The recent world banks’ economic monitor (June 2020) points out the importance of exports as a pillar for the country’s economic recovery. Rebound in growth would be anchoring on exports in the medium term. In the short run, the widening trade deficit, with continued disruption in supply chains is taking a toll on Myanmar’ economy. Macro parameters like current account deficit and pressure on foreign exchange reserves and Kyat exchange rate are some of the short term manifestations and for recovery, it would need sustained effort from the government and private sector, especially those key export sector players and trade facilitation agencies and industry associations.
Currently, the government is in the process of finalization of national export strategy (2020-25) and it would be the right time to tweak the same to mitigate the impact of the pandemic in the short, medium and long term on export sectors. Myanmar’s exports are primarily in the areas of electronic and electrical machinery, information technology services, food processing, fisheries, forest produce, textiles and garments, rubber, rice, beans pulses and oilseeds.
Understanding the impact of COVID 19 on these sectors and their prospects thus becomes necessary in order to identify mitigating strategies. It is in this context a recent study by the Myanmar Trade Promotion Organisation of Ministry of Commerce and International Trade Centre(ITC), a technical agency of UN&WTO system, provides an insightful detail of the potential impact and ways to mitigate the same. A granular understanding of these export sectors and how the exporters, sector associations and trade promotion agencies need to fine-tune their strategies to boost exports form the core of this assessment.
Impact Assessment
This assessment of the impact of COVID-19 on NES priority sectors was conducted across 266 companies in May’20 as the country is slowly opening up in terms of economic activities. It highlights that Myanmar has to embrace a new reality in terms of trade across the partner countries. “Along with challenges, the situation brings new opportunities for Myanmar exporters to innovate and potentially gain critical shares in destination markets.” Some of the elements to be considered include, “Sanitary measures – There are new ‘social distancing’ measures that enterprises are required to implement in order to continue production and services. This affects costs and efficiency. New models will be needed to optimize productivity”. Similarly meeting more stringent quality and sanitary measures require Myanmar companies to increase their compliance with global standards. Regionalization and re-shoring of supply chains, focus on ecological transition and green growth, are few other possibilities that export sectors need to gear up as part of the recovery. Improving market intelligence services for exporters – in terms of new market opportunities, the transition to digital and e-commerce platforms are few other possibilities that export sector companies need to gear up in the phase of the recovery.
Impact assessment survey identifies that nearly 30 per cent of companies have been strongly affected and anther 40 per cent moderately; tourism, textiles and garments and rubber sectors have been strongly affected; about 50 per cent of export companies faced reduction in demand from their top five customers; more than half anticipate a reduction in orders in the coming three months; companies have also faced difficulties in the purchase of inputs sourced internationally or domestically; border checks and closures have affected half of the surveyed businesses operating internationally. How do all these translate into numbers in terms of reduction in export volumes and earnings? What would be the potential scenario in the short and medium terms? It is to be noted at the outset that a vast majority of Myanmar’s exports consist of intermediate inputs in the global value chain. Assuming a two-month lockdown in all major trade partner countries, Myanmar exports of intermediary inputs are expected to be to the tune of US$137.6 million. The most impacted sector, apparels are expected to have a reduction in exports to the tune of 20% with an anticipated loss of US$27.6 million. Other NES sectors that experience reduction in exports include, natural latex and rubber (13.5% of total disruption with a US$18.6 million reduction in exports of intermediaries), wood products and vegetable materials (12.2% and US$16.8 million) and electronic equipment (2.7%; US$3.7 million).
Trade disruption with China appears to be the major factor in an overall reduction in exports of intermediaries from Myanmar, especially affecting rubber, chemicals and minerals, and apparel sectors. Export disruption in the apparel sector is also due to the reduced demand from EU countries and the UK.
Deep dive analysis
A deep dive into sectoral impact, the outlook in terms of risks and opportunities, and immediate response of the each of the sectors to the pandemic provide clues in terms of reorienting strategies for the long term resilience of the export sectors. Some sectors offer opportunities for expanding market share and exploring new markets for exports. In some cases, quality improvement and compliance standards have to be enhanced in order to remain competitive. Sustainability and social compliance remain important for some sectors in order to remain competitive and attract FDI. Sector development committees are identified as crucial institutional arrangements for devising strategies, undertaking capacity building activities for exporters in market identification, customer relationship development and promotion activities. Sectors like wood products may require ease of regulations from the government and realignment of technical standards to international benchmarks to boost exports.
For example, even though there is demand shock, prospects for electronics, electrical machinery sector in the medium term remains promising with greater demand for digitalization. And “with supply chain de-risking efforts likely to accelerate across Asia, Myanmar must focus on improving investment climate conditions to attract FDI that is now looking for new locations. Meanwhile, a focus on building domestic capabilities by leveraging public procurement opportunities, particularly in the energy sector, could become a key priority in helping the industry overcome the fallout of the crisis”. At the same time, “there is a likelihood of dumping practices by countries with large excess capacity once production and exports fully resume; a concern that Myanmar’s industry and Government authorities must guard against”. In this sector, the anticipation of diversion of production bases in order to mitigate supply chain risks would also work in favour of Myanmar. Companies in China are also expected to seek a complimentary destination for their investments to hedge the risks and in this scenario, Myanmar can become an ideal candidate. The country has strategic geographical, social and economic advantages that need to be leveraged without delay as the opportunity window is short and the competition fierce. given the appetite for short supply chains, Myanmar can be a destination for assembling activities in terms of both upstream and downstream supply chains.
Similarly, firms in the IT services sector need to readjust themselves to the potential demand for virtualization of events and services, acceleration of automation processes and services, demand for customer-centricity, and acceleration of digital transformation. As for food processing sector firms, “Ensuring food safety along the food supply chain and being able to demonstrate compliance with export market requirements is needed more than ever to increase Myanmar exports of food products”.
As per the impact study, the fisheries sector in Myanmar will have to “adjust rapidly to additional food safety measures and requirements implemented by importing countries, as well as changing global patterns and consumer preferences”. Some of the short-term responses may include, introduction of national standards on good aquaculture practices, up gradation of quality standards through improving capacities and facilities of laboratories.
Sectors like textiles and garments face challenges with respect to labour standards and compliance. This sector has to accommodate gender and social inclusion in order to boost exports. There is high prevalence of women ( approximately 84 % in garments and 75 %–77 % in the textiles sector ) and MSMEs ( around 31 % in garments and over 81 % in textiles ) in the textiles and garments workforce, including a large number of migrant workers from other states and regions of Myanmar. A positive note in this sector is that some of the global brands, suppliers and trade unions have come to an understanding on addressing the welfare of the workers and to stave off the impact of the pandemic. Global post-lock down demand bump in consumer spending is expected to boost demand and foreign investment is also expected to be on the rise in this critical export sector in the coming years.
It is also pointed out that boosting exports in sectors like Rubber, pulses beans and oilseeds through government to government initiatives is also an option for exploration, especially with neighbouring countries where the market channels have been disrupted due to the pandemic. For sectors like rice exports, government promotional measures are important. Interventions may include improving storage capacities, contract farming schemes, micro-enterprise promotion in rice sector that would stabilize domestic production, market as well as exports. Support to pulses and beans and oilseeds sector can be in the form of product and market diversification, input support to farmers, and government to government arrangement in order to boost exports.
While most export sectors are affected by the COVID-19 crisis, trajectories of their recovery would mean adjusting to the external situation as well as building institutional capacities internally to meet the challenges. Apart from fine-tuning national export strategies, trade promotion agencies, industry associations and technical expertise play a critical role in this endeavour.
