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Pioneer Weighs Myanmar Plant as Kyat Cuts Costs: Southeast Asia

Myanmar’s kyat, which is weakening at the fastest pace among Asian currencies, is making the former dictatorship look more attractive to companies seeking to shift production.

The currency dropped 1.7 percent in the past month to about 871 per dollar, more than other exchange rates in the region, according to data compiled by Bloomberg, reducing labor costs in a country where manufacturers can employ six workers for the price of one in Guangzhou, China. Myanmar adopted a managed float in April, scrapping a 35-year peg, to rein in a surge in black-market rates that was hurting exporters.

Lower expenses are a key selling point as President Thein Sein seeks investments to create jobs after a political opening that saw former prisoner Aung San Suu Kyi join parliament, prompting the U.S. and the European Union to ease sanctions. Coca-Cola Co., Honda Motor Co. and Pioneer Corp. (6773) have said since the peg ended that they are considering business ventures in the nation of 64 million people that remains among Asia’s poorest.

“Most of the exporters, especially in the labor-intensive garment industry, wish the currency to be weak, around 900,” Maung Maung Lay, vice president of the Union of Myanmar Federation of Chambers of Commerce & Industry in Yangon, said in an interview on July 23. “The government is trying their level best to make that happen,” he said, adding the central bank’s capacity to influence the exchange rate remains limited. Most employers now pay workers in kyat rather than dollars, he said.

Black-Market Rally

The central bank set the kyat’s reference rate at 873 today, compared with 871 yesterday, according to its website. That level is 6.3 percent weaker than the first daily fixing on April 2. In the past month, Indonesia’s rupiah fell 0.4 percent and China’s yuan declined 0.3 percent, while Malaysia’s ringgit advanced 0.7 percent and Thailand’s baht rose 0.4 percent. The Indian rupee climbed 1.7 percent.

Before adopting the managed float system for the kyat, companies relied on a black-market rate that appreciated from 1,300 in 2006 to about 800 earlier this year. The official rate of 6.4, pegged to the International Monetary Fund’s special drawing rights, was available only to state-owned companies and no longer exists.

“The country’s cheaper costs, including labor and the foreign-exchange rate, are among elements the company is looking at in choosing a place for a production base,” Hiromitsu Kimura, a spokesman for Pioneer Corp., said in an interview on July 17. The Kanagawa, Japan-based firm makes car-navigation systems and audio equipment.

Universal Robina

Universal Robina Corp. (URC), the Philippines’ largest snackfood maker, will open a factory in Myanmar that will complement its Thai operations in selling into the local market, President Lance Gokongwei said in an e-mail yesterday.

Laborers in Myanmar’s manufacturing industries earned an average monthly salary of about 50,437 kyat ($58) last year, compared with 2,257 yuan ($353) in China’s Guangzhou, 2,297,038 dong ($110) in Hanoi and 8,544 baht ($270) in Bangkok, according to data provided by the Japan External Trade Organization on its website. A falling currency makes Myanmar wages and goods cheaper for foreign companies and overseas buyers.

Some firms are waiting for infrastructure costs to come down before putting cash into Myanmar. Garment makers are concerned about inadequacies of electricity, transportation and telephone networks, according to Willie Fung, chairman of the world’s largest bra-maker Top Form International Ltd. (333)

‘Sketchy’ Answers

About a quarter of Myanmar’s people live in poverty, agriculture accounts for 70 percent of employment and about three in four people don’t have access to electricity, the Asian Development Bank said in a report last month. Myanmar has about 18 vehicles for every 1,000 people, compared with 250 in Indonesia and 370 in Thailand, according to the ADB.

“While the government officials we spoke to all seemed determined to revamp the economy of the country by bringing in foreign investments as the catalyst, their answers to many of our questions were sketchy,” Fung wrote in an e-mail after participating in a trade delegation to Myanmar last month.

Myanmar is also attractive to manufacturers that want to diversify geographic risks, according to Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd.

“Putting all your eggs in one basket may not be the best thing,” he said in an interview yesterday. “Myanmar makes sense given that there have been concerted efforts made to bring in foreign investments.”

New Investment Law

Myanmar may have a new investment law as early as September if a joint session of parliament approves the bill, Kan Zaw, deputy minister of National Planning & Economic Development, said on July 11. The draft law allows investors to lease land for 50 years, with the possibility of two 10-year extensions, he said, adding that foreign companies will be guaranteed a level playing field with local businesses.

Thein Sein has targeted annual growth of 7.7 percent until 2016 as he focuses on the economy after freeing political prisoners and loosening media restrictions since taking power in March last year. Suu Kyi, a Nobel Peace Prize winner who won a parliamentary seat in April by-elections after 15 years under house arrest, last month called for investments that create jobs to avoid a “time bomb” of youth unemployment.

President Barack Obama eased sanctions against Myanmar this month, authorizing U.S. companies to invest in the Southeast Asian nation for the first time in about 15 years. The European Union had suspended restrictions in April.

Exports from the Southeast Asian nation increased 19 percent in fiscal year ended March 2011, according to the Japan External Trade Organization, citing Myanmar government data. Thailand accounted for 33 percent of the total, followed by Hong Kong at 21 percent, China at 14 percent and India at 10 percent.

‘Hungry for Jobs’

With the second-largest land area in Southeast Asia behind Indonesia, Myanmar’s resources include rubber and natural gas, as well as deposits of gold, copper and gemstones. Gross domestic product is projected to increase 6 percent this fiscal year, compared with 5.5 percent in 2011-2012, according to an IMF estimate. Myanmar’s fiscal year begins in April.

“The workers are very hard working and hungry for jobs,” said Willy Lin, chairman of the Textile Council of Hong Kong Ltd., an umbrella group for most of the city’s garment manufacturers. “In a year or so, we will see a lot more investment to the country.”

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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