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New lease on life fpr manufacturingExports fuel a resurgence in manufacturing with the recovery momentum underpinned by an upturn in the regional economy, private consumption, spending and the depreciation of the baht. By Busrin Treerapongpichit, Yuthana Priwan and Srisamorn Phoosuphanusorn. Searching for signs of industry recovery' Look no further than the rising number of auto sales and the surge in electronics and petrochemical exports which have become the engines of growth driving the revival of Thailand's manufacturing industry. The resurgence in manufacturing and domestic consumption demand is reflected in April's manufacturing production index, which hit 144.7 points, an increase of 32.4 when compared with the figure in the same period last year. The index is based on research conducted by the Industrial Economic Office. The Office reported 148.7 points for the shipment index in April, an increase from 118.8 recorded in the same month last year. The shipment index translates into the frequency of transportation of goods both inbound and outbound.
The expansion of the index stemmed from the higher inventory storage trends in factories, in anticipation of increased consumption demand. The aggregate production capacity utilization of all industry sectors in the first quarter this year improved to 65%, up 20% from the same period last year. The figure inevitably influences the aggregate manufacturing sector which has already recovered, ending a two-year slowdown in average capacity utilization which at one stage hit 20%, the lowest-ever recorded. However, the production manufacturing index in March peaked at 163.6, with the shipment index and the finished goods inventory index also recording highs of 165.8 and 121.9 ratings. Industries surveyed said the indexes reflected a momentum which was forecast to grow for the rest of the year. However, industry observers argue that although manufacturing has improved significantly, it has taken place solely on an industry-by-industry basis, led especially by the electronics, automobile and petrochemical sectors. Automobile, electronic and petrochemical sectors lead industrial recovery The three industries, account for up to 30% of the country's total export value, and are poised to become Thailand's leading export earners this year. The auto industry has given a major boost to the country's manufacturing sector. Sales of new cars in April grew year-on-year by 47.7%, to 20,728 units, with four-months of consecutive growth recorded this year. Vehicle sales in the first four months of the year totalled 75,514 units, a 50.2% year-on-year increase. Although auto makers have lifted their prices in response to the rising market demand, sales continue to grow. The manufacturing index of auto production in April was 203.7 points, a sharp increase from 116.9 recorded in the same period last year. The manufacturing production index of electronics and parts in April stood at 146.4 points, an increase of 34.7 points for the same period last year. The surge in the index was fueled by increasing demand from the information technology industry in Europe, the United States and Japan, where Internet-related services are booming. A 500% surge in the revenue and profits of Hana Microelectronics and the doubling of sales of several other big electronics firms in the latest quarter, also indicate the Thai electronic industry is performing well. Thailand's competitive location as a supplier enabled many large electronics manufacturers to use their low-cost production bases to advantage. In the petrochemical sector, production capacity has improved dramatically, generating a sharp increase in revenue and sales to petrochemical firms. The revenue increases are driven by price adjustments in the global petrochemical market, due largely to last year's oil price hike. Apart from the three industries _auto, electronic and petrochemical _ the textile industry, which has usually been considered a sunset industry, was also enjoying higher growth. It grew 4.9 points in April in the manufacturing production index, compared to the same period last year, and 34.8 points in the shipment index. The improvement in the textile industry has been influenced by Thailand's economic upturn and the impact of tariff reform under the Asean Free Trade Agreement. Cement hardship Analysts argue the cement industry has always been considered the sector which underpins economic prosperity. But the cement industry is still in the recovery stage, with most growth fueled by an increase in exports to South America and South Asia. But the country's largest cement producer, Siam Cement, concedes that the industry may take another 4 years to recover. The current aggregate production of cement is still below 30% of total capacity. And the prospects of the cement and related construction businesses such as tiles, granite and steel still rely heavily on the recovery of the property and real estate sectors. But industry observers forecast that the property market, hit hardest by the economic crisis, would take longer than other industries to recover. Analysts agree the government's public infrastructure projects to boost the local cement and construction industries, also failed due to the state's staggering public debt of 2.6 trillion baht. Restructuring woes The latest attempt to restructure industries, which began early last year, has showed little progress with industry analysts pointing to bureaucracy, red tape and lack of cooperation from the private sector as the major barriers to progress. A senior official of the Ministry of Industry admitted that the reform programme was a failure in terms of boosting efficiency and cooperation. The government has implemented the restructuring programme in three phases, starting in 1999, 2000 and 2004. So far, the state has already approved 3.77 billion baht in loans under the programme, although the fund initially had set aside only 1.59 billion baht for the first phase with loans from the Industrial Finance Corporation of Thailand (1.029 billion) and the Small Industrial Finance Corporation (561 million).
Scores of major manufacturing firms were still in trouble because their suppliers, most of whom were small and medium-sized companies, failed to supply them with adequate industrial materials. Although the government's 100 billion baht financial assistance programme, under its debt restructing scheme, began early last year, it has tended to focus on large industries. The programme aims to assist SMEs in the area of manufacturing relocation, engine and equipment overhaul, business consulting, and research and development promotion. The Ministry of Finance is committed to floating two additional venture capital funds, worth 5 million baht, to assist potential SMEs in joint ventures. An additional supporting fund of 10 billion baht, under the industrial restructuring scheme, aims to improve productivity and upgrade manufacturing production through loans to small and medium-sized enterprises. Debt restructuring This year, most businesses have overcome their thorniest financial problem, debt restructuring and recapitalisation, under the supervision of the Bank of Thailand's Corporate Debt Restructuring Advisory Committee (CDRAC). Restructuring has resulted in a sharp decline in the level of non-performing loans. The Central Bank reported a reduction in NPLs in the financial sector to 36.47% in April, from 37.24% in March. The figure peaked at 47.70% in May 1999. However, most of the restructured NPL's were for large-scale businesses while small and medium-sized enterprises faced a liquidity crunch due to the refusal of banks to extend credit. Currently, the country's NPLs total 1.95 trillion baht, with half of the total lending made up by small and medium businesses. Booming exports The improvement overall in the manufacturing production index is largely driven by exports, reflecting the government's recovery strategy. The Customs Department reported that export growth in the first-four-months increased 26.74% to US$22 billion, compared with the same period last year. Thailand's exports are now forecast to grow by 12% this year, to $65.4 billion, almost double the initial growth target of 6.5%. The growth in exports is boosted by the upturn in the regional economy accompanied by the sharp recovery of private consumption and spending and the depreciation of the baht. Increased employment and the government's economic stimulus measures have also sustained consumer demand and growth in manufacturing. The government's tax measures, such as the reduction in tax on imported machinery and equipment, is also likely to benefit industry by reducing production costs and encouraging manufacturers to upgrade their machinery and improve quality. However, industry analysts argue that the Thai industrial sector, to ensure its future viability, needs to shift from being labour-intensive to capital intensive in order to compete with low-wage economies like Vietnam and China. |
The finished goods inventory index also showed improvement, recording 125.5 points in April, up from 108.3 for the same period in the previous year.
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