When Coca-Cola set up a bottling plant in 2013 outside Yangon, Myanmar’s largest city, it marked a return to the Southeast Asian country after a 60-year absence. The drinks giant had been one of many foreign multinationals that left what was then called Burma in the 1960s, as the country turned inward and embarked on decades of military rule. Over the years, as the U.S. and European Union imposed economic sanctions, doing business with, and in, Myanmar grew increasingly difficult for foreign companies.
But in 2011 the military officially stepped back from power, and in 2012, the U.S. eased its sanctions. The Obama administration embarked on a policy of engagement with the once-closed country, setting off a burst of U.S. investment that has seen a total of US$30 billion in approved foreign investments.
Coca-Cola lost no time in turning Myanmar’s new domestic environment into a marketing opportunity. In the same year that the bottling plant opened, the government decriminalized organized gatherings of people. Coca-Cola staged a multicity concert tour called “Moments Together.” It was the first live concert of Western music that most of the young locals in attendance had ever experienced.
Stories like this illustrate the appeal — and the potential — of what is likely the last frontier market in Asia as Myanmar takes its first steps back onto the global stage.
The country occupies one of the most valuable stretches of geopolitical real estate in the world. Its location at the nexus of China, India, and Southeast Asia places it within 1,000 miles of half the world’s population. With a long coastline and miles of inland waterways, Myanmar has enormous potential as a transportation hub linking markets throughout the region.
Many foreign businesses are seeking a foothold in the country, in hopes that they may profit in the same way that some companies did with the economic rise of other emerging Asian nations. Huge projects are under way in infrastructure and power, led by investment from Japan, China, and Singapore. And although economic growth has slowed from the stellar 8 percent recorded in 2014, it is still expected to be an enviable 6.5 percent in 2017, according to the World Bank’s latest statistics.
But the country’s growth rate and Coca-Cola’s early marketing coup are misleading in one important way. The challenges facing Myanmar may be even more daunting than they were for its emerging economy predecessors such as China in the 1980s and Vietnam in the 1990s. Myanmar faces certain challenges in gaining traction the traditional way, through low-cost labor in industries such as apparel. And if it fails to find employment for its people, that could be a sign of a general problem that may prevent many frontier nations from taking their place in the global economy. Specifically, the worldwide advance of automation may prevent them from following the same playbook that brought growth to previous developing countries.
Of course, Myanmar faces many challenges that have been typical of frontier economies at any time in history. The demands for technological and managerial expertise often go unmet; the country lacks the requisite educational institutions; infrastructure is basic and in many areas nonexistent. And the country is still riven by serious ethnic tensions. Even Coca-Cola has had difficulties: Lack of power generation outside Yangon has made drink refrigeration difficult. “Not ideal,” notes Alexander Chapman, Coca-Cola’s director of communication for Myanmar, “for a beverage best consumed cold.”
The challenges facing Myanmar may be even more daunting than they were for its emerging economy predecessors such as China and Vietnam.
But automation is an additional challenge that previous emerging economies did not face. As the Myanmar government pursues a critical mass of industrialization to generate employment for millions of its citizens, it runs up against the increased use of robots in low-cost manufacturing. A 2016 joint report from the University of Oxford and Citigroup (pdf) pointed out, “While the potential labour market disruption associated with the expanding scope of automation is likely to affect the developing world later than advanced economies, it may be potentially more disruptive in countries with little consumer demand and limited social safety nets.” The practice of reshoring — in which multinational companies relocate manufacturing closer to home and apply automation to reduce costs — could also deprive developing economies such as Myanmar from the job-creating manufacturing exports on which they might have relied previously.
Textiles and footwear are a case in point. Garments and shoes are still a relatively small part of Myanmar’s economy, which is dominated by oil and gas, construction, power, and telecommunications. According to the International Labour Organization (ILO), Myanmar is the third-smallest clothing and footwear exporter in the Association of Southeast Asian Nations (ASEAN). Its exports of apparel and footwear amount to only about 2 percent of those exported from Vietnam, a fellow ASEAN member.
