A dozen young women sit on the curb outside a garment factory in Hlaing Tharyar township, holding brightly coloured umbrellas as shelter from the midday sun.

They are hoping to be allowed inside so they can apply for a job. Some already have work nearby, but they have heard the United Knitting Company is offering a relatively high rate for unskilled workers of K90,000 per month, and are hoping to switch.

The standard monthly pay for a semi-skilled garment factory worker in Yangon is K95,000, including a base wage of roughly K40,000, a bonus of around the same value, an award and several payments made at the discretion of the factory owner, according to U Thet Hnin Aung, secretary of the Tai Yi Basic Labour Organisation and a member of the Myanmar Trade Unions Federation.

“They usually pay the bonus, but there is no security. If we’re absent for one day, they can take some of these payments away,” he said.

This is likely to change at the end of next month, when a national tripartite body will finalise details of Myanmar’s first minimum wage. On June 29, the National Minimum Wage Committee announced a provisional base wage of K3600 per day, and opened a two-month window for comment.

Since then, factory workers and owners have fervently debated this figure, with owners saying they will pay no more than K2500 and workers saying they will agree to a minimum of K4000. Businesspeople from China and South Korea have threatened to shut their factories in Yangon if the K3600 wage is enacted, saying that costs are already high due to low productivity and poor infrastructure.

For the workers, inflation and unstable commodity prices mean they may not be able to survive on less. On the current wage, many workers in Yangon are forced to live outside factory walls in structures built from bamboo and plastic sheeting. Some live beside large pools of stagnant water – breeding grounds for dengue-carrying mosquitoes. Healthcare options are limited and expensive.

Balancing the books

Despite the heated exchange of views, many say the impasse is not impossible to breach. A number of things could be done to improve living standards for workers and keep factory owners happy at the same time.

The first is to renegotiate the overtime pay structure, said Jacob Clere, project manager at the Myanmar Garments Manufacturing Association (MGMA). According to Myanmar law, employers must pay double the basic hourly wage for overtime work. This compares to one-and-a-half times elsewhere in the region. Furthermore, a basic working week in Myanmar is 44 hours, compared with 48 in neighbouring countries.

“Myanmar law presently requires the highest overtime wages in the region, meaning that a higher minimum wage has larger add-on effects if factories operate on overtime,” said Mr Clere. “Unless other changes are made, the proposed wage structure makes Myanmar uncompetitive with Vietnam and Bangladesh, as well as several other countries.”

Additionally, some have suggested that factory owners could adhere to the minimum wage, but reduce or remove bonus payments.

This “salary restructure” would leave workers with roughly the same wage as before – K72,000 for a 20-day month as a base wage, plus discretionary and overtime pay. Workers may feel cheated of their bonus, but it would also reduce opportunities for factory owners to use a “carrot and stick” method to ensure attendance, said the Myanmar representative of one international NGO.

A compromise must be reached because many factories operating under the cut, make, pack (CMP) model genuinely cannot afford to pay their workers much more, said Daw Khine Khine Nwe, MGMA secretary general. Owners receive a fixed income, which averages at around 10 percent of raw material costs. Poor infrastructure means logistical costs are higher than in other countries, she said.

As a result, the average locally owned garment factory is loss-making. “Salaries account for between 70pc and 80pc of total income, and other expenditures are around 50pc,” she said.

Even before the introduction of the minimum wage, owners had been shuttering uncompetitive factories.

“Last year many Korean and Chinese businesspeople closed their factories and ran away because they lost a lot of money,” Daw Khine Khine Nwe said.

Boosting productivity

Major investment in training and infrastructure is necessary so that garment factories can stay open and provide safe, well-paid, long-term employment, according to workers, NGOs and factory owners.

“In China productivity is three times higher than Myanmar and in Vietnam it’s twice as high,” said Daw Khine Khine Nwe. “It is hard for us to make the fixed delivery time, but we don’t have extra money and we cannot afford to provide compensation for the whole garment if it is delayed.”

