Global Woes, Floods Dent Prospects For 2012

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EXPORTS

Global woes, floods dent prospects for 2012

Achara Pongvutitham

The Nation

Industries worry about impact of populist policies; turn focus on Asian, Asean markets amid euro crisis

The double whammy of a world economic downturn and the floods crisis have shaken Thai export business, with overseas sales this quarter seen as unpredictable. However, hope prevails of a resumption of solid export performance from April.

At the recent Krungthep Thurakit "Breakthrough in the Export Crisis in 2012 after Devastating Floods" roundtable, panellists shared the view that the two most important factors directly harming Thailand's exports this year were the global economic down-trend and the recent devastating floods in the Kingdom.

Moreover, a clear government policy on a master plan to prevent future flooding has not yet emerged, while populist policies, particularly the new minimum wage rate of Bt300, have undermined the confidence of investors and Thailand's competitiveness.

Panellists want the government to announce a postponement of the minimum-wage policy for two years, instead of merely to April this year.

Meechai Bonyamarn, assistant director-general of the Department of Export Promotion, said the effects of the recent flooding would also hit exports next year with annual growth of just 10 per cent predicted, compared with this year's projected 15-per-cent expansion.

The devastating floods directly affected exports in November, when there was a year-on-year contraction of 12 per cent, following reported growth of just 0.3 per cent the previous month. This contrasts sharply with a 20-per-cent rise in exports in the third quarter of last year.

"The Commerce Ministry has to revise down the country's export target for this year as the flood effects are predicted to carry through to April," said Meechai, adding the ministry had called a meeting with 21 associations late last year to hear from them about the damage to their sectors and how they planned to resume production. The industries that were hardest hit include electronics and automobiles, as their manufacturing hubs are mainly located in the flood-ravaged industrial parks of Ayutthaya province. The ministry also called a meeting on December 26 to brainstorm ideas with export sectors on the drawing up of a plan to boost sales following the end of the floods.

Meechai said his department would step up its export promotion plan to participate more in international exhibitions and showcases. Officials and exporters will also take part in trade missions to visit buyers in potential markets, particularly in the European Union. Moreover, exporters applying to participate in international trade shows will have their entrance fees paid by the agency. The government has offered privileges to flood-affected exporters in many areas, including tax reductions, financial assistance and labour.

Paiboon Ponsuwanna, president of the Thai National Shippers' Council, said the country should focus more on Asia and the Asean market as exports to the region have averaged double-digit growth. The growing economies in China and India in particular have driven a regional economic boom, he said. Paiboon added that the coming single market under the Asean Economic Community (AEC) would not only expand regional trade but also enable the free flow of services, especially for logistics business.

Thai exporters should therefore focus on how to use this benefit to create business opportunities. "Asean is still an important market due to multi-investment, for which goods are imported for manufacturing to export both within and outside the region," said the council chief. He questioned, however, whether Thailand was ready to compete in the seamless trade arena in terms of production, logistics and small and medium-sized enterprises business, as many firms could not access soft loans and were facing raw-material shortages.

He said Thailand would face a difficult time during the current quarter, during which the original export target would be missed. Export value in the final quarter of last year is an important indicator of whether the export target will be met, with exports in the second half of a year generally accounting for 60 per cent of the annual value due to major festive celebrations in the period. In particular, the devastating flooding has led to ship operators cutting their space allocation for Thai business due to companies' forced reduction in production. He said they had to take such action to minimise effects on the supply chain in other countries. In addition, some shipping containers had been lost at sea, which could result in a shortage. Moreover, a giant ship operator is shifting its focus more to Vietnam at the expense of Laem Chabang deep-sea port. The Vietnamese government has constructed a large port to link Cambodia, southern China and Vietnam.

Tust Thangsombat, vice president and chairman of the Seafood Processors' Group under the Thai Food Processors' Association, said exports by the food industry would not be hit hard by the severe flooding, but exporters were concerned about the global economic down-trend, and the euro-zone debt crisis in particular.

"Avoiding export risk in the euro zone by further penetrating the Asean market would create greater market access, as they still have different food standards. So, the rush to enter Asean is like you are running head first into a wall," said Tust. Nonetheless, it is forecast that food export business should grow by at least 15 per cent this year.

"The minimum wage of Bt300 is forcing exporters to further adapt their businesses, although they are bleeding as a result. It should be implemented in two years' time [not this April], as production costs have already increased," he added.

Sukij Kongpiyacharn, president of the Thai Garment Manufacturers Association, said that although the government had postponed implementation of the minimum-wage hike until April, the labour-intensive garment industry could not survive the higher costs that such an increase implied.

"With the continued pursuit of this populist policy, big producers share the view that they will not undertake new investment here, but will focus instead on other potential countries in Asean," said Sukij, adding, "If the government ignores us, it is important that we pursue [opportunities] in AEC to maintain our competitiveness." In addition, he said, Thai production was no longer focused on the low-end market, but was capturing more medium to high-end customers.

The global economic downturn, particularly in the European Union and the US, has reduced those regions' imports, while Japan is facing an increasingly ageing society, for which fashionable goods are in low demand.

Thai garment export growth this year will remain unchanged from last year's 10 per cent, he said.

Jirabool Vittayasing, secretary-general of the Thai Lifestyle Products Federation, said alliance members had reported that overall losses as a result of the flooding had been as much as 50 per cent, as 70 per cent of the materials used are local content. Companies had been forced to move machinery to ensure production a number of times since the start of the crisis: from the North through the Central region, and finally to the Northeast. The federation comprises seven associations: the Thai Gifts Premiums and Decorative Association, the Thai Toy Industry Association, the Thai Housewares Trade Association, the Northern Handicrafts Manufacturers and Exporters Association, the Thai Stationeries and Office Supplies Association, the Design & Objects Association and the Home Decorative Design Association.

The severe flooding has prompted the federation to revise its targeted export growth of 16.55 per cent to Bt95 billion for last year, down to 10 per cent. However, performance varies depending on the products. Furniture and toy exports will be hit hard due to a shortage of hardwood, while China cancelled Thai orders as the flood waters hampered both production and shipment. The shortage of hardwood will directly affect 1 million workers in the furniture industry, most of whom are villagers, said Jirabool.

Despite the economic downturn, the EU market still has room for Thai goods, while Japan also prefers Thai products after they have been certified with the "G Mark" for well-designed production, he added.

The federation foresees overall export growth for those businesses peaking at 3-5 per cent this year. However, the stronger baht still directly affects competitiveness.

-- The Nation 2012-01-04

[thaimate]

Dont worry about floods nextt year ,the govt have it all sorted ,everyone north of Bangkok is to get a bucket each .