Time to move

From the May 2018 issue.

Even though domestic demand is still feeble and GDP growth lagging behind regional peers, the beleaguered Thai economy is finally beginning to stabilise.

After several years of anaemic growth, the Thai economy is slowly starting to gain momentum again – at least statistically. Despite falling slightly below expectations amid a drop in state spending, Gross Domestic Product (GDP) grew by an inflation-adjusted 3.9 per cent in Q4’17 – the best result in half a decade and the fifteenth consecutive quarter of growth.

According to the Office of the National Economic and Social Development Board, manufacturing production climbed three per cent during the same period, while the non-agricultural sector grew 4.6 per cent. To top if off, exports leapt 17.6 per cent in January, according to the Commerce Ministry, following on from a rise of 8.6 per cent in December 2017.

“[All that] should please Prime Minister Prayut Chan-o-cha, whose military government has faced criticism for its handling of the economy since it seized power [in a May 2014 coup, ed.] and has since consistently delayed promised elections and a return to democracy,” says local correspondent, Luke Hunt.

While Hunt warns that consumption and private investment still leave ample room for improvement – mostly due to excess capacity in industry and increased household debt – he says Southeast Asia’s second-largest economy should at least be able to “maintain the current clip” throughout 2018. The government, for one, has already raised its export growth target to 6.8 per cent from five per cent in 2017.

Self-satisfaction, however, is not an option – even if key statistics continue improving. According to local expert, Supavud Saicheua from Kiatnakin Phatra Financial Group, it would be prudent to use the opportunity to look beyond favourable cyclical factors and deal with the challenges lying on the path of sustainable long-term growth – including a rapidly aging population and shrinking labour force.

Critics like Saicheua have long blamed Tailand for having depended on cheap labour and natural resources while failing to upgrade technology and foster a skilled workforce. The country’s median age of 38 is the oldest in Southeast Asia, for example.

“Emphasis should [shift to] upgrading Thailand’s education system and providing much-needed technical skills and knowhow for its dwindling and aging workforce,” the expert explains. “Investors need to be confident that Thailand will have the skilled labour needed to meet the demands of rapid technological progress in the years ahead.”

To avoid a national skill shortage, the Chan-o-cha government is already taking action: A new 20-year strategy is meant to help Thailand achieve high-income status by 2036, which would mean more than doubling the nation’s per capita income of $5,640 in 2016. Dubbed Thailand 4.0 – unashamedly taking a leave out of Germany’s Industry 4.0 book – it is hoping to create a value-based economy that is driven by “innovation, technology and creativity” and re-investing at least four per cent of annual GDP back in Research and Development.

It could also mean a welcome boost for local trailer manufacturing, which suffered from a dramatic drop in business activity after the 2014 coup and is only just recovering.

One central element of the Thailand 4.0 policy is the nurturing of ‘future industries’, which not only include robotics, biotechnology and digital, but also automotive and logistics – segments directly relating to trailer manufacturing. Also beneficial for the transport equipment market is a new focus on the Small- and Medium-Sized Enterprise (SME) sector, whose revenue contribution is slated to rise from 37 per cent to 50 per cent of national GDP within the next 10 years – if the country’s ambitious up-skilling efforts continue to bear fruit.

To further strengthen the upswing, the Thai government has also fast-tracked a range of infrastructure projects – most prominently the expansion of Laem Chabang port, the country’s largest deep-water port located southeast of the capital, Bangkok.

A new 1.7km-long terminal was to open in 2028, but now partial operations are set to start in July, with the full opening scheduled for 2023. According to Japanese news service, Nikkei, the expansion will almost triple the port’s capacity to 18 million 20-foot containers per year. This will place it among the world’s 15 biggest ports in the world, up from 22nd in 2014, and give road transport volumes a welcome boost.

Local OEMs like Panus Assembly – now once again the country’s best-selling brand after temporality losing the top spot in 2016 – are already feeling the impact today. According a Global Trailer source, production is ramping up across the board, with a focus on sturdy equipment for intermodal and port use.

What’s more, the government is reportedly taking more decisive action against overloading under the new Thailand 4.0 strategy. Sources from across the industry confirm compliance and payload are quickly becoming the number one talking point now – much in line with the development the Chinese market saw following a 2016 regulatory reform limiting the size, axle load, and weight of on-highway vehicles.

While such positive news should ideally encourage Prayut to begin his country’s transition back to a democracy through a national election – something he has promised since ousting his predecessor, Yingluck Shinawatra – there is still scepticism as to where the country is headed politically. With elections that had been promised for 2015, then 2016, then 2017, then 2018, and now potentially out to 2019, trust in the Government is fading.
“Whether Prayut delivers on his latest promise is difficult to gauge; past form is not encouraging,” Hunt confirms. “But, if anything, the latest government numbers mean that economic stability should not be an excuse to delay again.”

Fast Fact
The Thai trailer market is dominated by the ‘Big Four’; Panus Assembly and Sammitr Motors Manufacturing (SMM), RCK Rungcharoen and Chinese powerhouse, CIMC. Official performance data is not being circulated, but with annual production of around 5,000 units, Panus Assembly is currently leading the field, according to sources. Big Four are followed by up to a dozen mid-tiers, and around 50 small-scale family businesses.

Fast Fact
Thailand ranked 50th in terms of “innovation” in the World Economic Forum’s Global Competitiveness Index 2017, below Singapore, China and Indonesia.

Fast Fact
Thailand has experienced some 19 military coups since 1932, the last in May 2014. “For over a decade, the country’s social fabric has been torn between the Bangkok elites, who back the military, and farmers and other low-income earners who support fugitive former Prime Minister Thaksin Shinawatra. Large public protests have flared up time and again,” explains Nikkei journalist and Thailand specialist, Yukako Ono.

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