Finally we have a little bit of good news.

Hutchinson Technology (Thailand) has committed 4.3 billion baht to build a hard disk drive parts production plant at Rojana Industrial Park North of Bangkok.

The company broke ground yesterday on a 16 Rai (6.4 acre plot).

When you ask people what Thailand exports many people would say rice. In fact Thailand’s export of hi-tech products is over six times greater than agricultural products. According to the Board of Investment (BOI) Thailand was the world’s thirteenth largest exporter of electrical and electronics in 2008. Since 2005 Thailand has supplied about half of the world hard disk drives.

Another bit of positive news was the announcement by family run meat processor Thai-German Meat that they are going ahead with a one billion baht new investment in a factory on a 12 Rai (4.8 acre) plot at the Wellgrow Industrial Estate East of Bangkok.

The company specializes in Western meat products such as sausage, ham, bacon, salami and dried ham.

A sausage factory is not as hi-tech as a disk drive parts plant but it shows diversity in Thailand’s industrial base and more importantly confidence among some manufacturers to proceed with projects.

By: James Pitchon, Executive Director

There was a very worrying article in the Bangkok Post on February 3^rd suggesting that Ford would shift new investment to other countries unless the Thai government resolved issues at Map Ta Phut.

Initially the problems were limited to the Map Ta Phut Industrial Estate where the Administrative Court issued an injunction to suspend 76 industrial projects valued at 400 billion baht because environmentalists had argued that the approved permits violated the constitution.

This mainly affected the Petrochemical sector.

The article suggested that Ford is scheduled to sign a contract with Hemeraj Land and Development for land on which to build a 20 billion baht car plant but if talks including environmental issues are not finalized by the middle of this month then the company may change its investment location.  The location is in Hemeraj’s Eastern Seaboard Estates not Map Ta Phut.

The fall out from Map Ta Phut has now spread beyond the petrochemical sector.

Attracting car manufacturers to Thailand has been a great success story but past this success is now being threatened by uncertainty over the permit process.

There is no argument about the benefit of good environmental controls.  No country wants to be the base of dirty and dangerous industries that are not acceptable elsewhere.

What is needed is a clear and predictable permit process where manufacturers know if they follow the rules they will get the necessary permits.  Certainty is required to continue to attract investors in manufacturing plant not a set of moving goal posts.

Overall demand in the industrial property market remained weak, only 236 rai were sold, down 7.5% Q-o-Q and 82.2% Y-o-Y. A Chinese agricultural company bought 100 rai in Rojana Industrial Park, Ayutthaya.

Automotive production has improved in Q3 2009 with manufacturing firms increasing production and recruiting new staff in August 2009. Vehicle production capacity utilization increased 27.5% Q-o-Q from 45.9 to 58.5. The recovery will increase the demand for industrial land.

The Administrative Court suspended construction permits for 76 projects worth 400 billion baht in Map Ta Phut Industrial Estate in Rayong, where health and pollution concerns have been raised. The (temporary) suspension of these projects will affect the sentiment of investors. Mr. Korn Chatikavanij, Finance Minister, said that it could slow the economy (GDP) by 0.4%.

B.O.I. project approvals are still low. The total value of BOI-approved projects decreased by 34.5% Y-o-Y, compared the first nine months of 2009. The total value of BOI-approved projects was THB 176 billion in 9M 2009.

687 projects have been approved by BOI since the beginning of this year, down 14% Y-o-Y. 63% of the total investment value was located in BOI Zone 2. The largest contributions came from the service and infrastructure sector (THB 66.8 billion), followed by the agriculture product (THB 28.4 billion).

Outlook

The industrial sector is feeling the full force of the global economic down turn as can be seen from the poor SILP sales and B.O.I approvals. This has been further damaged by the suspension of 76 projects worth 400 billion Baht in Map Ta Phut Industrial Estate. These projects are currently under review and a decision will be make on these soon.

On a more positive note automotive production has improved in Q3 with manufacturing firms increasing production and recruiting new staff in August 2009. Vehicle capacity utilization increased 27.5% Q-o-Q from 45.9 to 58.5. The recovery will increase the demand for industrial land.

Read full industrial report

In Thailand this has resulted in industrial land sales on estates and parks falling from 3484 Rai (1393 acres) in the first three quarters of last year to 432 Rai (172 acres) in the first three quarters of this year.

We have not seen manufacturers closing existing factories and leaving Thailand and the number of factories being offered for sale due to closure of operations have not risen significantly.

We are starting to see a recovery in both exports and manufacturing capacity utilisation. Thai Industrial Estate and Park operators have told us that they are seeing resumption in enquiries from companies looking to set up plant in Thailand.

