Major British clothing retailers using factories in Burma have welcomed the nascent democracy’s steps to regulate low pay.

Marks and Spencer, Tesco, Primark, New Look and Topshop have joined international players including H&M, C&A, Aldi and Gap in buying from Burma, also known as Myanmar, where labour costs are ranked the second-lowest in the world. Only Djibouti, in the horn of Africa, is cheaper, according to the risk analysts Verisk Maplecroft.

On Saturday the Burmese government set a minimum wage of 3,600 kyat (£1.82) for an eight-hour day – a move previously called for by many international clothing groups that is expected to boost investment in the local garment industry.

The new regulation means the minimum monthly pay for workers would be about $67 based on a six-day week. That means Burma will retain a competitive advantage over rival garment manufacturing states such as Vietnam and Cambodia, where the monthly minimum wage ranges from $90 to $128, according to the International Labor Organisation.

The announcement came less than three months before the country’s first free elections in 25 years. The National League for Democracy, led by the Nobel laureate Aung San Suu Kyi, is expected to win comfortably.

More than one new garment factory opened every week in Burma last year, according to the local manufacturers’ association, amid a wave of new orders from international players that has tripled export revenues from clothing to $1.5bn in three years.

The attraction is clear. Basic wages average $1.50 (1,852 Myanmar Kyat/94p) a day, according to a recent survey by Oxfam of workers at 22 factories making clothing for international brands. Three-quarters of the 123 workers spoken to for the survey, seen by the Guardian, said they were struggling to pay for food, housing and medicine even if they work long hours of overtime.

“Though Myanmar is blighted with extreme social and compliance risks such as poor working conditions, child labour and human trafficking – many investors see the country’s modest reforms as a move in the right direction when compared to other major garment producing countries in the region,” Ryan Aherin, senior analyst for the Asia region at Maplecroft, said.

But Aherin pointed out that racial and religious discrimination was on the rise and police violence against labour demonstrators this year served as a “stark reminder of the authoritarian rule”, which governed Burma until the arrival of a nominally civilian government in 2011. The EU began lifting trade sanctions in 2012.

The decision to set a minimum wage in Burma comes after 13 companies including M&S, Primark and H&M wrote to Burma’s government supporting such a move. The UK-based Ethical Trading Initiative (ETI) says it will make the country more attractive to foreign investors.

Peter McAllister, director of the ETI, which is backed by retailers and labour rights groups, said that while retailers were attracted to Burma by low costs – particularly given rising wages in China – this was not the only factor they considered.

He said responsible companies realised that decent wages and labour rights were important — not just in terms of doing the right thing, but in keeping business running smoothly.

“Brands would like to see a locally negotiated deal with mechanics that can protect from the worst thing - a pressure cooker where something happens so that production is stopped and in the worst cases lives are lost,” McAllister said.

Some factory owners have opposed the new wage, and workers told Oxfam they were already being asked to work additional unpaid overtime or increase production rates to help reduce the affect of the minimum wage on business profits.

The official announcement of the minimum wage did not mention how overtime would be treated, referring only to a “standard eight-hour work day”, according to Reuters.

Mary (not her real name), a 22-year-old who works six days a week sewing coats in a factory in Rangoon, said her boss had upped production targets by more than 40%. “If we can’t meet the target then we have to stay after work and finish off without being paid,” she said.

She earns 1,400 Myanmar Kyat (71p) a day in basic wages for a nine-hour day and 19p an hour for in overtime, which she is usually expected to do at least four hours a day. “I have a good job compared to workers in other factories,” she said. But she said conditions were hot and tough, with just one fan between 80 workers in her part of the factory.

Workers had suffered electric shocks and seen a boiler explode at the factory. In June, Mary earned just over £76 for the month.

Oxfam found that workers put in an average 10.5 overtime hours a week but faced many possible ways to have their pay docked. More than three-quarters lost pay if they were sick or absent, and more than half said the did not receive annual leave except for public holidays.

More than a fifth of the workers Oxfam spoke to were forced to work overtime to meet production targets and many of those said they were not paid for some of their extra work. More than two in five workers had fallen into debt in order to cover basic needs.

Perhaps most worryingly, given recent incidents at clothing factories in Bangladesh, nearly half said they did not feel safe inside the factory they worked in, with concerns about fire, blocked safety exits and repressive behaviour by supervisors or managers. One worker told Oxfam: “There is a fire brigade, but only just for show.”

The Swedish retailer H&M, one of the biggest European operators in the country, works with 13 factories. It said it believed it could be a force for good in Burma.

“Burma has huge development and growth potential and we see that we can contribute to job creation and raise sustainability standards in the textile industry. Myanmar has a mature textile industry with a capability of producing complex garments,” a spokeswoman said.

The retailer said it was backing a uniform minimum wage so that Burma’s garment industry could attract and retain a skilled labour market, “which it needs to develop and grow into a thriving economic driver”.

M&S has been working with three factories after entering the country nearly two years ago and Tesco has been using two factories for about the same period. Both said they regularly audited factories to ensure they met ethical standards.

Primark would not say how many factories it was working with. It said it sources “a small number of orders” from Burma. “These suppliers are familiar with the company’s code of conduct and its requirement that labour rights be respected,” the budget retailer said.

Topshop said it was working with one factory in Burma and expected all suppliers to meet its code of conduct.

New Look began buying from Burma in 2014 and is understood to be working with four factories making coats and jackets. It declined to comment.