The Irrawaddy Business Roundup (Sept. 12, 2015)

By Simon Lewis 12 September 2015

Government Announces Low-Cost Housing Plan as Minimum Wage Bites

Garment manufacturers loudly opposed the level of the country’s first minimum wage, which came into force on Sept. 1 at 3,600 kyat per day. Some workers have reportedly already been laid off by employers, who claim that the level makes it hard for them to compete internationally for orders from clothing brands.

But, according to state media, the Ministry of Labor, Employment and Social Security is hoping that a new low-cost housing project will help to offset higher labor costs.

In a story headlined “Sharing The Burden” on Tuesday, the Global New Light of Myanmar newspaper hailed the ministry’s plan to spend some $20.3 million on housing especially for workers.

“The ministry will invite tenders this month for the project in Hlaing Tharyar and Shwepyithar industrial zones,” the report said.

“The housing structures will consist of several five-storey buildings on a total of 45 acres, and housing will be affordable, Deputy Minister U Htin Aung told factory bosses following a meeting in Hlaing Tharyar Industrial Zone.

The ministry is also in talks with factories to make sure that workers’ benefits, like factories paying for transportation costs, are not curt as a result of the new minimum wage, the report added.

Officials estimate that about 500 workers have already lost their jobs as a result of the minimum wage. But the industry employs more than 250,000 people, and advocates say that the minimum will improve the image of Burma and therefore encourage oversees investment.

Factory owners have argued that they are squeezed between the government’s new regulation and the pressures of the international apparel market, which demands cheap clothes to sell to consumers in Europe, the United States and elsewhere in Asia.

Peter McAllister, director of the UK-based Ethical Trading Initiative—an alliance of companies, trade unions and NGOs that works on labor issues—said that international brands themselves needed to absorb some of the additional costs of production created by Burma’s new minimum wage.

“International supply chains must now accommodate this wage increase so that the benefits are passed on to workers,” McAllister said in emailed comments.

“Global brands and retailers need to make sure the pricing of existing and future contracts takes the new wage into account, and that suppliers’ margins are not squeezed.”

Concerns Raised Over Safeguards in China’s New Infrastructure Bank

A global group of civil society organizations has called on the Chinese-led Asian Infrastructure Investment Bank (AIIB) to hold an “open and inclusive” consultation on how it will mitigate the environmental and social impacts of its projects.

The formation of the Asian Infrastructure Investment Bank (AIIB) was first touted by China in 2013 and is seen as counter to existing multilateral banks that are dominated by the United States and its allies.

Burma was the first country to formally commit to becoming a founding member of the AIIB, and is among 57 countries that are currently expected to join the bank. The country is in much need of investment in infrastructure projects, especially in the fields of energy and transportation, and would likely be a frontrunner to receive some of the $50 billion expected start-up capital of the AIIB.

A statement distributed this week by the NGO Forum on ADB, which traditionally monitors the activities of the Asian Development Bank, said that 60 groups from different countries both in Asia and elsewhere had signed a letter to the president-designate of the AIIB, Jin Liqun, raising concerns over a recently released draft of the AIIB’s Environmental and Social Framework (ESF).

The framework would set out the checks and balances for loans offered by the AIIB, seen as a vital way to prevent damaging projects from going ahead.

“The groups expressed alarm over the ‘lack of inherent transparency’ and ‘gross inadequacy’ of the ESF consultation plan, which would fail to include the voices of Asia’s local communities and civil society,” the statement said.

“They cited the absence of public announcement on the consultation process, the fast track one-month consultation period with the stakeholders, use of videoconferencing technology and English language as primary means for consultation, and limited information on the AIIB website.”

“Civil society groups around the world are worried that the AIIB is fast tracking a very opaque and unrealistic consultation process in order to set its ESF into stone for early operations in 2016,” NGO Forum on ADB executive director Rayyan Hassan said in the statement.

“We appeal to the Bank to ensure an inclusive and transparent consultation for the drafting of its safeguards policy, standards and process.”

First Chinese Bank Moves Into Burma

The Chinese state-run Industrial and Commercial Bank of China (ICBC) announced its entry to the Burmese market this week, officially opening a branch in Rangoon and inking a trade-facilitation agreement with a major local bank.

ICBC is the only Chinese bank out of nine overseas financial institutions granted licenses to operate in the country last year.

Chinese state newswire Xinhua reported that ICBC President Yi Huiman attended an opening for the new Yangon branch on Tuesday. The opening “represents an important achievement of economic cooperation between China and Myanmar, as well as an important milestone of ICBC in expanding its global layout,” he reportedly said.

Alongside banks including Australia’s ANZ Bank, Japan’s Bank of Tokyo Mitsubishi UFJ and Bangkok Bank of Thailand, ICBC will at first only be allowed to offer limited services. The new government licenses—the first after decades in which overseas banks were barred from having operations in Burma beyond setting up a representative office—do not allow the banks to offer retail banking.

Xinhua said that ICBC, which is considered the world’s largest bank in terms of assets, had also signed a deal with one of Burma’s biggest local banks, Serge Pun’s Yoma Bank.

The deal was “on facilitation of the direct flow of trade-related funds between Myanmar and China, according to a press release of the Myanmar bank,” Xinhua said.

“In addition, the ICBC also signed agreements with some Chinese companies on related business links,” the report said.

Japanese Machinery Firm Wants to Supply Jade Miners

Japanese machinery producer Komatsu has officially opened its new plant in the central Burma city of Mandalay, with an official statement saying the company hopes to cash in on the county’s controversial jade mining sector.

According to company statement, Komatsu has been selling and servicing its products—which include diggers and trucks used for mining—in Burma since 1995, but is now expanding into production. Through subsidiary Komatsu Manufacturing Myanmar Ltd, the firm has set up the new Mandalay plant primarily to remanufacture equipment for the mining and construction sectors. It will also manufacture generators, the statement said.

“In addition to its rapid economic development for the last few years, we are expecting growth in demand for construction and mining equipment in the long term there, as Myanmar is a leading producer of jades in the world,” the statement added.

While jade exports remain sanctioned by the United States over concerns that the trade fuels conflict and human rights abuses, international companies not impacted by the embargo are already likely profiting from it. Terex Trucks, a subsidiary of Sweden’s Volvo Group, has declared it is supplying diggers to a jade-mining firm.

Swiss Logistics Firm Hopes to Capitalize on Growing Energy Sector

Switzerland-based company Panalpina is hoping to that its new freight business in Burma will tap into the growing energy industry in the country.

The company, which says it provides “supply chain solutions,” said in a statement this week that it had established a new office in Rangoon in August.

“Panalpina’s team on site is able to handle end-to-end ocean and air freight shipments, both imports and exports, for local and international customers,” it said.

The company said its biggest opportunities in the country are in telecommunications, manufacturing and, especially, oil and gas. The energy sector is set to boom as international and local companies explore a raft of new offshore and onshore blocks for hydrocarbons following competitive tenders in the last few years.

“Apart from transport infrastructure, power plants, refineries and gas terminals need to be built,” it said. “Myanmar has vast offshore natural gas reserves and is rich with oil deposits and other natural resources such as gemstones and minerals.”

Thorsten Harenberg, country manager for Panalpina Myanmar, said in the statement that: “We expect our Energy Solutions team to be heavily involved, as the country develops in the coming years.”

“In the short term, both air and ocean imports will be driving the business,” he added. “Exports will be limited until the country develops a viable manufacturing industry. Further down the road we also intend to offer value-added logistics services.”