Factory Zones
Industrial zones in and around Yangon with operating garment factories.
Where are the garment factories in Myanmar?
A significant number of foreign-owned garment factories have been and are being constructed in Pathein, Bago and Thilawa.
The most recent number for Pathein is four currently operating garment
factories and several more under construction. The Thilawa SEZ has
significant developments planned, but most major construction is yet to
commence.
Yangon
Yangon and its surrounding vicinity is home to
approximately 200 garment factories. Many are high-quality and
high-volume garment factories producing for international markets. Many
are low-quality and low-volume factories producing solely for the
domestic market. And of course, every stage in between. At MGMA, we keep
meticulous records and maintain an active database on the industry. The
vast majority of our member factories are foreign-export garment
factories located in Yangon. Foreign-owned factories are currently
hesitant to set-up in Yangon due to high land costs, but several
overseas investors have struck-up joint-ventures with local partners.
Many of these arrangements were arrived at in previous years, before
Yangon’s land prices reached their current, rather exorbitant level.
Yangon has many advantages. Skilled garment sector
workers are abundant. The electricity supply is better than the rest of
the country and is improving from year to year. Yangon also has three
ports, although none of them are deep sea ports.
Thilawa
Thilawa is the site of a 2,400 hectare special
economic zone approximately 25km south of Yangon. Major infrastructure
development projects for Thilawa are currently in the initial stages of
implementation with support from JICA and other foreign partners. The
deep sea port – Myanmar International Terminals Thilawa – is being
developed and run by Hutchison Port Holdings. Some basic details for
the Thilawa deep sea port include:
- Minimum number of berths: 5
- Maximum draft: 9m (Depends on latest sounding/monthly forecast draught)
- Tidal variation: Twice a day (Tidal range: 4.5m to 5.5m)
- Distance to nearest airport: About 50 km
- Distance/drive time from port/terminal to downtown Yangon: 25 km
As described by Hutchison Port Holdings, Ltd:
“Myanmar International Terminals Thilawa (MITT) is a multi-purpose container terminal located at Thilawa near the mouth of the Yangon River. The terminal offers a comprehensive range of safe, efficient and productive services to the shipping industry 24 hours a day, seven days a week. MITT is located just 25 kilometres from Yangon, the largest city in Myanmar and the country’s international trade portal, through which 90 percent of the nation’s maritime trade passes. The facility is also adjacent to the soon-to-be-operational Thilawa Special Economic Zone. MITT includes five berths capable of handling a wide variety of cargo. Large vessels with deep drafts can dock here thanks to the close proximity to the mouth of the Yangon River. Furthermore, the arrival and departure of containers to MITT is efficient due to the location of a rail terminal inside the facility.”
Several international garment manufacturers have
expressed interest in establishing factories in the Thilawa SEZ, with
initial investment being led by a consortium of investors from Hong
Kong.
Pathein
There is garment factory zone located near Pathein,
Yangon’s 4th largest city. Over time, factories in Pathein will benefit
from a concentration of skilled workers and industry expertise. Current
incentives to set-up in Pathein include: relatively low land costs,
availability of 50-year leasing for foreign factories and a government
commitment to providing more consistent delivery of electricity. One
downside to Pathein is that goods must be trucked in and out of Pathein,
as the nearest international port is a 4 hour truck journey east.
Site area schematic of Delta Industrial Group’s garment factory zone.
Bago
There are over a half dozen garment factories which
have set-up in Bago, less than 2 hours drive north of Yangon. Some have
been operating for several years. Similar to Pathein, 50-year leases are
possible for foreign investors wishing to set-up factories. Factories
in Bago benefit from the close proximity to Yangon.
Hpa-An
One garment factory has set-up in Hpa-An,
approximately seven hours drive southeast of Yangon, and relatively
close to the Thai border. As of August, 2014 there are six more garment
factories under construction in Hpa-An’s industrial zone.
One benefit of setting up in Hpa-An are the reduced
labour costs. Another is the opening of the ASEAN East-West Highway in
2015, which will connect Hpa-An with Mae Sot in Thailand significantly
faster and more conveniently than before. Travel to Thailand will be
reduced from six hours to two hours, alleviating the strain from the
congested mountain road that is the current transportation artery. In
short, similar to Pathein, Hpa-An’s industrial zone will very soon be a
much more attractive site for garment production.
