Payment Instrument Thailand Africa 2010

PAYMENT
1
CHAPTER 1
INTRODUCTION
1.1 Rational of Study
According to a report of The Ministry of Commerce of Thailand (MOC), export

values in year 2009 decreased due to the decline of demand from main export market
destinations such as the United States, European countries and other developed countries.
To compensate for the decrease of the export volume, the MOC suggested that Thai
exporters should expand in emerging market such as Africa.1
The African Market Center, an agency formed by the Ministry of commerce of
Thailand, stated that there are two fundamental factors that support Africa as a trade
promotion market. First, the economic growth of Africa has become steady and higher
than 5 % from 2004-2008 (IMF, 2008).2 However, the African Continent’s economic
growth declined to 1.9 % in 2009 but nevertheless it is positive while other developed
countries are negative. In addition, the projected economic growth of the African continent
is 4.3 % in year 2010. (World Economic outlook update-IMF, 2010)3 This shows growth
opportunity in Africa, which is an interesting factor to be considered by the Thai exporters.
Secondly, the Thai exporters have abundant opportunities to fill the demand gap in Africa
because demand and supply is matched between African consumers and Thai exporters.
The Africans need food and other necessary products with acceptable quality and price
which are provided by Thais.
The big increase in export value to Africa can be seen in from the years 2006-
2008. (Figure 1.1) However, export value to Africa dropped to 6,385.1 million US dollars
in year 2009 due to the decline of the price of rice and other agricultural products. When
we look deeply in export categories to Africa, we find that cereal, especially rice, is the
first rank of export product to the Continent. Cereal is accounted for 38 % of total export
value to Africa. The second rank is auto or auto parts and accessories, which takes 11 % of
total export value to Africa, and the third rank is article of iron and steel, which is
accounted for 9 % of the total export value to Africa (Figure 1.2).
There are plenty of opportunities for Thai exporters to expand in the African
market but there are numerous obstacles as well. From the report of the “Thailand-Africa
Business” seminar sponsored by the Ministry of Foreign Affairs in 2007, the significant
1
Export Business in Africa market [online]. Available: http://www.iwisdom.co.th/index.php?
option=com_content&view=article&id=403:africa-market-golden-chance-for-thai-exporter&catid=46:africa-
market&Itemid=132 [accessed 28 January 2010]
2
IMF, 2008. GDP growth rate in Africa report. Available:
http://www.imf.org/external/pubs/ft/weo/2008/01/weodata/weoselagr.aspx [accessed 26 April 2010]
3
IMF, 2010. World Economic outlook update 2010 [online]. Available:
http://www.imf.org/external/pubs/ft/weo/2010/update/01/ [accessed 24 January2010]
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obstacle to be addressed is the absence of banking and financial infrastructure. It appeared
that banking links between Thailand and Africa are almost non-existent, despite a huge
increase in Thai exports to Africa in recent year” (Amoussou-Guenou,2008)4 Developing
and improving the efficiency of trade facilitation services between Thailand and Africa
will be a significant challenge that needs to be addressed. The direct banking infrastructure
is highly needed by both parties, African importers in particular. According to a recent
report of the Nigerian Embassy 5:
Due to the absence of effective banking infrastructure with Thailand, many
Nigerian importers take the incredible risk of coming directly to Thailand with
considerable amount of cash to pay their transaction. Recently a Nigerian business man
was apprehended at Suvarnabhumi airport with 500 million USD (half a billion USD) in
cash. He was detained by the police and indicted for money laundering. After investigation
by the Nigerian embassy and in connection with the Nigerian Chamber of commerce, it
appeared that the person was in fact a genuine and well known Nigerian importer who
thought that the best way to avoid payment delay and transaction costs was to come
directly to Thailand with has cash. In doing so he violates banking, financial, and criminal
law with taking too excessive risks.
In order to prevent such unfortunate incidents to happen in the future, banks in
Africa are ready to cooperate with their Thai counterparts, if given an opportunity. As
stated by the President of one of the most successful Banks in Africa, Ecobank, during the
first Africa-Southeast Asia Business Forum in Singapore6 in April 2010, “It takes two to
tango”.
1.2 Problem Statement

In 2007, The Ministry of Foreign Affairs of Thailand (MFA) has commissioned the
Asian Institute of Technology (AIT) to organize “Doing business in Africa” seminar.
According to the conclusion of seminar7, direct links between Thailand’s financial
institutions and banks with Africa are almost non-existent. Thus Finance and banking is the
golden key for Asian business. (Amoussou-Guenou, 2008)
In addition, there are many payment instruments in international trade with
different advantages and disadvantages to sellers and buyers. Payment risk happens from
distinctive standard and practice in each country. Thai exporters may face payment delay
or non- payment problem, when they have less experience and knowledge particularly to
emerging market like Africa. Thai exporters have to be cautious on payment instruments.
(Press release local of EXIM bank, 2005)8
4
Amoussou-Guenou, R. 2008. Business in Africa-Thailand’s financial institutions hold the golden key,
Bangkok Post,18/09/2008 available: http://www.bangkokpost.com/business/economics/206/thailands-
financial-institutions-hold-the-golden-key
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The Nigerian Embassy report about banking problem (reported by the President of the Nigerian
Community association on 29 April 2010)
6
Africa and South East Asia Business Forum, the world’s final frontier is now open for business, 5-6 April
2010 Singapore. Website: www.africaseac.com
7
See Report on Thailand-Africa Business, submitted by the Asian Institute of Technology (AIT) to the
Ministry of Foreign Affairs of Thailand, January 2008, unpublished.
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This research will study on payment instruments between Thailand and Africa to
provide knowledge for Thai exporters. Thai exporters will benefit from improving and
supporting of payment system in the future.
Figure 1.1: Export value from Thailand to Africa
Source: The Ministry of commerce of Thailand

(http://www2.ops3.moc.go.th/menucomen/trade_sum/report.asp)
Figure 1.2: Thai exports as percentage to Africa by product

