Impressive
growth figures will be harder to come by as the base value
of Thai exports returns to pre-crisis levels, some experts
caution
Challenges rise with expectations
WORANUJ MANEERUNGSEE
Although the value of Thai exports
in 1999 was poised for dramatic growth over last year -- and even
greater than the 4% Commerce Ministry forecast that was once criticised
as too optimistic -- the big question for the coming year is whether
such growth is sustainable.
In the two-plus decades before the 1997 crisis, exports were
the prime mover in Thailand's drive toward prosperity. Exports
accounted for only 13% of the country's gross domestic product
in 1972, the first year that the government shifted toward export
promotion as a core policy. By 1987 the ratio had risen to 23%,
and in 1998 it was 50%.
From 1987 to 1996, the US dollar value of Thai exports rose by
an annual average of 19%.
Export
growth was driven by a surge in foreign direct investment, led
by Japanese businesses that relocated their production bases to
Thailand because previous bases in South Korea and Taiwan were
too expensive and faced trade barriers from the United States.
The baht devaluation in 1984, from 23 against the dollar to 27,
further enhanced the country's price competitiveness.
As well, Thailand at the time enjoyed full tariff privileges
under the Generalised System of Preferences (GSP), a set of low
tariff rates used by developed countries to help developing ones
build new markets.
Thai exports faced a contraction for the first time in a decade
in 1996, due largely to the emergence of lower-cost competitors
such as China, India and Vietnam in low-end, labour-intensive
manufacturing. And when the baht was floated in 1997, there was
little joy for exporters since many other currencies had also
weakened. The problem was intensified by the removal of GSP privileges
on many products by the United States and the European Union.
The value of Thailand's exports in 1997 contracted by 1.4% to
US$55.9 billion from a year earlier. There was further fall of
6.6% last year, but exports started to recover this year.
Exports of seafood declined in EU markets, because Thai
products faced higher tariffs following the removal of the
GSP at the start of 1999.
Economic recovery in Asia and elsewhere, along with the booming
economy of North America, prompted some research groups to forecast
export growth in 1999 of as much as 6.8%, to $58 billion, surpassing
the Commerce Ministry's 4% target, which would produce turnover
of $54 billion.
The ministry's forecast now looks conservative: in the first
11 months of 1999, export values rose by 6.1% rise to $52.8 billion.
Import values surged by 14.9% to $44.6 billion.
Industrial and agro-industrial goods accounted for 83% of total
exports or $35 billion.
The role of farm products, which had benefited from the weakened
baht during the crisis, diminished, with exports representing
$5 billion or 12% of the total.
Thailand could see export growth of 8.6% next year, if the Commerce
Ministry is correct in its forecast of a $5-billion rise on an
estimated $58 billion for 1999, said Sompol Kiatphaibool, permanent
secretary for commerce.
But he was reluctant to say that the sharp increase in exports
in 1999 was a clear harbinger of recovery. As well,
he cautioned, achieving high export growth in 2000 would become
difficult as the base was larger.
''I'm unwilling to set such a high target for 2000, as it would
lead to the conclusion that the growth rate is based on 1998 export
figures, which recorded a contraction of 6.4% against the year
before,'' he said.
Mr Sompol urged people to look at export growth in a broader
sense, as the growth rate next year would be very different if
compared with the figures recorded during the boom years.
Thailand's major
export destinations
Unit : Us$
million (Note* : January to September)
Export
1996
1997
1998
1998*
1999
US
10,061
11,341
12,167
9,062
9,201
EU
8,917
9,286
9,718
7,164
7,134
ASEAN
12,113
12,734
9,896
7,410
7,849
JAPAN
9,417
8,837
7,469
5,548
5,590
OTHERS
15,433
16,131
15,240
11,443
12,190
TOTAL
55,941
58,329
54,490
40,628
42,323
''The estimated figure in 2000 would see no growth if compared
with the export base in 1997, which was $58.3 billion, a 4.3%
rise from 1996,'' he said.
He attributed the export recovery primarily to external factors
rather than internal ones, led by the world's economic improvement.
There were no signs on the horizon of negative external factors,
and the prospect of China devaluing its currency seemed to have
eased, he said.
''The region is seeing the light at the end of the tunnel since
it entered the financial crisis in mid-1997,'' he said. ''Increased
demand in the world trade system doesn't stem from the United
States or Europe but also from Asia.''
