Thailand: Ever-reliable buttresses

• Nov 15, 2021

Despite the severe impact of Covid-19 on many sectors this year, the Thai ecconomy is expected to perform well next year, contributed by some key sectors after the country’s reopening on Nov 1.

Some core sectors believe that they are still reliable income sources and even expect to see business growth next year but some of the country’s problems need to be tackled to create a more favourable environment.

Other factors like higher vaccination rates and stronger domestic travel demand will also attract more international travellers following the Nov 1 reopening and ultimately contribute to a more stable economy.

STILL RELIABLE

Ronnarong Phoolpipat, director-general of the Trade Policy and Strategy Office, said despite slower growth expected next year, the export sector remains the key pillar that helps shore up the country’s overall economy in the year to come.

Economies of major trading partners such as the United States and China are expected to further expand in line with the global economic recovery, while exports to secondary markets such as India, South Asia and Africa also promise high potential growth next year, he said.

“While other sectors have been suffering from the adverse impact of the Covid-19 outbreaks, it is fortunate the export sector has become a reliable source of income and helps support the Thai economy. In the first half of 2021, exports contributed 50.3% of Thailand’s GDP,” he said.

“If export growth reaches 12% at the end of this year as predicted by the private sector, the proportion of the export sector to GDP is expected to increase to 50.7% for the whole year of 2021.”

Mr Ronnarong said if the export sector and GDP grow equally in 2022 by 4%, export’s proportion of GDP will stay at around 50.7%, compared to 45.8% in 2020, 45.1% in 2019 and 49.5% in 2018.

Chaichan Chareonsuk, chairman of the Thai National Shippers’ Council (TNSC), agreed, saying exports remain the key driver of the Thai economy not only this year and next.

“Although the TNSC predicts export growth to slow to 5% in 2022, down from the 12% forecast for this year, as global demand and inventory become normalised, export value is estimated as high as $272 billion,” he said. “If the baht’s value is averaged at 33 baht to the US dollar, export revenue will reach 9 trillion baht, which is very high.”

However, Mr Chaichan warned the government needs to closely monitor the inflation rate in order to curb any impact on the economy and especially low-income earners.

“Higher production costs are looming because of rising raw material and oil prices as well as the labour shortage,” he said.

ACHIEVABLE WITH CONDITIONS

Chamnan Srisawat, president of the Tourism Council of Thailand, said the 1-trillion-baht revenue from the international market next year is achievable but with key conditions.

The country must flatten the infection curve during last quarter of 2021 and the first quarter of next year, while the government accelerates vaccination rollouts to cover most of the population and offers constructive public health measures.

With those conditions, locals can return to their normal lives, taking more domestic trips which will help revive the positive image of the country to global travellers that the kingdom is safe to visit.

He said domestic tourism remains crucial for the industry along with international arrivals from potential markets including countries in Southeast Asia, India, Russia, the US and Europe which can help fill the Chinese market void.

Mr Chamnan said stringent controls over illegal migrants crossing the borders are needed as such incidents may ignite a new round of infections and destroy tourists’ confidence.

“We are at risk of seeing a K-shaped recovery with a great depression in the tourism sector,” he said.

Moreover, some 70% of tourism operators are small and medium-sized enterprises (SMEs) who cannot access any loans during the pandemic.

He said a tourism fund of around 10 billion baht is the solution to help operators restart their businesses, such as vans, tour buses or boats that need maintenance and fees for licence extensions.

The tourism stimulus must also continue in the long run to boost the number of domestic trips as locals still have weak purchasing power.

“The stimulus scheme should be more inclusive for grassroots and the government has to let operators help create tourism plans that benefit SMEs,” Mr Chamnan said.

He also floated an idea to introduce interprovincial one-day tours starting from 299 baht with 5,000 tour buses per month in five regions. This project will stimulate short domestic trips, with the government giving 10,000 baht subsidy per bus.

GREEN ECONOMY

The reopening of the country amid higher global oil prices prompted the Federation of Thai Industries (FTI) to push more serious efforts to make manufacturers adopt more environmentally friendly production.

“Today we welcome back [fully vaccinated] foreign tourists, but businesses encounter higher operation costs,” said FTI vice-chairman Sakchai Unchittikul, also chairman of the FTI’s Institute for Agro-based Industries.

“Oil is needed for travel and goods transport. Their higher costs will not be good for a plan to boost the Thai economy.”

If prices of fossil fuels continue to rise, the government must step up efforts to promote domestic renewable energy development in order to reduce dependence on oil imports, said Mr Sakchai.

This move goes together with the state’s bio-, circular and green (BCG) economic model, he said.

BCG encourages manufacturers to use resources for their production without harming the environment.

Clean energy sources such as solar energy and electric vehicles should be used more widely in Thailand to catch the global trend for carbon dioxide reduction.

