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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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