By Sam Holmes & Celine Fernandez
The U.S. decision to lift a ban on exports from Myanmar could give the country its best shot at becoming the world’s next low-cost manufacturing hub as well as firm up the fragile political reforms now taking place. But business leaders say it will be a long time before T-shirts and hoodies made in the Southeast Asian country are ubiquitous in shopping malls and years before meaningful benefits reach its archaic industrial infrastructure and low-income households.
With Wednesday’s action, Washington has lifted nearly all of the economic sanctions imposed against Myanmar in recognition of its reforms over the past 18 months. Secretary of State Hillary Clinton said the most recent move is the next step in normalizing commercial relations between the two countries. Bans on investment and financial services were lifted earlier.
“By lifting the sanctions we can now see real changes in Burma,” said Nyan Win, spokesman for the National League for Democracy, using the country’s other name. “It will bring a lot of benefits to the country and we will support the government using the benefits for the people of Burma.” The NLD is led by Nobel Peace laureate Aung San Suu Kyi.
Resource-rich Myanmar, a country of 60 million people, is coming to be seen by many international investors as having potential both as a source of raw materials and a large consumer market following a series of wide-ranging reforms implemented in the past year after long isolation under military dictatorship.
However, economic stagnation following the imposition of a number of trade and investment sanctions by the U.S. and other countries since the late 1990s means the country lacks even some of the most basic economic infrastructure required to compete with other frontier, low-cost manufacturing nations such as Cambodia and Bangladesh.
Maung Maung Lay, vice president of the Union of Myanmar Federation of Chambers of Commerce and Industry, doesn’t expect to see any tangible export volumes to the U.S. until the beginning or the middle of next year. Even then, he expects shipments to be just a trickle.Myanmar is essentially starting back where it was more than a decade ago while its competitors—from Cambodia to parts of China—have surged ahead.
“We have lost many markets,” Mr. Maung Manug Lay said. “We have to compete in the new world order, so there are more challenges than opportunities.”
The biggest expected beneficiary should be the country’s textiles and garments industry, which had exports totaling $558 million in 2011, according to Myanmar’s Garment Manufacturers Association, representing 200 factories in Myanmar. Other industries that could gain include the timber sector.
Aung Win, vice chairman of the garment association, said it could take up to a year for garment makers to rebuild capacity, with local manufacturers needing to import equipment and machinery and source the necessary financing for such operations.
“Now, we only have mostly Japanese orders and Korean orders—they are not enough to go around for the industry in Myanmar,” Mr. Aung Win said. “Most factories are struggling—we hope this obstacle will go away when American orders come in.”
In Washington, senior State Department officials told reporters in a briefing that the process of easing sanctions would require congressional consultations and waivers from the administration on different products or sectors. The intent is to help Myanmar’s economy grow beyond extracting minerals and timber and to be able to create manufacturing jobs, the officials said.
In one of the first reactions from the U.S. garment industry, the American Apparel & Footwear Association, which represents U.S. clothes makers, said it welcomed the easing of restrictions in light of the country’s reforms. It said it would work with local stakeholders to ensure clothes were made under appropriate working conditions and workers “are treated with fairness and respect.”
Myanmar President Thein Sein, speaking during a panel discussion at the Asia Society in New Yorkon Thursday, said: “We have got developed countries to relax their restrictions on our economy. We believe there will be an increase of foreign investment and that will allow our citizens to improve their living standards.”
The prospect of an effective low-cost manufacturing hub has caught the attention of some manufacturers and trade groups.
Mr. Aung Win said his garment association meets potential foreign buyers on a daily basis. Fast Retailing Co., 9983.TO +0.17% the Japanese operator of the Uniqlo clothing chain, meanwhile, has flagged Myanmar as a potential manufacturing base alongside Bangladesh as part of its capacity expansion.
Myanmar should have a competitive edge in labor costs. A Japan External Trade Organization report this year showed the average monthly wage of a factory worker in Yangon at 61% of that in Hanoi and 83% of average wages in Phnom Penh, Cambodia.
While a handful of multinationals such as Coca-Cola Co., KO -0.99% PepsiCo Inc. PEP +0.18% and General Electric Co. GE -0.09% are making earnest moves into Myanmar’s domestic market, caution and a degree of skepticism prevails among many companies about Myanmar.
A spokeswoman for Hennes & Mauritz AB HM-B.SK -1.72% said the Swedish fashion retail giant is watching developments but hasn’t made any decision about using goods from Myanmar until the situation becomes clearer. H&M and other foreign manufacturers have been bound by the U.S. rules against exporting goods with Myanmar-originated materials to the U.S.
Adam Sitkoff, the Hanoi-based executive director of the Asia Pacific Council of American Chambers of Commerce, said many U.S. businesses are looking to see how Myanmar can fit into their future supply-chain plans.
“In the near term, however, American consumers probably won’t see many ‘Made in Myanmar’ labels in their favorite stores as the country lacks key infrastructure, legal certainty, and skilled labor,” he said.
A protracted debate in the country’s legislature about how to allow foreign investment also clouds the investment outlook.
While some probusiness politicians—including Mr. Thein Sein—are calling for faster economic reforms, some lawmakers and local business leaders are concerned that an overly aggressive pace of change would give foreign companies too big a share in the local market at the expense of domestic companies.
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