BURMA'S TEXTILES AND APPAREL SECTOR: SMALL AND

UNCLAS SECTION 01 OF 02 RANGOON 001471

SIPDIS

SIPDIS

STATE FOR EAP/MLS, EB/TPP/ABT:TLERSTEN; PASS TO USTR FOR
AHEYLIGER; COMMERCE FOR ITA/OTEXA:MDANDREA; TREASURY FOR
OASIA:AJEWELL

E.O. 12958: N/A
TAGS: ECON ETRD KTEX BM
SUBJECT: BURMA'S TEXTILES AND APPAREL SECTOR: SMALL AND
SHRINKING

REF: STATE 138090

RANGOON 00001471 001.2 OF 002



1. Summary: Employment levels and company profits in the
Burmese garment and textile sector decreased steadily over
the past three years, and accounted for less than five
percent of total trade earnings in 2005. Since most garment
exports are produced using imported goods, the chief economic
impact of the decline is increased unemployment. Burma
profited briefly from US/EU limitations on Chinese imports in
2005-06, but volumes have since returned to their normal,
minimal level. End summary.


2. GOB economic information is rarely available and generally
unreliable. The regime considers data on industrial
production and textile and apparel production confidential
and does not publish it. Answers to reftel questions for
2005 and the sources we used follow:

-- Total garment exports: $250 million (source: Business
Information Group, BIG)
-- Garment exports Jan-July 2006: $177 million (source: BIG)
-- Textile/apparel share of total trade: 4.3% (source:
Central Statistics Organization, CSO)
-- Exports in textiles/apparel to the US: $20,000 (source:
BIG)
-- Manufacturing employment: 1.2 million (source: GOB
statistics projected from 1990 Labor Force Survey)
-- Textile and apparel employment: 150,000, about half
working in privately owned factories (source: private
industry contacts)


3. Q: Are host country producers receiving lower prices due
to heightened international competition? Are orders the same
as last year? Have foreign investors left?

A: In 2005, garment producers primarily performed CMP (cut,
manufacture and pack) operations, using inputs mainly
imported from China, and exporting finished products to
Europe, Japan, Singapore, Malaysia, Hong Kong, and Canada.
Private garment factory owners tell us that they face
decreasing prices for their production. Labor costs in Burma
are lower than most competitors in the region, they said, but
their logistics costs are higher. Burma's crumbling
infrastructure, cumbersome import/export processes, and
unpredictable government interference make operations riskier
and more expensive, so garment producers are forced to take
lower prices per piece. One owner also told us that after
2003, U.S. sanctions dissuaded most major buyers from
sourcing in Burma, and some Hong Kong and Taiwanese investors
moved their production to China and Vietnam. Most factories
in Burma now take whatever foreign orders they can get.


4. Q: Has increased global competition affected local labor
conditions?

A: Burmese wages are already among the lowest in the region,
so global competition has a smaller impact on Burma's
isolated economy than domestic factors. Factory workers
demanded, and in most cases, received, a significant wage
increase in April 2006 when the GOB increased civil service
salaries across the board. Garment workers at the bottom of
the scale now earn K.30,000 per month, just over US$22 at
market exchange rates. About half of all garment sector
employees work at government-owned factories.


5. Q: Have US and EU restrictions on China affected export
prospects of host country producers?

RANGOON 00001471 002.2 OF 002



Due to low demand in 2003 and 2004, many manufacturers
operated for only three to four months of the year.
According to the Secretary of the Garment Manufacturers
Association, from July 2005 to June 2006, Burmese factories
received 50 percent more orders than the prior year because
the EU and US imposed the Safe Guard system and reduced
imports from China. After August 2006, the number of orders
fell back to normal as most buyers returned to Chinese
suppliers.


6. Q: Has the host country taken action to increase the
country's competitiveness? Does Post think the strategy will
be successful?

A: The GOB offers modest tax benefits to factory owners,
upgraded its port facilities, and recently promised to supply
a few industrial zones with more reliable electricity.
Officials plan to develop free trade zones or industrial
zones on the coast following the model of Chinese Laws on
industrial zones. The government-controlled Federated
Chambers of Commerce offer training courses with private
sector sponsorship to upgrade workers' skills. However,
despite these modest incentives, Burma's business climate
remains unattractive to both domestic and foreign investors.
Productivity is low, infrastructure is deteriorating, and
corruption and political intervention are rife. Until the
government establishes more predictable, efficient, and
transparent economic and business policies, Burma's share of
the global textiles and apparel sector will continue to
shrink.
STOLTZ