The Irrawaddy Business Roundup (Mar. 28, 2015)

By Simon Lewis 28 March 2015

Japanese underwear manufacturer Wacoal Holdings Corp. may become the first firm to open an apparel factory in the Thilawa Special Economic Zone (SEZ).

The new Japanese-backed SEZ just outside of Rangoon is set to open in June. So far, garment manufacturers who have looked at setting up in the there have ended up opening factories elsewhere.

News agency Kyodo reported that Wacoal would this month establish a firm in Burma named Wacoal Myanmar Co to pave the way for the opening of a factory making brassieres. The report put the company’s decision to move into its fifth Asean country down to rising labor costs in Thailand.

“The move is aimed at beefing up Wacoal’s production system in Southeast Asia and the manufacturer’s cost competitiveness,” the report said.

The factory would eventually employ more than 700 workers, the report said, adding the new company would be set up in Burma with an investment worth about US$4 million.

A group of factories from Hong Kong had previously announced they would open in Thilawa SEZ, but the moves never came to fruition.

Jacob Clere, a project manager at the Myanmar Garment Manufacturers Association, told The Irrawaddy that while investment in Burma’s garment sector has been returning after years of sanctions, apparel makers have not so far been choosing Thilawa SEZ to host their factories.

“There has been reluctance from garment manufacturers to set-up in Thilawa,” Clere said by email. “Several times investors have expressed interest, but I think there is a fear of being the first mover. If Wacoal is setting up there I think it’s a positive development with good potential for jobs creation and skills transfers.”

Burma Investment Suffering From Poor Access to Finance: World Bank

A new report by the World Bank published this week identifies a lack of access to finance as the main barrier to investment in Burma’s economy, and calls for the government to step up its economic reform efforts.

The World Bank’s Investment Climate Assessment was based on the results of the 2014 Enterprise Survey. Some 1,000 foreign and domestic non-agricultural businesses were interviewed for the survey, the first of its kind looking at the challenges faced by companies operating in Burma.

The report identified the low availability of finance as the “top constraint for business operations.”

“Only 1% of fixed-asset investment costs are financed by bank borrowing, while 92% of firms rely on their own funds,” a summary of the report said.

Other issues identified by the report included the “complicated, non-transparent, and uncertain” rules around land-use rights and corruption among other problems.

“Almost all firms face power outages, the worst level in the region. As a result, firms are forced to rely on their own power generators for electricity,” the summary added.

The World Bank called for Burma’s government to focus its program of economic reform on removing these obstacles, and on making the private sector more effective.

“Improving regulation, taxation and eliminating corruption should be continued and expanded,” it said. “Creating a more competitive private sector and attracting more investment, particularly foreign direct investment, can help support the reform process.”

A World Bank press release quoted President’s Office Minister Tin Naing Thein welcoming the report.

“The government is fully committed to engaging the business community in shaping business-friendly laws and regulations through regular and coordinated public-private dialogues,” the minister was quoted saying.

Burma’s Flag Carrier Ponders 2016 Expansion, Flights to Europe

Myanmar Airways International (MAI) has ambitions of expanding its reach to South Korea and Japan, and may even try to connect Burma directly with Europe, according to a trade publication.

A report in Airfinance Journal this week said that MAI chairman Tin Maung Htun spoke to the publication about the airline’s plans for the future.

Burma’s flag carrier—the international branch of the state airline—would not be adding any new aircraft to its fleet of four Airbus aircraft until mid-2016, “when it hopes to acquire Airbus narrowbodies to aid the introduction of more Asian routes and perhaps also flights into Europe,” the report said.

“[Tin Maung Htun] said the number of aircraft [MAI] will add to its fleet depends on the market, how much money the carrier has and whom it will partner with,” the report said, adding that the airline would likely stick with Airbus planes as its pilots were trained to fly them.

“We would like to fly all over the world, but right now we are flying to Cambodia, Singapore, Kuala Lumpur, Bangkok and around China,” Tin Maung Htun was quoted saying. “We are trying to expand to Korea and Japan.”

India’s Exim Bank Extends More Than $350m in Credit for Exports to Burma

The Export-Import Bank of India will offer loans worth almost US$354 million to Indian companies exporting the materials for irrigation projects and railway upgrades, according to a statement.

The statement posted on the website of India’s Embassy in Rangoon said that the Indian government-run Exim bank would open up two lines of credit that can be taken up by Indian companies exporting goods to Burma for specific projects.

One line of credit, or LOC, worth $198.96 million will finance 18 irrigation projects in Burma. The second, worth $155 million, is for the new rolling stock and equipment for Burma’s dilapidated railway network, as well as the upgrade of three railway workshops.

The cash will be made available through the Myanma Foreign Trade Bank, it said.

“Exim Bank’s LOCs afford a risk-free, non-recourse export financing option to Indian exporters,” the statement said. “Besides promoting India’s exports Exim Bank’s LOCs enable demonstration of Indian expertise and project execution capabilities in emerging markets.”

India announced in late 2013 that Exim Bank would begin offering credit to Indian exporters to Burma. According to the statement, India’s Exim Bank has already opened seven lines of credit, totalling $247.43 million and financing railway, refinery, manufacturing and power transmission projects.

The export-import banks of China, the United States and South Korea have all also announced plans to lend to companies exporting to Burma.

ADB Calls for Education Shake Up to Improve Human Resources

The Asian Development Bank (ADB) has highlighted the failings of Burma’s education system as a major policy challenge for the government to address if it wants to keep the economy growing.

The ADB’s annual report on the state of Asia’s economies, published on March 24, included a prediction that gross domestic product growth would accelerate to an impressive 8.3 in the next financial year. But the Asian Development Outlook 2015 also gave a warning that the weaknesses of Burma’s education system were harming the country’s economic prospects.

“Employers cite inadequate human resources as a serious barrier to doing business,” the report said. “They complain that the low quality and relevance of education, compounded by low average attainment, leaves young workers ill-equipped for either work or further training because they lack basic knowledge and skills for problem-solving or teamwork.”

School enrolment data shows that secondary education is “the bottleneck,” the ADB said, pointing out that while four-fifths of the 1.1 million children who started first grade in 2002 completed primary school, only one-tenth passed the matriculation exam that Burmese teenagers take to get into university.

The report praised the government’s efforts to address the problem, namely with the 2016-2020 National Education Sector Plan, but also pointed out that spending on education remained relatively low.

“From [fiscal year] 2011 to FY2013, the government more than tripled spending on education in nominal terms, but this brought spending to only an estimated 2.0% of GDP,” it said. “Critically, the education plan will provide an evidence-based roadmap for further increases in financing.”