In recent weeks, the government has announced several relief schemes aimed at helping people and businesses recover from the flood crisis.
For example, compensation of 5,000 baht is being offered for each flooded house, while affected farmers and entrepreneurs will be eligible for soft loans. Changes in tariffs have also been made to promote recovery-related investment such as in machinery and auto parts.
In short, positive first steps to help those most affected have been made. However, the challenge now is to address the very real issues of confidence and economic development brought about by the flood.
Various committees have been formed to address these and seek to prevent future flooding. These include the Flood Recovery and Restoration Committee, the Strategic Committee for Reconstruction and Future Development and the Strategic Committee for Water Resources Management.
Most immediately, action must focus on rebuilding confidence among local and foreign investors and other stakeholders. For example, some multinational corporations have begun to consider whether to diversify their production away from Thailand. Consumer confidence, at a 10-year low, also needs to be boosted.
Communication outreach activities must be carried out to address investor concerns. A number of roadshows have been conducted already, including a recent one to Japan.
However, beyond communications it is clear that investors are still looking for robust plans to prevent future flooding. The need for this is all the more urgent as neighboring countries try to siphon off some of Thailand's foreign direct investment (FDI). In addition, the government must think about how best to reform its national disaster management.
Thailand currently has several disaster management programmed in place. Gaps identified and lessons learned from this crisis should be incorporated into these. With only six months to the next rainy season, this will need to be done rapidly.
In our view, the government will also need to address a number of other priorities to restore the nation after the floods. Critically, decisions taken today will likely shape the nation's growth trajectory and competitiveness in both the medium and the long term. The following points highlight our view of the priorities:
Address the concerns of multinational corporations: The Economist Intelligence Unit reported the inflow of FDI into Thailand has declined by 5% per year on average over the past five years, dropping to 6.3 trillion baht from 8 trillion baht during that period.
The decline has come from many countries and territories including Taiwan, Germany, Iceland, Hong Kong and Belgium. And while FDI from Japan, which accounts for about a third of Thailand's total,
has actually increased slightly in the same period, there has been an uptick in FDI flowing to our neighbors.Vietnam, Indonesia, Malaysia and Singapore have been able to increase their FDI by an average of 10-33% per year over the past five years. All four countries already have more FDI than Thailand.
The flood will inevitably change how companies think about investing in Thailand and as a result the trajectory of FDI inflow. These issues of confidence and their need of robust risk management must urgently be addressed.
Promote SME productivity: Thailand's robust SME sector accounts for almost 40% of our gross domestic product. However, even before the floods, when we looked at the profitability and growth of our SMEs, we identified significant room for improvement.
Take the farming sector _ based on more than 400 SMEs we studied, almost half were either unprofitable or had no growth in recent years. Similar patterns are observed in other industries such as manufacturing of metal fabrication. The flooding has likely made this situation worse.
Many SMEs operate in a single location. Even though some of the assets are insured, their profits and working capital are not. It will take months for them to recover fully.
The question now is over and above the immediate crisis response of government agencies, should more now be done to promote productivity of Thai SMEs?
Should there be more support in productivity improvement, taking best practices from other countries, such as those in Singapore being carried out by the city-state's Standards, Productivity and Innovation Board? We think yes.
Refresh our economic development plans: The multitude of activities to be carried out calls for a clear and unified economic development plan. In many other countries, governments have begun adopting the corridor concept to bring greater clarity to their economic initiatives.
The plan for each corridor is grounded in natural competitive advantages, which are linked to the national growth plan. These focus on developing distinctiveness in chosen sub sectors and promoting synergies across businesses or investments within them.
In contrast, Thailand has historically used industry-based development planning. The question now is with rising regional competition and the very particular challenges presented by the flooding, should we move to a more granular model of economic planning?
We see this as a significant opportunity to change Thailand's growth trajectory and competitiveness as we come out of the flood crisis.
While the challenges ahead are clear, as the waters recede we see a significant chance to turn this crisis into opportunity.
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