Emerging markets hold key

Thai exports are expected to grow by 12.5% in 2008 despite the threat of high oil prices in the second half of the year.

According to Rachane Pojanasunthorn, director-general of the Department of Export Promotion (DEP), higher contributions from emerging markets are likely to offset any potential slowdown in traditional markets that are reeling from unfavourable economic environments like the sub-prime mortgage crisis in the United States.

The US is Thailand's single biggest market with an 11.6% share. Exports rose 8.6% in the period, compared to a 2.1% rise a year earlier.

The ministry sees full-year exports to the United States rising only 2% this year, although it is still better than the 1.2% decline last year.

Thailand is a major exporter of manufactured goods such as electronics and automobiles, as well as the world's largest exporter of rice. Exports to Japan, its number two market, rose 11.2% in the first four months of 2008, down from a 14.5% rise in the same period a year ago.

But shipments to Thailand's neighbours as well as the Middle East and Africa rose a combined 38.7% in the first four months, up from a 27.1% increase a year earlier.

According to the Export Promotion Department chief, contributions from emerging markets are planned to outstrip those of traditional markets over the next five years.

Currently, traditional key markets such as the US, European Union and Japan make up for 52% of Thai shipments, with the remaining 48% from emerging markets. Mr Rachane said despite rising oil prices that hit global businesses and exports hard, Thailand has still managed to experience continued growth especially for textiles and garments, automobiles, food, agricultural products and jewellery.

"However, there are some industries that need special monitoring, particularly electronics, as Taiwan electronics firms have started relocating their production bases to China from Thailand. More importantly, the prices per unit for electronics products are also seeing a fall because of intensifying competition," he said.

Textiles and garments, automobiles, food, agricultural products and jewellery are the areas in which Thailand is still doing well. Electronics, on the other hand, are facing tough times as a result of competition from China and global price dips.

Given growing concerns about the trade deficit, Mr Rachane said Thailand needs to think twice about the entire manufacturing structure to ensure long-term solutions.

Currently, Thailand relies mostly on imports of machineries and raw materials to produce export-oriented goods. Such imports normally account for up to 70% of the country's total import values, leading Thailand to a trade deficit.

For the first four months, exports fetched the country $55.48 billion, a rise of 22%, with the value in baht terms increasing 12% to 1.799 trillion baht.

Imports recorded a surge of 39.7% to $58.47 billion, and in baht terms were worth 1.914 trillion baht, up 27.9%. As a result, for the period, Thailand recorded a trade deficit of up to $2.98 billion or about 114.93 billion baht, the highest since 2003.

For the same period last year, Thailand had a trade surplus of $3.5 billion.

The sharp deficit was attributed to heavy imports of energy and gold.

In April this year, Thailand imported gold valued at $536.85 million compared to only $75.03 million in April 2007.Despite the trade deficit in the first four months, the Commerce Ministry is confident that export growth this year would meet a projection of some 12.5-15%, equivalent to $170 billion.

"It could be seen that Thailand's exports for the first four months of the year were still relatively robust helped both by industrial and agricultural products. In particular, products such as rice, rubber, and tapioca were outstanding because of the world's growing concerns over the food crisis," he said.

According to Mr Rachane, all food products recorded export increases except sugar, which experienced a fall because of excessive global supply, particularly from India and Brazil.

Several industrial products did well during the first half, including automobiles and auto parts, electrical appliances, gems and jewellery, garments, plastic products, and construction raw materials.

But for the second half of the year, Mr Rachane expressed concern about continued rising oil prices, saying oil prices could cause monthly shipments to drop to an average of $13-14 billion a month in the second half of this year compared with $14-15 billion a month in the first half.

"We have to keep a close watch on the movement of oil prices. Speed of the price change definitely increases pressure on the world economy and inflation, not only for Thailand," said Mr Rachane.

"Given prospects for higher oil prices, the exporters themselves are totally unaware of their real production costs, making it tough for them to manage purchase orders."