Thailand has not only suffered from the effects of the global recession but manufacturers’ confidence in Thailand has been damaged by political events since 2006. Just as we see the first signs of recovery, recent events concerning Map Ta Phud in the Eastern Seaboard have again damaged investors’ confidence.

Map Ta Phud is Thailand’s main bulk chemical deep sea port and a cluster of both government run and private industrial estates make it Thailand’s main petrochemical hub. Map Ta Phud has been critical to the growth of manufacturing in Thailand and the development of the Eastern Seaboard and to date has been a great success story.

Srisuwan Janya president of the stop global warming association and 43 Rayong villagers won an Administrative Court case on Sept 29, 2009 when the court ordered the suspension of 76 industrial projects valued at THB 400 billion ($11.9 billion), in the Map Ta Phut area. The plaintiffs accused agencies involved of malpractice for allowing the projects to go ahead without seeking opinions from locals and the independent organisation on environment as required by Article 67 of the constitution.

David Nardone ,President and CEO of Hemaraj Land And Development Plc., Thailand’s largest Industrial Estate developer commented in Hemaraj’s July 2009 newsletter:
“Investors in Map Ta Phud, Rayong, who have secured their BOI investment privileges or IEAT right to own land, all necessary permits to conduct their business, EIA environmental approvals (if required) from ONEP, construction permits, and financing, are looking to operate their business smoothly, particularly with trillions not just billions of baht invested. Yet, a declaration of a Pollution Control Zone initiated by a few dozen persons with no real rules in place and, remarkably, no government objection, has put these investments at heightened risk.

Continued investment in petrochemicals will be very limited until the rules are clear on how to invest and there are assurances regarding the protection afforded to investors. Recent petitions to the Administration Court from limited NGO protestors have created further uncertainty in an area even beyond Map Ta Phut, Rayong.

The Petrochemical cluster is one success story of Thailand’s few strategic industries. Thai and foreign investors complying with the rules of law and international standards of environmental protection are rightfully demanding the government resolve to protect their capital investments and continuity of business.”

The Bangkok Post on October 13th 2009 quoted Yo Jitsukata the President of the Japanese Chamber of Commerce (J.C.C.) as saying:
“If this problem is not solved soon, there will be an impact on the investment in Thailand including that from Japan, which may be an obstacle to the economic recovery in Thailand,” “We are afraid that this may affect widely companies in this area, where many of the companies are related closely to one another through the supply chains of materials and utilities. We hope that this problem will be solved in the earliest time so that we can continue our suspended projects.”

Japan is Thailand’s largest overseas investor in manufacturing, it is rare for the J.C.C. to make public concerns about Thailand to the press and this highlights the seriousness of the situation.
It is not just multi national companies that are being affected but also two of Thailand’s industrial giants, the Siam Cement Group and PTT. Investors in manufacturing need confidence and certainty, their projects are long term, require substantial investment and loans.

We agree that protection of the environment should be a priority but suspension of these projects took place after the investors had received all the necessary approvals. We hope that a resolution can be found that satisfies the concerns of environmentalists, local residents and the investors in these projects.

Thailand’s position remains that of
A base to manufacture products for the South East Asian market.
To diversify risk by not locating all manufacturing capacity in China – “China plus one”
Thailand’s main strengths are it has a well developed infrastructure and a solid base of supporting industries, however the current political instability could be seen as a weakness. Vietnam remains Thailand biggest competitor for the “China plus one” market. Vietnam has lower labor rates but its infrastructure is not as developed as Bangkok. Foreign Direct Investment (FDI) into the industrial sector dropped 17% y-o-y in 5M2009, while foreign direct investment from Japan, Thailand’s major foreign investor, has decreased by 27% y-o-y.

Foreign Direct Investment
Foreign Direct Investment (FDI) into the industrial sector in 5M09 was down 17% y-o-y from US$ 1,904 million to US$ 1,605 million compared the first five months of last year. However, FDI into other sectors increased by 3.3% y-o-y. FDI from Japan, Thailand’s major foreign investor, decreased by 27% y-o-y from US$ 1,450 million to US$ 1,065 million (5M09 compared to 5M08).

During Q2 2009, the total supply of SILP was 97,924 rai unchanged from the last quarter. No new serviced industrial lands plot was completed during Q2 2009. Approximately 9,700 rai of SILPs is under development as of Q2 2009. Of this amount, 1,700 rai is located in BOI Zone 3, while more than 8,000 rai is located in BOI Zone 2. Hemaraj has the largest expansion plans, with approximately 5,000 rai in Hemaraj Eastern Seaboard Industrial Estate (H-ESIE).

