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Myanmar needs to work on its competitive advantage to maintain growth

Myanmar needs to work on its competitive advantage to maintain growth 001Myanmar textile factories have been facing the heat of higher labour wages as union officials still don’t feel that the new minimum wage of K4,800 is enough to cover the increasingly high cost of living, especially in urban areas where most factories are located, and have demanded K5,600 to K6,600. In lieu to this, employers argue that the increase is justified given the other challenges they face, including high land prices, frequent power outages and low labour productivity. In the wake of the challenging scenario, people fear that the increase in wages will negatively impact the competitiveness of Myanmar’s garment sector globally. Only time will tell whether the 25 per cent increase has dulled the competitive edge of Myanmar’s garment industry.

 

Myanmar textile factories have been facing the heat of higher labour wages as union officials still don’t feel that the new minimum wage of K4,800 isMyanmar needs to work on its competitive advantage to maintain growth002 enough to cover the increasingly high cost of living, especially in urban areas where most factories are located, and have demanded K5,600 to K6,600. In lieu to this, employers argue that the increase is justified given the other challenges they face, including high land prices, frequent power outages and low labour productivity. In the wake of the challenging scenario, people fear that the increase in wages will negatively impact the competitiveness of Myanmar’s garment sector globally. Only time will tell whether the 25 per cent increase has dulled the competitive edge of Myanmar’s garment industry.

The true picture

Myanmar has the second lowest minimum wage in the region, with only the garment manufacturing giant Bangladesh paying its labour force less. While wages are comparatively low in Myanmar, the low productivity of its workers is the main reason that CMP garment factories have only trickled to Myanmar. A 2017 study by the Centre for Economic and Social Development found that productivity here is considerably lower than elsewhere in the region. In Thailand, Malaysia, and Vietnam, the garment sectors are about six times more productive than in Myanmar, while Cambodia and Laos are two to three times more productive. This means that despite Myanmar’s relatively low wage companies are likely to find it more profitable to remain in these other countries. On the other hand, China’s minimum wage has risen to a point where it is now cost-effective to operate in Myanmar, and there has been a steady migration of factories from China to Yangon.

The cache is that the significant wage rise doesn’t necessarily guarantee any increase in productivity, which can result in Myanmar losing the competitive advantage in order to attract foreign investment in the garment industry. In that scenario, manufacturers may opt for moving to a neighbouring country with higher productivity, such as Thailand, or one with a lower wage. Bangladesh has increasing chance of luring companies due to its lower minimum wage and higher productivity.

Retaining competitiveness

Currently many garment factories in Myanmar use a system of bonuses to increase productivity and attendance, providing labour with a monetary incentive to meet production targets. While many of the larger factories are earning enough to accommodate the increase in minimum wage and maintain their bonus system, this scenario doesn’t work well for locally owned small and medium-sized factories that are mainly involved in sub-contracting or very low-end CMP work. They will probably be forced to decrease the labour incentives offered to workers for meeting production targets in order to maintain wage costs.

The country’s immediate focus should be on reducing the costs of doing business to a level comparable to Myanmar’s regional counterparts to incentivise foreign investment in Myanmar’s garment industry. Myanmar’s government has already started taking steps to reduce the costs of doing business through tax breaks and infrastructure improvements. The Ministry of Electricity and Energy recently announced plans to double Myanmar’s power generation capacity by 2022 to address one of the biggest headwinds for garment factory operations. Poor transport infrastructure is another major burden for factory owners and the Ministry of Transport and Communications is working with the Japan International Cooperation Agency to ease congestion and improve access to Yangon port.

Another option that has been successful in China and Vietnam, is a regional minimum wage that reflects the different cost of living in each state and region. In Yangon where the cost of living is very high, a minimum wage of K4,800 a day may not be enough for workers to support themselves without also undertaking a large amount of overtime. However, in a city such as Pathein, where the cost of living is lower, it might be feasible to have a lower minimum wage. A regional minimum wage could potentially attract garment factories to industrial zones in smaller cities once the necessary infrastructure is built.

 
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