Can Myanmar become the next manufacturing center of Asia?

Myanmar's manufacturing industries look set for major growth as foreign investment floods in after the lifting of economic sanctions.

The country is hoping to become the region's next manufacturing center, especially in the clothing sector.

CRI's Myanmar correspondent Tu Yun has taken a look at how far Myanmar is from achieving that goal.

Latest figures from Myanmar's Commerce Ministry show that the country's total value of cutting, making and packaging clothing exports have surpassed 1.6 billion US dollars so far this fiscal year which ends this month, more than double that of the last fiscal year.

Vicky Bowman, Director of the Yangon-based Myanmar Center for Responsible Business, explains.

"Within the garment sector, what we are seeing is that quite a lot of the production is coming in here, is shifting from China to Myanmar. And I think they both cater into a similar market, for example, outer wear, is what I've been told. Costs here, from purely labor perspective, are significantly lower."

Being the last frontier in Asia, Myanmar has a low-wage workforce of some 33 million people. The monthly minimum wage here stands at around 90 US dollars, less than one-third of that in China, and the lowest in Southeast Asia.

The authorities are hoping that labor-intensive industries, including garment manufacturing, could become an engine for the country's economic growth after decades of isolation, and that the country, like its ASEAN counterpart Vietnam, could become the next manufacturing center of the region.

Bowman says more requirements need to be met.

"But you still have the questions like productivity and the additional costs of things like poor power supply. So if Myanmar can fix some of those problems particularly in its urban areas, above all Rangoon, then this place will start to be a much more competitive challenger to the garment sector with China."

"I don't think there's going to be much transfer of manufacturing from China into Myanmar just purely because of the huge scale that China has."

Peter Beynon is Myanmar Country Chairman of the business group Jardine Matheson.

He made the comment at a forum on promoting business in Myanmar sponsored by Bloomberg.

"I'm sure there will be a transition of some business. But skill base is changing, technology is changing. So we're not looking at low cost of labor being a primary mover of manufacturing these days. It's much more technology based. Logistics within Myanmar is currently a nightmare. And it's affecting all types of different business."

Another factor that could hamper the country's efforts to become a regional manufacturing center is the conflicts between trade unions and employers.

Dr. Sai Sam Htun is Chairman of the Yangon-based Loi Hein Group of Companies.

"Especially we see in the garment sector. I think these have to be tackled in order not to lose the confidence of future investors as well as the current investors."

Two South Korean garment factories have been forced to shut down because of disputes with local workers.

A Chinese-owned factory in Yangon making clothes for Swedish fashion chain H&M was severely damaged last month by a group of workers demanding a better performance review system. Workers destroyed the production line and attacked managers in one of the most violent labor disputes in the country in years.

"I think we have to be fair enough, strict enough. We should monitor this situation seriously. This can be a serious issue in the future."

Apart from these directly-related factors, another issue seemingly irrelevant to the manufacturing sector could cause big problems for the country as it hopes to become a regional manufacturing hub.

Vicky Bowman from the Myanmar Center for Responsible Business cites the Financial Action Task Force, an OECD body which oversees the anti-money laundering efforts for global economic community.

"Myanmar was for a long time on the black list of that, then on the gray list, and finally came off the list based on putting on paper of these structures in place to tackle money laundering. But what the OECD is now doing is a much more focused look at implementation, not just on Myanmar, but globally. And when this country comes up for review, if it's found that it still isn't reporting any suspicious transactions, which is currently the case, whereas most other jurisdictions are reporting tens of hundreds a day almost, depending on the size of their economies, then there will be some serious questions asked about whether there are actually any controls on money laundering in Myanmar."

And what would happen if the review doesn't come back positive?

"If it doesn't and it goes back on the blacklist, that'll have a significant knock-on effect on banking services and we'll be put back to the sort of situations that we were facing a couple of years ago when we still had US sanctions in place and Myanmar was still on blacklist."

The mission to study Myanmar's anti-money laundering effort is coming in this year. The report and the decision by the OECD will be out at the end of next year.

For CRI, I'm Tu Yun reporting from Yangon.