Serviced Industrial Land Plots (SILPs)
The Eastern Seaboard (Chonburi and Rayong) is still the most popular location for SILPs due to proximity to the port and better logistics, while Ayutthaya is favored because it is near Bangkok. Hemaraj is continuing with the large-scale expansion of its Hemaraj Eastern Seaboard Industrial Estate by separating it into three phases of development. The first phase consists of 2,000 rai and expected to complete in 2009, and is 70% complete currently. The second and third phases have total land of 3,000 rai, which is scheduled to be developed within the next two years. Almost 1,800 rai of SILPs are being developed in sections in Rojana Industrial Park (the eighth phase) in Ayuthaya Province. Completion dates range from 2008-2014 but the exact period is dependant on sales progress. The second phase of Amata Nakorn’s expansion in Chonburi, which will add 1,000 rai of SILPs, is underway but a completion date has not yet been announced. Wellgrow Industrial Estate in Chachoengsao province has plans to develop approximately 60 rai as part of its second phase of expansion. Completion is scheduled for the second half of 2009.
As well as these Thai Factory Development (TFD), Kabinburi and Navanakorn (Korat) all have future plans to develop land.

Three major industrial estate developers are listed on the Stock Exchange of Thailand (SET)-Amata Corporation Plc (AMATA), Rojana Industrial Park Plc (ROJANA) and Hemaraj Land and Development Plc. (HEMRAJ). Rojana Industrial Park has the largest proportion of land sale, accounting for 94% of the total land sale in this quarter.

Largest Transaction
Thailand Tobacco Monopoly (TTM), a state enterprise under the Finance Ministry, bought 240 rai of industrial land plot in Rojana Industrial Park, Ayutthaya to relocate their existing plant which is located in central Bangkok.

Ready Built Factories
During Q1 2009, the total number of RBFs increased by 2.6% q-o-q and or 8.3% y-o-y to 589 factories (in term of number factories). A total of 15 factories were completed in this quarter,of these, 4 factories with a total area of 10,200 m2 were from Ticon, another 4 factories were from Hemaraj, while the other 7 factories with total space of 16,942 m2 were from Pinthong.
Ticon accounts for 35% of total RBF supply (by area), followed by TFUND (31%) and Hemaraj (12%). Combined, TICON and TFUND (a property fund set up by TICON) account for 66% of the total RBF supply.

The occupancy rate of ready-built factories was 74.6% in Q2 2009, down from 77.5% last quarter. Total leased space now stands at 905,664 m2. This is mainly a result of small manufacturers slowing or stopping production, while a few companies have vacated their premises.

Asking rents for RBFs have generally remained unchanged since Q2 2008. Asking rents range from THB 120 /month /m2 to THB 220 /month /m2. RBF leases are usually for a period of three years, with a deposit of three to six months. All other expenses are borne by the tenant, including household tax, estate management fees, insurance premiums, utilities, and other expenses.

Outlook
Although SLIP’s figures rose by 187% Q-o-Q this figure is skewed as the Thailand Tobacco Monopoly took 240 out of the total 255 Rai sold. Demand still remains very weak, this was backed up by the low B.O.I project approvals. On a more positive note the manufacturing production index (MPI) although down Y-o-Y was up a healthy 11.4% Q-o-Q, indicating that the market may be improving.

960 rai (384 acres) of industrial sites were sold in the second quarter of 2007, compared to 655 rai (262 acres) in the first quarter. If this trend continues, total sales in 2007 could exceed those in 2006.

The leading indicators are positive as the total value of BOI approved projects increased by 76.7% year-on-year in the first half of 2007.  The total value of BOI approved projects for the fist half year of 2007 at was THB353.6 billion which is almost equal to THB 374 billion, total value of BOI approved projects in 2006. In terms of the number of projects approved, 659 projects have been approved by the BOI since the beginning of the year, rising by 9.7% year-on-year. This means that the total investment per project has significantly increased.

81% of all industrial land sales in the second quarter were in BOI Zone 2, the biggest sale in the second quarter was 318 rai (127 acres) which was purchased by the Thai Summit Group in Hemaraj Land and Development Company’s Eastern Seaboard industrial estate.

There was a 3.2% increase in the number of ready built factories for rent in the second quarter. The occupancy rate of ready built factories was 85.9% and supply is expected to increase by 17% in the next six to eight months.

“The average Industrial Capacity Utilization is currently 75.2% and certain industries have reached levels of over 90%, and we expect that this will lead to new investment in manufacturing in Thailand” said Ms. Yossavadee Wassarakit, Manager of the Industrial Services team at CB Richard Ellis Thailand. “We believe these are all positive signs for a brighter future for the industrial property sector.”

Industrial estate developers expect that the BOI promotion scheme for the manufacture of eco-cars will also lead to an increase in demand for manufacturing sites on industrial estates and parks and really built factories.