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Economy

Myanmar businesses mull cost of new minimum wage

Workers at Power Maw Shan's factory in northern Yangon sort pickled tea leaves.   © Simon Lewis

YANGON -- Many workers in Myanmar are in line for a raise following the sudden introduction of a long-discussed minimum wage. For businesses, however, the government announcement has generated concerns over staffing costs and export competitiveness with rivals in neighboring economies.

     Since Sept. 1, Myanmar's workers have been entitled to a mandatory minimum wage of 3,600 kyat. That works out to about $2.82 for an eight-hour day, or around $76 a month. Businesses with fewer than 15 employees are excluded, but managers running small and midsize enterprises employing more than that number say they must now find ways to absorb higher costs.

     One such company, Power Maw Shan, produces pickled tea leaves, which go into the quintessential Myanmar dish lahpet thohk (tea leaf salad). At one of its factories, at Bayinnaung market in northern Yangon, a workforce of mainly young women sorts and packs clumps of pickled leaves -- as well as green tea for drinking. Most earn a basic daily wage of 2,500 kyat.

Workers package green tea leaves at Power Maw Shan’s factory in northern Yangon.   © Simon Lewis

     Managing director Nay Che Myat Htun told the Nikkei Asian Review that the family-owned company considers itself a good employer, offering bonuses and benefits to its staff of about 80, and paying higher wages than competitors. But raising salaries by the equivalent of nearly $1 per day for many of her workers, as the new rule requires, could push expenses unbearably high.

     "I would like to pay them that amount," she said, "but it might mean I can only employ 60 people."

     One effect of the new minimum may be that businesses like Power Maw Shan are pushed to automate production more quickly. Even before the minimum wage was implemented, the company was setting up a new factory elsewhere in Yangon and investing in machinery.

     "We won't need so many workers," Nay Che Myat Htun said of the company's new factory, "but I'm worried about those people [who will have to be laid off] as it's hard to find jobs."

Initial confusion

Myanmar's minimum wage was announced just three days in advance, in a circular carried in state-owned media. Days after the rule took effect, small business owners attending a workshop in Yangon were still unsure whether their businesses would be affected, despite the government's insistence that no sector would be immune. "Is this just a draft, or is it actually happening?" asked one owner.

     "Most companies are telling us they haven't done anything yet; they are waiting for more information," said Emmanuel Maillard, country director at Building Markets, a U.S.-based nonprofit group that organized the workshop. It is helping small and midsize enterprises in Myanmar to take advantage of the economic growth that has emerged since a quasi-civilian administration launched reforms in 2011.

     Maillard said a range of smaller businesses employing low-skilled labor will be affected by the wage decree, from furniture workshops to private security companies.

Prices may rise

The specter of higher costs has Khin Sandar Ko weighing her options.

Khin Sandar Ko adds up a bill at Ahjumma Kitchen, a restaurant she co-founded with friends last year.   © Simon Lewis

     Last year, with a group of friends, she opened Ahjumma Kitchen, an eatery serving a range of Asian cuisine in a fashionable central Yangon neighborhood. "Honestly, if we can't avoid [the minimum wage], we have to pay it," she said. "But we will have to raise the menu price, and the restaurant market is very competitive, so that could be a problem."

     Khin Sandar Ko said several of her 20 or so employees are paid 2,500 kyat per day, below the new minimum, but the restaurant also provides staff accommodation and meals. "Maybe we will just say we can't pay for accommodation now," she said.

     "As a human being, I think [the minimum wage] is fair," Khin Sandar Ko added, "but because of the other costs or circumstances, it makes it hard for us as a business."

     While it might lead to some job losses in the short term, proponents hope that in the long run the minimum wage will help transform an economy characterized by underemployment and informal working arrangements. It could help to attract overseas investment by assuaging foreign concerns about labor market standards and eventually lead the way to better jobs for Myanmar's people.

     Zaw Oo, executive director of the Myanmar Development Resource Institute -- Center for Economic and Social Development, the country's most prominent think tank, said the new minimum wage had been well-received on social media.