Intra-Asian trade, especially in primary materials, has been
stepped up as countries in the region prepare to step up export-oriented
production. The recovery is also being attributed to spending
stimulus measures by regional governments.
Government spending would continue to be a key factor supporting
Asia's growth in 2000, he said.
In Thailand, exports started to pick up substantially in the
second quarter of 1999. Over the first nine months of the year,
Thailand exported $7.8 billion worth of goods to Asean, a rise
of 5.9% from the same period a year earlier.
Exports to Japan in the same period were $5.9 billion (up 7.2%),
Hong Kong $2.2 billion (3.4%), Taiwan $1.4 billion (16.8%), China
$1.3 billion (3.1%) and South Korea $646 million (36.9%).
Major
exports to those countries were industrial goods such as computers
and parts, electrical circuits, printed circuits, generators as
well as vehicles and parts.
Thai exports to the United States rose by 1.5% to $9.2 billion,
but exports to European markets dropped by 0.4% to $7.1 billion,
largely because of the sluggish economies of some European nations.
Reflecting decreased competitiveness with lower-cost countries,
Thai garment exports to the United States dropped by 6.6% in the
first nine months of 1999 to $1,104 million compared with $1,181
million, with footwear and parts falling by 5.2% to $251 million
from $265 million.
Exports of frozen, canned and processed seafood declined in EU
markets, because Thai products faced higher tariffs following
the removal of the GSP at the start of 1999.
The future looks good for high-technology goods but not for light
industrial products that rely on intensive labour, such as garments
and footwear.
According to the Export Promotion Department, strong demand in
many world markets helped Thailand ship more high-technology goods
such as computers and parts, electrical circuits and printed circuits,
diodes, transistors and semi-conductors.
Computers and parts led all export categories in the first nine
months of 1999, with their value rising by 5.2% to $5.9 billion.
Next were electrical circuits ($2 billion, up 21.9%) and related
accessories and parts (up by 50.9% to $1.7 billion.
However, exports of television and radio sets, accessories and
parts dropped by 22.1% to $860 million.
The decline resulted from many exporters adjusting to focus on
domestic markets. As well, some relocated production bases to
Malaysia where production costs were lower and labour skills higher.
The Commerce Ministry has alsoexpressed concern that a sharp
increase in electronics exports was not necessarily the most positive
sign, as electronics relied heavily on imported content.
Viroj Amatakulchai, president of the Thai Textile Industry Federation,
said the overall outlook for Thai exports was improving, but obviously
some sectors such as textiles and garments were weakening.
The one bright spot on the horizon, he said, was that more Thai
companies were moving into value-added and upmarket textile and
garment production.
''The major purchasers of cheaply priced garments, such as the
Middle East, are now shifting to find clothing from Eastern Europe,
while western Europe has increased intra-regional trade,'' Mr
Viroj said.
Export products on the rise
january - September, 1999
Item
Million (US$)
Change (%)
Market
Computer and parts
5,955
5.2
Singaport, Taiwan, Netherlands,
the Philppines and UK
Electric circuits
2,958
21.9
USA, netherlands,
Malaysia and Taiwan
Vehicles and parts
1,358
63.8
Australia, USA, japan and Germany
Gems and jewelry
1,099
8.7
USA, Isarael,
Belgium and Japan
plastic pellet
898
20.6
Hong Kong, japan, china, Taiwan
and India
Air conditioners
721
14
Spain, japan,
Singapore, Italy and Belgium
Diode and transistors
566
7.1
Hong Kong, Taiwan, South Korea
and Malaysia
Furniture and
parts
599
24.5
Japan, USA
and UK
Motor (generator)
545
49.3
Singapore, Japan malaysia, Hungary
and Hong Kong
plastic products
532
0.4
japan, malaysia,
Vietnam and Taiwan
Tapioca products
457
16.6
netherlands, japan, Taiwan, China
and Spain
He predicted intense competition among small and medium-sized
garment manufacturers, and producers for domestic markets, once
tariff reductions take place under the Asean Free Trade Area (Afta)
agreement on Jan 1, 2000.
Mr Viroj said cheap garments from Indonesia and the Philippines
would flood into Thailand. As well, some Asean nations might take
advantage from the free trade area to re-export cheap clothing
from China to Asean.
