After Bangladesh Tragedy, Questions for Burma’s Garment Sector

By Andrew D. Kaspar 11 June 2013

RANGOON — At last week’s World Economic Forum in Naypyidaw, one message seemed to transcend the rest: Burma is open for business, and labor, the government and foreign companies are all weighing the promise and pitfalls of the nation’s increasingly attractive investment climate.

With the lifting of long-entrenched barriers to investment in the country, Burma’s low-wage workforce of some 33 million people could prove tempting to manufacturers globally. But labor rights groups are urging Burma to get it right when it comes to responsibly managing any new wave of labor-intensive job opportunities, as neighboring Bangladesh takes a hard look at its own textile industry after a building collapse there killed more than 1,100 garment factory workers in April.

Burma’s Parliament passed a new foreign investment law last year that was largely seen as a welcoming overture to outside investors, and the business landscape is expected to boom in the coming years as the private sector adjusts to new opportunities brought about by the reformist government of President Thein Sein.

Meanwhile, Bangladesh has seen its international business reputation as a low-wage manufacturing enclave tainted by serious questions about the country’s ability to ensure a safe work environment for its people.

That country’s labor woes were highlighted on April 24 when a building collapse outside the capital of Dhaka killed 1,129 workers of garment factories housed in the structure.

Employees there were ordered into the factories the day of the collapse despite the appearance of large cracks in the building. It was later revealed that the building’s owner had illegally stacked four extra floors onto a structure that was only certified to stand five stories tall.

Apparel firms from around the globe set up shop in Bangladesh or subcontract work out to the country, which has some of the world’s lowest wages. Workplace fires and other incidents like the latest collapse have put pressure not only on the Bangladesh government, but also on Western firms invested there who are seen as complicit in regulatory violations that are often the result of penny-pinching local factory owners.

Judy Gearhart, executive director of the US-based International Labor Rights Forum, said the situation in Bangladesh should serve as a cautionary tale as Burma’s garment industry sees renewed interest from foreign firms.

“The one thing for sure that we hope will be the lesson drawn from the tragedy in Bangladesh is that Burma very much should take the high road to development,” she told The Irrawaddy, adding that companies may start to trickle out of Bangladesh in search of countries with labor markets that are less of a potential liability.

The garment industry has historically been a first-phase path to development for impoverished nations, as it requires little initial capital investment and is well-suited to low-skilled labor.

“They’ve got to take some notes from the calamities in Bangladesh: to invest well in infrastructure and, frankly, to pay decent wages,” Gearhart said.

The International Labor Organization’s (ILO) liaison officer in Burma, Steve Marshall, describes the organization’s role as “coordinating” among labor rights groups, the private sector and the government.

Marshall said he was optimistic that Burma would avoid becoming the next sweatshop hot spot.

“There are many, many companies looking at investing in this country and they are all concerned about ensuring that the risks are managed in terms of their company interests, but in the main we are actually seeing an approach in which they see and want to be seen as their investment adding to the building of the society and the building of the labor market,” he said.

Burma saw a boom in garment exports beginning in the early 1990s. By 1997, exports stood at US$200 million, soaring to more than $800 million in 2001, when clothing was the country’s largest export. But international boycotts and the imposition of US sanctions in 2003 sent exports plunging. Since then, the figure has slowly recovered as Japan and other Asian markets made up for the crimped Western demand.

Myint Soe, chairman of the Myanmar Garment Manufacturers Association, said textile exports reached $860 million in 2012, and MGMA expects that $1 billion in clothing will be shipped from Burma this year as barriers to Western entry continue to fall.

The industry has some way to go, however, before it can compete with Bangladesh’s garment exports, which stand at about $20 billion annually.

‘Asleep for 10 Years’

Among other recent changes to Burma’s investment climate, the European Union in April permanently dropped all sanctions against the country except a ban on arms exports, and the United States has suspended broad sanctions on investment and trade.

Washington is also considering granting Burma Generalized System of Preferences (GSP) status, which would allow for duty-free imports on more than 5,000 items, including much of the garment world’s products. The European Union has already reinstated Burma’s GSP status in the 27-nation bloc.

