Curb your export enthusiasm

Last Monday started off with a big bang, as Thai exports made headlines at home and abroad. Everyone, including myself, was caught off guard when the Commerce Ministry reported that the US dollar value of Thai exports rose by 6.5% year-on-year in August to $18.82 billion — the most growth in five months.

Exports in previous months had been dismal, mostly contracting except for a couple of months of one-off gains. So was the August rebound the start of a turnaround or just a smokescreen temporarily masking Thailand’s weak overall economic performance?

Exports still account for 70% of the gross domestic product of Asean’s second-largest economy after Indonesia. But let’s break down the recent figures further in search of more facts. Aside from the rosy 6.5% increase in merchandise exports that caught everyone’s attention, shipments posted 9.9% growth when gold, fuel and minerals were excluded.

More impressive was the trade surplus of $2.2 billion. Deputy Commerce Minister Suvit Maesincee pointed to improved foreign demand, noting gains in nearly all markets except the Middle East. Shipments to mature markets — the US, the EU and Japan — were up 11.1%, while those to dynamic markets such as Asean, China and South Asia climbed 2.3%.

Compared with our regional peers, Thailand’s export performance outclassed Indonesia’s 0.74% year-on-year export decline, flat shipments in Singapore, and a 2.8% decline in China.

But don’t pop the Champagne cork yet. Export value in the first eight months of 2016 was still down 1.2% from a year earlier at $141 billion. Most public and private organisations believe exports will remain in the red this year. The Bank of Thailand foresees a 2.5% contraction and the Thai National Shippers’ Council a 2% drop. If so, it would be the fourth straight year of export declines.

Such projections warrant growing concern for the competitiveness of Thai exports. The International Monetary Fund in July trimmed its global economic growth forecast to 3.1% this year and 3.4% next year as momentum remains stalled by the Brexit shock and China’s economic slowdown. Global growth prospects are further compounded by Japan’s flagging economy, uncertainty in the US and its policy direction after the Nov 8 presidential election, as well as low commodity prices.

Although it is true that foreign demand plays a major role in Thailand’s export performance, I would rather not place all the blame on ebbing demand abroad. The fact is, Thai exports still have structural problems that will be difficult to resolve in just a few years. Our export structure has hardly changed over the past three decades, relying too much on agricultural commodities, which are subject to price volatility.

A lack of value-added, technology-driven products, increased competition from neighbouring countries, and domestic political uncertainty denting investors’ confidence have also collectively contributed to our export problem.

Last year’s low-base effect — exports contracted 6.7% year-onyear in August 2015 — must be taken into account as well. Bank of Thailand governor Veerathai Santiprabhob also mentioned that despite some improvement in many export industries, some of it might have resulted from the low-base effect.

Foreign exchange is another important factor influencing international trade figures. The baht’s value has appreciated recently in line with investors’ search for yield, resulting in some export-business leaders nagging the central bank to maintain a competitive edge for the local currency.

Although the central bank certainly has a duty to manage foreign-exchange fluctuation, competitive currency devaluation will not help sustain Thai export growth in the long run as the central bank’s foreign reserves could be put in jeopardy to stabilise the baht’s value. Albeit a little too late, structural reforms in the export sector are urgently needed to improve our competitive edge and enhance long-term performance.

Thailand’s economy as a whole is being driven mainly by government spending and tourism, with private consumption an unreliable source of growth given high household debt and stagnant wage growth coupled with low farm prices. Private investment, seen as a beacon of hope for future economic expansion, is very sluggish because capacity utilisation is low, which is in line with subdued exports.

A lot of hope still rides on the much-hyped infrastructure projects. While I agree that we need to upgrade our infrastructure, we cannot overlook the fact that Thailand’s education system is a mess, giving rise to bleak prospects of capable human capital to power the “Thailand 4.0” economy we keep hearing about. Let’s hope for a better future for Thailand’s economy, but brace yourselves for bigger storms to come, for the night is dark and full of terrors.