Mandalay
Mandalay is Myanmar’s 2nd largest city, and the area
surrounding Mandalay is full of garment sector activity. Many would
think this would means that lots of exportable garments are being
produced. However, these businesses focus on catering to the domestic
market. Around Mandalay are hundreds of workshops and small factories
which produce and dye cotton textiles, primarily for use in longyis (the
traditional garment worn by a majority of the Myanmar population). In
addition, there are several cotton ginning factories and somewhat larger
government run textile factories which are under Myanmar’s Textile
Industries, a division of the Ministry of Industry. Therefore, Mandalay
has a sizable textile industry, but not much of a garment
industry. More still, the textiles produced are not used in export
production garments due to the fabric being generally of low quality +
lower quantities of fabric produced by any single textile mill + options
are limited to 100% cotton, rather than any mixed-fibre possibilities.
Ref:http://www.myanmargarments.org/events-news/factory-zones/
Myanmar Rising: Industrial and Special Economic Zones
Differences in logistics and infrastructure support, as well as varying investment benefits, are prime considerations for factory locations.
Myanmar, a mid-sized ASEAN country with a
relatively good supply of low-cost workers and improving business
conditions, has drawn increasing interest from foreign investors looking
to relocate their labour-intensive production activities from Southern
China.
When choosing a location for their
production plants in Myanmar, Hong Kong companies engaged in
labour-intensive industries such as garment or footwear manufacturing
may consider setting up their factories inside one of the country’s
industrial zones or Special Economic Zones (SEZs) in order to benefit
from the specific investment incentives offered by the Myanmar
government, along with other advantages such as better infrastructure
and logistics support.
This article, through
assessing the conditions of two popular industrial zones and three SEZs
currently being developed in Myanmar, attempts to assess the relative
suitability of these locations for Hong Kong manufacturers over the
short-to-medium term.
Manufacturing Clustered in Yangon-based Industrial Zones
To
encourage private sector participation in manufacturing and foster
industrial clusters, industrial zones were first introduced by the
Myanmar authorities in the 1990s, creating a base of manufacturing
operations in and around the country's major cities.
The
number of industrial zones has grown only gradually over the years. At
present more than 20 industrial zones are established in Yangon, as the
former capital has more developed transport and infrastructure
facilities than other areas, including an international airport that has
been recently upgraded and a cluster of seaports that handle the bulk
of the country’s merchandise trade. As a result, most of Myanmar's
labour-intensive, export-oriented industries are concentrated in this
area to this day.
Many
of these industrial zones are specifically targeted at privately owned
manufacturing enterprises. Daily management of each industrial zone is
undertaken by its own Industrial Zone Committee, usually comprising
investors, government officials and/or representatives from related
public agencies.
While management practices and
service standards in each industrial zone differ, many of them –
including South Dagon and Hlaing Tar Yar – have adopted measures to
upgrade their utilities. This includes building electrical substations,
and installing back-up generators and waste water treatment facilities.
Road
conditions in and around industrial zones in Yangon vary from one place
to another. Generally, paved main roads are in good condition and wide
enough for heavy trucks, including container trucks, to drive along.
However, some sections of road leading into individual factories within
industrial parks are in poor condition. Road conditions can be
particularly bad during the monsoon seasons, as the drainage is notably
poor. A lack of street lights, coupled with potholes created by heavy
trucks, also complicates light driving in many places.
The
port of Yangon, a downtown river port situated some 20-30 km from
Yangon's industrial zones, now handles about 90% of Myanmar’s external
trade. Given the rather shallow draft of the rivers surrounding central
Yangon, the port is not deep enough to receive large container ships.
Frequent cargo ship congestion around the port areas is reported as a
result of ongoing growth in trade volumes, poor port infrastructure and
inefficient cargo handling processes.
As an
alternative, some manufacturers have become more inclined to use the
Myanmar International Terminal Thilawa (MITT), a multi-purpose container
terminal run by Hong Kong’s Hutchison Port Holdings that is located
about 25 km south of Yangon’s city centre. Though faced with a
locational disadvantage, the MITT offers services that comply with
international standards and is capable of handling bigger container
ships exceeding 1,000 TEUs at high tides.
