In The Zone

By Kyaw Hsu Mon 11 August 2014

YANGON — As chairman of the Hlaing Tharyar Industrial Zone, U Myat Thin Aung understands the challenges facing Myanmar’s manufacturing sector. Despite concerns about whether local manufacturers will be able to compete when the country becomes part of the Asean Free Trade Area next year, however, Hlaing Tharyar—Yangon’s largest industrial zone, with nearly 600 factories employing some 60,000 workers—continues to attract investors. U Myat Thin Aung (who is also the chairman of Yoma Bank and the sole distributor of Samsung products in Myanmar) recently spoke with The Irrawaddy’s Kyaw Hsu Mon about the outlook for the country’s manufacturing sector.

Question: Has the number of factories in the HlaingTharyar Industrial Zone increased since Myanmar’s transition to civilian rule?

Answer: Yes, before military rule ended in 2011, there were only 500 factories, but now we have 600. We don’t have any more land available now, so newcomers are going to other industrial zones.

Q: What kind of factories do you have in this industrial zone?

A: Most are factories for consumer goods. Food products come next. There are also a lot of garment factories. Until 1998, when the US and EU imposed sanctions on Myanmar, there were 96 garment factories here, but then more than 30 closed. It didn’t happen all at once: US sanctions took effect gradually. Then more orders came from Japan, but not for high-quality clothes. They just ordered workers’ uniforms, and didn’t pay very much for them.

Q: Is it true that most of the factory owners are local people backed by foreign investors?

A: Many foreign investors prefer to do it this way because it’s cheaper and easier. Local people can use kyat to rent space, but foreigners have to pay in dollars. There are also restrictions on foreigners renting private land. That’s why 90 percent of [foreign] factory owners register under local names. This is still the case, although some Korean investors set up factories under their own names. But Taiwanese mostly register their factories in the names of local people.

Q: Do you think local manufacturers are ready for the establishment of the Asean Free Trade Area next year? Many say they’re worried they won’t be able to compete with goods imported from other Asean countries.

A: It’s definitely true that they are at a competitive disadvantage. But there’s not much the government can do to support them, because it doesn’t have the money. However, recently the government has been providing technical training for factory workers, with funding from donors. The trainers come right into the industrial zones. That’s progress, compared to the past.

Q: So what will happen to local manufacturers when zero-tariff imports start coming in from other Asean countries?

A: Actually, it’s hard to say, as some products will be zero-tariff, but others will still be taxed at a rate of zero to five percent. In fact, there are three kinds of applicable taxes: customs duties, sales taxes, and corporate taxes. Of these, only the customs duties will be removed. All companies—both local and foreign—will have to pay the other two types of tax after 2015.

As for whether local businesses can compete under these circumstances, we should bear in mind that in the past, customs duties were 15 percent, and now they’re just five percent. If taxes were any higher, consumers would be the losers—or goods would just be imported illegally.

After 2015, I expect some local factories will be forced to shut their doors if they can’t compete with imported goods. The quality and quantity of the products will not be the same [as those produced in Myanmar]. But I think the government will give local manufacturers until 2018 to become more competitive, because Myanmar is a CLMV country [one of the less-developed members of the Association of Southeast Asian Nations: Cambodia, Laos, Myanmar and Vietnam].

Q: Why hasn’t there been very much investment in heavy industry in Myanmar so far?

A: There are many factors. The major one is that the government can’t provide enough electricity. For example, Samsung has told me that they want to build electronics factories here. They could employ 40,000 people, but the government has only offered them the land, with no guarantees of a reliable supply of electricity. They need more than 50 megawatts per day. The government has told them they can produce their own electricity, but they’re not power producers. If the government provided natural gas, it might be possible, but most of the natural gas is being sold to foreign countries.

Labor, on the other hand, is no problem. Wages are still much cheaper than in neighboring countries. In Thailand, for example, the basic monthly salary is US$300 a month. People here would be happy to work for less than half that amount.

Another concern is the unstable political situation here. Foreign investors are worried that the country might revert to military rule. This is an especially big concern for heavy industry, which must make very large investments.

This interview first appeared in the August 2014 issue of The Irrawaddy magazine.