Bloomberg News

Abe Goes to Myanmar as Japan Inc. Eyes Asia’s Cheapest Wages

May 24, 2013

Japan's Prime Minister Shinzo Abe

Japan's prime minister Shinzo Abe's visit comes as President Thein Sein returns from the U.S., where he met President Barack Obama on the first such visit for a Myanmar leader in half a century. Photographer: Kiyoshi Ota/Bloomberg

Prime Minister Shinzo Abe today becomes the first Japanese leader to visit Myanmar in 36 years as his nation’s companies seek to invest in the former dictatorship, which has some of the cheapest labor in Asia.

About 4,000 Japanese executives per month visited Myanmar last year, the second most popular destination behind Thailand, according to Masaki Takahara, executive managing director of the Japan External Trade Organization’s Yangon office. Cheap labor and an untapped market of more than 60 million people are attracting Japanese companies, he said.

“Many businessmen are rushing into Myanmar,” Takahara, who plans to attend some events with Abe, said yesterday by phone. “There is not a market like this in the whole world right now.”

Abe’s visit comes as President Thein Sein returns from the U.S., where he met President Barack Obama on the first such visit for a Myanmar leader in half a century. Thein Sein’s moves to allow more political freedom and open the economy following five decades of military rule have helped end the country’s international isolation, attracting companies such as Ford Motor Co., Coca-Cola Co. (KO) and Visa Inc.

Myanmar has the cheapest wages in Asia, according to a Jetro survey published in December, which showed the annual total pay burden for a worker in manufacturing totaling $1,100 per year. That compares with $1,478 in Bangladesh, $2,602 in Vietnam and $6,704 in neighboring Thailand.

High Expectations

During his three-day trip, Abe plans meetings with Thein Sein and opposition leader Aung San Suu Kyi, as well as a visit to the port and industrial estate at Thilawa, 25 kilometers (16 miles) south of Yangon, Myanmar’s biggest city. Mitsubishi Corp. (8058), Marubeni Corp. and Sumitomo Corp. are helping to develop the port, part of which is set to open as early as 2015.

“Myanmar is in the spotlight economically and expectations for its development are high,” Japanese Chief Cabinet Secretary Yoshihide Suga said May 22 in Tokyo. “We are hoping to strengthen our relations.”

Abe’s itinerary also includes a speech to a business association and a visit to a Japanese cemetery. More than 100,000 Japanese soldiers died during World War II in Myanmar, which was occupied for three years.

Japan has sought closer ties since the 2010 election that brought Thein Sein to power, hosting him in Tokyo last year and sending Finance Minister Taro Aso to Myanmar in January with business leader. As Myanmar’s largest creditor, Japan last year agreed to settle $6.6 billion in debt and provide loans to help repay the Asian Development Bank and World Bank.

Suzuki, Mitsui

Japanese companies are looking to diversify manufacturing operations following recent wage increases in Thailand, Malaysia and Indonesia, and a territorial dispute with China that soured ties between Asia’s biggest economies. Myanmar, sandwiched between China and India, is one of Asia’s poorest countries.

Asked today if Myanmar is looking to end its traditional dependence on China, Foreign Ministry spokesman Hong Lei said the two countries have a good relationship.

“China is confident of the development of relations with Myanmar,” Hong said.

Suzuki Motor Corp. got permission from Myanmar in February to form a manufacturing subsidiary to make small trucks beginning this month. Sumitomo and NEC Corp. this week signed a contract to help improve the country’s communications network.

Rice Milling

Mitsui & Co. (8031) in March said it would import 5,000 metric tons of rice from Myanmar, its first purchase in more than four decades. The trading company may invest 15 billion yen ($147 million) to build three rice-milling plants in Myanmar capable of processing 300,000 tons a year for the Middle East and Africa, a Mitsui spokeswoman said in March.

Myanmar’s gross domestic product may grow 6.75 percent this fiscal year, led by natural gas sales and investment as it modernizes its financial system, the International Monetary Fund said on May 22. Natural gas is Myanmar’s most important source of export earnings, according to the Asian Development Bank.

“The authorities’ ambitious reform program is bearing fruit, with macroeconomic stability and high investor interest,” Matt Davies, the IMF’s mission chief for Myanmar, said in a May 22 statement.

Suu Kyi, on a visit to Tokyo last month, said inadequate infrastructure and legal uncertainty were holding up investments.

Foreign Investment

“Foreign investment is increasing more in theory than in actual fact,” she told students at the University of Tokyo.

Japanese manufacturers are mostly waiting for Thilawa to be completed before building factories because the availability of land with quality services is limited and electricity supplies are unreliable, Jetro’s Takahara said. While makers of electronics and automobile parts will probably wait for Thilawa to become functional, companies involved in labor-intensive industries such as garments are ready to set up shop now, he said.

“In the long term, the growth of income, growth of GDP is promised,” Takahara said. “A lot of Japanese want to be the first comers to dominate the market.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net


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