Risk seen in durable goods sector as low crop prices mar confidence of SMEs

The index, put together by TMB Analytics, is based on a survey of 1,177 SMEs across the country on their confidence both currently and for the next three months. 

The confidence index in the third quarter improved to 38 points out of 100, from 36.6 in the prior quarter. 

The index for the next three months increased to 59.6 points, from 55.7 in the previous survey.

   Scores above 50 indicate positive sentiment.

However, the confidence index regarding the capability to generate revenue in the third quarter declined to 42.1 points from 44.7 in the previous survey, due to concern over the economy and competition, which became the most worrying factor among SMEs, taking over from political affairs.

Concern over economy and competition jumped to 48.1 points from 31.1 previously, while worry over political matters improved to 16.8 points – from 37.8 in the prior quarter.

Benjarong Suwankiri, head of TMB Analytics – the research unit of TMB Bank – said yesterday that weak confidence among SMEs in their capability to generate revenue in the third quarter was largely due to the low prices of key crops such as rubber, rice and maize.

Unlike larger enterprises and corporates, SMEs are generally unable to diversify risk by expanding into offshore markets, and many of them – small businesses, in particular – are dependent on supplying the agricultural sector as their main source of income, he explained.

By region, agriculture represents 31 per cent of northern SMEs’ income, 25 per cent of southern SMEs’ income, and 23 per cent of their income in the Northeast.

As to their confidence level in making revenues in the third quarter compared to the second, the index of SMEs in the North dropped to 43 points from 44.9, while the number for the Northeast plunged to 39.1 points from 48.4. 

The confidence index of SMEs in the South was relatively stable, at 36.9 points against 36.8, respectively.

Low crop prices goods have affected agricultural operators’ incomes, which in return reduces the consumption of durable goods, such as pickup trucks, motorcycles and home appliances. 

In terms of the supply chain, meanwhile, less agricultural machinery and agrichemicals is purchased due to reduced incomes, said Benjarong.

Moreover, labour in the agricultural sector, which accounts for 40 per cent of the total workforce in the Kingdom, is witnessing higher risk from low crop prices, which is an economic risk and not a policy risk as under the rice-pledging scheme of the past two years, he said.

While the government’s measure to help farmers has maintained their short-term revenue, it is not enough to get them back on an income-growth path, he added. The situation in the agricultural sector is influencing the Kingdom’s economic recovery this year and next, he said, noting that gross domestic product this year is likely to expand by less than 2 per cent, while GDP is forecast to grow by 4 per cent in 2015.