Yet apparel is one of the fastest-growing sectors in the country. Textile and footwear exports almost doubled between 2012 and 2017, and accounted for 75 percent of Myanmar manufacturing exports in 2015 (the latest year for which ILO data was available). The sector has been designated a national priority under a 10-year strategy being pursued with the backing of the Myanmar Garment Manufacturers Association (MGMA).
Automation now threatens to displace manual labor just as Myanmar is banking on the sector (and other sectors) to help industrialize the country’s economy. The broader threat is illustrated in a 2016 study by the ILO (pdf) that estimated that about 56 percent of all employment in the five largest economies of ASEAN — Indonesia, Thailand, Malaysia, the Philippines, and Vietnam — is at high risk of displacement owing to technology over the next decade or so.
Although monthly pay in the country’s textile and footwear sector is relatively low — $99 in 2015, compared to $182 in Vietnam for equivalent work, according to another ILO study — low wages no longer provide the kind of competitive advantage for a country that they did in the past.
“Our research indicates that in the long term,” wrote ILO researchers Jae-Hee Chang, Gary Rynhart, and Phu Huynh, “the price advantage associated with mass production in low-cost, export-oriented regions like ASEAN will be challenged by increasingly affordable technologies and by the push from developed economies to bring manufacturing near the point of sale or assembly.”
In a recent interview, Chang said that the ILO had heard about some companies choosing not to locate textile facilities in Myanmar because the manufacturing could be done more cheaply using machines located closer to their markets.
Myanmar is not alone in facing the automation dilemma. A recent article in Bloomberg Businessweek highlighted how automation “threatens to block [the] ascent” to mass industrial employment of Bangladesh and Cambodia, both known for their textile-dependent economies. But generating employment is a particularly acute priority in Myanmar, where 66 percent of the population works in agriculture — a higher proportion than in most other ASEAN countries. The corresponding figure in the Philippines, for example, is 29 percent.
However, many development economists believe that countries with higher wages are more vulnerable to automation. If so, Myanmar, with its low labor costs, may find itself protected for a while.
Indeed, the MGMA confidently forecast in 2016 that the garment sector was on track to create 1.5 million jobs (from about 250,000 at the time), generating an estimated $12 billion in export value, by 2020.
Meanwhile, efforts are being made, for example at the U.K.’s Department for International Development (DFID), to sustainably shift the garment sector up the value chain toward more profitable segments of the business and away from reliance on the so-called cut–make–pack method for making garments. (This is a form of contract work under which a foreign buyer pays a fee to a garment factory in Myanmar to cut fabric and sew garments together according to a specified design, and to pack them for export.)
DFID in 2016 launched a five-year aid program through which it is working with the Myanmar Textiles Manufacturers’ Association to create a development strategy for the sector. One element of this program is helping create awareness among policymakers that the country’s tax system discourages Myanmar companies from moving up to more profitable segments of the textile business.
“The textile and garment industries, although nascent in Myanmar, are growing quickly and could have a big impact on employment, so we are taking them really seriously across our economic development portfolio,” says Tom Coward, DFID team leader for inclusive growth and livelihoods, based in the U.K.’s embassy in Yangon.
Educating the Workforce
In some countries, automation is seen as an opportunity to increase the number of higher-skilled jobs, such as programming and design. But Myanmar has a weak education system that is unlikely to produce well-trained graduates anytime soon. The government, which was put in place in 2015 after Myanmar’s first generally acknowledged democratic election since 1990, has been trying to make investment in education a priority. The most recent budget allots $1.3 billion to education, a 30 percent increase from the year before.
