Year Of Hardships For All Business Sectors In Thailand

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Year of hardships

The Nation

2012 is definitely a year of difficulties for all business sectors in Thailand, as they will be weighed down by many unfavourable factors - from the euro-zone crisis and fragile US economic recovery to the poor post-flood sentiment. |In the first of a two-part series, The Nation presents a summary of key business sectors. While several are awaiting government assistance, others are striving on their own to ensure competitiveness in the regional and global arena.

TOURISM

The tourism industry has struggled through another tough year, but more challenges lie ahead.

The flooding did not cause a great impact on tourism like the financial crisis in the last decade did, or an extremely short impact like the airport closure in December 2008, but it still harmed the industry, as it led to loss of confidence among tourists to holiday in Thailand in the future.

Locally, people may prefer to stay home rather than travel in 2012 as many residences were damaged from the flooding. Many attractions mostly in the Central region are under renovation.

Knowing that the tourism industry is one of the most competitive business environments in Thailand, tourism associations are forecasting arrivals to reach nearly 20 million in 2012 and 31.8 million in 2015.

The opportunity is huge for anyone to continue investing in Thailand, especially in the hotel and resort business, and in the process exacerbate the oversupply plaguing many key destinations such as Bangkok, Phuket, Pattaya, Chiang Mai, Hua Hin and Samui.

Industry analysts said the situation could get worse particularly when the market sees new competitors or when the industry is facing a crisis, whether natural or man-made such as financial downturns and political protests.

Effective plans and proactive measures are among the strategies to battle new rivals and tackle the fallout from uncontrollable factors.

Key associations said next year would not be easy because of many threats and pressure from policy implementation.

There is the minimum wage of Bt300 per day, which is expected to hurt small and independent operators such as hotels and travel agencies.

The hike in wages will force operators to raise their service charges while the spending power of both local and foreign tourists may not grow concomitantly.

Economic problems in Europe will affect one-third of visitors to Thailand so the private and public sectors are urged to revise business plans ahead of that.

However, the good news is that the Tourism Authority of Thailand will shift its focus to Asia and emerging economies like Russia, India and the Middle East to offset the slumping Western markets.

Operators want to see stability return to the country, internal disputes kept in control and conflicts resolved fast. That would do much to help the tourism industry stay afloat. Otherwise, the country may fall from a first-choice destination to second or third.

SUCHAT SRITAMA

ELECTRONICS

The year 2011 was a bleak one for the electronics industry. Two major crises both inside and outside Thailand hit the industry seriously.

The first crisis was the tsunami in Japan. That disaster, which hit Miyagi prefecture in the eastern part of the country, indirectly affected the electronics industry in Thailand as the giant wave destroyed many information-technology and electronics manufacturing plants. The shortage of electronic components became a problem for makers of electronic devices, electrical appliances and IT products worldwide, including Thailand, which is known as the second manufacturing base for Japanese companies.

The electronics industry in Thailand was disrupted for a few months, and then was shocked again by some of the most serious flooding in the country's history. The floods hit the Central region directly, including Ayutthaya and Pathum Thani provinces where many global electronics companies such as Western Digital and Japan's Minebea, Hana Microelectronics, Toshiba and Sony are located. Production in these two provinces accounts for 40 per cent of this industry's total output in Thailand.

The disruption from the flooding not only hit the industry in Thailand, but also electron

ics production worldwide. Thailand is the largest manufacturing base for hard disk drives, and the flood caused a shortage that in turn cause prices for IT devices to increase in the global market.

Obviously, the export value of the Thai electronics industry has dropped sharply since October. Supporting industries, even if they were not located in the inundated area, could not operate normally. The Electrical and Electronics Institute forecasts that the export value of this industry will drop by 3.81 per cent from US$33.046 billion last year to $31.788 billion (Bt994 billion) in 2011. The opportunity loss of this industry from October-December is expected to amount to Bt170 billion, a number that is predicted to get worse, as it will not be easy for the factories to resume normal operation quickly.

NALIN VIBOONCHART

TELECOM

The telecom sector looks set to see the auction of the long-awaited 2.1GHz spectrum licences in 2012.

The telecom committee of the National Broadcasting and Telecommunications Commission (NBTC) intends to auction the licence in the third quarter of 2012.

Cellular operators have been waiting to clinch this licence for years to make sure they will stay in the lucrative sector after their concessions expire. The new spectrum will also enable them to further expand their cellular broadband services and mint more data revenue.

The country's first auction of the 2.1GHz licences almost took place in 2010 when the now defunct National Telecommunications Commission (NTC) was about to call the bid in September. But the plan was suspended by an injunction by the Central Administrative Court, sought by CAT Telecom, following its challenge of the NTC's licensing authority at the court.

NBTC telecom committee's chairman Colonel Settapong Malisuwan said with strong confidence that NBTC has unquestionable legal authority to grant the new spectrum licences.