(http://www2.ops3.moc.go.th/menucomen/export_topn_country/report.asp)
1.3 Objectives
The main purpose of this study is to investigate the current practice of payments used by
Thai exporters to African markets and suggest the best solutions to improve banking and
financial system between Thailand and Africa. Specifically the study aims at:
8
PRESS RELEASE LOCAL OF EXIM BANK, 2005. Payment Instruments in international trade [online].
Available: http://www.newswit.com/enews/2005-03-18/1056-payment-instruments-in-international-trade
[accessed 26 January 2010]
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1. Identifying the common payment instruments used in international trade and
describe the current practice of payment instruments used by Thai exporters to
Africa.
2. Reviewing trade between Thailand and the African Continent.
3. Comparing the advantages and disadvantages of each payment instruments from
the perspective of the banks and experienced exporters.
4. Understanding factors that affects the choice of payment instruments used by Thai
exporters to Africa.
5. Recommending to banks/exporters for improving and supporting exports to Africa.
1.4 Methodology
Data is collected from survey of Thai exporters, who trade with African countries.
The questions of survey were framed to meet the data requirements in the research
objectives. The data obtained to achieve the first objective are export value to Africa in
each payment instruments and top-three ranking of African countries by each payment
instruments. The researcher collects the perception of transaction cost, risk level, and
procedural complexity of each payment instruments to meet the third objective. The data to
meet the forth objective are size of firm, type of product export to Africa, year of
experience and payment instruments using.
In addition, data are collected from interview as well. The researcher conducted
interview with three leading exporters to the African Continent. Basically, questions for an
interview are same as survey. Furthermore, question of specific payment practice and
problem of payment were also added.
Descriptive statistic was used to present current payment instruments between the
Thai exporters and African buyers, the ranking of payments in Africa, and the central
tendency of perception of transaction cost, time spent, level of risk, and the procedural
complexity. Fisher’s exact test was used to analyze factors that affect the choice of
payments, while independent t- test was used to analyze the differences of perception of
transaction cost, level of risk and procedural complexity.
1.5 Scope and Limitations

Because of time limitation, this research focuses only on export payment
instruments used by Thai exporters to Africa and data come from Thai exporters and Thai
banks only. This research does not cover aspects of payment instruments of African
importers and African banks.
Interviewing in this research is conducted with only three-Thai exporters who were
prime exporters of rice, cement, and auto / auto parts. Additionally, the researcher also
interviewed two Thai banks.
1.6 Research Organization

The first chapter proposes the rational of study and the problem statement.
Additionally, it describes the research objective and methodology in proper way. Chapter
two reviews the basic literature, which explains the different international payment
instruments. Furthermore, it demonstrates the current practice of payment instruments,
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advantages and disadvantages of each payment methods. Chapter three presents an
overview of trade between Thailand and Africa. The statistics review on trend of trade,
structure of trade, and top-twenty export destination in Africa. Chapter four shows the
methodology of this research in three parts: Part one explains about data collection, part
two describes sample description, part three explains about data analysis and interpretation
method. And chapter five of this research shows the result of the current practice of
payment instruments between Thai exporters and African buyers. In addition, another part
will present the average of perception of transaction cost, level of risk, and procedural
complexity and the median of Time spent by Thai exporters. Final part of this chapter
illustrates test of the factors effect to select payment instruments. Chapter six defines
conclusion and recommendation for improving and supporting trade between Thailand and
Africa. Moreover, research limitation and further studies are included in the chapter six.
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CHAPTER2
OVERVIEW OF METHOD OF PAYMENT IN INTERNATIONAL TRADE
This chapter reviews the different payment methods in International trade. It

explains working procedures, advantages and disadvantages of the common payment
instruments used in international trade. There are two main sections in this chapter.
Section one explains meaning and procedure of four main international trade payment
methods. Section two assesses their distinct advantages and disadvantages of each
international trade payment method.
2.1 Method of Payment in International Trade

There are four main payment instruments for supporting international trade that are
letters of credit (L/C), documentary collection, advance payment and open account. Each
payment instrument is different on procedure and practice. This chapter will describe each
payment instrument based on two documents: Method of payment in international trade
(SITPRO9, 2007) and International trade finance (Siam Commercial Bank, 2006).
2.1.1 Open Account
In this method, the exporter sends goods directly to importer when the importer
receives the goods they will transfer money (payment) to the account of the exporter.
Money will be transferred immediately or it will be transferred on a later up on agreed
date. In most of the cases, the exporter and the importer should have strong business
relationship for a long time before they trust each other sufficiently to apply open account
method. In other situations, subsidiary companies may use this system to supply the goods
to their parent company. In certain markets, European importer expects open account
payment instrument from the exporter.
2.1.2 Documentary Collection
Documentary collection method is the situation when the seller and the buyer agree
up on terms and conditions in advance. Next the seller sends the goods to the buyer’s
destination and prepares documents to collect money. Afterward, the seller sends the
documents to the bank and then the bank will remit to the importer. In this payment
instrument, bank’s role is the mediator between the exporter and the importer. The exporter
will be the owner of the goods until the importer makes payment or accepts bill of
exchange10. There are two main types of documentary collection.
9
Simplify international trade Procedure Ltd (SITPRO) is a company limited, which set up by The National
Economic Development Council of the United Kingdom, is widely recognized as the world's leading trade
facilitation. Its focus is the procedures and documentation associated with international trade.
(http://www.sitpro.org.uk/about/index.html)
10
Bill of exchange is a special type of written document under which an exporter ask importer a certain
amount of money in future and the importer also agrees to pay the exporters that amount of money on or
before the future date. (http://www.infodriveindia.com/Exim/Guides/Export-Finance/Default.aspx)
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1. Document against payment (D/P) : the importer has to pay to the exporter before
the importer gets documents to claim the goods at the importer’s port. There are
two conditions:
a. Document against payment sight : it is the condition that the importer has to
pay immediately when the importer receives the documents for collection
from the exporter. Subsequently, the importer will get the documents that
define the importer is the owner of the goods. The importer can release the
goods from the importer’s port. This process is also called “ cash against
document”
b. Document againt payment term: it is the condition that the importer accepts
to transfer money to the exporter’account within agreed term and then the
import will get the documents that define the importer is the owner of the
goods.
2. Document against acceptance (D/A): it is the situation when the exporter’s bank
sends bill of exchange to the importer’s bank. Afterward, if the importer accepts to
pay as state in bill of exchange (B/E), the importer can claim the goods at the
importer’s port. The payment will be made up on the agreed term between the
exporter and the importer.
The detail of the documentary collection procedure shows on Figure 2.1

Figure 2.1: Procedure of Documentary Collection
Source: http://www.scribd.com/doc/25111653/IT-Lesson-8-Methods-of-Payment
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Figure 2.1, describes seven-step of the Documentary Collection method:
Step 1: the principal (the seller/the exporter)sends the goods to the drawee (the buyer/the
importer) but the exporter still owns the goods. Thus the importers cannot release the
goods from the importer’s port unless the importer do as agreed term such as payment or
acceptance of a bill of exchange.
Step 2: the principal prepares and sends the collection order to the remitting bank (the
seller’s bank).
Step 3: the remitting bank sends the collection order to the collecting bank (the buyer’s
bank).
Step 4: the collecting bank presents the collection order to the drawee.
Step 5: the drawee has to follow the instructions of the collection order such as payment or
acceptance of a bill of exchange and then the drawee is the owner of the goods that the
principal has been shipped to the drawee’ port.
Step 6: the collecting bank transfers money or sends acceptance of a bill of exchange to the
remitting bank.
Step 7: the remitting bank transfers money or sends acceptance of the bill of exchange to
the principal.
The Documentary Collection’s process is governed under ICC11, called “ Uniform
Rules for Collections” (URC 522). It is accepted by international banking practice. The
banks should act in accordance with URC 522, which provides how bank act in the
collection procedure and it imposes discipline on exporters, importers and banks on
operation of the Documentary Collection.
2.1.3 Letters of Credit (L/C) or Documentary Credit
Letter of credit or Documentary credit is a bank to bank commitment of payment in
favor of an exporter (the beneficiary), guaranteeing that payment will be made against
certain documents that, on presentation, are found to be in compliance with terms set by
the buyer(the applicant) (SITPRO, 2007)
The International chamber of commerce’s (ICC) commission on banking technique

