Published on August 27, 2007
Offshore factory relocation is not the answer to foreign-currency problems and the government should instead manage the exchange rate while upgrading infrastructure so local manufacturers can stay put and thrive, major exporters said last week.
"Will it really help the country if we go to Vietnam?" said Thirapong Chansiri, president of Thai Union Frozen Products and one of the panellists at a roundtable organised by The Nation.
"We can move, if it's necessary and if it's good. But, if we go out, who will lend to those exporters who can't tap credit even from Thai banks? What about farmers, can they move with us? The government hasn't yet come up with policies to help them."
While the Bank of Thailand must ensure foreign-exchange stability at a competitive level for exporters, the government as a whole must remove obstacles to their development, he said.
"We blamed previous governments for having politicians [with possible conflicts of interest in introducing changes]. But since this government, consisting of bureaucrats, couldn't do anything, I'm really desperate about the future," he said.
Thamrong Tritiprasert, chairman of the Shoes Producers Association, said he was puzzled by the interim government's suggestion for exporters to set up plants in countries with lower labour costs and weaker cur-rencies.
"I opened a plant in Mexico, but it was shut down because all the components are here. All the supporting industries are here and they're growing," he said.
Though China and India promise weaker currencies, labour costs in China are huge and supporting industries in India could take five to 10 years to catch up with Thailand, he added.
Sawat Patiparnprasert, vice president of the Thai Furniture Industries Association, noted ironies in the government's policies and regulations.
The government is vying for foreign direct investment (FDI) at the same time that it is urging Thai operators to go overseas.
His industry faces a shortage of raw materials because a law unchanged for more than 50 years subjects wood to strict control. While local furniture-makers have to import lumber from the United States, wood from Thailand is shipped out to China and Vietnam - Thailand's main rivals.
"It's no wonder that last year, when Thailand's furniture exports were valued at Bt40 billion, Vietnam's exports were Bt80 billion," he said.
Moving abroad would also hurt workers, he said. The industry's 2,000 factories employ about 300,000 people.
Srinya Tantirungrojchai, adviser to the Thai Footwear Association, said the government needed to come up with a precise policy of where Thailand should be heading, like what the Singaporean and South Korean governments did in setting clear directions for the private sector.
While the private sector tackles currency-related risks, the government should reform the tax, financing and industrial structures. Without complementary systems in place, the Kingdom will go nowhere, she said.
"Our industry in the upstream and intermediate levels is prospering but we are pushing Thai operators out to Vietnam, to empower it in moving downstream. Wouldn't it be better if the government tells the world what Thailand has to support downstream industries?"
Dej Pathanasethpong, president of the Thai Garment Manufacturers Association, said that while many claim that the textile and garment business is a sunset industry, it is still prospering thanks to cluster industries in Thailand.
The panellists could not see how overseas investment promotion would benefit the economy, as the export sector is the key economic engine of the Kingdom. If exporters go elsewhere, they wondered which industries would be left to underpin economic growth. Exports make up 68 per cent of gross domestic product.
Somchai Harnhiran, director of the International Industrial Economics Division of the Industrial Economics Office at the Industry Ministry, said studies showed that since 1993 when the Asean Free Trade Agreement took effect, Thailand - where 80 per cent of export income is derived from manufacturing - had experienced no change in its top export items. This indicates the country's dependence on old products. Not only that, export volume has increased.
"We welcome new investment, but FDI belongs to someone else. Meanwhile, export value tends to drop due to economies-of-scale production. How we can move towards value-added manufacturing?"
Ekniti Nitithanprapas, director of the Fiscal Policy Office's Macroeconomic Analysis Group, acknowledged that several disadvantages were bedevilling exporters, including inefficiencies in the legal and regulatory structure as well as low productivity of skilled labour.
Short-term measures to shore up export competitiveness include stabilising the baht, formulating concrete economic policies and creating linkages between the public and private sectors.
All the attending exporters also complained about the strong baht's impact on exports. Each said their sector was threatened by the overvalued baht and unclear economic development strategies. They were worried that even the Commerce Ministry, which is responsible for international trade, has suggested that the export sector ride out the storm despite the forex pressure.
"The July export figures dropped, but the authorities said they needed two more months to look into the problem. Why wait? It seems we have looked at problems from two different angles and the misunderstandings [that arose from that] could affect the way we deal with problems," Thirapong said.
While showing sympathy for the Bank of Thailand, he said that to help exporters in the short run, the central bank should at least ensure that the baht's movement follows the currencies of competitors, not trading partners.
The baht has appreciated 14.99 per cent against the dollar since the beginning of last year, while China's yuan has gained 5.8 per cent and the Malaysian ringgit 7.06 per cent. The Vietnamese dong has weakened 3.37 per cent.
"The baht was too strong compared with Thailand's competitors such as Malaysia and the Philippines. The private sector wants a clear policy on the baht, which should be that the government makes the baht's value correlate with other countries in the region," said Buntoon Wongseelachote, chairman of the monitoring committee on trade rules at the Thai Chamber of Commerce.
Vichai Sriprasert, honorary president of the Rice Exporters Association, said the Kingdom was losing competitiveness in rice exports. If the baht were weak, farmers would have been rewarded with the good prices in the world market, he said.
Manit Lertsakornsiri, country manager of Toys Retailing (Thailand), said it was not only the baht's upward trend that has dulled export competitiveness, but also other factors, including infrastructure development, human resources and technology development.
Exporters are not only handicapped by the baht's up-cycle, but also by a limited pool of available skilled labour, Manit said. The government must put the development of human resources on the national agenda, so the export sector can remain viable in the global arena.
"Thais are taught English, but they aren't that good. Worse, how many Thais can speak Chinese, the language of the future economic powerhouse, or Japanese - the language of our main customer?" he added.