Exporters face challenge from a powerful kyat
July 26 - August 1, 2010
A paddy farmer works in the field at Dala township outside Yangon. Pic: Kaung Htet
UNCERTAINTY over currency exchange fluctuations linked to a weakening US dollar is holding back exports and cutting into profits, industry experts say.
For fear of losing money, some exporters are withholding their produce from the market in the hope that a stronger US dollar rate may emerge later.
And some of those who do export make less profit than they expect because of the strength of the local currency. Others even claim that the more they export, the more money they lose.
The value of the kyat against the US dollar has appreciated 10 percent within the past year, and more than 40pc over the past decade, according to exporters in Yangon.
Major export sectors such as rice, beans and pulses, fisheries, timber and apparel are struggling in the current climate as their profit margins shrink, they say.
“It’s high time the exchange rate was reviewed and adjusted in favour of the export industry,” said U San Thein, a retired financial expert from the Central Bank of Myanmar.
The current rate is about K1000 to the dollar. Ten years ago, it was K1430, representing an appreciation of the Myanmar currency against the dollar since then of more than 30pc. Either export volumes, or profits, are reduced accordingly, said U Myat Thin Aung.
The garment industry is struggling to make a profit despite increased orders, said U Myint Soe, president of Myanmar Garment Manufacturers Association (MGMA).
Aside from a 10-15pc drop in earnings due to the exchange rate, labour costs have also risen by 15pc over the past year, he said.
“We have to spend more than 20pc over our normal profit margin,” U Myint Soe said, adding that the industry has to pass on some of those extra costs to customers.
“The exchange rate gap over more than three months is unpredictable. By the time we earn the money, the profit we earned is not what we expected,” he said.
In the beans and pulses sector, a market has even emerged in the trade of export contracts. “When an exporter buys a contract, the rate might be K1100 to the dollar. But by the time the customer pays, the rate might be down to K1000,” said importer/exporter U Myat Thin Aung, president of Hlaing Tharyar Industrial Zone Management Committee.
“There is a similar situation in every export sector, including timber and fisheries. Instead of exporting, it would be better hold the stock in the hope of a better rate,” said U Myat Thin Aung.