and practice developed Uniform customs and practice (UCP)12, which is common rule and
practice to govern letter of credit or document credit. There are important parties in L/C
process based on UCP definition as:
11
International chamber of commerce (ICC) was established in1919. It is international business
organization, which aims for developing uniform rules and practice for international trade and facilitating
flow of international trade. There is a commission on Banking Technique and Practice work on preparing
rules and practice for international trade finance community. ICC uniform rule and practice is common
applied by international commercial. (http://www.iccwbo.org/)
12
Nowadays, it is latest version on UCP600 that come in effect on 1 July 2007. There are 39 articles, which
advantage for bankers, lawyers, importers, exporters, and person who dealing with letters of credit
worldwide. (Sebban, UCP 600,2007)
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1. The Applicant (the opener): the applicant is normally a buyer, who has to make
payment to the beneficiary. L/C is initiated and issued on the basis of the
applicant’s instruction.
2. The Beneficiary: the beneficiary is usually the seller of the goods, who receives
payment from the applicant. The beneficiary can get paid only if the beneficiary
prepares and presents the documents that comply with the term and condition of the
L/C.
3. The Issuing Bank (the opening Bank): the issuing bank is the bank that creates
L/C and takes the responsibility to make payment on receipt of the documents from
the beneficiary. The payment will be done only if the documents comply with the
term and condition of the L/C. In case of discrepant documents, the issuing bank
can reject payment to the beneficiary and communicate with the beneficiary within
seven working days.
4. The Advising bank: the advising bank provides advice to the beneficiary and takes
the responsibility for sending the documents to the issuing bank.
5. The Confirming bank: the confirming bank adds its guarantee to the L/C opened
by another bank. The confirming bank will takes the responsibility for
payment/negotiation acceptance, in additional to the issuing bank. The confirming
bank plays an important role when the beneficiary is not satisfied with the
undertaking of only the issuing bank.
The Letter of Credit process will be shown clearly on Figure 2.2:
Figure 2.2: Process of the Letter of Credit (L/C)
Source: http://knows.jongo.com/res/article/15128
Eleven -step in the letter of credit process indicates:
1. The importer and the exporter agree to terms in the business contract such as means
of transport, period of credit offered (if any) and latest date of shipment acceptable.
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2. The importer applies to bank (the issuing bank) for issue of the letter of credit.
3. The issuing bank evaluates the importer’s credit standing and then the issuing bank
issues the letter of credit and forwards to the exporter’s bank. The exporter’s bank
is also called the advising bank or the negotiating bank. Sometimes, the issuing
bank can forward the letter of credit to its correspondent bank, which is located in
the same location as the exporter (the beneficiary). In addition, the issuing bank can
forward to the confirming bank, which adds its guarantee to the Letter of Credit.
4. The exporter’s bank or the advising bank will validate the letter of credit and then
sends the original letter of credit to the exporter (the beneficiary).
5. The exporter will ship the goods, and then will make preparations for all
documentary requirements to support the Letter of Credit.
6. The exporter presents all documentary requirements to the exporter’s bank for
processing payment.
7. The exporter’s bank checks and examines all documentary requirements, which
have to comply with the terms and conditions in the L/C. If the required documents
are correct, the exporter’s bank will send documents to the issuing bank to claim
payment.
8. The issuing bank can pay to the exporter’s bank in several ways: [1] the exporter’s
bank can debit the account of the issuing bank. [2] The issuing bank will remit fund
to the exporter’s bank. [3] The exporter can reimburse on another bank as
mentioned in the L/C.
9. The exporter’s bank remits fund to the exporter.
10. After the issuing bank is claimed by the exporter’s bank, the importer make
payment to the issuing bank.
11. If the importer pays to the issuing bank, the issuing bank forwards all documents to
the importer.
2.1.4 Advance Payment

Advance payment method is basically where the buyer makes payment before the
goods are shipped and then the seller will send the goods as agreed. This method is the
least attractive for the buyer but there are a few cases or motivations of the importers to use
this method. For example, the importer wants to give introduction offer to the exporter.
The importer may expect business opportunity in the future. In other situations, the
importer may use this method in case of tailor-made product for specific users. In this case
the exporter will ask the importer to pay in advance. The exporter wants to assure that the
importer will not cancel the order in the last minute.
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2.2 Advantages and Disadvantages of each Payment Instrument
Each payment instrument has different advantages and disadvantages. There are
two main documents that are referred in this section. Firstly, it is Export finance guide pre-
shipment and post-shipment of Infodrive Pvt. Ltd 13, which provides a clear explanation of
risk involve and gives useful examples of each payment instrument. (Infodrive India Pvt.
Ltd, 2009) Secondly, it is Trade payment mechanism from the Indian Institute of Foreign
Trade 14, New Delhi by Prof. Harkirat Singh that gives a good compliment on the practical
way of concerned risk, the benefits and the disadvantage of each payment. (Singh, 2008)
Advantages and Disadvantages of Open Account
The disadvantage of open account is high level of risk on the exporter. This system
of payment is applied when the importer and the exporter agree up on term of payment.
The importer will pay up on agreed date after the importer receives the goods. The Goods
are consigned directly to the importer. This system needs a high level of trust between the
importer and the exporter. The overall risk to the exporter is total and this should be borne
in mind. Some possible risks for the exporter present:
1. The importer received goods but the importer did not pay or may pay late.
2. The importer is willing to pay but the importer is not able to send money to the
exporter because of this country’s regulation restricting on movement of funds
without exchange control approval.
3. The worst case of risk is the situation that the importer does not pay and the
exporter cannot call back his goods from the importer’s country.
There are four advantages of the open account. First, this payment system is
accepted method for trading especially in EU market. Next, it can encourage the importer
make an initial trade with the exporter and the exporter expects to create a long lasting
business relationship. In addition, this method may increase sale opportunities because the
importer can sell the goods before the payment will be made under agreed period. It can
generate sale in the sense of giving credit to the buyer. Finally, there is less paperwork and
thus lower overheads cost.
Advantages and Disadvantages of Documentary Collection