     "The minimum wage policy is popular among the working class as well as middle/intellectual elites," Zaw Oo, who is also an economic adviser to Myanmar President Thein Sein, told the Nikkei Asian Review.

     Since parliament passed a law on the minimum wage more than two years ago, a national panel including representatives of the government, labor and industry has been meeting regularly to thrash out its terms. Zaw Oo sat on the panel, and the institute assisted the government's research into what would constitute a "living wage" for workers.

     "In our view," he said, "the minimum wage will guarantee stable industrial relations and an enabling environment for foreign investment. From a national perspective, it is important to attract FDI (foreign direct investment) that can focus on the labor-intensive manufacturing sector, since we are moving away from dependency on natural resource sectors. In terms of market access, setting labor standards and fair practices is essential for us to export to the U.S. and major Western markets."

A young woman stitches a sports jacket at a garment factory for a Taiwanese company in Hlaing Tharyar, Myanmar.   © Getty Images

     International apparel companies operating in Myanmar, including U.S. retailer Gap and Sweden's Hennes & Mauritz, have publicly welcomed the minimum wage. The new floor is seen as an important step for the garment sector, which carries risks for brands increasingly fearful of reputation-damaging reports of labor abuses in their supply chains.

     Factory owners, however, say that it undermines their ability to compete with regional rivals for garment orders. While the new basic daily wage remains below comparable rates in countries such as Bangladesh and Cambodia, they say, Myanmar workers' wages are structured so that large amounts come from overtime, allowances and attendance bonuses, tying employers into paying more overall.

Layoffs already happening

One factory owner said discussions are currently underway on how the industry will respond. The Myanmar Garment Manufacturers Association says that factory closures and layoffs have already taken place due to the new minimum wage.

     Daisy Gardener, private sector policy adviser at the Yangon office of Oxfam, a U.K.-based charity, said large employers such as garment factories would likely try to find ways to fund the minimum wage, possibly by slashing allowances or raising productivity targets.

     However, even a rate of 3,600 kyat per day may be below what most would consider a living wage in Myanmar, where inflation is running at about 8%, according to the International Monetary Fund. Garment workers interviewed in a survey for Oxfam this year said the average total take-home pay -- $98 per month including allowances and overtime -- was not enough to cover their basic needs.

     "Even with that overtime, workers say they still can't afford basic costs," Gardener said. "I think that's an indication of the high cost of living, particularly within Yangon."

     In Myanmar's garment industry, the minimum wage will be policed by the government's factories inspectorate, with labor unions and industry bodies supporting efforts to apply the new level, said Steve Marshall, the International Labor Organization's liaison officer in Yangon. However, enforcement elsewhere will be more difficult, he said, necessitating a "staggered approach" to applying the minimum wage to all sectors.

Operations Manager Chris Fernandez stands in a branch of Harley’s in downtown Yangon.   © Simon Lewis

     "You've got a very large informal sector, which is basically businesses which are not registered in any shape or form," Marshall said. "The capacity of the enforcement mechanisms is such that, initially, the application will be largely in the formal sector.

     "Gradually, that may adjust, and that is good because people in the informal sector have equal rights to be employed in good conditions."

"Everyone or no one"

For small-business owners, how the rules are enforced will be crucial, Maillard said. "Really it has to be everyone or no one," he said. "If [small businesses] increase pay, they may have to increase their prices, but that will be a problem if their competitors don't also increase [their employees' pay]."

     Chris Fernandez, operations manager at Harley's, a Malaysian-Myanmar joint venture that employs 35 people at a pair of American-style restaurants in Yangon, said the company pays about 3,000 kyat per day.

     The minimum wage "is really going to affect us a lot," he said. "What we offer [staff] is competitive with similar businesses; it's hard to make a profit here." A recent shift in the exchange rate has made it more expensive to import ingredients, he added.

     Still, Fernandez said the company would have to find a way to comply with the new minimum. He cited two potential solutions -- "cut some staff, or cut some hours." 

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