Myanmar’s garment sector has been hard hit by the fall in demand, largely from Europe. This is due partly to the fact that the country is now interwoven into the fabric of globalisation.
4 May 2020
Globalisation has been the lifeblood of Myanmar’s garment sector. No wonder, the sector has been hit particularly hard by the Covid-19 pandemic due to its reliance on China for supplies and on Europe for demand.
Between January and March, the industry was unable to fulfil orders because of a shortage in raw supplies, 90 per cent of which are imported from China. China’s production had been affected by lockdown measures to stop the spread of Covid-19. This in turn was exacerbated by a closed land border between the two countries. In addition, about 80 per cent of investment in Myanmar’s garment industry comes from China. As a result, the industry tottered during China’s struggle with the pandemic.
Just as the supply chain was being restored in April, demand for garments fell drastically as Europe went into lockdown. About 70 per cent of the output from the garment industry in Myanmar is exported to Europe. To make matters worse, the US began cancelling orders at the end of March. Fortunately, Japan and South Korea, the second and third largest trading partners for Myanmar’s garment factories, have not cancelled orders as yet.
The garment sector is the country’s leading export sector, with 600 factories employing about 450,000 workers and accounting for US$4.6 billion in export revenue, or 10 per cent of all exports in 2018. It has seen an upward trajectory in growth since 2013. According to the Ministry of Commerce, the sector saw a five-fold increase in the number of workers between 2014 and 2019. Revenue from the garment and textile sector saw an increase of 13 per cent in the financial year 2018-2019 compared to the same period in the previous financial year. Export income from the garment and textile industry was expected to reach US$10 billion by 2024, an official from the Myanmar Garment Entrepreneurs Association claimed.
This will be the first time that the Myanmar economy will be so badly affected by a global downturn. During the 1997-1998 Asian financial crisis and the 2008 global financial crisis, the country was mostly unaffected by external economic shocks.
In addition to the fall in demand, garment factories now face another setback – dealing with a halt in operations after the Myanmar government effected measures to reduce the spread of the novel coronavirus. Factories in the country were ordered to close until inspections are completed by the end of April to ensure that they are safe for workers.
Aid and stimulus packages
The government has allocated 100 billion kyats (US$72 million) to support small- and medium-sized enterprises, and the garment and tourism sectors. The money is meant to extend loans to businesses at an interest of one per cent. The government has also extended the deadline for the payment of corporate income and commercial taxes from three to six months. The central bank has twice announced rate cuts. The government has also instituted a grace period of one year to help employers pay salaries. Businesses will be exempt from paying the 2 per cent advanced tax on export items until the end of the current fiscal year.
Observers have noted that the 100 billion kyat stimulus package may not have a large impact on the country’s budget or economy as it only deals with immediate hardships. There is no contingency for the coming months.
Meanwhile, the European Union (EU) announced a EUR5 million (US$5.46 million) aid package for garment workers on 9 April. The EU is the sector’s biggest market. Myanmar garment exports to the EU has been increasing yearly, especially since 2013, when the EU granted goods from Myanmar preferential access to its market.
Undoubtedly, the garment sector faces a downtrend in the coming months as trade falls. In general, export volumes for simple manufactured goods have seen the biggest impact as global consumer spending fell due to lockdowns across the globe. This will be the first time that the Myanmar economy will be so badly affected by a global downturn. During the 1997-1998 Asian financial crisis and the 2008 global financial crisis, the country was mostly unaffected by external economic shocks because of the sanctions that had been applied to it by other countries. Now, however, the situation cannot be more different. Most sanctions have been lifted and Myanmar is an open economy with extensive links to the global economy. Its economic health is irrevocably tied to international trade, investment, and technology.
The International Monetary Fund (IMF) has predicted that most economies will slip into recession, and this will undoubtedly affect the garment sector and the Myanmar economy negatively. It predicts that Myanmar’s economy is expected to slow to about 2 per cent for the fiscal year ending September, down from 6 per cent for the previous 12 months. However, the IMF has projected that Myanmar is among just 10 per cent of the world’s economies to post a modicum of economic growth this year. Myanmar will be affected by the global recession, but with careful management, the looms in its economy will start spinning happily again.
Dr Su-Ann Oh is Visiting Fellow with ISEAS – Yusof Ishak Institute.
ISEAS Commentary — 2020/57
The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute. No part of this publication may be reproduced in any form without permission.