The exporter and the importer may face medium-risk level. Some possible risks can
happen with the exporter are listed:
13
Infodrive India pvt.,Ltd. is established in 1996 as company limited, which is market leader in providing
Competitive Business Intelligence on Exports Imports. Their offices locate in Kolkata and New Delhi with
qualified Data Research & Marketing team of over 50 professionals. Infodrive India has a unique blend of
knowledge of practical requirements of Exporters Importers, a International Network of Trade data sources to
deliver Export Import Business Intelligence. (http://www.infodriveindia.com/AboutUs.aspx)
14
The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the Government of India as an
autonomous organization to help professionalize the country's foreign trade management and increase
exports by developing human resources. (http://www.iift.edu/iift/about_iift.asp)
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1. If the importer does not accept the bill of exchange (B/E) after the exporter has
shipped the goods already, the exporter will not have control over the goods but
the exporter cannot get paid and may lose the physical possession of the goods.
2. The importer accepts the bill of exchange (B/E) but finally the importer cannot
pay the bill on the maturity date.
3. The importer cannot remit money in the case of country’s restriction on
movement funds to the exporter’s country. In addition, the exporter cannot call
back the goods from the importer’s country.
For the importer, a possible risk can happen in the case of document against payment,
the importer faces the risk that he pays to the exporter but the quality of goods are not the
same as ordered quality and the importer will lose on sale of goods.
There are three main advantages associated with the Documentary Collection. First,
the seller’s bank acts as the seller’s agent that has more reputation and recognition agent
than the seller. The seller’s bank can select the bank in the buyer’s country to obtained
payment and act as agent. Next, the Documentary Collection’s steps are governed by the
International Standard Banking Practice. Bank will play an intermediately role between the
importer and the exporter so the exporter can do action against non- payment from the
importer according to international rules. In addition, bank takes part of the collecting
process under International trade discipline to make this system more effective payment
method.
Advantages and Disadvantages of Letter of Credit (L/C)

The disadvantages of the letter of credit are high transaction cost and overheads
cost when compared to the other payment methods. In addition, there is more paperwork
under the letter of credit process and the exporter has to carefully prepare the documents. If
the preparing documents do not comply with the letter of credit, the exporter cannot claim
or get money from the issuing bank.
The advantage of the letter of credit is low risk level of default on payment. This
payment can provide much security for the importer and the exporter. It can avoid risk of
the new order from the new international trade partner because the letter of credit can
balance security between the importer and the exporter. The letter of credit system can
balance the security of importer and exporter but this payment instrument stills has some
risks. The exporter and the importer may face some risks:
1. If the exporter presents the documents, which do not comply with terms or
conditions in the Letter of Credit, the exporter cannot get paid from the issuing
bank. And the exporter may lose the physical possession of goods.
2. The exporter cannot get money from the importer’s bank because the regulation
of the importer’s bank does not allow it.
3. The worst situation is that the exporter may lose control of the goods and
cannot call back the goods from the importer’s country. Moreover, the exporter
cannot get money from importer’s bank also.
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4. The importer pay to the exporter but the quality of received goods may not the
same as the order.
5. Another case is the importer pay to the exporter but there is a fraud perpetrated
by submitting documents without goods.
Advantages and Disadvantages of Advance Payment
The disadvantage of advance payment is high-risk level for the importer. Usually,
the importer will face high risk compare to the exporter because the importer has to
transfer money before the exporter sends the goods. Most of the risks are faced by the
importer but a few risks occur with the exporter as well. In this part we will explain the
possibility of risks in advance payment method. The possible risk is faced by the exporter
is the situation that the exporter dispatches the goods before the exporter receives money
from the importer. There are many ways of payment such as cheques, international bank
draft, and telegraphic transfer. The exporter has to confirm that the exporter receives
money into their account. The risks of non-payment probably come from dishonored
cheque, non-existent bank draft and error in transfer process.
Some possible risks for the importers are shown:
1. The importer faces inherent risk in making payment before the importer receives the
goods. For example, the exporter keeps the money and does not dispatch the goods.
2. The exporter prepares to dispatch the goods but his country’s regulations do not allow
the goods to move out of the country.
3. The exporter ships the goods but the importer’s regulations do not allow goods to move
in the country.
4. The exporter sends the goods and the importer receives the goods but the goods are not
the same as order such as low quality. In addition, the importer can receive the goods too
late for sales and the importer receives the goods that are not ready to be sold.
There is high risk of advance payment for the importer but advance payment still
has three important benefits. First, the importer can encourage the exporter to sell the
goods. The importer gives introduction offer with advance payment to the importer. It can
create the business opportunity in the future. The importer can see how business work and
develop in the future.
Secondly, the importer and the exporter can pay less on transaction cost and can
save overheads cost when they apply this system.
Thirdly, this payment method can serve a product tailor-made for specific user or
specific industry or specific region. The exporter will use this payment method against
condition that the importer cancels the order in the last minute because product tailor-made
may not be able to sell to other customers. Additionally, there is less paperwork and less
procedural complexity in advance payment instrument.
To sum up, Figure 2.3 demonstrates secure level of four payments for both the
importer and the exporter. Secure levels of each payment on importer’s perspective are the
opposite of the exporter’s mind. Thai exporters prefer the advance payment to other
methods while African buyers feel least secure on advance payment.
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Figure 2.3: Summary of secure level on each payment method
Source: Method of payment in international trade, SITPRO financial guide

(http://www.sitpro.org.uk/trade/paymentmethods.pdf)
In conclusion, advance payment method is the best for the exporters because it is
the most secure payment for them. The exporter will benefit from low transaction cost,
less paperwork, and fast procedure. But open account payment is the least preferable
method in term of secure level payment. There is high chance of non- payment problem if
exporter sell the goods to new customers. While the letter of credit has the most procedural
complexity and high transaction costs, the exporter and the importer can benefit from
guarantee payment. Finally, the exporter and the importer will face medium-range of
paperwork, transaction cost, and secure level when they apply the documentary collection
payment method. This chapter explains on four different international trade payment
instruments and next chapter will review on trade between Thailand and Africa.
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CHAPTER 3
OVERVIEW OF THAILAND TO AFRICA TRADE
This chapter reviews trade between Thailand and Africa and builds the background
for the study of the payment instruments used in Thailand to Africa trading (chapter 5).
This chapter consists of three parts; trend in trade, structure of the trade and top-twenty
African buyers.
3.1 Trend in trade

Figure 3.1 indicates that trade from Thailand to Africa increased from 827 million
US dollars in year 1992 to 6,385 million US dollars in year 2009. It raised almost 8 times
within 19 years. Export value surged from year 2007 to 2008 (4,862 million US dollars to
6,762 million US dollars or almost 1,900 million US dollars within one year). Moreover,
Thailand has gained positive trades balance almost 5,000 million US dollars in year 2009.
(See more detail of trade statistic between Thailand and Africa in Appendix3) Export value
increased significantly from year 2004 up to 2008 because of Department of Export
Promotion of Thailand. At that time, there was a policy of Department of Export
Promotion of Thailand, which support and encourage trade in emerging markets such as
Middle East and Africa.
Figure 3.1: Trade between Thailand and Africa from year 1992 – 2009
Source: The Ministry of Commerce of Thailand

