Sunday, June 29, 2008

Oil shock 'worse than 1997 crisis'


Thai businesses are being hit harder by the current oil crisis than the financial crisis in 1997 as global oil prices have hit all-time highs while consumer purchasing power is dropping sharply, according to the Saha Group, the country's biggest consumer goods conglomerate.

"Compared to the crisis 12 years ago, what we are facing now is tougher because oil prices were not this high," said Vathit Chokwatana, executive director of Saha Pathanapibul Plc. "Both manufacturing and distribution activities have been seriously affected by high oil prices. Some raw materials, especially for detergents, are extremely expensive but we have to buy them in order to keep the plants running."

Even though some consumers have received salary or cost-of-living increases, the amount isn't enough to offset the rising cost of living. Initially, high oil prices psychologically force consumers to cut their spending, Mr Vathit said.

In the area of logistics, manufacturers have to shoulder the high cost for transporting goods from factories. Some are in distant provinces and goods must go to distribution centres before reaching wholesalers and shops, said Mr Vathit.

To cope with skyrocketing prices, Mr Vathit said Saha is working with some other large businesses including Charoen Pokphand (CP), Siam Cement Group (SCG), and the sugar group Mitr Phol on logistics improvements to cut costs.

The oil shock is affecting travel as well, according to Maiyarat Pheerayahouses, president of the Association of Domestic Travel. The number of Thais travelling within the country dropped by more than half during the first half of this year due to the sharp rise of oil prices and political uncertainties.

Travel costs have surged. For example, the fuel surcharge for a Bangkok-Phuket flight on Thai Airways International has jumped from 400 baht in 2007 to 1,700 baht by mid-2008, she said.

Meanwhile, consumers have concerns about the political and economic outlook, so they are not in the mood for travel, added Ms Maiyarat.

Atip Bijanonda, chairman of the Thai Condominium Association, called on the government to offer tax incentives to homebuyers for using energy-saving materials. So far, energy-saving houses have not been popular among consumers despite high energy expenses. Government incentives could help stimulate demand.

Mr Atip said incentives would help bring down housing prices and drive the demand for energy-saving homes.

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