26
APR2017
FOOD FOCUSTHAILAND
SURF
THE AEC
CLMV countries gain a remarkable growth rate. In 2016, the
region expanded 6.5% as purchasing power increased from
the economic development
1
, government investment in
infrastructure, and foreign direct investment (FDI) which
encourages export growth. Theeconomic growthmomentum
in 2017 is also predicted to remain high at 6.8%. With
outstandingeconomicdevelopment,borderswithThailandand
the ASEAN Free Trade Agreement, CLMV have become
Thailand’sprominentexportmarketas theirshareofThaiexport
increased from 6.9% in 2011 to 10.3% in2016.
However, it isnoticeable that Thailand’sexport toCLMV in2016
contracted by 0.1%, comparing to Thailand’s overall export which
expanded 0.5%. The number is also contrasted with CLMV’s
continuouseconomicgrowth.Oneparticular reason is that theprice
ofcommodityproducts,whichequals to27%ofexports fromThailand
toCLMV, dropped sharply in 2016. This resulted in declining export
value in 2016 despite unchanged export volume from 2015. The
erratic circle of commodity prices have shakenThailand’s export of
commodityproducts toCLMV,considering that thegoodsonlyaccount
for 19% of Thailand’s total export. Moreover, the establishment of
commodityproductionplants inCLMVbyThai and foreign investors
to produce goods such as drinks, personal care, and construction
materials (e.g. cement), is another reason why commodity exports
fromThailand to the region had shrunken.
Forecast: Thailand’sExport toCLMV in2017
KResearch predicts that Thailand’s exports to CLMV will return to
thepositive territoryagainbycauseof increasingpricesofpetroleum
and commodity, but the trendmay not be sustainable in long term
due to structural problem. The price of commodity goods that had
previouslypredicted to risemore than20% in2016wouldstill remain
positive in 2017. The mentioned factors will boost growth for Thai
export toCLMVby3.8% toUSD23billion.Nevertheless, the recovery
willmainly relyon the risingcommodityprices.Thus, the trend isnot
sustainable if theprices drop, and ifmoreandmore investorsmove
their production bases fromThailand intoCLMV.
In the next phase, Thailand’s export to CLMV will not only face
with thecommoditypricecycle, but alsoother challenges that reflects
Thailand’s export structural problem. KResearch sees the slowdown
of Thai export to CLMV, which account for 24% of Thailand’s total
export, particularly due to the moving of production factories from
Thailand toCLMVbyThai and foreign investors. Notably, investment
in beverage production in Myanmar contracted Thailand’s export of
beverage, which was the No.1 export, since 2015. In construction
sector, the investment incementproducingsite inCLMVwillalso likely
cutThailand’sexportofcement in2017 forasecondconsecutiveyear.
Another challenge is that Thailand isstill unable to insert itself to
CLMV’s production supply chain, thus reducing the proportion of its
exports to the region. Recently, CLMV has increased its import of
industrial goods from China and South Korea, for instance
communicationdevicesand textile, toserve theproductionplantsof
Thai ExportstoCLMV in2017
toExpand3.8%toUSD23billion…
aftertherecoveryofcommodityprices
companies from thementionedcountries.Thailand’s failure tobecome
part of the CLMV supply chain, especially in Vietnam, is making
Thailand losing its prominence in the region. Therefore, Thailand’s
export to CLMV is facing long term challenges from its reliance on
commoditywhichhavevolatileprices, themovingofaccommodation
goods production bases into CLMV, and the lack of connection to
CLMV supply chain.
In order to sustainThailand’s export toCLMV, the export sector
should re-adjust itsstructurequantitativelyandqualitativelyas follows:
1.Quantitative improvement – Increasing export ratio of capital
goods/intermediate goods and consumer goods will help ease the
fluctuation occurred from export of commodity goods. More export
of capital products likemachines, equipment andcomponentswould
likely increaseThailand’sexport toCLMV’s supply chain, especially
Vietnam whose economic growth is enormous. The export of
machines and agricultural equipment would also support the
development of an agricultural sector, which is seeing a very well
expansion inCLMV.Consumerproductsarealsocrucial export from
Thailand toCLMV, but the types of goodsmay need to bemodified
in response to the changing demands of consumers in CLMV, e.g.
Ready-to-Eat foods tomeet modern lifestyle.
2. Qualitative improvement – Thailand should seek to export
products with high value by replacing consumer products and
construction materials with value-added products. For example,
Thailand used to export beverage, personal care products (soap,
shampoo, toothpaste) and cement, but it shouldnow switch tomore
complicated and value-added goods such as cosmetics, skin care,
and lifestyleproductssuchashighvaluedecoration,ceramics,home
ware, cars and car parts. Though CLMV countries do not have the
capacity to produce these kinds of products yet, but they have high
potential for consumption growth. Moreover, import tariffs in CLMV
countries are being reduced in accordance with AEC framework.
Nowadays,Vietnam isThailand’s remarkablemarket forautomobile,
and the demand for imports continue to increase.
