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 Home > About Thailand > Economy > The Manufacturing Sector

THE MANUFACTURING SECTOR

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Thailand's industries have traditionally been closely linked with agriculture. From the post-war years up to the late 1950s, the major processing facilities were rice mills, sawmills, sugar mills, ice factories, textile and gunnybag factories, tobacco leaf curing plants and cottage of household industries, such as fabric weaving and basketry, to supply local needs. All these industries grew up as a result of free market forces and with limited government assistance.

Modern industrialization started in the early 1960s. Although the first Industrial Promotion Act was promulgated in 1954, it was only implemented in 1960 with the establishment of the Board of Investment. The Act was revised in 1962 to promote investment in specific activities, mainly through tariff protection, tax holidays and reduction of taxed on imported raw materials and machinery. A new law was introduced in 1972 in accordance with the government's shift in policy from an import-substitution to an export-oriented economy.

Growing at an average rate of approximately 10 percent per year since 1960, in 1993 manufacturing accounted for more than 24 percent of the national income; employed 10 percent of the entire labour force; and accounted for 64 percent of exports, making it the nation's largest sector.

Intermediate products, among them machinery, electrical machinery, iron and steel, metal products, and non-metallic products also expanded rapidly. As a result of the relatively high growth rates of these industries structural change took place in this sector. Thus, in 1970 more intermediate products were manufactured, e.g. electrical machinery, transportation equipment, textiles and garments not only to substitute for imported products, but also for exported products.

Between 1986 and 1988, textiles and garments was the most important industry, accounting for 29.2 percent of principal export, while canned food accounted for 12.7 percent in 1988.

Between 1970 to 1993, the share of tobacco products in Gross Domestic Product declined from 8.5 percent to 0.85 percent, non- metallic mineral products decreased from 4 percent to 2 percent, and rubber and rubber products from 2.6 percent to 0.69 percent while general machinery and electrical machinery increased from 5 percent to 12 percent.

Viewing the past two decades of industrial development in Thailand, the following observations can be made:

A high degree of diversification has taken place in the industrial sector. As a result, industrial activity in Thailand today has become more evenly distributed among many groups of industries and is more complex than in the 1960s.

The growth of manufacturing output during the 1960s was characterized by import substitution. Since the 1960s, the share of consumer and manufactured goods among Thailand's total imports declined continuously, while that of intermediate and capital goods increased. By the 1970s, the Thai economy reached the stage where component parts and other intermediate capital goods could be produced locally. As a result, the imported content of many locally-made industrial products is decreasing.

In the early 1960s, Thai exports consisted almost entirely of primary commodities. A decade later the manufacturing sector had developed to the extent that locally-made products were competing on world markets. Thereafter export-oriented industries began to gain prominence. Part of this shift resulted from a widespread concern in the early 1970s over limited demand in the domestic market. Also conducive circumstances in the world market at that time called for a shift in policies from producing for domestic markets to producing for export. The textile boom which started in 1972 came basically in response to export potential. The import quota on Japanese goods imposed by the U.S. enabled Thai textiles to capture a larger share of that market. The sugar boom which began in 1974 was in response to the sudden increase in the world price. Production of other items such as food products, animal feed, chemical products, pharmaceuticals, iron and steel products, and electrical components also grew in response to domestic and foreign demands.

In 1955, Thailand's imports of manufactured goods accounted for about 75 percent of the total value of imports. By 1993 the proportion had declined to about 28 percent but capital goods such as machinery and transport equipment, increased from 28.9 to about 45.8 percent. Import of raw materials also increased remarkably.

On the export side, Thailand's manufactured exports contributed about 2.4 percent of total export earnings in 1957. This had risen to 64.45 percent by 1993. For the period 1983-1993, the share of basic manufactured goods rose from 17.8 percent to 18.23 percent, and machinery increased from 5.7 percent to 30.0 percent while the export of miscellaneous manufactured goods increased from 10.1 percent to 20.8 percent.

In the current phase of Thailand's industrial development, dating from the realignment of the Japanese yen and other major currencies, the country is benefiting from a major regional restructuring of manufacturing. Production of a new range of intermediate manufactures is being fuelled by a wave of foreign investment and industrial relocation from Japan, Taiwan and other Asian NIEs, in addition to the U.S. and other countries.

On the whole, Thailand's manufacturing sector's performance has been impressive. With its ability to expand and adapt to world market conditions, the country can look forward to further diversification and growth and to resultant increased prosperity.

Taking into consideration the availability of resources and the potential of projects already underway, one may expect the following industries to grow in significance over the next decade.

Agro-based industries. At present Thailand has abundant supplies of farm produce. The advantage of establishing additional food processing industries is , therefore, apparent. Large-scale commercial livestock production offers unlimited growth potential. Other agro-based industries with good prospects include palm oil, vegetable oil, canned fruit, and paper pulp.

Non-ferrous construction materials. Thailand's cement industry is reputedly the largest in Southeast Asia; prior to 1975, the country was a net exporter. But during the uncertain period following the oil creises, the Thai government took measures to control inflation by freezing the prices of major commodities including cement. As a result, investment in this industry was delayed, and the country became a net importer of cement. By mid-1979, however, with government encouragement, a massive expansion of capacity was underway which turned Thailand back into a net exporter of cement by 1982. Other construction materials with strong potential are aluminium, glass and ceramics. The economic boom of 1987-89 led to another surge in the construction sector.

Light machinery and equipment. Effective January 1, 1987, the Thai government in July 1986, advised local passenger car assembly plants that they must use locally-produced components not less than 54 percent. This measure has helped to accelerate the production of automotive components. The prospect is further enhanced by the cooperation among ASEAN countries to expand intra-ASEAN trade which would enlarge the market for individual countries. Other activities include production of agricultural machinery, diesel engines, drilling and welding machines.

Chemical products. With current market demand, the chemical products industry is expected to expand rapidly over the next few years. Items in this group include herbicides, pesticides, acetylene black, glue gelatin and cellulose acetate.

Mineral processing industries. Developments in this sector point to future expansion of zinc, rock salt and gypsum processing facilities.

In summary, Thailand's prospects for industrial exports in the near future appear bright. This assessment is based on five major factors: capable producers who now have a strong and flexible agricultural base; much closer contact with world markets than before; low-cost skilled labour capable of producing advanced industrial products; the dynamism of East Asian trade and investment growth, and a relatively well-functioning economic system free from distortion by high levels of protection or rapid inflation.

If you want to read some interesting topics, select the following information :

                        Bounty of the Land and 
                        Sea | Sector Performance 
                        | The Agriculture and 
                        Mining Sectors | Major 
                        Crops | Livestock 
                        | Forestry | Fisheries 
                        | Mining | The 
                        Manufacturing Sector | Tourism 
                        | The Organized Financial 
                        Market | The Bank 
                        of Thailand | Other Sources 
                        of Finance | The Capital 
                        Market | The Role of the 
                        Public Sector | Infrastructural 
                        Support | Public Utilities 
                        | Government Incentives 
                        and Financial Assistance | Foreign 
                        Trade and Balance of Payments | Conclusion 
                      


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