Industry Put on Notice

Thailand

Economic News

22 Jul 2010
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Thailand's government is considering reshaping the country's economic structure, stepping back from the strong bias that has been given to industry over the past few decades, a shift also prompted in part by environmental concerns.



By the end of this year, the National Economic and Social Development Board is expected to unveil a revised version of the country's industrial-development master plan. Under the remit of the project, the study will classify the effects of each industry and indicate possible locations for accommodating industries with high environmental impact.



Though it is unlikely the new plan will roll back the years of industrial development, it is expected to place restrictions on new projects, and call for a ramping up of environmental and health impact studies.



In mid-September, Deputy Prime Minister Korbsak Sabhavasu, addressing a seminar on future directions for industrial development under health impact assessment criteria, said Thailand should consider shifting its economic focus away from manufacturing industries and towards sectors such as agriculture, so as to reduce possible environmental or public health risks.



"We gave support to the industrial sector for decades by focusing on economic growth but were rarely concerned about the impact on other areas," Korbsak said.



The review of the master plan comes at a time when Thailand's industries have been somewhat under siege, having to deal both with the fallout of the recession and respond to allegations that many existing developments have been operating in breach of the constitution.



According to figures released by the Bank of Thailand on September 30, manufacturing production fell by 10.3% in August compared to the same month in 2008, having dropped for each of the preceding nine months. Though still in negative territory, many experts expect manufacturing to turn around in the final months of the year, returning to growth in early 2010 or even before as local and overseas demand strengthens.



A sign of this slow return to health came via a report issued by the Industrial Economics Office (IEO) at the end of September, which showed rising orders were prompting factory owners to boost capacity. Production utilisation in the Thai industrial sector rose to 57.2% in August compared with 50% in February, the report said.



While there are tentative indicators that the industrial sector may be on the verge of recovery, at least some of these green shoots could shrivel unless measures taken by the government can overcome a potentially damaging situation.



At issue are 76 separate projects based at the Map Ta Phut Industrial Estate in Rayong province, south of Bangkok. At the end of September, ruling on a petition tabled by local residents and non-government organisations, a court issued an injunction ordering work on projects being built or those already completed be halted as they had not complied with existing environmental and health regulations.



The total value of the projects at the Map Ta Phut Industrial Estate has been put at $12bn, with the 25 plants owned by the Petroleum Authority of Thailand (PTT) having a price tag of $3.9bn.



The impact on the economy of shutting down Map Ta Phut could be massive. According to a report issued in early October by the University of the Thai Chamber of Commerce (UTCC), should production at the Map Ta Phut be halted for between six to 12 months, economic growth could be reduced by 0.5 to 1%.



The government has moved quickly to avert the crisis. On October 13, the cabinet approved draft amendments to legislation covering environmental protection that would bring the laws into line with the constitution, requiring project operators to conduct health-impact assessments (HIA) and hold public hearings, as well as environmental-impact assessments (EIA). The cabinet also agreed to establish an independent agency to advise on industrial projects that could pose health or environmental risks, as required by the constitution.



However, while working to strengthen environmental regulations and eliminate anomalies between law and constitution, the government has also appealed against the court decision to shut down the industrial estate, allowing production at the plants to continue.



The confidence of investors could be shaken by the suspending of work on the Map Ta Phut estate and the potential threat to other such developments, said Finance Minister Korn Chatikavanij.



The government must find a middle ground between environmental protection and the country's economy, Korn said on October 13, after non-government organisations announced they were considering lodging a petition with the Administrative Court requesting an order to suspend operations at 500 more facilities approved by the state.



Though it is likely that the government will be able to steer a course that will both tighten environmental and health protection without resulting in the permanent closing of one of the country's main industrial developments, industry has been put on notice to clean up its act.

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