Thai Flood Zone Fortified to Lure Manufacturers: Southeast Asia

Thai Flood Zone Fortified to Lure Manufacturers
A new flood-prevention water pump at the Hi-Tech Industrial Estate near Ayutthaya, Thailand. Photographer: Dario Pignatelli/Bloomberg

Worasit Sriburanasorn points to the spot where floodwaters overwhelmed a dike in central Thailand and left hundreds of factories submerged a year ago, part of a tour he now routinely gives to customers wary of returning.

Workers at Hi-Tech Industrial Estate are completing a levy that’s 1.2 meters (3.9 feet) higher and twice as wide as the one that failed when waters rose 4.9 meters above sea level last year. The barrier is central to convincing suppliers to companies such as Apple Inc. and Samsung Electronics Co. to move production back to Ayutthaya province, Worasit said.

“Every time that our customers come, they say ‘I want to see the actual dike,’” said Worasit, a senior manager at Hana Microelectronics Pcl, Thailand’s biggest semiconductor packager, as he stood on top of a mound of dirt and stone about 60 kilometers (37 miles) north of Bangkok. “From what our customers have seen, they are quite impressed.”

While Japan has invested $2.1 billion in Thailand this year and companies from Toyota Motor Corp. to Honda Motor Co. say they will continue production in the country, only 55 percent of factories have fully resumed operations a year after the floods. Convincing manufacturers to stay is crucial to sustaining a recovery in the economy, which the central bank expects will grow 5.7 percent this year after expanding 0.1 percent in 2011.

Japan, Thailand’s biggest investor, is seeking to pump more money into the country even after the floods because of the strong yen, Myanmar’s emergence and frictions with China, according to Supavud Saicheua, managing director at Phatra Securities Pcl.

“So far the perception seems to be that the attractiveness of Thailand in the medium term remains unaffected,” he said by phone from Bangkok. “If there is another major flood like the last time, then all bets are off.”

Economy Rebounds

Thailand’s central bank forecasts the economy will grow 5.7 percent this year and 5 percent next year. Industrial output has yet to surpass pre-flood levels as a slowdown in global growth damps demand for the nation’s exports.

Of the 839 affected plants in the seven business parks, 459 have fully resumed operations, 225 have partially opened and 68 have closed or relocated, the Industrial Estate Authority of Thailand said on Oct. 15. About 20,000 fewer workers are employed at three of the estates for which the IEAT had data.

Foreign direct investment in Thailand reached $5.1 billion in the first seven months of the year, compared with $4.9 billion in the same period last year, according to Bank of Thailand statistics. Japan accounted for $2.1 billion this year, compared with $2.3 billion a year earlier, the data show.

75-Kilometer Wall

Japanese companies in the automobile industry can’t easily shift operations to another country because their customers and suppliers are in Thailand, according to Junichiro Haseba, an official with the Japan External Trade Organization.

“Some companies withdrew from the Ayutthaya area but the majority of them just moved to different areas in Thailand,” he said by phone from Bangkok. “Only a small percentage of them moved overseas.”

At Rojana Industrial Estate in Ayutthaya, workers have almost finished building a 75-kilometer concrete wall to protect the 213 factories in the zone. Honda mentioned the barrier in resuming production after suffering 23 billion yen ($288 million) in losses because of the floods.

Toyota, which booked 110 billion yen in flood-related losses because its supply chain was disrupted even though its own factories weren’t damaged, will continue to use Thailand as a production base, according to Joichi Tachikawa, a Tokyo-based spokesman for the carmaker.

Dam Management

Rainfall last year was about 40 percent more than the annual average, filling Thailand’s dams up to capacity and prompting authorities to release more than 9 billion cubic meters of water down a river basin the size of Florida. The deluge inundated seven industrial parks that helped transform Thailand from an agriculture-based economy to a manufacturing hub since the first one was built four decades ago.

Less rain this year has spared the industrial zones north of Bangkok, none of which managed to complete dikes before the monsoon season that runs from about July to November. Water levels in Bhumibol dam, Thailand’s biggest, averaged 62 percent of capacity from Oct. 1 to Oct. 22, compared with 98 percent in the same period a year earlier, according to data on the Royal Irrigation Department’s website.

“We were lucky this year that we didn’t have as much rainfall as we had last year,” Anond Snidvongs, a member of the government’s water and flood-management committee, told reporters this month. “Even before rainy season started, we practiced and did a lot of rehearsal.”

Chao Phraya

Flood walls for the seven inundated industrial estates have cost about 5 billion baht ($163 million), with the government paying for two-thirds of the total, according to the IEAT. The government is now preparing to award 324 billion baht in contracts to revamp the water-management system in areas including the Chao Phraya river basin.

A third of those funds will go to a floodway that can handle about 1,500 cubic meters of water per second, or about 40 percent of the capacity of the Chao Phraya river that flows through downtown Bangkok. The rest will be spent on reservoirs, urban planning, warnings systems and drainage areas, according to the Office of National Water and Flood Management Policy.

The government has prequalified eight groups to bid for the projects, including companies such as Korea Water Resources Corp., China International Water & Power Corp., Bangkok-based Ch. Karnchang Pcl and Japan’s Obayashi Corp. The list will be cut to three on Jan. 31, with the winning bidder announced on April 10, according to the national water and flood office.

Emergency Spending

Prime Minister Yingluck Shinawatra’s cabinet approved 350 billion baht in emergency spending last year to pay for the projects, a sum it will need to borrow next year before the decree expires.

The use of the emergency decree means the projects will avoid parliamentary scrutiny and saddle the government with financing costs, according to Korn Chatikavanij, a former finance minister and deputy leader of the opposition Democrat party.

“There is a complete lack of transparency,” he said by phone, referring to the planned spending. “We don’t even know what the plans are in detail. Everything is being discussed behind closed doors.”

Thailand’s Board of Investment said yesterday it is providing incentives for 35 projects valued at 28.4 billion baht in Ayutthaya and Pathum Thani province, including two plants that will supply autoparts to Honda’s local unit.

Sony Relocates

Not all companies are ready to return to Ayutthaya. Down the road from Hana’s operations, a Sony Corp. factory sits empty, with water stains visible on the walls and weeds poking up in the parking lot. The company, which has yet to reopen two production centers damaged in the floods, decided to expand a facility in a province east of Bangkok that sits outside the river basin, according to spokesman George Boyd.

“Thailand remains an important production base for Sony,” Boyd said in an e-mail. “We are considering various future possibilities for the two sites as we monitor the Thai government’s progress with flood-prevention measures and the business situation.”

Hana has spent more than 230 million baht to protect its factory from future floods, including adding water pumps, waterproofing walls and raising machinery. It also bought a removable aluminum flood wall that can be erected in five hours around key buildings, alleviating the need for sand bags.

A large floodway through the region may help prevent a similar disaster occurring in the future. Until then, another massive deluge would make it “almost impossible” for employees to get to work even if the factory stays dry because Hana has no dormitories on site, Worawit said. The company is now investing in facilities in northern Thailand and Cambodia to diversify its risk in case of another flood, he said.

“It will cost us more to relocate,” he said. “Everything is here -- people, facilities, everything. So you live with it.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE