Selected topics from the Japaneseand Myanmar experiencein CMP and industrial zone
7th High Level Forum for the Phase II of Policy
Dialogue of Industrial Development in Ethiopia
Toru HommaSenior Advisor on Private Sector Development
Japan International Cooperation Agency (JICA), andJICA Investment Promotion Advisor
Directorate of Investment and Company Administration (DICA), Myanmar
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Addis Ababa, 14 January 2015

Contents
Selected topics to complement the preceding presentations
featuring Myanmar’s case(Given comprehensive presentation has been already done in the 6th
HLF, this time just some selected issues are picked up)

1. Myanmar’s “CMP” basis garment manufacturing (tosee how it works and contributes to solving foreign currency issues)

2. Industrial zone development from Japanese zone

developer’s view
3. Issues which Japanese investors are dealing with(to see how they are concrete and detailed)

4. Implications
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CMP (Cutting, Making and Packing)the way how it works• Myanmar’s garment sector as its leading manufacturing industry is based on asystem on processing charge-basis: Typically known as “CMP” in Myanmar Cutting, Making and Packing(for reference: it is called as “CMT” in Cambodia – Cut, Make & Trim)• The CMP System is a form of production on consignment in which the main raw
materials (fabrics and ancillary materials such as interlining cloths, lining
materials, buttons and fasteners) are provided by overseas buyers and imported
free of charge, then cut, sewn and packed in the domestic factories, after which
all of the finished products are exported. (Kudo, 2012)• It starts expanding to other type of manufacturing such as medical needle anddigital camera parts, however, almost all are still garment sector

Source: Interviews by the author from CMP enterprises and MGMA;
Kudo T. (2012) “How has the Myanmar garment Industry evolved?”

3CMP (Cutting, Making and Packing)the way how it works
Overseas buyers (Japan, Korea, China etc.)
Supply raw
materials
free ofcharge(import tax
exemptionallowed)

Exportfinishedproducts

Paymentof CMP
charge(8-10%of FOBvalue)

No needtoprepareforeigncurrency
for buying
materials

X

CMP businesses (factories)

Cutting, making & packing
Source: Homma4

CMP: how it has been emerged
Contribution to avoiding foreign currency issues• CMP consignment processing business emerged when the Asian Financial Crisis
hit the Southeast Asian countries including Myanmar whose foreign exchange
position deteriorated rapidly in 1997.
• The only payment required for this process is the “processing charge” (“CMPcharge”) from the overseas buyers to the garment factories in Myanmar.
• The system made possible for the local garment manufactures to import raw
materials without export earnings. The system provided a way to avoid foreignexchange settlement, which is the most difficult issue involved in importation inMyanmar

Source: Interviews by the author from CMP enterprises and MGMA;
Kudo T. (2012) “How has the Myanmar garment Industry evolved?”

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CMP: its regulatory requirements• CMP business needs to submit investment application and to be permitted by
Myanmar Investment Commission (MIC) as specifically designated business as“… manufacturing on CMP basis”• It is distinguished clearly with non-CMP business; if a company would like toextend its business and newly start CMP, it needs to establish another companyand apply a separate investment proposal for approval• Once approved as a CMP investment, tax exemption is applied for importing rawmaterials• CMP products need to be exported 100%

• It also needs to register as a member of Myanmar Garment Manufacturers
Association (MGMA): Now 283 companies are registered as CMP companies atMGMA

Source: DICA (2014); JCCY (2014); Interviews by the author from CMP enterprises and MGMA
6Garment export (almost all as CMP) expanding
with drastic transition of major players- Import value of main Myanmar garment importing countries Million USD1000TotalJapanS Korea

800

EUChina
600

USA
Japan

400

USA
EUOthers

SouthKorea

2000

Source: MGMA (2014) based on Global Trade Atlas, processed by author

Note: 2013 data isincomplete andsome EU countries’
and others contain
only 10-11 months
data7

CMP: its lessons in the past At the beginning, it was allowed to import machinery/equipment and evenvehicles under the CMP arrangement
 Overseas buyers could supply necessary machinery and ask local CMP
enterprises to repay little by little. This arrangement contributed toreducing the initial investment cost Gradually some of CMP enterprises misused the system, for example, touse imported materials/machinery/vehicle for other purposes like justreselling domestically (at that moment the rights of import were verylimited) Then the regulations were tightened; MIC approval and MGMA
membership became required; machinery/vehicles became not applicable

Source: Interviews by the author from CMP enterprises and MGMA;
Kudo T. (2012) “How has the Myanmar garment Industry evolved?”