(http://www2.ops3.moc.go.th/hs/trade_yearly/report.asp)
16
Figure 3.2 shows the growth rate of export value from year 1992 to 2002 is stable
and relatively slow when compared to the growth rate in year 2003 to 2009. The growth
rate in year 2003 to 2009 shows large increase and it is high volatile. The largest growth
rate was 55% in year 2004 and then it dropped in year 2005. And it significantly rose again
till 44% in year 2008. However, growth rate of trade between Thailand and Africa
dramatically dropped to -5 % in year 2009 due to the price of rice decreased. Additional
opinion from rice exporter about growth rate declined in year 2009, it probably happened
due to the panic of the shortage of agricultural products in year 2008. It caused excessive
demand which lead to a heavy increase in price. Thus export value and growth rate in year
2008 are extra ordinary and it dropped in year 2009.
Figure 3.2: Growth rate of export value to Africa

http://www2.ops3.moc.go.th/hs/trade_yearly/report.asp
3.2 Structure of the Trade

Table 3.1 demonstrates that the Africa market share of Thai export gradually
increased from year 2006 to 2009 but import share declined. In year 2009, Africa market
share of Thai export accounted for 4.19 % but Thai imported from Africa only 1.05 % of
total import. A possible explanation is lacking of useful information between Thailand and
Africa. The Ministry of Commerce of Thailand mentioned that there is no useful
information of African market for Thai exporters so they are not confident of doing
business with Africa. In addition, another problem could be languages that were
mentioned by Thai exporters. Language is important tool to communicate between Thai
exporters and African buyers. Some countries in Africa speak French or Portuguese that
could be a struggle for Thai exporters.
17
Table 3.1: Percentage share of Thailand to Africa compared with Thailand to world
description Share (%)
2006 2007 2008 2009(Jan.-

Dec.)
Thailand - AFRICA
Total Trade 2.09 2.26 2.54 2.72
Export 2.60 3.04 3.80 4.19
Import 1.57 1.39 1.29 1.05

http://www2.ops3.moc.go.th/menucomen/trade_sum/report.asp
There are five categories of export products: agricultural, agro-industrial, principal

manufacturing, mining and fuel and others. Table 3.2 demonstrates that the principle
manufacturing product accounted for the largest export share to Africa, the second largest
group is agricultural products and agro-industrial product following as rank number three.
However, the percentages share of agricultural product has been grown dramatically since
2007. Rice represents the largest share of export value to Africa and the second largest
share is auto/ auto part in year 2009. (See detail Figure 1.1) There is surprisingly that
export structure in year 2006 is very different compared to other years. It may be because
of different product classifying system.
In the finding and result section in chapter 5, export products are classified into two
main groups for proper analyzing. Group one is agricultural products that include
agricultural product and agro-industrial products together. Another group is manufacturing
products. There are no mining and fuel products and other special article in sample group.
18
Table 3.2: Export structure of Thailand to Africa
value : million US$ Share (%)
description 2006 2007 2008 2009 2006 2007 2008 2009
Total 3,377.4 4,682. 6,762. 6,385. 100.0 100.0 100.0 100.00

9 1 1 0 0 0
1. Agricultural products 28.9 1,331. 2,742. 2,495. 0.86 28.44 40.56 39.09
9 7 9
2. Agro-industrial products 50.5 324.2 506.1 549.0 1.50 6.92 7.48 8.60
3. Principle manufacturing 1,576.8 3,002. 3,405. 3,243. 46.69 64.11 50.36 50.80
products 4 3 6
4. Mining and fuel products 1.1 18.3 108.0 96.6 0.03 0.39 1.60 1.51
5. Others (special transaction : 1,720.1 6.1 0.0 - 50.93 0.13 - -

articles,

http://www2.ops3.moc.go.th/menucomen/export_re/report.asp
3.3 Top- Twenty Export Destinations in the African Continent

Table 3.3 indicates that South Africa is the most significant market for Thai
exporter, which accounted for 1445 million US dollars in year 2009. South Africa market
represents around 23% of total Thai export to the African Continent. Nigeria is the second
largest market that accounted for 12% of total Thai export to Africa or 796 million US
dollars. There is a huge gap between South Africa and Nigeria. Egypt accounted for 587
million US dollars. It is not much different from Nigeria in term of percentage share. Thai
exporters perceived South Africa as stable countries in term of political and economic so
Thai exporters feel more confident of doing business with them. Lately, Middle East and
Africa are new focused market and policy from Department of Export Promotion of
Thailand will support an increasing of export value to Africa.
19
Table 3.3: Top- 20 export destinations in the African Continent
country 2006 2007 2008 2009
value value value value
(million % % % %
(million USD) (million USD) (million USD)
USD)
AFRICA 3,377.44 100% 4,682.94 100% 6,762.07 100% 6,385.11 100%
SOUTH AFRICA 1,094.20 32% 1,326.53 28% 1,690.00 25% 1,445.05 23%
NIGERIA 269.26 8% 357.36 8% 890.53 13% 795.61 12%
EGYPT 377.37 11% 480.22 10% 635.09 9% 587.18 9%
BENIN 185.38 5% 280.41 6% 423.72 6% 356.31 6%
COTE 140.88 4% 165.43 4% 287.62 4% 326.08 5%
D'LVOIRE
LIBYA 137.92 4% 267.31 6% 312.84 5% 225.2 4%
SENEGAL 123.7 4% 234.94 5% 265.25 4% 211.3 3%
GHANA 95.39 3% 168.1 4% 231.66 3% 201.3 3%
MADAGASCAR 33.47 1% 64.68 1% 98.52 1% 178.35 3%
ALGERIA 85.51 3% 143.05 3% 226.65 3% 172.97 3%
MOROCCO 47.79 1% 101.44 2% 160.84 2% 143.57 2%
KENYA 71.75 2% 105.65 2% 130.41 2% 122.75 2%
TUNISIA 58.97 2% 71.87 2% 98.6 1% 103.76 2%
CAMEROON 54.48 2% 50.73 1% 87.31 1% 100.11 2%
TOGO 40.47 1% 100.42 2% 172.49 3% 93.33 1%
TANZANIA 48.67 1% 84.99 2% 108.13 2% 77.91 1%
SUDAN 89.02 3% 87.56 2% 109.6 2% 72.3 1%
MAURITIUS 48.01 1% 65.17 1% 92.44 1% 82.91 1%
CONGO 35.5 1% 41.21 1% 44.86 1% 55.79 1%