Burma’s government has put in place a fast-track registration service for outside firms looking to tap the country as a source of cheap labor, according to Myint Soe. The move aims to reduce bureaucratic headaches and streamline the application process for foreign investors wishing to set up shop in Burma.

MGMA training centers aim to better prepare Burma’s underutilized workforce for an influx of garment makers and the jobs that they will bring. From the country’s current textile manufacturing core in Rangoon, Myint Soe said his association is looking to expand employment opportunities in the surrounding Pegu and Irrawaddy divisions.

But as the garment industry lures investment from abroad through legislation and other carrots, there are concerns about the ability of stakeholders to ensure that everything is up to code—an obligation Bangladesh has struggled to meet.

“Having a law is one thing, the application of that law is a second,” Marshall conceded, describing the task as a burden shared by government, employers and their workers. “They [Burma’s stakeholders] have capacity [to follow laws and enforce regulations], but it is by no means at the level that is required for the full implementation and operation of everything.”

That assessment dovetails with the observations of David Birnbaum, an American who began working as a factory manager in Asia more than four decades ago before building several factories of his own in the region. Birnbaum said he toured seven factories in a visit to Burma in February, none of which would pass a test of compliance to international occupational health and safety standards.

For a domestic industry long shut out from major Western markets, Birnbaum said the poor conditions were hardly surprising.
“These people have no idea what the [global] industry looks like. They’ve been asleep for 10 years,” said Birnbaum, who has written textbooks on the garment industry and served as an adviser for the United Nations, the World Trade Organization and the World Bank. “They have to have a series of workshops so that they can learn what the world industry looks like.”

The labor rights group Clean Clothes Campaign (CCC) insists that in a rush to attract outside entrepreneurs, important worker protections may get short shrift.

“It is deeply upsetting to see the EU put aside the need for due diligence in line with the UN’s Guiding Principles on Human Rights and Business in favor of rewarding what even they consider to be unmet promises,” Dominique Muller from the CCC International Secretariat said in a press release last month, referring to the recently lifted sanctions.

“The EU’s decision further underscores the need for companies to be directly pressured into paying a living wage to ensure that the Burmese workers get the most benefit from their government’s new policies. But without key leverage this will be a massive challenge,” she added.

A new minimum wage law has been passed by Parliament, according to Marshall, but some of the legislation’s regulatory provisions are still being drafted. The ILO liaison declined to reveal the contents of the law until it is made public, but given the country’s economic position, Burma will likely continue to offer manufacturers one of the cheapest labor pools in the region.

Not a Manufacturing Eden

Despite the increasingly welcoming investment climate, there is plenty to give potential investors pause.

Infrastructure concerns, including an electricity grid that is prone to frequent blackouts, mean manufacturers run the risk of productivity losses or, alternatively, higher energy costs in the form of diesel fuel to power backup generators.

Burma’s political trajectory also remains far from certain, despite a trend in the last 18 months toward democratization and more open relations with the international community. Recent deadly rioting, marked by Buddhist violence against the nation’s minority Muslims in several areas across the country, has led to questions about the government’s ability to maintain stability.

Ceasefires with ethnic armed groups remain tenuous, while ethnic Kachin rebels in the nation’s north have yet to re-establish a ceasefire that collapsed two years ago with the government.

And there are still major gaps in information about Burma’s workforce.

“Unfortunately we’re working in a situation where there is almost no statistics or knowledge of the shape, size or nature of the labor market,” Marshall said. His organization is in the middle of conducting a household survey to rectify that problem.

The ILO, which for more than a decade worked in Burma primarily within the limited scope of eliminating forced labor in the country, is now taking on an increasingly ambitious portfolio.

The organization is working on a wide range of issues, from better educating Burma’s future workforce to ensuring that employees understand the proper procedure for carrying out a strike, in a country where labor unions were banned until just last year.

The garment industry is one of two economic sectors that will be a focus of the ILO’s efforts and will serve as a staging ground for comprehensive “good practice modeling,” Marshall said.

Still, he acknowledged the daunting challenges in getting the country’s labor market up to international standards.

“It’s not an easy task,” he said. “This is not something in which you snap your fingers and everything falls into place tomorrow. It’s very much an evolutionary process.”