Cheap Labor Comes at a Price

Myanmar has the second-lowest labor costs in the world, a study finds, but prospective foreign investors must consider reputational risks

By WILLIAM BOOT

Myanmar has been named one of the five best countries in the world for cheap labor, making it much more attractive for manufacturing investment than neighbors China and Thailand.

“Businesses with supply chains and operations in Myanmar, Bangladesh and Cambodia are benefiting from the world’s lowest labor costs,” a study by analysts Verisk Maplecroft said.

The business risk assessors’ Labor Costs Index measured a combination of wages, employment regulations, social security contributions and labor productivity to assess the costcompetitiveness of workforces in 172 countries.

Myanmar is ranked in the top five best places in the world for low labor costs by the index, which places China at 64th due to rising wages. Thailand is ranked 93rd in the index, where the higher the number the better the ranking in terms of labor competitiveness.

“China… has seen costs in the labor market rise rapidly in line with the country’s phenomenal economic progress,” Verisk Maplecroft said. “By contrast, key sourcing destinations that are increasingly replacing Chinese manufacturers in global supply chains perform very well in the index with Myanmar [ranked] (171), Bangladesh (170) and Cambodia (169) all ranked among the five lowest-cost economies.”

Myanmar’s ranking is beaten only by the small east African country of

Djibouti. The 10 highest labor-cost countries in the study are all in Europe.

However, the attractiveness for investors of setting up factories in Myanmar, Bangladesh and Cambodia is tempered by the business reputational risk factors of “poor working conditions and high levels of child labor and trafficking,” said Verisk Maplecroft.

The study said companies need to be alert to the risks associated with operating in or sourcing from low-cost locations.

While Myanmar, Bangladesh and Cambodia present low labor costs, each is rated as “extreme risk” by Verisk Maplecroft for health and safety, working conditions, child labor and human trafficking.

“Countries with low levels of socioeconomic development and inadequate environmental protections present a host of additional risks and indirect costs to business, including brand damage, investor alienation, and potential lawsuits.”

The average wage in Myanmar, Bangladesh and Cambodia is less than US$100 per month compared with $450 per month in China, according to the International Labor Organization.

“To a large extent there is a ‘necessary evil’ in this,” economist and longtime Myanmar analyst Sean Turnell told The Irrawaddy. “There is as yet no other avenue toward genuinely transformational industrial development than the traditional labor-intensive, low-productivity first step. Overwhelmingly this comes in the form of the clothing and textile industry, of course.”

Verisk Maplecroft’s senior human rights analyst, John Thompson, told The Irrawaddy that Myanmar’s lack of a minimum wage rate for most industries makes foreign investors “vulnerable to accusations of exploitative labor practices.”

The lowest paid workers in Myanmar earn only 1,700-2,000 kyat ($1.70-$2.04) per day.

“Myanmar continues to pose some of the highest labor risks in the world,” Mr. Thompson said. “As a result of generally poor working conditions, severe deficiencies in workplace inspections, and anti-union discrimination, reputational risks abound for companies sourcing from or operating in the country.

“While the country has shown improvement in labor and human rights protections since 2011, important questions remain regarding Myanmar’s ability to maintain its upwards trajectory. The next three years will be a critical period in terms of solidifying nascent reforms, much of which will give a clearer picture of the country’s long-term trajectory,” Mr. Thompson said.

Mr. Turnell added: “A labor-rights adhering Myanmar has considerable comparative advantages, especially in the production of rights-sensitive consumer goods that appeal to richer consumers, mostly but not exclusively, in the United States and the West.

“Good labor practices need not be more costly. They often greatly enhance labor productivity, while ensuring against unrest.”