Unsure of whether to stay or go, manufacturers await details of govt plans

As of late December – several months after the unprecedented run-off first swamped central Thailand – the only plans announced by the government were a Bt350-billion budget and a rough plan to construct dams and “monkey cheek” catchment areas, as well as to improve town planning. 

Prime Minister Yingluck Shinawatra said the details of all projects would be finalised this month. But this may not be enough for foreign investors considering whether or not they should relocate to other countries to avoid future flooding. Many are waiting for details of the plan so that they can make a decision.

 Somboon Hotrakool, director of the Electrical and Electronics Institute, said recently that the intentions of investors in the electronics and electrical appliances industries will not be clear until they can get a better understanding of the water-management plan. 

If the details that emerge early this year fail to assure investors that future flooding will not hit their operations, relocation in the electronics and electrical appliances industries could begin in the second and third quarters.

Some companies are not waiting for the plan, having already decided to move to other countries like Cambodia because of the planned increase in the daily minimum wage. 

South Korean electronics firm Maxon Systems (Thailand) has already moved one of its operations, involving a large workforce, from Rojana Industrial Park to Cambodia to avoid the increased labour costs. Japanese electronics giant Minebea opened a factory in Cambodia in December. 

The company announced its plan to move before both the floods and the announcement of the wage-hike plan. Nonetheless, it signals a trend among electronics firms to look to Cambodia.

Gritsada Suptuaychone, secretary of the Electrical, Electronics and Allied Industries Club under the Federation of Thai Industries, said the Bt80 minimum daily wage in Cambodia – significantly lower than the planned Bt300 in Thailand – is attractive for labour-intensive manufacturers including those in the electronics industry.

 A source in the electronics industry said two electronics companies based at Bangkadi Industrial Park had already decided to leave Thailand. The source declined to reveal the names of the companies.

 A source from Minebea said that apart from the water-management plan, flood-hit companies were waiting for details of the Board of Investment scheme to support their investments in plant rehabilitation. 

The BOI incentives are significant for existing companies with plans to pour further investment into Thailand, potentially demonstrating the government’s sincerity and intention to help operators of flood-affected factories.

 The source said Minebea would retain its production facilities in Ayutthaya and Lop Buri provinces, but the B0I’s measures would be an important factor in the company’s future investment decisions.

 The B0I’s board of directors last Thursday approved two categories of incentives for flood-affected factories. 

First, factories facing expiry of tax exemptions will enjoy a new eight-year exemption. Factories in this group that decide to continue operating at their existing sites will enjoy exemptions of up to 150 per cent of their investment in rehabilitation. 

Exemptions for those that decide to relocate would be 100 per cent of the investment value.

Second, factories not facing tax-exemption expiry will be offered an extra exemption period. Those with no more than three years remaining on their privileges will see the period extended to eight years. 

A two-year, 50-per-cent tax exemption will be given to those with privileges remaining for no more than five years. A four-year, 50-per-cent exemption will be given to those with privileges remaining for no more than six years. 

A five-year, 50-per-cent exemption will be given to those with privileges remaining for more than seven years.

However, only 668 factories whose BoI privileges have not expired will be eligible to enjoy these benefits, whereas about 800 factories whose privileges have already expired are left to seek other government aid measures such as soft loans. Existing annual tax revenue losses of Bt14 billion make it impossible for the Finance Ministry to extend the BOI’s incentives to those 800 companies. 

The tax-revenue loss for supporting the 668 factories is expected to be as high as Bt12 billion per year. 

It remains to be seen whether the 800 factories not enjoying BoI privileges will continue to see Thailand as an attractive investment location, or whether they will relocate. 

Under the BoI privileges, industrial estates that invest in flood-prevention systems would be given a corporate-tax exemption for eight years under certain restrictions.

The flooding has also forced operators of industrial estates – particularly the seven inundated estates – to invest in costly flood-prevention systems.

A source from Rojana Industrial Park said the operator had to invest Bt1.7 billion to construct permanent barriers around the park’s 67-kilometre perimeter. The company is considering whether to borrow part of the money from the government’s fund or borrow the whole amount.

“We have to hire three contractors in order to complete the construction of the barrier by August, which is one of the conditions for borrowing money from this fund. We need to invest a lot ourselves to prevent flooding in the future,” the source said.