Myanmar rebuilds export link with EU
The nation may secure duty-free imports to the European bloc after the lifting of sanctions
After more than a decade of isolation from the West, exporters in Myanmar are reconnecting with the European Union, which is considering the import of all commercial goods from the country free of tax - a preferential treatment the manufacturers in the Pearl River Delta could only dream of.
"We are now starting to sell flip-flop sandals to Italy since the sanctions from the EU have been suspended," said a proud Kyaw Zin Htet, a second-generation Chinese migrant to Myanmar who now manages Reva, which produces 12,000 sandals a day.
The export order comes at a time when domestic sales of sandals and slippers are in a downturn because farmers in Myanmar are losing their land over conflicts with property developers and local governments. Sandals are a national apparel for even top officials, who wear them for formal occasions as well.
"The European Commission has given the green light to the lifting of sanctions for good," said Deputy Minister for Commerce Pwint San on the sidelines of a meeting with delegates from the Hong Kong Trade Development Council.
Trade sanctions have been suspended for a year from June last year, which provides a window for resuming trade between the EU members and the then military-governed nation.
The European Parliament will decide whether to lift the sanctions permanently in June and give Myanmar preferential trade treatment - duty-free imports for everything but armaments, Pwint San added.
In a historic visit to Europe, Myanmar President Thein Sein led a mission to five nations in the bloc last week. Pwint San, who also took part in the visit, said it was productive and had received good responses. He had high hopes of winning the preferential trade conditions from the EU.
If successful, Kyaw Zin Htet's flip-flops could be exempted from a 17.8 per cent import tax, while a garment factory could escape a 19 per cent import tax when its products enter the EU.
But Myanmar's exporters face other troubles, notably high exchange rates and borrowing rates. The country's currency, the kyat, appreciated to 670 per US dollar shortly after the new Union Government was set up in 2011, from 1,200 previously, on speculation of a boom in the economy. Now it is somewhat stabilised at 850. But a strong kyat means tougher competition in the export markets.
"Wal-Mart was interested in placing an order with us but they demanded a lower price than we could afford," Kyaw Zin Htet said. He hoped the central bank could keep its promise and devalue the kyat to about 1,000 per dollar.
Adding to the challenges facing exporters is an underdeveloped banking system, which means it is difficult to obtain loans.
People in Myanmar are reluctant to save their assets in kyat due to bad experiences in the past, when the former government scrapped all small-denomination notes in the 1980s.
Although confidence in the currency had recovered slowly, the savings rate was at just 20 per cent of gross domestic product at present, said Min Han Soe, a director at the Central Bank of Myanmar.
While local enterprises could raise loans at interest rates of 13 per cent, foreign investment projects could only rely on funding from overseas. "They need to transfer money to the country via Singapore as there are stringent controls on capital flows," said a banker from Hong Kong.
But above all, foreign investors are most concerned about the continuity of the country's recent liberalisation moves.