But the education system has gone through decades of corruption, erosion, and underinvestment. After a student uprising in 1988 that led to the death of several thousand people in Yangon, Myanmar’s government closed many universities across the country and relocated others, determined to stamp out sources of dissent. Today, schools continue to stress memorization, and employers complain that university graduates in Myanmar do not have the skills needed in the workforce. Moreover, many skilled people have left the country. An estimated 10 percent of Myanmar’s native population live abroad, many in neighboring Thailand, Malaysia, and Singapore.
Nonetheless, positive developments are under way to address these challenges. The Asian Development Bank recently lent $98 million to Myanmar to fund programs aimed at improving the quality of secondary education as well as technical and vocational education and training. It cited surveys of foreign and local business as “consistently” naming gaps in education and training as a leading constraint to business. Some multinational companies have brought back Burmese staff. Unilever, for example, repatriated some who had left for to Thailand and had been working at its factory in Min Buri, east of Bangkok.
International observers bullish about Myanmar’s potential often point to the country’s large population — an estimated 60 million — as evidence of the size of the market. But this figure is misleading. Nearly two-thirds of the country’s people live in rural areas and work in agriculture. Despite Myanmar’s highly fertile soil, its agriculture sector remains one of the least efficient in the world.
One recurring problem is electricity. Just one-third of the country uses the antiquated electric grid, leaving many in rural areas to pay excessive fees to supply their own electricity. Even in Yangon, Myanmar’s wealthiest city and the country’s economic capital, blackouts remain common. A landmark TEDx event in Yangon in May was plagued by outages, prompting outrage on social media.
Despite improvements to the country’s road networks, much of Myanmar’s vast territory remains impassable owing to low road density and few paved roads (just over a fifth of Myanmar’s roads are paved, compared to 95 percent in Thailand). Inadequate physical infrastructure effectively leaves major portions of the country’s population unable to participate in the new, trade-dependent economy that Myanmar is trying to generate.
Forging Political Consensus
Looming over such practical challenges is a still-awkward political reality. It is not clear yet whether Myanmar’s hard-fought progress from military junta-controlled nation to something approaching an economic growth engine can be sustained.
One serious issue is the new government’s halting efforts to extricate itself from political problems that dogged its past. Aung San Suu Kyi, Myanmar’s de facto leader, has devoted much of her time in office to resolving territorial disputes between the federal government and ethnic minority regions. To an extent, this has been successful: A landmark peace deal with several groups was reached in 2015. But political liberalization has, perhaps paradoxically, complicated ethnic tensions in the country, and complex problems remain, including ongoing tensions and the exodus of thousands of refugees to neighboring Bangladesh.
To face down these challenges and find its way into the global economy, Myanmar will need to build on its strengths, which are considerable. Once the world’s leading rice exporter, Myanmar ranks 25th in the world for arable land, and the country’s per capita water endowment is 10 times that of China and India. Myanmar boasts 90 percent of the world’s jade, as well as rubies, sapphires, gold, tin, zinc, magnesium, copper, nickel, and old-growth teak forests that provide a source of timber. Gas production, aided by the construction of new pipelines crisscrossing the country, is expected to double by 2019.
And Asia’s powers have taken notice. China has included the country prominently in its Belt and Road initiative — a massive plan to link markets across Eurasia with high-speed rail and other forms of infrastructure — and Myanmar is also included in India’s so-called Look East initiative, which aims to link India with Southeast Asia. Japan has invested heavily in Myanmar for years in power, infrastructure, and other areas, in part driven by a policy of strategic engagement with the Mekong region and Southeast Asia generally.
But because Myanmar’s path to prosperity is not the same as that of China or Vietnam, the path has still to be designed. The government produced a long-awaited 12-point economic plan last year, but has yet to follow up with much detail. A road map for tackling the challenges and opportunities that flow from automation might be one way to get ahead of the curve, before it becomes too late.
Says ILO’s Chang: “It’s really about how Myanmar gets up the next step and moves forward from infrastructure development. And that’s not going to be via the labor-intensive sectors that most other countries have developed and gone through. Nobody is yet clear what that’s going to be.”