The telecom sector in 2011 began with the talk-of-the-town CAT Telecom-True Corp tie-up to provide the 3G service, followed by the TrueMove's challenge of Total Access Communication (DTAC)'s nationality, and the advent of the NBTC.

CAT and True subsidiaries Real Future and Real Move signed the deals in January to forge a partnership to offer 3G-High Speed Packet Access (HSPA) service. The deals quickly attracted scrutiny by state agencies and telecom scholars concerning the deals' legitimacy amid confirmation from CAT and True executives that the deals are legitimate.

The deals had also prompted DTAC to file a complaint against CAT and its board of directors in April, seeking judicial review of the legality of the deals. The court accepted for judicial review only some parts of the complaint, prompting DTAC to make a petition to the court to accept the other parts too.

In what seemed to be True's revenge over DTAC's complaints against the deals, True subsidiary TrueMove started filing a series of complaints in June against DTAC with many state authorities, alleging its rival was a foreign-owned entity running a business in Thailand in circumvention of the Foreign Business Act.

DTAC and its Norwegian strategic partner Telenor have countered the complaint, affirming that Telenor's ownership in DTAC complies with Thai laws and regulations.

In September, the country welcomed the birth of the NBTC. It has replaced the NTC in overseeing both the multi-billion-baht telecom and broadcasting sectors.USANEE MONGKOLPORN,

SIRIVISH TOOMGUM

BANKING

The banking sector in 2011 should see its strongest-ever loan growth and highest growth of net earnings, thanks to the investment of the private sector in acquiring businesses overseas, the Thai Khem Khang scheme, and domestic consumption in such areas as housing and automobiles.

Outstanding loans in the first 10 months increased by 12.1 per cent to Bt736 billion year on year. Siam Commercial Bank outperformed the rest of the sector with loans amounting to Bt205.74 billion, followed by Bangkok Bank at Bt142.05 billion and Krung Thai Bank at Bt121.04 billion. Loan growth as at the end of 2011 should be about 12 per cent on average, slowed by the flood crisis that hit banking performance in the fourth quarter. Still, the high performance in the first 10 months was sufficient to support the banking industry overall.

The earnings of the 11 commercial banks as at the end of 2011 is expected to jump by 31.5 per cent to Bt1.43 trillion. That is the highest earnings growth the Thai banking industry has ever seen.

Earnings growth in 2012 is expected to be 9 per cent, reaching Bt1.55 trillion.

Meanwhile, lending in 2012 is projected to increase by 8-9 per cent. The country's post-flood rehabilitation and private investment are key drivers of the lending outlook.

Retail banking will witness lower loan growth, especially mortgages and auto loans, because the floods hurt potential home-buyers' sentiment and auto production will not be fully back up to speed until the second half. The government schemes for first-home and first-car buyers are positive factors to sustain both segments.

The global economic slowdown, the instability of local purchasing power and the trend of lower interest rates will likely have an impact on net interest margin in 2012, so NIM will be lower than in 2011.

Meanwhile, banks are expected to move in all directions for new deposits to finance the spurt in loan demand in 2012.

The banking industry witnessed two more foreign banks setting firmer footprints in Thailand this year.

After maintaining some quiet presence in the Thai capital for a while, RHB Bank, Malaysia's fifth-largest bank, set up a Bangkok branch in June, with an emphasis on products for small and medium-sized enterprises and corporate banking services.

In the same month, another strong foothold was made by Bank of China, declaring its focus on baht-denominated business to facilitate rapidly rising commerce between China and Thailand.

Both banks stand ready to open more branches to service their customers in Thailand.

This trend is echoed by Citibank, which announced its plan to go for a local banking licence in 2012 and establish more branches.

Their expansion plans could change as, in the middle of December, the Bank of Thailand announced its guideline permitting foreign banks to apply for setting up a subsidiary with a maximum of 20 branches in the country.

Currently, there are 15 foreign-bank branches and one subsidiary of a foreign bank in Thailand.

Applications for subsidiaries will open next year, when foreign banks are expected to serve their customers with a wider reach across the nation. Such a development may not be sufficient to shake up local commercial banks, which have thousands of branches, but it appears to be another message that foreign banks are on the move.

SUCHEERA PINIJPARAKARN,

SEETALAVAJIT SABAYJAI

SECURITIES

Next year will bring liberalisation of commission and the linkage of Asean bourses, leading to greater competition in the securities industry.

To survive the fiercer competition, brokerages need to adjust by establishing alliances and networks and developing their workforce's capability.

This year witnessed the industry in transition. In the biggest development, Kim Eng Securities (Thailand), which commands the largest share in the industry, was taken over by Maybank of Malaysia and renamed as Maybank Kim Eng Securities (Thailand). This could benefit the Bangkok-based securities firm by giving it more channels and a broader network for international business.