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Current issues on garment sector
CMP-related and general issues• There are still some needs for machinery to be applied as CMP• Improvement of import/export procedure is strongly demanded smoother administration process at the customs

 Requirement for one-stop-service or branch of customs at industrial zones
 extending the short valid of import/export licenses to meet actual
production cycle• Labour-related issues
 Pressure for wage hike (neighbouring countries recently are experiencing) Gradually increasing difficulty to secure human resources along with labour
intensive industries’ expansion in the country Needs to improve labour productivity furtherSource: Interviews by the author from CMP enterprises and MGMA;
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Tentative Observation by Japanese Developeron the Ethiopian Industrial Zone targeted to Japanese Firms
1. Possible Industries
 Possibility of labour intensive industries and other industries
2. Industrial Zone Facilities
 Rental factory
3. Rental Fee Evaluation of the price
4. Speedy Custom Clearance Important Pre-Condition
5. Other Important Viewpoints
 Infrastructure (water, electricity, etc.) etc.

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Reasons for Myanmar as promising & issues: trend

Complicated/Unclear procedures forinvestment permission• Myanmar is ranked at No.10 most promisingcountries for Japanese manufacturers as midterm investment destination• Various issues raised but the result implies
investment stages are moving from just aninterest to actual implementation(Source) JBIC (2014) “Survey Report on Overseas Business Operations by Japanese Manufacturing Companies”

11Myanmar-Japan Joint Initiative (MJJI)
Platform for investment environment improvement• A forum of discussion between Myanmar and Japan, among parties of bothpublic and private sectors, to identify concrete measures for promoting
investment and trade, and to lead “Quick Win” of Myanmar by way ofaccelerating development of investment environment• Periodically held so far 5 times in March, May and October 2013 and July andNovember 2014
• List of issues to discuss (Japanese draft of “Action Plan”) incorporating concretemeasures and target schedule of necessary efforts in the following 9 areas:(1) Visa and Stay Permit (Visa issuance rules, simplified operation)(2) Trade policy (further relaxation of trade regulation, reduction of importrelated tax, tax exemption and speedy custom clearance)(3) Investor friendly environment (legal measures for investor protection,
development of financial and security market)(4) Taxation (review of various tax systems)
Source: Website of Embassy of Japan in Myanmar (2013, 2014)(go on to the next slide)12

Myanmar-Japan Joint Initiative (MJJI)
Platform for investment environment improvement• list of issues to discuss on 9 areas (continued):(5) Infrastructure Improvement (urban transportation improvement, power
supply & telecommunication, review of relevant rules of constructionbusiness)(6) Abolish unfavorable treatment against foreigners and foreign companies(foreigners’ price issues, enlarge sectors of foreigners’ access)(7) Appropriate insurance system and open market to foreign companies(8) Ensuring resettlement scheme of labor dispute(9) Improvement of other administration procedures

Source: Website of Embassy of Japan in Myanmar (2013, 2014)13

JICA’s contribution to IZ management The Project for Improvement of Capacity of Thilawa SEZ
Management Committee in Myanmar• Objective: The Project aims to achieve effective and smooth operation for theThilawa SEZ by capacity development of Thilawa SEZ Management Committee(TSEZ-MC) and One Stop Service Center (OSSC) through establishingorganizational and administrative management, management of import andexport, customs and logistics, and approval and licensing procedures.
• Project period: September 2014 – October 2015
• Awarding ceremony for investment approval for the first 5 companies on 12 Dec.
2014 was conducted in the presence of H.E. Vice President

Source: JICA (2014); Project Team (2014)14

Summary and implications for Ethiopia
 CMP system for garment manufacturing may be useful especiallycounties like Ethiopia which faces foreign currency and initial
capital shortage
 Careful regulatory arrangement when introducing CMP is required
to avoid misuse Japanese IZ developers’ view for Ethiopian industrial zone:
target industry, necessity of rental factory, competitiveness ofrental fee, highest needs for smooth custom clearance
 Industrial zone development as a comprehensive package withtrouble shooting function is welcome
 Concrete, detailed and on-the-ground-basis arrangement isrequired for attracting more investors

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Amesegenalew
Thank youwww.dica.gov.mm
www.jica.go.jp
Homma.Toru@jica.go.jp(All Photo in all page are taken by author in 2010-2014 other than those specified)16