Giant corporates: Private investment growth driver
2016 was a dismal year for private investment as the figures have been stagnant since 2013. Nonetheless, with positive outlooks for overall economy, it’s convincing that private sector will start to invest more, confirmed by recently revised-up figure of private investment growth in 2018 from numerous research houses.
Delving further, there are numbers of prophecies which all point to rising momentum in private investment next year. Amid a backdrop of low-probability of trade-protectionism, shining outlooks in global economy especially among Thailand’s trading partners such as China, Asean CLMV and Japan, Thai exports should continue to expand at least 4.8 per cent from this year. Robust exports should induce incentives for corporates along supply chains to revamp their manufacturing process and products in order to catch up slews of orders from their clients.
Thai firms not only have to invest more but are also ready to spend more capitals. According to financial data of listed firms on Stock Exchange of Thailand, Thai firms are all set to expand their business as they are sitting on gargantuan free cash flows of around Bt0.5 trillion, twice as much as in 2013. Moreover, their profitability are rising as shown in up-trending return on equity of 11.4 per cent, compared to less than 8 per cent in 2013. Nevertheless, the government are also willing to support and bring more inward investment via mega projects from the Easter Economic Corridor or EEC and infrastructure projects from Public Private Partnership.
Now the one big question to be answered is “Who will revive sluggish private investments?”
By looking at the amount of fixed assets which could represent firms’ investment, it turns out that 80 per cent of the fixed asset (Bt5 trillion THB) were held by only 12,000 large firms (classified by the Office of SMEs promotion), while the other 200,000 SMEs firms own only 20 per cent of total fixed assets. With this tremendous size dissimilarity, it is undeniable that big corporates will be the main influence of Thai private investment.
The reasons investment is densely concentrated in big corporates will become clearer when scrutinising further into the landscape of Thai corporates by business activities. For example, even though both big and small firms are service-type, they are operating in totally different sectors. Most of big firms’ investment is concentrated in telecommunication and hospitality, while small firms are in business services. For manufacturing firms, big corporates are mostly in automotive and food/beverage sectors, while small enterprises operate in fashion products and packaging. Lastly, big corporates in trading businesses are in modern trade while small firms are in construction material. Evidently, big firms are in more advanced and high value-added sectors that require large investment while small firms do not.
With government promotion of EEC and PPP, the sectors that are likely to get the benefit are sectors with high value addition such as telecommunication, large scale construction, automotive, electronics and petrochemicals. Based on landscape of corporates’ activities, government support projects are seemed to be only in favour of big firms. For supportive investment outlooks, ie rosy export goods growth, the beneficiaries are also big corporates as 90 per cent of export values are from big firms, among which 66 per cent are multi-national corporates.
So what’s about small firm? Will they have some benefits from such vigorous private investment? Obviously, as long as large corporates continue to reap increasing revenues, small corporates should benefit along supply chain of big firms. Unfortunately, SMEs in sectors that Thai small suppliers do have competitiveness like foods or sectors that do not require high technology such as auto-parts will gain benefits along supply chains of large peers.
In summary, we expect total private investment to advance at a pace of 3.8 per cent from this year. However, the big chunk of growth, around 3.0 per cent , will be contributed by “Big firms”, whereas “small firms” will only contribute 0.8 per cent .
Therefore, it’s extremely urgent that small firms have to be upgraded and the government also have to customise their helps to suit SMEs needs so that Thai SMEs could gain as much as possible benefits from propitious private investment outlooks and grow sustainably.
Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives.
Co-authored by DUANGRAT PRAJAKSILPTHAI and POON PANICHPIBOOL. They can be reached at tm [email protected]