http://www2.ops3.moc.go.th/menucomen/trade_sum/report.asp
In conclusion, the export trend between Thailand and Africa has increased
significantly from 2004 up to now. In addition, agriculture products have gained more
shares in total export to Africa while manufacturing products remain relatively stable. And
South Africa is the most important market in Africa. All of these indicate significant
points of trade between Thailand and Africa.
20
CHAPTER 4
METHODOLOGY
This chapter defines methodology of this research and is organized into three parts.
Part one, data collection, demonstrates details of questionnaire design, population and
survey method. Subsequently, part two describes sample size, and other information about
each sample. Part three defines data analysis and interpretation method.
Data collection
4.1.1 Questionnaire design
The questionnaire for Thai exporters consists of four sections. Introduction part of
the questionnaire was designed for classifying exporters in term of sizes of firms, types of
products exported to Africa and years of experience. Sizes of firms are divided into two
groups: SME and large firm. Types of products are organized into six groups: rice, cereal,
auto or auto part and accessories, cement and lime, article of iron and steel, and others.
Years of experiences are divided into three groups: less than one year, one year to three
years, and more than three years. This introduction part aims at investigating factors that
affect choices of payment.
The second section tries to find current practice of Thai exporters to Africa. Two
questions are asked to the exporters for different purposes. The first one aims at estimating
the export value to Africa in year 2009. Meanwhile, the second one is planned to get
information on how many percentage of each payment method was used and the ranking of
each payment in significant African markets.
The third part of the questionnaire enquires the perception of transaction cost, level
of risk, procedural complexity and time spent in each payment instrument. The exporters
are required to fill the assessment scaled from one to six. The meaning of each level is that
1= very low, 2=low, 3= quite low, 4=quite high, 5= high, 6= very high. Another question
in this part is how much time is spent on each transaction for deferred payment methods.
The answer scaled from 0 to 5 means 0= less than 1 week, 1= 1 week, 2 = 2 weeks, 3= 3
weeks, 4= 4 weeks, 5= more than 1 month.
The last part aims at obtaining recommendation for better trade between Thailand
and Africa. Three open questions are asked to seek the exporter’s opinion on the support
from bank and government, and other recommendations they may have. In addition, there
is one question about direct letter of credit between Thai bank and African banks. The
question is in case there is a direct link between Thai and African banks, whether the
exporters will use this service or not. The sample of questionnaire is provided in
Appendix1.
21
4.1.2 Sampling Method
Population of survey is Thai exporters to African markets. The list of exporter is
provided by the library of the Ministry of Commerce of Thailand (“Exporters who trade
with African countries”, the MOC, January 2010). The list of exporters indicates one
thousand exporters with the rank of exporter, name, address and telephone number.
For the survey, researcher called top two hundred exporters from the list to
introduce topic of study and ask them to answer the questionnaire. Nineteen-exporters
answered the questionnaire by phone and fifteen exporters preferred filling the
questionnaire and sending back via email. To sum up, 34 out of 200 exporters responded in
the survey.
4.1.3 Interview
The researcher also conducted interview with prime exporters, who have significant
exports to Africa. The interview process is started by sending introduction letter with the
confirmed confidential letter and example of questions to the exporters. Afterward,
interviews were confirmed and conducted by face to face with Deputy Managing Director
of a leading rice exporter. Other informal interviews through phone with the regional
network executive of cement business division of a cement exporter and international trade
officer of a prime auto/ auto parts exporter. The majority of interview’s questions are the
same as the survey. However, several questions are added to obtain details and problems of
each payment instrument. The questions for interview are given in Appendix 2.
Other interviews were conducted with bank based on social and professional
network. The International Trade Branch Manager answered the question through phone.
Questions for interview were organized to focus on the perception of payment instruments,
especially letter of credit between Thailand and Africa, the problem of payments, and other
advanced services.
Another interview was carried at the Export-Import Bank of Thailand with Vice
President of Treasury Department and Senior Manager of International Project
Development. Questions are basically focused on the policy to support trade between
Thailand and Africa and to improve payment instruments.
4.1.4 Secondary source
Secondary data is collected to support the research objectives. Firstly, the
description of international payment instruments is based on SITPRO (simplifying
international trade promotion) financial guide “Method of payment in international trade”.
(http://www.sitpro.org.uk/trade/paymentmethods.pdf) and Siam Commercial Bank
“International trade finance”. Some additional information is collected from two
documents: “Trade payment mechanism” of Prof. Harkirat Singh to supplement the
description, available: http://india.smetoolkit.org/india/en/content/en/42538/Trade-
Payment-Mechanism and “EXIM guide to export”, available:
http://www.infodriveindia.com/AboutUs.aspx.
Secondly, statistics on trade between Thailand and the African Continent are
collected from the Ministry of Commerce of Thailand (www.moc.go.th). Lastly, the list of
Thai exporters for interview and survey is obtained from the library of MOC.
22
Sample Description
4.2.1 Demography of sample group

The sample of 34 exporters is classified into 3 main factors: size of firm, type of
product and year of trade experience to Africa. The size of firms is sorted into two groups:
SME and large firm. The type of products is divided into two groups: agricultural products
and manufacturing products. The number of trading years is categorized into two groups as
1-3 years and more than 3 years. Table 3.1 illustrates details of the sample group.
Table 4.1 Demography of sample group
Factors Size of firm Type of product Year of experience
Groups SME Large Agricultural Manufacturing ≤3 yrs >3 yrs

products products
No. of samples 17 17 11 23 6 28
4.3 Data Analysis and Interpretation Methods

This part explains methods used to analyze and interpret the data. The data
estimating method section presents the methods used to estimate the trade volume of each
payment instrument in reality. In addition, the rationale of analysis and hypothesis are
provided in the independent sample t-test method section. Last section explains why and
how Fisher’s Exact Test method is used.
4.3.1 Data Estimating Method

Since in the survey, the exporters are asked only to indicate the export volume in
bracket ranges, the estimate of aggregate export values per payment methods is carried on
as follows:
Step 1: Estimate the total export value of the sample group in the survey into three
cases: [minimum (A min), average (A avg), and maximum (A max)]
Step2: Estimate the total amount of export value to Africa in each payment
instrument (Y = A*B where B is the percentage of the export value of each payment)
Step3: For each payment, calculate the export value of each payment method over
the total export value in the sample group (U)
(U= export value of each payment instrument / ∑ Y of all payment instruments)
The next target is to find central tendency transaction cost, consumed time, level of
risk, and level of complicated procedures in the Thai exporter’s point of views. Average is
applied to find the central of perception on transaction cost, level of risk and procedural
complexity while median is applied to measure the consumed time. Furthermore, the
Frequency is used to define the ranking of each payment in significant African markets.
23
4.3.2 Independent Sample t- test Method
There is an objective of compare average of transaction cost, time spent, level of risk,
and procedural complexity of each payment instruments when considering of effect of size
of firm, type of product exported to Africa and year of experience. Sizes of firm from
questionnaire are only SME and large firm but type of products and year of experience is
more than two groups. Independent sample t-test is testing only mean of two groups so
there are adjusting type of product into two groups for proper analysis; agricultural
products and manufacturing products and year of experience into two group: less than or
equal 3 years and more than 3 years experience.
The hypotheses are given as follows:
Hypothesis 1: Perception of exporters on transaction cost, level of risk and procedural
complexity of each payment method are independent from the exporting firm’s size.
complexity of each payment method are independent from type of product exported to
Africa.
complexity of each payment method are independent from trading years with Africa.
4.3.3 Fisher’s Exact Test Method
Data on the choice of payment instruments and characteristic of exporters are

qualitative so non parameter test is applied. Fisher’s Exact test is applied in order to test
their dependence instead of Contingency table analysis because sample group is small.
Fisher’s exact test is a statistical significance test for analysis of contingency table
where sample sizes are small and especially uses with table 2×2 only. That means it is only
suitable for the classification of two variables with only two groups.
Firm size, type of exports, and year of experience are classified into two groups as
mentioned in the independent t- test part so data set meet the criteria of Fisher’s Exact test.
There are three main assumptions and hypothesis on three factors that potentially
affect the choice of payment instruments used by Thai exporters to Africa. The hypotheses
are given:
Hypothesis 1: Choice of ‘payment instrument by exporters’ and ‘exporting firm’s size’ are
independent
Hypothesis 2: Choice of ‘payment instrument by exporters’ and ‘type of product exported
to Africa’ are independent
Hypothesis 3: Choice of ‘payment instrument by exporters’ and ‘trading year with Africa’
are independent
24
CHAPTER 5
FINDINGS AND ANALYSIS
The first part of this chapter will use the survey to describe the current practice of
payment instruments. The following section will analyze the different perceptions by Thai
exporters of transaction cost, risk level, and procedural complexity of each payment
method. This section will also discuss time spent on each payment instrument. Finally,
section three will present factors that affect the choice of payment methods used by Thai
exporters to Africa.
5.1 Current Practice of Payment Instruments
5.1.1 Estimation of each Payment Instruments used by Thai Exporters to Africa

Table 5.1 illustrates that advance payment is the most common used payment
instrument with an average of 38 % of total export value to Africa. The second most
common payment method is letter of credit with 26 % of total export value to Africa. The
percentage of letter of credit used by Thai exporters is much lower than advance payment.
The least used payment method is documentary collection, which is only 13 % of total
export value to Africa.
Table 5.1: Estimation of each Payment Instrument used by Thai Exporters to Africa
Average Range
Estimate export % Estimate export %

value to Africa value to Africa
(million USD) (million USD)
Letter of 48.5 26% 57.7 - 65.5 22-30 %
credit
Documentary 26.6 12% 27.2 - 27.7 12-13 %
collection
Open 18.8 23% 51.1 - 63 9-29 %
account
Advance 70.2 38% 83.9 – 94.9 32-43 %
payment
The reason of advance payment being the most common used payment by Thai
exporters is probably related to Thai exporter’s perception of risk with African buyers
being very high. The evidence comes from the fact that the average level of risk of the
other methods are quite high, thus Thai exporters feel more confident if African buyers pay
before the exporter ships the goods. (See later Table 5.4) The risks may come from the
banking system, regulation or African buyers’ behavior, inducing that Thai exporters
prefer to get paid before they start to produce and ship goods to African buyers. Letter of
credit is the second most preferred choice for Thai exporters because they perceive low
risk of default payment. Some exporters comment that some African buyers request to use
25
only letter of credit because of their countries regulation. Surprisingly, open account is the
third most common payment method used by Thai exporters. A possible explanation is
that some manufacturing exporters use this method because they sell through parent
companies or companies within the same corporate group. Their perceptions of open
account are that they carry lower risk and less paperwork.
Figure 5.2: Percentage of each Payment Instrument used by Agricultural
exporters to Africa
The results of the percentage estimation of each payment instruments by type of

product exported to Africa are showed in Figure 5.2 and Figure 5.3. Type of product is
divided into two groups as agricultural products and manufacturing products. Figure 5.2
shows the percentages of each payment instrument used by Thai exporters who export
agricultural products to Africa. Letter of credit is the most common payment instruments
applied by agricultural exporters. It shows 63 % of total agricultural export value to Africa
while advance payment is only 22 % of total agricultural export value to Africa. Advance
payment shows a much lower usage percentage than letter of credit. The Letter of credit
may support and match with trade condition so it is the most common payment method
used by agricultural exporters. Agricultural product is quite risky in terms of easy to
damage so letter of credit can guarantee payment even though it may lead to higher
transaction costs. In addition, using letters of credit will help to guarantee a sale with lower
risk of default payment. Another possible reason is importer regulation, which imposes the
use of letter of credit payments.
26
Figure 5.3: Percentage of each Payment Instrument used by Manufacturing
Exporters to Africa
Figure 5.3 indicates the percentage of each payment instrument used by Thai-
manufacturing exporters. The most common payment method is advance payment which
represents 45 % of total manufacturing export value to Africa. The second most common
payment method is open account, representing 32 % of total manufacturing export value to
Africa. The results in percentages of each payment instrument used by agricultural
exporters and manufacturing exporters are outstandingly different. Letter of credit is the
most common payment instrument used by agricultural exporters but it is the lowest
payment method used by manufacturing exporters. Explanation might be that
manufacturing exporters prefer to use advance payments and open accounts because of
their low transaction costs. In addition, some manufacturing companies sell through
subsidiary so they perceive less risk in using open accounts. Therefore, if they trade with
parent companies or companies within the same corporate group, they get paid by open
account. In addition, if they trade with new customers that have been identifies as being
high risk, they request that their buyers pay by advance payment.
5.1.2 Payment Methods Ranking

Table 5.2 shows the ranking of the payment methods in some key importer’s
countries such as South Africa, Kenya, Nigeria, and Algeria. Both South Africa and Kenya
use advance payment as the most preferred payment instrument, with the letter of credit
following as rank number two. Nigeria and Algeria in contrary use letter of credit as rank
number one payment instrument.
27
Nigeria imports large quantities of rice from Thailand and traditionally payment is
by letter of credit. In addition, from interview, agricultural exporter mentioned that
Algerian importers have to pay by letter of credit only because of Algeria’s regulation.
Thai exporters will benefit from this information. They can check current payment practice
and decide carefully on payment policy. In addition, it gives information for the Thai
Government on how to facilitate trade.
Table 5.2: Payment Method Ranking in Significant African Market
South Africa Kenya Nigeria Algeria

