Thanks to soaring production costs in China coupled with a surge in labour wages, Myanmar's garment sector is emerging as the last low-cost production frontier for factory relocation and diversification in South East Asia.
This, along with the difficulty in hiring garment workers and the Chinese government's policy of upgrading its manufacturing sector with a strategic shift towards higher value-added industries, has driven many garment manufacturers in the Pearl River Delta (PRD) to relocate and diversify their factories to South East Asian countries such as Myanmar that have a reasonably good supply of lower-wage labour, according to a report by HKTDC Research.
At a competitive minimum wage of around $90 per month, Myanmar not only has a good supply of low wage labour but trade privileges such as the Generalised System of Preferences (GSP) in the EU, market and strategic location at the China-India intersection make it an increasingly popular among Chinese manufacturing companies, says the report titled 'Myanmar Rising: Opportunities in Asia's Final Production Frontier'.
With the grant of GSP benefits in 2013, the EU has become an increasingly important driver of garment export growth for Myanmar. In 2014, the EU roped in a 23 per cent share of Myanmar's total garment exports. With enhanced prospects of the US further relaxing sanctions and even granting GSP benefits, the Myanmar Garment Manufacturers Association (MGMA) anticipates that its garment sector will experience exponential growth in years ahead thus creating around 1.5 million new jobs from its current level of approximately 250,000 and generating $12 billion in export value by 2020.
Interestingly, Myanmar is a WTO member and its Most Favoured Nation (MFN) status allows it to export at low tariff rates to other member countries. Yet, preferential treatments seem to be more important in driving the growth of Myanmar's garment exports over the past few years. The country also offers lower import tariffs than many of its ASEAN peers, with the average MFN applied tariff at 5.6 per cent in 2013. Generally, the country's low import tariffs on items needed in the manufacturing process help the country keep its production cost-competitive relative to the neighbouring countries.