Factories
in industrial zones can operate under a land leasing agreement sought
with individual management committees. In Myanmar, land purchase is
basically restricted to local investors, although foreign-local joint
ventures may lease an office or commercial building.
In
recent years, there has been a significant surge in land prices as land
plots have been bought and held in anticipation of a big influx of
foreign capital attracted by government reforms and the cost spiral
evident in China. In an effort to tackle the problem of idle industrial
land, the Yangon regional government formed an inspection team to
conduct field surveillance checks of the city’s industrial zones in May
2016. It is believed that the regional government will announce new
measures to free up hundreds of vacant plots.
Mingaladon - An Industrial Park that Meets International Standards
The
Mingaladon Industrial Park (MIP), located about 20 km north of Yangon
city centre and 24 km from Yangon Port, was developed in the late 1990s
under a joint venture between the Myanmar Government and a privately
owned Japanese company in a bid to attract foreign investment. The MIP
was the first industrial park in the country considered to have met
international standards in terms of its utility and transport
infrastructure.
Access to the MIP will be further
enhanced by the Yangon Urban Expressway Development project being
developed under a public private partnership (PPP). This expressway
project is worth US$620 million and its first phase covers a four-lane
road of 20.5 km connecting Yaykyaw Junction on the Bogyoke Aung San
Road to the MIP. The Myanmar Government will contribute 20% of total
project costs via official development assistance, with the
construction undertaken by a Korea-Myanmar joint venture between Korean
construction companies Lotte E&C and Halla Corporation and
Myanmar’s Capital Diamond Star Group.
On
its recent visit, HKTDC Research found that the roads in and around the
MIP are very well-maintained compared to those in and near other
industrial zones in Yangon. The park hosts many FDI manufacturers, some
of which employ more than 1,000 workers. This creates a clear
distinction between the MIP and other industrial zones in Yangon and
Mandalay, where manufacturers are invariably engaged in smaller
operations, employing at best a few hundred workers.
Owing
to its favourable location and facilities, all plots in the MIP are
leased out. Owing to long lease arrangements, there have been instances
of companies running into problems and approaching the park management
for a “repurchase arrangement”, leading to termination of lease
agreements. However, the MIP has become more flexible in recent years
with regard to sub-leasing. This gives tenants greater leeway in
organising their factory activities and controlling cash flows.
While
the MIP hosts many big FDI manufacturers, its management committee
stressed that it also welcomes SME manufacturers. Currently, tenants
operate in industrial sectors including textiles and garments,
foodstuffs, electric and electronic products, machinery and parts,
plastics and leather, and pharmaceutical.
As
of January 2016, there were 30 tenants in the MIP, of which 11 were
Hong Kong companies[1] engaged in the manufacturing of garment (six
tenants), electroplating (two), handbags (one), optical lenses (one) and
watch components (one). Other major tenants include companies from
Japan, mainland China and Korea.
Hlaing Thar Yar - The Largest Industrial Zone in Yangon
Established
in 1995, the Hlaing Thar Yar Industrial City is the largest industrial
zone in Yangon with a land area of about 567 hectares.
As
of January 2016, there were over 650 factories operating in this
industrial zone, with the top five major industries listed as grain
(221 factories), toiletries (127), food-stuffs (83), garments (74) and
construction materials (28). There were about 50 wholly foreign-owned
operations in the zone, with China and Korea, each with over 20
companies, topping the list.
Similar to the MIP,
virtually all land plots in the Hlaing Thar Yar Industrial City are
developed, although some of the factories are either vacant or under
refurbishment in anticipation of new tenants. Hong Kong manufacturers
interested in testing the water in Yangon may consider renting factories
in Hlaing Thar Yar at a basic rate of roughly US$3-3.5/m², according
to industrial sources. However, the availability of other industrial
zones within Yangon with vacant factories to let gives Hong Kong
companies plenty of choice.
SEZs Offer Better Investment Incentives to Foreign Investors
In
the 1990s, when the development of industrial zones was in its initial
stages, the focus was primarily on grooming domestic manufacturers to
serve local markets, with limited though given to attracting FDI.