A peer, Bualuang Securities, was wholly acquired by its parent Bangkok Bank, which cited higher efficiency as reason for the purchase.

Recently, Phatra Capital and Kiatnakin Bank were merged for synergy opportunities.

Before these transactions, Finansia Securities was merged with Syrus Securities and renamed as Finansia Syrus Securities.

Such mergers aim at strengthening operations in preparation for intensifying competition.

Next year will likely see securities companies divided into three groups. The first group consists of those with commercial banks as their parent.

The second comprises those with foreign allies.

That leaves independent brokerages as the last group. They will have to make the most adjustment and may need to find a niche to compete in.

No matter how these players will be divided, mergers and acquisitions are expected to continue under the weight of globalisation.

SIRIPORN CHANJINDAMANEE

PROPERTY

The residential market in 2012 will start to recover in the middle of the year after the flood shock in 2011.

Commercial buildings such as office buildings, serviced apartments, and the hospitality business in Bangkok and tourist destinations will continue to grow in 2012 compared with last year.

Business Housing Association president Issara Boonyoung forecast that the demand to buy residences will continue to drop in the first half of 2012 with most home-buyers waiting to see what the government would do to deal with floods and which locations are prone to flooding.

"If the government does not take any measures, the market may take more time to recover," he said.

Thai Real Estate Association president Kittipol Pramote na Ayudhya said that the demand to buy high-rise residences and condominiums as second homes, or as an alternative in case of floods, will be the new trend for home-buyers who have buying power. This will focus on the condominium at a price lower than Bt2 million per unit.

Meanwhile, the demand to invest in commercial buildings such as office

buildings, serviced apartments, and hospitality businesses in Bangkok and tourist destinations will continue to grow this year compared with last year. Both foreign and local investors believe that Thailand is the best location for the hospitality business, especially locations close to the mass-transit system, he said.

This will drive up land price in central business districts and in some locations it may be increase between 5-10 per cent, Agency for Real Estate Affairs said.

SOMLUCK SRIMALEE

RETAIL

The retail market is expected to see growth this year slashed from the 7-8 per cent predicted earlier to only 4-5 per cent, as the massive flood dampened shopper sentiment.

"Many suppliers' factories, especially in Ayutthaya and Pathum Thani, have been damaged and forced to close temporarily. Distribution centres for many retailers have seen deliveries drop drastically by 40-45 per cent," Chatchai Tuangrattanapan, director of the Thai Retailers Association, said last week.

Many commodities were packed in survival kits and donated to flood victims, so they have disappeared from the retail system.

The widespread waters had submerged many areas of Greater Bangkok.

Sales at modern retail stores were off by 10 per cent, he added.

Busaba Chirathivat, president of the association, said the flooding had caused billions of baht in damage to the retail industry in the areas of products, logistics and distribution, labour, buildings and assets.

"We would like to urge the government to urgently launch its rehabilitation plan before Thailand loses trade and investment opportunities to neighbouring countries," she said.

As part of the rehabilitation package, the government should revise the tax structure to promote Thailand as a major shopping destination in competition with other shopping oases in the region, such as Hong Kong, Singapore and Malaysia.

As the massive flood has hit many areas of Bangkok, local shoppers have lost their enthusiasm, with daily visits to many malls down by as much as 20 per cent.

Satima Tanabe, deputy general manager of Gaysorn Shopping Centre, said local visitors to the upmarket mall had plunged by 15-20 per cent because of the flooding. Buyers were not in the mood and daily news reports were doing little to lift their spirits.

Gaysorn's major customers were business and factory owners living in the suburbs. They have been seriously affected by the flooding and would be spending much of their time concentrating on business restoration and continuity when the flood is over, she added.

KWANCHAI RUNGFAPAISARN

AGRICULTURE

Due to natural calamities and unexpected events, the prices of major agricultural commodities have continued to rise since early this year.

Although the prices of crops did not climb to all-time highs like in 2008 during the food crisis, farm prices - mainly of rice and oil palm - have been gradually improving.

Natural disasters, including the drought early in the year, storms in the middle of the year and floods towards the end of the year, particularly in Asean countries, have curtailed output and driven up prices.

In Thailand, 12.61 million rai of farmland were destroyed by the severe inundation that lasted from May to this month. Paddy fields were the hardest hit with 9.9 million rai damaged, followed by 269, 286 rai of fisheries, while 30.32 million livestock animals were lost.

This year, many factors - including rising demand for energy crops, climate change and widespread diseases - have caused production to fluctuate. Competition for these materials has also led to an imbalance in supply for industrial and human consumption.

According to the Commerce and Agriculture ministries and the National Food Institute, commodity prices should continue to move higher by at least 5 per cent next year riding on the strength of China's and Asian economies, continued interest of investors in commodities, the food security policies of many countries and growing global population.

PETCHANET PRATRUANGKRAI

-- The Nation 2011-12-26

[eatswaves2]

Great read well put together.