Improving production, upgrading product quality, improving loss-control
systems and upgrading machinery were the only long-term solutions
for keeping the Thai industry competitive, he said.
The Thai leather goods industry has suffered a similar fate,
though there have been isolated success stories of producers who
have successfully moved into the high end of the market.
One critical obstacle for the textile and garment sector is the
country's complicated import tax system. Some upstream raw materials
for the textile and garment industry are taxed higher than finished
products.
Mr Viroj said tax restructuring on industrial goods announced
late in 1998 was still intended to protect upstream industries,
many of them owned by politically connected businessmen.
''It's time that the government made a decision on whether to
promote fundamental exports that involve millions of people or
protect the few giant industries,'' he said. ''The honeymoon period
for Thai exporters who took advantage from the baht's weakness
is over.''
Among the poor performers over the past year have been farm product
exports. Falling commodity prices worldwide and a global oversupply
are expected to drag down export prices of farm products further
in 2000.
The Commerce Ministry would like to see the baht weaken to around
40-41 against the dollar to help agricultural products, but most
experts expect the baht to be in the 36-37 range over the coming
12 months.
Farm sector export values in the first nine months of 1999 dropped
by 7.5% to $4.9 billion, despite higher volumes. The volume of
exported frozen shrimp, for example, rose by 6.4% in the first
nine months of 1999 but the value fell by 13.9%.
Tapioca
product exports faced the same problem, with volume up by 28.2%
and values down by 9.1%. The forward export price of tapioca pellets
for the 2000 is now quoted at $70 per ton, $10 lower than a year
ago, according to Boonchai Chaiseripanich, president of the Thai
Tapioca Trade Association. ''Eighty dollars a ton is acceptable.''
Farmers are expected to receive about 85 satang per a kilogramme
of cassava roots for the 2000-2001 harvest season compared with
one baht in 1999-2000 season.
The farm sector is now seen as unlikely to be a key engine of
recovery as it was earlier in the economic crisis when the baht
was weaker.
''Thailand has had the goal in mind to be one of the world's
key key exporters,'' Mr Boonchai said. ''Thai food processors
should take very seriously the need for international sanitary
standards because certain import countries may be imposing non-trade
barriers such as sanitary standards to block food imports.''
As
well, he said, some developed markets will cite issues such as
animal welfare, as the EU intends to do starting in January 2000.
A team of EU inspectors recently toured Thai poultry plants and
found them in compliance with the new rules, to the relief of
the local industry.
Commerce Minister Supachai Panitchpakdi said the government was
working on further measures to stimulate exports, and he issued
an upbeat forecast that growth in 2000 could reach 7%.
Mr Sompol said the crisis and the export slump on 1997-98 had
been a blessing in disguise, though, as it forced the government
and business to focus on solving fundamental problems.
The Finance Ministry, for example, introduced a tax restructuring
regime, expected to take effect sometime in 2000, aiming to cut
the production costs of exporters and strengthen competitiveness.
At the same time, it speeded up refunds of value-added tax to
exporters to help them improve their cashflow.
The Commerce Ministry, meanwhile, has offered financial support
from 1999 through 2003 to small and medium-sized exporters who
want to expand into new markets such as the Middle East, Latin
America and Africa.
By the year 2003, the ministry is hoping to see these markets
accounting for 35% of all exports, up from the current 28%.
Export
growth was driven by a surge in foreign direct investment, led
by Japanese businesses that relocated their production bases to
Thailand because previous bases in South Korea and Taiwan were
too expensive and faced trade barriers from the United States.
The baht devaluation in 1984, from 23 against the dollar to 27,
further enhanced the country's price competitiveness.
Major
exports to those countries were industrial goods such as computers
and parts, electrical circuits, printed circuits, generators as
well as vehicles and parts.
Tapioca
product exports faced the same problem, with volume up by 28.2%
and values down by 9.1%. The forward export price of tapioca pellets
for the 2000 is now quoted at $70 per ton, $10 lower than a year
ago, according to Boonchai Chaiseripanich, president of the Thai
Tapioca Trade Association. ''Eighty dollars a ton is acceptable.''
As
well, he said, some developed markets will cite issues such as
animal welfare, as the EU intends to do starting in January 2000.
A team of EU inspectors recently toured Thai poultry plants and
found them in compliance with the new rules, to the relief of
the local industry.
