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ASEAN BUSINESS

Thailand's resilient tourism industry a mixed blessing for the economy

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Damrongkieat Pinijkarn with his Dazhong Dianping award, which helps to attract Chinese foreign individual tourists (FITs) to Hollywood Disco Pattaya, the disco/restaurant he manages.

Pattaya

THREE years ago the clientele at Hollywood Disco Pattaya were mostly South Koreans. Then the Chinese started to dominate the disco, chasing the Koreans away, according to manager Damrongkieat Pinijkarn.

Mr Damrongkieat, who is also secretary of the Entertainment and Tourism Industry Association of Pattaya, has adapted well to the Chinese market thanks in part to good reviews for his disco/restaurant in Dazhong Dianping, a leading online platform in China for entertainment information.

"The Chinese, when it comes to eating and drinking, no matter what the price is they will pay," said Mr Damrongkieat. "They just ask for our most expensive whisky and then pay with their WeChat - pang, pang, pang."

WeChat, a Chinese phone application, can also be used for making cashless payments.

That was in 2018. Last year the strength of the baht currency, which appreciated about 9 per cent against the US dollar, started to cut into whisky sales and all other entertainment businesses in Pattaya, Thailand's oldest (and some would say seediest), beach resort just 90 kilometres south-east of Bangkok.

Before the Thai government cracked down on so-called "zero-dollar" Chinese tour groups in late 2017, it was mostly Chinese group tours that came to Thailand. But since 2018, Chinese foreign individual tourists (FITs) have dominated the arrivals. Unlike their group-tour counterparts, Chinese FITs tend to be tech-savvy and to plan their own itineraries, mostly online. But similar to the group tourists, they are also cost-conscious.

"Last year (2019) Chinese FITs' spending in Pattaya dropped around 30 per cent, compared with 2018," Mr Damrongkieat said, speaking for the Pattaya entertainment sector as a whole. "In 2018, for the same amount of yuan they could spend four days and three nights in Pattaya but in 2019 it's like they lost a day of travel. So the same amount of yuan got them only three days and two nights here," he explained.

The stronger baht vis a vis the yuan means Chinese are spending less in Thailand, and heading elsewhere. "FITs tell me that the main reason is the strong baht, and the second is other destinations like Vietnam, because the Vietnamese dong is not strong," said Mr Damrongkieat.

That is not to say the Chinese have altogether abandoned Thailand, which still attracts about 7 per cent of the annual overall Chinese outbound tourism (about 160 million last year).

In 2019, Chinese tourist arrivals started to pick up again in Thailand, after the sinking of a boat off Phuket Island on July 5, 2018 claimed the lives of 47 Chinese tourists on board. After dipping 5 per cent year-on-year in the first half of 2019, the Chinese came back strongly in H2 2019, reaching about 11 million by year-end, nearly one fourth of the estimated 39.7 million foreign arrivals in Thailand last year.

Thailand's tourism sector was one of the few bright spots for the economy in 2019, which is expected to see flaccid growth of 2.7 per cent, and yet the steady juggernaut of foreign tourist arrivals has been accompanied by an unwanted byproduct - a much-appreciated Thai baht.

Last year Thailand's revenue from foreign tourists was close to two trillion baht (S$89.1 billion), up 4 per cent year-on-year. While the country's export revenue was four times that in baht terms, the tourism sector's importance for the country's bottom line is clearly on the rise.

"Over the past 10 years, tourism receipts have grown at a CAGR (compound annual growth rate) of 7 per cent, while export of goods expanded at a CAGR of 1.2 per cent," said Nattaporn Triratanasiriku, assistant managing director, Kasikorn Research Center, a private sector think tank.

"International tourism receipts alone accounted for 12 per cent of gross domestic product (GDP) in 2018, doubling from around 6 per cent in 2010," Ms Nattaporn added.

The inflow of tourism revenue adds to Thailand's current account surplus, which was US$35.2 billion in 2018 (there was a US$50.7 billion in tourism surplus compared with a US$22.3 billion trade surplus), according to Kasikorn Research Center figures.

"The current account surplus means that there is a lot of money coming in to Thailand that is pushing up the value of the baht," said James McCormack, global head of Sovereigns at Fitch Ratings Hong Kong. Fitch last year raised Thailand's sovereign credit from "stable" to "positive" in part due to its sound fiscal position.

"There are very few countries that have a surplus the size of Thailand's and the foreign exchange share of government debt is close to zero," Mr McCormack told a seminar earlier last year.

The downside of the fiscal stability is that it has made Thailand a safe haven for foreign investors to park their dollars which puts yet more upward pressure on the baht.

And the stronger baht has an adverse impact on the country's main engine of growth - exports, which account for 70 per cent of GDP and were already suffering last year from a slowdown caused by the US-China trade spat, Brexit uncertainties and a laggard European Union economy.

"Amid the global economic slowdown, continued baht appreciation would exacerbate the export sector through weakening export price competitiveness," said Kasikorn's Ms Nattaporn. "Its adverse impact is not only on the export sector but also on domestic supply chains, which employ large numbers of people."

Thailand's exports in 2019 dipped by 2 per cent, according to government estimates.

The Bank of Thailand is clearly concerned about the baht's strength, and lowered interest rates twice last year to discourage excess investments from abroad while it lifted restrictions on baht outflows in late 2018 to encourage wealthy Thais to move their baht abroad.

Besides helping to strengthen the baht, Thailand's growing dependence on tourism to fuel its economic growth is not without risks. "Tourism is an important part of the economy but it is one that is vulnerable to shocks. Tourists are fickle," Mr McCormack noted.

The Phuket boating accident of July 2018 had an adverse impact on Chinese arrivals to Thailand in H2 2018 and H1 2019 and that only started to turn around in H2 2019 (partly due to the lower base set in H2 2018).

Luckily for Thailand, the Chinese are not the only growing market for its tourism sector.

The Indian market is also picking up, especially after Thailand started issuing free visas-on-arrival to Indian tourists in November 2018.

"India will become one of the biggest markets for everyone in the future because they have a huge population, and they are getting richer," said Supawan Tanomkieatipume, president of the Thai Hotels Association.

Indian arrivals in Thailand were projected to reach 22 per cent growth in 2019, hitting 1.9 million arrivals with 85 billion baht in tourism revenue, up 27 per cent.

Indian tourists are much appreciated in the Thai hotel industry because they tend to be big spenders and spend much of their money in the hotels.

"Between Chinese and Indians, Indians spend more money per head," said Neoh Kean Boon, general manager of Dusit Thani Pattaya Hotel. "And they are not so adventurous, so they take most of their meals at the hotel."

Indians also tend to travel in big groups, booking hotels in Pattaya or Bangkok for business conventions or weddings. There were about 200 Indian weddings held in Thailand in 2018, each spending about 10 million baht per wedding.

But even the Indians were spending less last year, thanks in part to the appreciation of the baht against the rupee, according to Mr Neoh.

"Our Indian business dipped a bit in 2019," Mr Neoh revealed. "We did about 6-7 Indian weddings a year. The rest were incentive groups. The size of the groups last year were smaller. I think companies were cutting back."

Remarkably, one of the Dusit Thani Pattaya's largest markets is returnee visitors, especially from Britain, some of whom have been coming to the hotel every year for the past two decades.

"We have a lot of regulars, British people, who come here," Mr Neoh pointed out. "About 22 per cent of our guests are returnees. They do complain about the baht but they come back. The only ones who don't come back are those who are not fit to travel anymore."