If Thai manufacturers are too slow to adopt more environmentally-friendly technologies, they may face non-tariff barriers imposed by countries with strict measures against greenhouse gas emissions, said Mr Sakchai.

The slow progress may cause manufacturers to consider buying carbon credits to avoid the trade barriers, but this will entail more financial burden, he said.

Carbon credits refer to tradeable permits for emitting carbon dioxide. Manufacturers can buy them from operators of projects carried out to cut greenhouse gases.

FUEL FEAR

The government is struggling to deal with concerns over the global oil price surge by putting a cap on the diesel price at below 30 baht per litre to relieve the impact in the transport and manufacturing sectors.

The FTI earlier warned the rise in oil prices will affect the prices of commodities, including sugar and rice, as their production process and transport require oil as a fuel.

If operation costs rise, the prices of products will go up, affecting consumers.

Authorities are trying to control diesel prices, but demand for fuel in many sectors looks set to remain high, especially after Thailand joined the international community reopening borders, which increased travel activities, said Chairit Simaroj, managing director of Susco Plc, a local oil trader.

The government is using the Oil Fund to subsidise biodiesel and gasohol for motorists, as well as cooking gas for consumers.

Biodiesel is a mix of palm oil-derived methyl ester and diesel while gasohol is gasoline blended with ethanol.

The Oil Fund is expected to be exhausted by the end of this year, prompting the government to take out a 20-billion-baht loan.

Mr Simaroj said the government opted for a loan option instead of reducing methyl ester in biodiesel.

Reduction of methyl ester proportion by 1% can lower the bio-diesel price by 0.2 baht per litre, he said.

Mr Simaroj suggested the government consider reducing methyl ester for the short term as part of efforts to alleviate the impact of the oil price surge.

IT AND E-COMMERCE BOOM

VST ECS Thailand, an IT product distributor, indicated IT spending will play a crucial role in boosting Thailand’s economy next year as businesses and people are looking for tech adoption to streamline their work and prepare for unexpected situations.

The spending will go for smart offices that can support hybrid work, smart industry, smart homes as well as other necessary technologies, said Somsak Pejthaveeporndej, chief executive of VST ECS Thailand.

“Artificial intelligence and big data analytics will play a crucial role for every business in boosting revenue streams and lowering costs,” he said.

In the new normal, automation and self-service kiosks will be used more in restaurants to enable customers to make orders and payments by themselves, he said.

E-money and contactless payments could potentially drive the overall economy, Mr Somsak said. “Cryptocurrencies, digital baht and other developments will accelerate growth.”

Thailand’s IT market is expected to grow at a double-digit rate in 2022, he said. If there is a new crisis, single-digit growth could still be seen.

According to him, GDP could achieve a growth of 3.5% next year but the growth of 5% forecast by the government may depend on the government’s capability as well as stimulus programmes, large infrastructure investment as well as political stability.

Thanawat Malabuppha, president of the Thailand E-commerce Association, pointed out the country’s e-commerce value is expected to reach $21 billion in gross merchandise value in 2021, up from $12 billion last year, citing the e-Conomy SEA 2021 report.

It is forecast to grow to $35 billion in 2025 with the compound annual growth rate of 14% between 2021 and 2025, he said.

Of the 59 million internet users in Thailand, 42 million have become digital consumers defined as those engaged in online transactions, he said.

Online shopping will be here to stay post-Covid-19, Mr Thanawat said.

Pawoot Pongvitayapanu, chief executive and founder of Tarad.com, a local e-commerce solution provider, said Thailand’s e-commerce received a boost from major shopping festivals, mega promotion campaigns, sellers onboarding digital sales channel as well as brands gearing up for direct-to-customer approaches through the online channel.

Mr Pawoot said the shortage of digital workforce remains critical as the supply of young people with digital skills cannot catch up with demand following a boom in digital transformation.

According to Lazada, the e-commerce industry has experienced an explosive growth due to the pandemic.

“The shift in consumer behaviour towards online platforms when physical stores were forced to close to curb the contagion has become a permanent change as consumers embraced new normal trends as their lifestyle,” a Lazada spokesperson said in a company statement.

FOCUS ON MICROECONOMY

Piti Disyatat, secretary of the Monetary Policy Committee at the Bank of Thailand (BoT), said the Thai economy, which bottomed out in the third quarter of 2021, has gradually picked up. Under uneven economic recovery amid several uncertainties, the manufacturing sector is expected to recover faster than the hard-hit service sector.

The service sector, especially hotels and transportation, as well as property are fragile sectors which have suffered significantly from the pandemic. They will take more time to recover.

As a result, the BoT will pay more attention to the microeconomy and focus on sectors in each of Thailand’s regions. The central bank wants to help weak businesses survive and catch up with the economic recovery, he said.

The BoT assesses that the economic growth rate would be 0.7% this year and rise to 3.9% next year.

Source: https://www.bangkokpost.com/business/2215511/ever-reliable-buttresses