| 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.
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