When US sanctions were imposed in 2003, factories in Myanmar closed and skilled workers moved abroad – mostly to Thailand and Malaysia. Although garment workers in Thailand are often not paid the daily minimum wage of 300 baht (about US$10), they can make more than in Myanmar, particularly in value-added industries. As a result, factories in Yangon are left with a stream of untrained workers and struggle to increase output, said Daw Khine Khine Nwe.

On the other hand, workers argue that retention is low because owners are unwilling to provide training. “There are some training programs but they are very limited and the skilled workers leave as soon as they are skilled, because their pay is not increased,” said Daw Moe Wai, leader of the Tai Yi Basic Labour Organisation.

Owners should realise the link between training and competitiveness, said Toshihiro Kudo, a researcher at the Tokyo-based National Graduate Institute for Policy Studies who has been studying Myanmar’s garment sector for the past decade. “An increase of productivity can offset the hike of wages, and the industry can keep its competitiveness in spite of the wage hike,” he said.

However, this will require increased cooperation between the private sector and the government, he said.

“In the short term, factories should set-up their own rigorous internal training programs,” said Mr Clere.

In the longer term, MGMA has drafted a 10-year strategy and is working with international governments and agencies to improve the training infrastructure. “We are also working with the National Skill Standard Authority to issue competency certificates, which will help factories to determine suitable salaries,” said Daw Khine Khine Nwe.

“But to do this, we need time. For the time being, we should accept [a minimum wage of] K2500. If in three months productivity is up, this can become K2800 or K3000. In six months it could become K4000 – it depends on how much we collaborate and work together,” she said.

Infrastructure challenges

The other major barrier to competitiveness is Myanmar’s archaic infrastructure. The country is rated 145 out of 160 countries in the World Bank’s 2014 Logistics Performance Index – the lowest score in Asia.

“We lack the infrastructure and logistics – our production lines are very expensive, they take time and time is money,” said U Myint Soe, chair of the MGMA and managing director of Chindwin Banner Company.

“Everything is imported; the only things we can buy here are cotton balls and high-density polyethylene (HDPE) bags, which are also made from imported materials. We don’t even have thread – this [reliance on imports] is dangerous for CMP.”

Import costs rise when a domestic currency depreciates in value, and the kyat has fallen 9pc against the US dollar since the start of the year according to the Central Bank’s official rate and about 17pc based on the market rate. Inflation is also a concern, said Daw Khine Khine Nwe, and has edged up to around 8pc, according to the International Monetary Fund.

“The fluctuation worries us. Workers are asking for a higher minimum wage – even though they know the owners cannot pay it – because of the rise in living costs. If we agree to pay and there is no control over rising costs, what will happen? Someone has to control this, but I don’t see any effort,” she said.

Many believe that if the government is committed to supporting workers through a minimum wage, it could provide other incentives for international businesses to stay. “In Bangladesh some of the factories are able to move away from the CMP model, because of government support for the industry,” said Daw Khine Khine Nwe. “Here the government facilitates it verbally, but there is still a long way to go. Some of the ministries are willing to help but others take a hard line.”

Lower taxes and an investigation into corruption could also help incentivise foreign workers to stay, according to commentators. According to an MGMA report published earlier this year, the garment sector could provide around 750,000 new jobs over the next decade, the majority for women, which account for 93pc of the workforce.

“The government needs to do everything it can to support the garment sector as a major creator of jobs. But this shouldn’t be at the expense of decent work,” said Vicky Bowman from the Myanmar Centre for Responsible Business.

The main issue, according to Dominique Muller at the Clean Clothes Campaign, is the end price set by brands.

“Clothing brands and companies should set concrete, measurable steps throughout their supply chain to ensure garment workers get paid a living wage,” she said. “If the industry lobby in Myanmar successfully pushes for the opposite it will prove extremely difficult for the Myanmar government to claim that it is making progress towards responsible investment and equitable economic growth.”

For Daw Khine Khine Nwe, the situation “reminds me of a war-time movie”.

“Four or five soldiers are trapped in a cellar. The enemy lets water into the room and the soldiers have no way out,” she said, adding, “I fear our industry could become like this. The costs are rising from beneath and the ceiling is fixed. We need to find a way to raise the ceiling and help the people.”

http://www.mmtimes.com/index.php/in-depth/15431-unravelling-the-minimum-wage.html