwear at a factory near Yangon.
Firms have been drawn to Myanmar for its cheap and abundant labor force, as wages rise in countries like neighboring China. U.K.-based risk analysis firm Verisk Maplecroft ranked Myanmar as having one of the lowest labor costs in the world. The group said Myanmar was one of the “key sourcing destinations” replacing Chinese manufacturers, along with Bangladesh and Cambodia.
The MGMA puts sewing operator wages at $40 to $200 a month. The reinstatement of the Generalized System of Preferences by the EU has also played a major role in boosting EU interest. In contrast, apparel exports to the U.S. have remained “miniscule,” MGMA said. Exports to the U.S. climbed to $20 million last year since a ban was lifted in 2012. In 2002, prior to the leveling of strict sanctions against Myanmar, apparel exports to the U.S. accounted for more than 20 percent of the country’s national export revenue.
Few major U.S. brands have established a presence in Myanmar since the easing of sanctions in 2012. Most notably, Gap Inc. began producing for its Banana Republic and Old Navy chains in June through two South Korean-owned factories.
Win Ei Khine, executive director of apparel manufacturer Maple Trading Co. and a central executive committee member of the MGMA, said officials from companies such as Wal-Mart Stores Inc. and Columbia Sportswear Co. had visited Myanmar last year, but no orders have been placed. A chief concern for foreign firms, she said, remains labor standards, particularly the use of child workers in many factories, an issue she said her company itself had faced.
“We discussed a lot about it with customers and major stakeholders last year,” Win Ei Khine said. “We all know that child labor is a major issue for the EU and Western markets.”
Under Myanmar law, minimum working age varies across sectors, but children as young as 13 are allowed to work up to four hours a day if they have a certificate of fitness and as adults at the age of 15. The MGMA drafted a code of conduct in February to address this issue, among others, with the aim of bringing manufacturing practices up to Western standards. The voluntary code calls for factory owners to adhere to a minimum working age of 15 and for workers’ ages to be confirmed prior to them beginning work.
Vicky Bowman, director of the Myanmar Center for Responsible Business, said the code of conduct showed the industry was aware it needed further development. However, she cautioned that extensive due diligence was still required by investors.
Myanmar’s main draw, its cheap labor, has also been the source of recent unrest in the apparel sector. The government passed a minimum wage law in 2013, but it has yet to be put into effect, as a pay rate has not been determined. A survey was launched in late January to determine living costs and conditions of the country’s most vulnerable workers.
Maung Maung, president of the Federation of Trade Unions of Myanmar, said the survey had been completed and collected data were being collated by the Ministry of Labor. He declined to comment on the potential minimum-wage levels, saying speculation at this stage would be unhelpful to the process.
A series of wage-related strikes starting in late January hit five factories at two industrial zones outside Yangon. The walkouts were the latest labor disruptions since the country passed a labor organization law in 2011 that allows workers to form some unions and strike if prior notice is given.