1. With the government of Myanmar passing its new Investment Law, which came into effect in April 2017, the country is showing its continued commitment to attracting foreign investment.
2. Cambodia is strategically located in the heart of Southeast Asia. The country is bordered by Thailand, Laos, and Vietnam, and has the Gulf of Thailand to its south-west. The country is popular for providing a low-cost manufacturing base for several industries.
MYANMAR REFORMS
1. After reopening its economy in 2012 following several political reforms beginning the year before, Myanmar has been receiving significant increases in foreign direct investment, reaching a high of US$9.5 billion in the 2015/2016 fiscal year ending in March.
2. As China strives to move up the value chain and focus more on high-end manufacturing, the country’s wages have risen to the point where many garment manufacturers are looking to invest elsewhere.
3. Clothing exports have already gone up from US$337 million in 2010 to US$1.46 billion in 2015.
4. The Myanmar Garment Manufacturers Association (MGMA) has set a target for exports to increase to US$12 billion by 2020. Doing so would create an estimated 1.25 million new jobs, a sharp increase from the approximately 250,000 people currently working in the garment industry.
5. Previously, the country heavily relied on Japan and Korea for garment exports, to which it exported 38 percent and 31 percent, respectively, of its total garment exports in 2014.
6. However, as a result of the reforms, sanctions have mostly been lifted. In 2013, the EU lifted all economic sanctions – except for those on arms – and granted the country Generalized System of Preference (GSP) trade privileges, meaning that Myanmar receives duty-and-quota-free access to the EU market. The US followed suit when Barack Obama, after visiting the country in September 2016, lifted almost all sanctions imposed on the country.
EXPONENTIAL GROWTH IN GARMENT EXPORTS
1. With the exponential increase in garment exports since 2010, they now account for 10 percent of Myanmar’s total export revenues.
2. During the first five months of the 2016/2017 fiscal year starting in April, garments sector exports reached US$745.5 million, up from US$232.8 million during the same period last year.
3. Looking ahead, the Myanmar Garment Entrepreneurs Association has set an export revenue target of US$12 billion in 2020.
4. Accordingly, the number of jobs in the industry is projected to increase drastically from around 230,000 in mid-2015 to 1.5 million in 2020.
REGIONAL MARKET AROUND MYANMAR
1. In the garment industry, Vietnam recorded US$28 billion of exports in 2015, while Cambodia’s exports totaled US$5.7 billion in the same year.
2. Favorable to Myanmar, however, is that minimum wages in Vietnam and Cambodia are significantly higher. Cambodia recently set the 2017 minimum wages for employees in the garment industry at US$153 per month, up from US$140 in 2016, while 2016 monthly minimum wages in Vietnam varied from US$107 to US$156, depending on the region.
3. Myanmar’s monthly minimum wage of just US$67 (2015 data) makes it highly competitive with Cambodia and Vietnam and an attractive location for garment manufacturing, and large retailers.
CAMBODIA'S GARMENT INDUSTRY
1. The European Union (EU) represents the largest market for Cambodian garment exports, accounting for approximately 40 percent of the total manufacturing, followed by the United States ( 30 percent), Canada (9 percent), and Japan (4 percent).
2. The country’s industrial development was supported by the Multi-Fiber Arrangements (MFA) quotas and other preferential trade agreements implemented by developed countries like the US and EU.
3. Two decades later, the garment industry continues to drive the Cambodian economy through human capital development, employment generation and foreign direct investment (FDI). Currently, the industry employees over 600,000 people, making the sector the biggest employer in the country.
4. Further, the garment industry accounts for 16 percent of the gross domestic product (GDP) and 80 percent of Cambodia’s export earnings. In 2016, the total number of garment factories in the country stood at 589 factories.
CAMBODIA'S TEXTILE INDUSTRY NORM
1. Cambodia’s garment factories are generally based on the principle of cut-make-trim (CMT) model. Under this method of production, the raw material, machinery and the design of the garments are imported from abroad, while the assembly of the product is outsourced to the labor-intensive factories in Cambodia.
2. The garment industry is essentially dominated by foreign owned firms, mainly from the neighboring countries such as China, Hong Kong, Singapore, Malaysia and Republic of Korea.
3. The association with foreign-owned garments firms or brand names provide Cambodia’s garments industry an important channel into the garments global value chain.
4. The garment industry in Cambodia is essentially based on low-skilled, labor-intensive activities.
5. Over 60 percent of Cambodia’s garment factories are located within or in close proximity to the capital city – Phnom Penh.
6. The finished products are transported from the factories in Phnom Penh by train to the seaport of Sihanoukville where the garments are shipped to other countries.
COMPETITIVE ADVANTAGE
1. Cambodia is strategically located in the center of the east-west corridor of the Greater Mekong Sub-region (GMS), providing access to key world markets.
2. Labor in Cambodia is cheaper than most regional competitors, except Laos and Myanmar. In 2017, Cambodia’s monthly minimum wage of workers in its garment industry increased to US$153, a double of the 2012 level. Yet, the country’s monthly minimum wage remains the most competitive when compared to Thailand (US$250) or Vietnam (US$166).
3. Cambodia is a member of the ASEAN Free Trade Area (AFTA) – a regional economic integration pact wherein Cambodia benefits from the Common Effective Preferential Tariff (CEPT) agreement that reduces or eliminates tariffs on the manufactured goods traded between the 10 ASEAN member countries.
4. Cambodia has also been a member of the World Trade Organization (WTO) since 2004; this has increased its trade integration with the US and the EU. Cambodia benefits from the EU’s ‘Everything but Arms Scheme (EBA)’, which allows low developing countries such as Cambodia duty-free access to the EU’s market for all export goods.
5. Some of the many incentives offered by the government of Cambodia include 100 percent foreign equity ownership, tax holidays of up to 9 years, and exemption from import duty on machinery and equipment. In addition to that, Investors can repatriate profit freely and reinvestment of earnings is encouraged with special depreciation allowances.
(Source: aseanbriefing)
