Jurisdiction - Myanmar
Reports and Analysis
Myanmar – The Next Factory Of The World?

28 July, 2014

 

Legal News & Analysis – Asia Pacific – Myanmar

 

 

Myanmar is poised to enter into a new era of unprecedented economic growth with GDP growth of 7.5% in 2013, and forecasts of a sustained GDP growth rate of between 6% and 8% over the next decade that could potentially quadruple the size of its economy by 2030. The country’s manufacturing sector, deprived of investment as a result of years of sanctions, is expected to play a pivotal role in this growth. The Myanmar government, under U TheinSein, has made significant progress with sweeping political and economic reforms which has resulted in the easing and removal of international sanctions. The EU ended political and economic sanctions against the country in 2013 and the US lifted most of its sanctions in stages over the past year, allowing companies from both regions to invest and permitting imports from Myanmar for the first time since the early 1990s.

 

A noteworthy recognition of the potential of Myanmar’s manufacturing  sector came from the European Union’s reinstatement of Myanmar in the EU’s General System of Preferences Program (“GSP”) in July 2013 (with retrospective effect from June 2012). The US seems set to follow suit and has recently announced that it is currently considering Myanmar as a potential candidate for inclusion into the US GSP.

 

A key factor in fueling the manufacturing potential in Myanmar is derived from the low labour costs, in particular, relative to the situation of its neighbour, China, which has in recent years recorded an average annual wage increase of between 10% to 15%. Even with the national minimum wage soon to be confirmed by the Myanmar government coming into effect, Myanmar represents an attractive low-cost labour solution for foreign manufacturers looking to relocate their operations.

 

There are however, obstacles that investors face, in the relocation of manufacturing operations to Myanmar, the most obvious being the country’s poor basic infrastructure, more notably, its poor power infrastructure. It has been reported that only 25% of the country’s estimated 60 million population have access to electricity. While this situation is improving with the recent efforts of the government (with international support) in upgrading the power grid of the country, this would take some time and manufacturers still have to factor into their financial analysis, the cost of running backup generators during power outages, which continue to occur often in Myanmar.

 

Yet another obstacle faced by investors is the unclear regulatory framework and outdated legal system. Many manufacturing businesses are not sure as to what exactly they can and cannot do, which leads to confusion and operational difficulties. The government has moved to tackle these issues with the promulgation of the Foreign Investment Law 2012, and more recently, the Special Economic Zone Law of 2014, which provides attractive tax benefits, enhanced investor protection and other incentives, some of which are particularly designed to favour manufacturing businesses. This has increased investor confidence, evidence of which can be seen in the recent entry of more global household names, such as GAP and Pepsi, setting up manufacturing operations here.

 

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For further information, please contact:

 

Krishna Ramachandra, Partner, Selvam & Partners

[email protected]

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