Most
foreign investors currently rely on the foreign investment framework
under the 2012 Myanmar Foreign Investment Law (FIL). In 2014, as an
alternative to investing under the FIL, the Myanmar Special Economic Zone Law
(SEZ Law) was established to facilitate investment in three SEZs that
are currently under development: the Thilawa SEZ, the Dawei SEZ, and the
Kyaukphyu SEZ. It should be noted that Dawei had its own SEZ law passed
in 2011.
The SEZ Law provides a legal framework
that offers more generous investment incentives than those under the
FIL, including exemptions and relief on import tax and commercial tax.
Existing manufacturers in these zones do not benefit fully from the
financial incentives being offered to foreign investors.
From
an administrative perspective, applications for investment permits
within each SEZ will be approved by their own management committees.
This arrangement is different from that which operates under the FIL,
where investors need to get an investment permit from the Myanmar
Investment Commission (MIC) through a centralised system. The relatively
decentralised application system adopted by the SEZs is intended to
shorten the review process and create a more business-friendly
environment for foreign investors.
Three SEZs still in Development Stage
The
Thilawa SEZ, with a total development area of 2,400 hectares and
located within an hour’s drive from downtown Yangon, is currently the
most advanced project of the three SEZs. Phase 1 of its 400-hectare Zone
A became operational in September 2015. At present, the majority of
companies who have moved in are from Singapore, Japan, the Chinese
mainland, Thailand, Hong Kong and Taiwan, and are engaged in light
manufacturing across garments, food and beverage and construction
materials. The Suzuki Motor Corporation is also said to have agreed to
build a new plant in the Thilawa SEZ that will start production in 2018.
While
the Thilawa SEZ benefits from its proximity to Yangon's urban centre,
the attractiveness of both the Dawei and Kyaukphyu SEZs will be boosted
by having international deep sea ports on-site. The Dawei SEZ, located
some 300km west of Bangkok, will serve as a convenient base for
cross-border trade with Thailand, while its deep sea port will also open
a new gateway to the Malacca Strait from western Myanmar.
Despite
some delays, the Dawei SEZ's initial phase development was launched in
2015. In June 2016, the governments of both Myanmar and Thailand
reaffirmed their commitments to pushing forward the zone's
implementation.
Located in northwest Myanmar,
Kyaukphyu already has operational oil and gas pipelines running between
the region and China’s Yunnan Province. However, the Kyaukphyu SEZ
project is still in an early stage of development, against a backdrop of
environmental and land ownership controversies and ethno-religious
tensions. In a meeting with the Kyaukphyu SEZ Management Committee in
Yangon, however, HKTDC Research learned that plans, including provision
for industrial parks for light manufacturing, are advancing.
With
a consortium led by China’s CITIC group selected in late December 2015
as the lead developer to construct the Kyaukphyu SEZ’s deep sea port and
industrial park, project development is expected to accelerate,
although the entire SEZ will not be completed before 2038.
Industrial Zones or SEZs? Balancing the Financial Incentives and Business Risks
As
it stands, SEZs in Myanmar offer more favourable financial incentives
to investors than the country's industrial parks. However, this is only
one factor to be considered by FDI manufacturers, especially those
looking to set up production plants in Myanmar in the near future.
With
the first phase of Thilawa SEZ only launched in September 2015 and the
other two SEZs still in their early development stages, the foreign
investment regime outlined by the country's SEZ Law remains untested. In
the World Bank’s 2016 Doing Business Report,
Myanmar’s ranking on contract enforcement was 187th out of 189
countries. Uncertainty in the effectiveness of handling legal disputes
inside SEZs may prompt foreign investors to consider investing instead
in one of country's long-established industrial zones, where procedures
that work are already in place.
Once fully
developed, the three SEZs are expected to provide better facilities and
support than the industrial zones, some of whose infrastructure is
rather dated. In the meantime, however, relatively well-established
industrial zones in Yangon such as the MIP and Hlaing Thar Yar – which
boast reasonable utility and transport infrastructure quality – may
present the most practical options for manufacturers from Hong Kong.
Ref;http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/Myanmar-Rising-Industrial-and-Special-Economic-Zones/rp/en/1/1X000000/1X0A72FF.htm
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