Floods Leave Thai Economy Gasping

• by Marwaan Macan-Markar (bangkok)
• Wednesday, November 16, 2011
• Inter Press Service

Over 400 men in fatigues have been engaged for this mission, to build a wall of sandbag and plastic sheets over two metres high. Other stretches of the Lat Krabang industrial estate have been fortified by empty shipping containers and barrels filled with stones.

'The water is here already,' said Somjet Thinaphong, the former governor of the Industrial Estate Authority of Thailand. 'One breach in the wall will make this new embankment useless.'

'We have reached the level we can defend,' he added with an air of resignation as he looked in the direction of the brackish flood waters, nearly a metre high, lapping at this estate of 231 factories. 'The situation keeps changing every day.'

Defending the industrial estate from Thailand’s worst floods is important firstly because 50,000 people work and produce global brands such as Johnson and Johnson and Cadbury.

Lal Krabang industrial estate is a vital bridge that links Thailand, one of Southeast Asia’s major manufacturing hubs, with the global market. Its container yards serve nearly half of the four million containers shipped out every month through Bangkok’s major port.

Many of these containers are expected to lie empty in the wake of the havoc caused by the floods. Six of this kingdom’s largest industrial estates, in the provinces of Ayuthaya and Pathum Thani, have been submerged.

Worst affected by the floods, which have claimed 500 lives since late July are Japanese manufacturing companies.

Over 400 Japanese factories are located in the industrial parks north of Bangkok, the manufacturing heartland of this kingdom where nearly 600,000 people have lost their jobs. They include workers on the automobile and information technology production lines.

Carmakers Toyota, Mitsubishi and Honda are among those that have been forced to suspend production, and foreign companies that use Thailand to manufacture hard-disk drives.

The computer world has already been put on notice that there will be shortage of hard disk drives since Thailand accounts for 40 percent of the world’s supplies.

While the full impact of the floods on the Thai economy will be known only after a further three billion cubic metres of water have drained out through Bangkok into the Gulf of Thailand, the country's central bank has slashed the country’s growth forecast from 4.1 percent to 2.6 percent.

'This significant downward revision reflects the severity and the broad-based impacts of the floods,' Prasarn Trairatvorakul, governor of the Bank of Thailand, told foreign reporters. '(The floods have) brought about a halt in agriculture and manufacturing production in affected areas, and have also disrupted production chains in other areas as well.'

A heavy insurance bill on some 800 companies in affected manufacturing parks, estimated to be 16 billion dollars or higher, awaits payment. 'The affected industrial estates will face a severe insurance problem,' Masato Otaka, economic minister at the Japanese embassy in Bangkok, told IPS. 'The magnitude is beyond the estates.'

Otaka fears that Thailand may lose its competitive edge as a regional manufacturing base. 'International insurers will not provide insurance … not take the risk now that Thailand has become known as a severely flood-prone country.'

Economists question the country’s development model, where industry accounts for 44.7 percent of economic growth. Also brought to relief is the lopsided rise of Bangkok, accounting for 41 percent of the Thai economy, when the country shed its largely agrarian identity to embrace a manufacturing one from the 1970s.

'It is an economy of extremes between Bangkok and the rest of the country,' says Craig Steffensen, head of the Thai office of the Asian Development Bank, the Manila-based financial institution. 'Everything has been developed in and around Bangkok, giving it drawing power for investors to set up here than anywhere else.'

Attempts to push foreign investors to other parts of the country since 1985 have 'not worked because Bangkok is close to the major airport and ports and has the best schools, best hotels and best shopping,' he explained to IPS. 'Maybe the floods will serve as a tipping point for change.'

The current floods, the result of unusually heavy monsoon rains, four storms and mismanagement of two major dams north of Bangkok, have exposed the vulnerability of the Thai economy in a region competing for foreign investment, adds Pavida Pananond, a professor at the business school in the Bangkok-based Thammasat University.

'Thailand may now appear less attractive for investors than before,' she told IPS. 'We may pay a price for not placing environmental issues as a priority when trying to attract foreign companies to invest in factories here.'

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

Where next?

Advertisement