Myanmar factories close amid deteriorating economic conditions

Under military rule, factories in Myanmar’s largest cities have struggled to survive amid power cuts and shortages of imported raw materials, according to industrialists and workers. In urban industrial zones, where electricity is only available for four hours on a typical day, manufacturing businesses have increasingly had to rely on costly diesel generators. The difficulty is exacerbated by a scarcity of raw materials, the consequence of junta policy that has depleted foreign currency reserves and restricted the purchase of goods from abroad. The exact number of factories closing due to these deteriorating conditions is unknown. However, a successful industrialist who spoke with Myanmar Now said he personally knew of several factories in Yangon alone that had been forced to close temporarily or rent out their premises, as well as foreign-owned factories that are now permanently shuttered. “Domestically owned factories have suspended operations. The factories that cannot stay profitable have to take a break, and ultimately if the owners can't continue to operate the factory at a profit, they have to sublease it to someone else," he said. “That’s how things are going now. Foreign companies simply shut down if they’re inoperable,” he added. Electricity can be provided by the national power system in Myanmar at a cost to the consumer of 150 kyat per kilowatt-hour, while electricity from a diesel-fueled generator costs the consumer 1,000 kyat per kilowatt-hour. This is based on a price of 10,000 kyat for a gallon of diesel fuel which will yield 10 kilowatt-hours. However, this price was maintained by a Central Bank of Myanmar (CBM) policy of trading dollars at a different rate for diesel imports, which could not be sustained for the long term and ultimately failed to resolve the shortage of imported fuel. The increased overhead reduces profits for manufacturers, the Yangon industrialist told Myanmar Now. He had considered raising his prices, he said, but consumer demand was already low due to the economy’s effects on ordinary people’s livelihoods. Although public utilities are supposed to provide electricity for hour hours a day, he added, factories can only access energy from the electrical grid for the promised four hours for two days each week. On the remaining five days, publicly provided electricity is accessible for two hours at most. According to the owner of a laminated woven bag factory in Yangon’s Hlaingtharyar Industrial Zone 5, profits have plummeted due to a sudden rise in fuel prices as well as generator maintenance and repair costs. “Most of the profit is being spent for fuel, so we’ve had to substitute low-quality polypropylene pellets for the original pellets as raw materials,” he said. Due to the electricity shortage, more than 20 factories producing consumer plastic products have closed, he said, while some have been forced to relocate in the hope of finding better access to publicly provided electricity. In Hlaingtharyar Industrial Zone 5, he said, only those businesses that do not rely on round-the-clock access to electricity such as bakeries, welding workshops, furniture stores, and animal feed producers remained operational. “Production has been scaled back. We’re operating with the limited electricity and workforce we can get. Previously, we operated our factory eight hours a day, but now we only operate for four hours. We sell and purchase based on what we can produce in those four hours. That’s how we keep going," said the factory owner, who asked that his name be withheld for security reasons. An anonymous iron smelter working in the Mandalay Industrial Zone said that the electricity problem has also affected manual workers. In the past, iron smelters earned a daily wage of around 25,000 kyat. Due to increasingly frequent power cuts since the 2021 military coup, virtually all iron smelting in Mandalay came to a halt due to the lack of electricity. “Now they can't provide electricity anymore, so the factories shut down. We can't manage with generators. There are too many blackouts, and the price of iron has risen every year,” he said. Trade blocked on the borders Since the end of 2023, the junta has lost at least six border towns to offensives by ethnic armed groups, resulting in the disruption of important trade routes. Trading posts on the China-Myanmar border—such as the 105-Mile Trade Zone near Muse and Chin Shwe Haw in northern Shan State—were captured by the Brotherhood Alliance, and Lwegel (Lweje or Loi Je) was seized by the Kachin Independence Army in Kachin State. Karenni resistance forces occupied trade posts on the border with Thailand such as Mese, and the Rikhawdar crossing on the India-Myanmar border fell to the Chin National Army. Restrictions on the outflow of foreign currency have also created barriers to importing raw materials from abroad, according to factory owners in urban industrial zones. An economic official in Yangon's Shwe Lin Ban Industrial Zone said that manufacturers backed by Japanese investment—who generally import materials to assemble complex finished products such as electric vehicle engines, telephones, and electronics—had been forced to relocate to China. “Importing raw materials has become increasingly difficult, and many factories have had to close due to the shortages,” he said. “However, the garment industry is still getting raw materials and fulfilling overseas orders. In fact, some garment factories from Bangladesh have even relocated to Myanmar,” he added. The junta does not impose restrictions on raw materials for garment factories because the garment industries’ finished exports have proven to be a reliable source of foreign currency. Garment manufacturers are allowed to transact business in dollars and are less affected by the volatility of the kyat than other sectors. “It is a business that earns foreign currency. Though the cost of production here has increased, the value of foreign currency has also risen against the Myanmar currency and can be spent on production,” a leading industrialist in Yangon said. “The only thing that worries the garment industry is that it may not continue to get purchase orders from abroad.” After the coup in Myanmar, garment exports remain the country’s largest source of export revenue, despite some world-famous clothing companies’ decisions to exit Myanmar due to highly publicised labour disputes and workers’ rights violations. From April to November 2023, revenue from garment exports was around US$3bn, according to data published by the junta’s ministry of commerce. Nevertheless, the coup regime’s economic policies, along with power outages and trade disruptions, have driven many foreign investors from Myanmar to Cambodia, Laos, and Vietnam, according to one workers’ rights activist. “Here, the economy is collapsing. The regime’s administration is collapsing. The people’s livelihoods are collapsing,” he said. Skilled Myanmar workers follow when foreign investment is reallocated to neighbouring countries, he added, pointing out that minimum salaries equivalent to around 800,000 kyat are an added incentive for them to move to Laos, Cambodia, and China. This leaves Myanmar factories with a scarcity of skilled workers. The fear of being forced into military service under a new, nationwide conscription policy has also pushed factory workers to leave the country or return to their homes outside of major urban areas. The junta has not acted on proposals to exempt factory workers from mandatory military service. According to the leading Yangon industrialist who spoke to Myanmar Now, the decline in industrial production could have severe and long-term impacts on the country’s economy and productive capacity. “If industry suffers, our country's gross domestic product decreases. People’s job opportunities and incomes will all be diminished. The entire economy will be impacted,” he said. According to a report published by the United Nations Development Program (UNDP) on April 11 of this year, Myanmar's middle class has shrunk by 50 percent amid the three years of insecurity, violence, and poverty that followed the 2021 military coup.

Myanmar factories close amid deteriorating economic conditions

Manufacturers across various sectors have suspended operations or rented out their facilities while some foreign-owned factories have shut down permanently

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