Flooded Hard-Drives and Hondas: Economic Implications of Thailands’ Latest Natural Disaster

By Jesse Dykstra 28/10/2011

Flooding in Thailand     Source: thesun.co.uk
Flooding in Thailand Source: thesun.co.uk

Global Economic Hub
Thailand is a global manufacturing hub, and a leading exporter of automobiles, electronics, textiles, clothing and food. Exports of goods and services accounting for approximately 70% of Thailands’ GDP in 2010. Tourism has largely recovered following the Indian Ocean tsunami (which claimed more the 5000 lives in Thailand), accounting for about 6% of GDP in 2010.

Many of the world’s largest auto manufacturers have major factories in Thailand, including Toyota, Honda, Nissan and Ford. As the world’s largest manufacturer and exporter of hard-disk drives, Thailand hosts hard-disk giants Western Digital, and Seagate Technology. Sony, Toshiba, Apple and Canon also rely on their Thailand manufacturing facilities to supply the global demand for consumer electronics.

Worst Flooding in 50 years

Since flooding began in northern Thailand in July of this year, the country has been coping with another deadly natural disaster; one that will also have global economic implications. With a mean rainfall of nearly 800 mm for the three-month period from August to October, Bangkok is no stranger to flooding, but an exceptionally wet monsoon season in the north has brought the worst flooding in over 50 years. Swollen rivers and floodwaters have gradually made their way towards the south, threatening the most populated regions surrounding the bay of Bangkok. Thailand is a country of 67 million people, with an estimated 9 million living in the capital city of Bangkok, where much of the city is merely 2 metres above mean sea level. The immediate impacts of the disaster have only begun to materialize:

• nearly 400 lives lost to date

• more than 100,000 people displaced from homes

• one-third of the country inundated, including major agricultural and industrial areas

• damage estimates >$6 billion US dollars

As Bangkok braces for another day, 1.2 billion cubic metres of flood water is expected to peak around the same time as high tide. Government officials have thrown in the towel in the fight to contain the rising flood waters. As low-lying areas of the city become inundated, thousands of people continue to flee the capital for higher ground. Tourism officials issued travel warnings earlier today advising tourists that “flooding in Bangkok now appears imminent”. Indeed.

Submerged Cars at Honda Factory in Thailand
Submerged Cars at Honda Factory in Thailand

Global Economic Implications
It may be the long-term economic impacts of this disaster that are most damaging. Consumers around the world will soon face the consequences of the temporary crippling of Thailand as a global manufacturing hub. Only time will tell what the extent of physical damage will be in Bangkok, but the economic impacts are already beginning to mount. The Thai government has imposed a 5 day “weekend” to allow people to cope with the disaster, and production at many major companies has already been stalled for much longer than that. Toyota has had to keep its’ Thai production suspended for nearly 4 weeks so far, reducing its’ ability to supply the Asian, North American and South African markets. In turn, the loss of parts produced in Thailand has forced Toyota to slow down its’ operations in other countries, including Japan, the Unites States, and Indonesia.

Toyota is not alone. Many other manufacturing companies spanning a wide range of industries have been impacted by the flooding. The economic impacts of this disaster will soon be brought home to us all, in the form of decreased availability, and higher prices on many goods, including automobiles, electronics, clothing, and food.

As has been the case with many recent flood disasters (eg. Pakistan in 2010), this years flooding in Thailand may have been exacerbated by human activity (or inactivity in this case). Despite high precipitation in northern Thailand at the beginning of the monsoon season, some down-steam water storage reservoirs were not drawn down enough in the early stages of flooding, leaving less capacity for temporary storage of flood waters. But that is a topic for another post.