Small and medium-sized enterprises (SMEs) in rural provinces are in deep trouble as they suffer a double whammy from a lack of innovation and lukewarm consumer demand, says former finance minister Thanong Bidaya.
The health of rural SMEs is in critical condition, as these companies lack the business innovation needed to enhance performance, while tepid consumer demand rubs salt in the wound by keeping a lid on growth, Mr Thanong said.
"Rural SMEs have to adapt a lot, otherwise they won't survive," he said.
Rural SMEs have been coping with lower sales volume despite production costs remaining the same, in contrast with SMEs involved in supply chain businesses, where growth still prevails due to global demand, Mr Thanong said.
"Private consumption has not recovered because people with lower income will consume less, therefore current economic growth conditions are mainly derived from wealthy individuals," he said.
Rural SMEs need to incorporate business innovation, technological production and marketing strategies in order to raise growth prospects, he said, citing how financial technology startups, better known as fintech, have exploited technology to ramp up business performance.
Earlier, Jaturong Jantarangs, the Bank of Thailand's assistant governor for the monetary policy group, said soured SME loans showed no signs of declining as a lack of competitive edge and uneven economic recovery hindered businesses debt-servicing ability.
SMEs are evidently feeling the pinch from the slow economic recovery process. Bad SME loans climbed to 4.48% of outstanding loans at the end of March from 4.35% in the fourth quarter of 2016, according to Bank of Thailand data.
Financial institutions are another sector warranting concern, as they have become weaker due to political interference with banking operations, Mr Thanong said, adding that affiliated organisations should manage this issue thoroughly.
Bitcoin, a virtual currency with growing popularity in Thailand, could be a new financial risk in the future. It is a new form of financial transaction for which no regulations are in place, Mr Thanong said.
At the macroeconomic level, Thailand's economic growth is poised to expand below 5% in the coming years because government investment projects usually generate a return after 3-7 years, he said.
Despite the country's economic recovery momentum, Mr Thanong is uncertain whether such impetus will be robust: the majority of exports are concentrated on locally made goods owned by foreign investors, as opposed to agricultural goods.
Regarding how the baht has recently appreciated, this movement is expected to be short-term because foreign fund flows have been detected in the bond market, after which they will shift to the stock market to benefit from capital gains and foreign exchange differences, Mr Thanong said.