Brands may seek to move orders to associated factories already in place in Bangladesh and Vietnam
The latest coup in Myanmar has changed the dynamics of the whole region. Especially puts foreign investment – FDI commitments into Myanmar were worth $5.5bn in the 2020 FY, which ended in September – in the country’s apparel manufacturing at risk, poses a great threat with looming trade sanctions, and may push some clothing retailers to cut their sourcing ties with the country.
Though Myanmar’s readymade garment (RMG) sourcing is new compared to its neighbors, the country’s RMG export has seen steep growth since it began to arise from decades of seclusion and military rule around 10 years ago and sums brands and retailers including M&S, Next, H&M, Bestseller and C&A among its clients.
Clothing, footwear and handbags are Myanmar’s 2nd largest export sector and grew 26% year-on-year to reach US$6.7bn in 2019, of which around US$5.2bn is garment. Although amid COVID-19, apparel exports in the first 11 months of 2020 slipped back to about $4billion.
Although Myanmar is a debated sourcing base. Not only is it being behind in main areas including political and legislative reform, compliance and sustainability, infrastructure and energy, but big brands have been sourcing from the country. While, country wise, total trade in goods between Myanmar and the United States amounted to nearly $1.3 billion in the first 11 months of 2020, up from $1.2 billion in all of 2019, according to U.S. Census Bureau data.
Industry experts have expressed concerns this holistic development will be dampened due to the coup.
“The military takeover in Myanmar could halt the boom in clothing export sales to Europe, which grew 40% in 2020, year-on-year,” says Director-General of the European Textile and Apparel Confederation, Euratex.
Dirk Vantyghem said that this has been attained through a major investment into the country’s apparel industry – its upstream textile section remains small. As a result, at the time of the coup, Myanmar was Europe’s 10th biggest source of apparel imports, with clothing has become one of the country’s main export portions.
Vantyghem says, “Consequently, with fashion brands likely to decrease orders from the country because of political risk. From a development angle, this will have an overwhelming impact on the Myanmar economy.”
Vantyghem says he is uncertain the level to which European brand orders would migrate to near-shoring after the coup. Adding that It is hard to quantify. I think to a partial extent Turkey may benefit as may Portugal and Romania.
“Perhaps more likely would be that Chinese-owned plants in Myanmar may seek to persuade buyers to move orders to associated factories already in place in Bangladesh and Vietnam, which both profit from privileged access to European markets.”
And it is no secret that the Chinese clothing and textile manufacturers are more and more viewing Vietnam as a gateway to Europe because of its recent free trade agreement.
From the viewpoint of production capacity, Vantyghem added that Vietnam has enough options to manage production capacity.”
He predicts, “Who will suffer most will be the women in Myanmar,” who have been working in a self-employed capacity for the country’s booming clothing sector. He adds that if the EU imposed sanctions it would make matters worse for its apparel exporters – Myanmar currently has almost completely free access to EU markets through the EU’s Everything but Arms free trade status.
Recent research by the UN in 2019 also provoked a good number of fashion brands to review their sourcing from Myanmar to evade being connected to violations of international human rights and humanitarian law after numerous RMG suppliers were found in connection with the country’s military.
The EU has also warned to remove Myanmar’s Everything but Arms (EBA) duty-free trade benefit in reply to the suspected ethnic genocide of the Rohingya.
Mike Flanagan, CEO of UK-based apparel industry consultancy Clothesource, reflects that the military take-over might close expansion within the Myanmar RMG industry, which has continued despite the COVID-19 pandemic.
Flanagan pointing a key problem is that when fashion brands look to make real sourcing plays in an increasing outsourcing hub, they like to fit their executives to supervise production or use 3rd party expert mediators.
Even if no big violent protests are succeeding the coup – which is far from certain – the danger of sending representatives to Myanmar has increased and that will limit brands’ readiness to join directly in growing orders and production in the country.
Most notably, the retailers and brands are closely following the developments, but refrain from risking what this will mean for the way in going forward.
Views expressed here are not from the organization that the authors represent.