Myanmar foothold in global economy tenuous 5 years after military promised change

YANGON, Myanmar – After Myanmar's military yielded to a civilian government in 2010, foreign investors rushed to set up factories and raze old neighborhoods to build luxury housing estates. Five years on, the country has only a precarious foothold in the global economy.

The government has loosened curbs on the media and political dissent. Many people have access to the Internet and cell phones for the first time. New hotels and shopping malls stand like beacons among the ruined colonial mansions and crumbling socialist era apartments of Yangon, the biggest city.

Elections in November will provide the U.S. and other nations that eased sanctions with a key test of whether Myanmar's generals are relinquishing power as promised. The ruling Union Solidarity and Development Party, allied with the country's former military rulers, can point to economic growth of over 8.5 percent, and foreign direct investment topping $8 billion this year, as evidence its reforms are making progress.

But more than a third of Myanmar's 51.4 million people still live on less than $1.25 a day. Their reality is rural poverty or urban slums dominated by gangs, factories paying workers barely enough to get by, and a near absence of public services.

The reaction of employers to a September hike in Myanmar's minimum wage to 3,600 kyats ($2.80) a day has highlighted the meager rewards for workers on the road to industrialization.

Some international clothing companies backed the minimum wage law, expecting it would help ensure better pay by their local subcontractors. Instead, many garment companies in the Hlaing Thayar industrial zone near Yangon cut hours, perks and bonuses. Hundreds of female workers were laid off, and hundreds more went on strike. Eventually the striking women went back to their sewing machines. Some income, they reasoned, was better than none.

"We were excited and thought that the minimum wage would make things better, but it actually made things worse," said 17-year-old Thae Ei Kyaw, who followed her older sister's example in quitting school to work in a garment factory. "Everyone needs money, even if it's less than before. They have to survive. So they accepted what they are getting."

Three decades after China began transforming itself into the world's factory floor, Myanmar faces tough competition from other low-wage developing countries such as Cambodia, Bangladesh, Morocco and Madagascar. They are all hoping to replicate the Chinese industrialization strategy through low-cost manufacturing.

While the Hlaing Thayar garment workers complain of pay cuts, factory owners gripe that the higher wages are too heavy a burden.

Both are right, said Vicky Bowman of the Myanmar Center for Responsible Business and a former British ambassador to Yangon.

"If workers are unlucky and have really poor management they will end up with less money. In most cases, they probably won't end up with more money," said Bowman, whose center works to help local businesses improve their corporate governance.

At the same time, "The garment manufacturers are screaming not entirely without justification," she said.

After decades of isolation and underdevelopment under military rule, Myanmar's factories face excessive costs for transport and electricity, relying on costly diesel-fueled generators due to constant power outages. The lack of even basic industries means apparel makers must import everything they use to make garments: thread, cloth, zippers, buttons.

"They're deeply inefficient and that's exacerbated by a lack of infrastructure," said Bowman.

Myanmar needs millions of jobs to grow its economy and to absorb legions of migrant workers, many of whom are displaced by land seizures and natural disasters or fleeing their villages to escape debt collectors or ethnic conflict.

The hopes of many in Myanmar for an alternative to the military-allied government rest with Aung San Suu Kyi's opposition National League for Democracy, which is expected to do well in the Nov. 8 election. It won a sweeping victory in a 1990 election but was denied a role in government by the military junta.

A big risk for Myanmar's economic development is if the results of the election create greater uncertainty or instability, which would discourage foreign investors, said Sean Turnell, a Myanmar expert and professor at Macquarie University in Sydney.

The location of garment manufacturing is "fairly footloose" and driven by which country can offer the lowest wages and setup costs.

"It can move out quite quickly," Turnell said. "Western investors are hanging back, and if things go wrong, they'd want to wind back."

The garment workers who went on strike said they now take home about 130,000 kyats (about $100) in pay, including overtime, slightly below their earlier earnings but more than they could make if they stayed in their rural villages.

"I am always in debt by the end of the month," said Zin Mar Aye, 31, a widow with a young son.

After a decade of working in Hlaing Thayar, Ei Thein Oo said that however bad conditions are in their trash-strewn slums, the past five years have brought some improvements.

With Ei, her sister Thae Ei Kyaw, Ei's husband and mother now able to work, the family earns enough to feed the seven-member household and pay schooling costs for the two youngest children, both boys.

"There are so many more jobs now," said Ei.