R R R R
a a a a
payment methods Payment methods Payment methods Payment methods
n n n n
k k k k
1 Advance payment 1 Advance payment 1 Letter of credit 1 Letter of credit
2 Letter of credit 2 Letter of credit 2 Open account 2 Open Account
3 Open Account 3 Documentary collection 3 Documentary
collection
4 Documentary
collection
Table 5.3: Summary Result of Current Practice of Payment Instrument used by Thai
Exporters to Africa
Range of Rank of payment

Estimate export value to
% use of Africa year 2009 (million
each USD)
payment (based on average % of
instrument South
each payment instrument) Kenya Nigeria Algeria
Africa
Letter of 1,675.4
Credit 22% -30 % 2 2 1 1
790.2
Document
12 % - 13% 4 3 3
Collection
Open 1,483.8
9 %- 29% 3 2 2
Account
2,435.8
Advance
32 %- 43% 1 1
Payment
Total = 6,385.2
Remark: Total export value from Thailand to Africa in year 2009= 6,385,112,266 USD
and source of export value data: http://www2.ops3.moc.go.th/hs/trade_yearly/report.asp
28
Table 5.3 summarizes the current payment practices between Thai exporters and
African buyers. The percentages of each payment used by Thai exporters are an estimate
range. It is the interval between the minimum estimate case and maximum estimate case.
However, calculation of total export to Africa refers to the average percentage of each
payment used by Thai exporters and export value in year 2009.
Advance payment is the most common payment method used by Thai exporters to
Africa. 32- 43% of export value is generated through advance payment and it represents
approximately 2,435 million US dollars in terms of total export value to Africa in the year
2009. Thai exporters generally prefer that African buyers pay by advance payment. The
possible reasons for this are the low trust level with African buyers. Thai exporters
recognize advance payment method is the best for them in terms of low risk, low
transaction cost and low procedural complexity. From the interviews, the researcher found
that Thai exporters prefer that African buyers pay a deposit of 30%, 50%, or 70 % in
advance of production and then pay the rest before shipment. Usually, Thai exporters
decide the percentage of the deposit on a case-by-case basis. New African customers have
to pay higher deposits than known customers.
The second rank of payment instruments used by Thai exporters to Africa is letter
of credit, which accounts for 22-30 % of export value to Africa. It accounts for close to
1,675 million US dollars of export value to Africa. Letter of credit is the second most
common used payment method because of low risk but high transaction cost associated to
it. Moreover, it is very complex compared with other payment methods and it requires a lot
of time for paperwork. Sometimes, delay is another problem with letters of credit from
Africa because they are opened through international banks in Europe. From the
interview, interviewees provide information that Algeria has to pay by letter of credit
because of their legal regulations.
The third payment instrument is open account, which represents 9-29 % of total
export value paid by African buyers and in 2009: 1,483 million US dollars of total export
value was paid through this method. The Thai exporters gave their opinion on why they
use open accounts even if it is the most risky method for exporters. They said that they use
this method with African buyers that they have traded with for long time and thus the
parties trust each other. In addition, some manufacturing companies say that they export to
Africa through their parent company in Japan or their corporate group. In this case, they
perceive low risk of default payments and so far there has been no case of default payment
in their experience.
The least used payment instrument by Thai exporters is documentary collection,
which accounts for 12-13 % of value or only 790 million US dollars of total export value
to Africa. The Thai exporters perceive higher risk through this method compared to
advance payment and letter of credit but nonetheless have to deal with associated
paperwork. This probably is the reason for documentary credit is the payment instrument
least used by Thai exporters to Africa.
The result of the ranking of payment methods in South Africa, Kenya, Nigeria and
Algeria obviously shows that the letter of credit is most significant due to it being the first
or the second most common payment in these four countries. Furthermore, advance
payment is also the most common payment method in South Africa and Kenya. This
information will be useful for Thai exporters. It will provide a background for them to do
business with Africa.
29
5.2 Advantages and Disadvantages of each Payment Instruments from an
Exporter’s point of views
5.2.1 Average Perceptions on Transaction Costs, Risk level, and Procedural

Complexity of each Payment Instrument
Table 5.4 summarizes the exporters’ assessment of transaction costs, level of risk,
and procedural complexity of each payment instruments. There are 25 exporters
assessment in advance payment. It is the most frequently used payment method by Thai
exporters compared to other payment methods. Then letter of credit is the second most
frequently used, with 21 exporters giving the perception of this method and in third rank
there are 17 exporters that chose open accounts. Only 14 exporters give their assessment of
documentary collection.
Table 5.4 demonstrates that perceived transaction cost of letter credit is high
compared to other types of payment instruments. While the average level of transaction
cost of advance payment is low, similarly to open account and the average of transaction
cost of documentary collection is quite high.
Table 5.4 also shows that the highest risk level perceived by Thai exporters to
Africa is for open accounts and documentary credit, while the lowest risk level is advance
payment.
The highest average of procedural complexity for Thai exporters to Africa is letter
of credit and the lowest average of procedural complexity is advance payment, which has
low complexity level. Thai exporters perceive procedural complexity of documentary
collection to be on a quite high level while average of procedural complexity of open
account is low but higher than advance payment.
Table 5.4: Average of Perception on Transaction Cost, Risk Level, and Procedural
Complexity of each Payment Instrument
Transaction Cost Level of Risk Procedural Complexity
N Mean N Mean N Mean

Letter of 21 4.86 Letter of 21 2.76 Letter of 21 5.00
Credit Credit Credit
Documentary 14 3.64 Documentary 14 3.93 Documentary 14 3.86
Collection Collection Collection
Open 17 1.65 Open 17 4.18 Open 17 2.29
Account Account Account
Advance 25 1.60 Advance 25 1.56 Advance 25 1.72
Payment Payment Payment
From the results, it could be observed that the advance payment is the most
common used payment instrument by Thai exporters because it is the best method for
exporters in term of low transaction cost, low level of risk, and low procedural complexity.
All of these are advantages for Thai exporters which leads them to prefer to use advance
payment. The second most common payment instrument used by Thai exporters is letter
30
of credit, which carries low risk but high transaction cost and high complexity on
paperwork. Thai exporters may put more importance on default risk than on transaction
cost and procedural complexity. However, open account is more risky than documentary
collection but Thai exporters use open account more than documentary collection. The
reason for this may be that transaction cost and procedural complexity are much lower for
open account than documentary collection and some exporter sell through parent company
or the same corporate group.
5.2.2 Time spent of each payment instrument
Table 5.5 shows that median of times spent on letter of credit and documentary
collection are both around 3 weeks while median of times spent on open account is
approximately 2 weeks. And 1 week is the lowest median of times spent on advance
payment. This and Table 5.4 confirm that advance payment is the most common method
used by Thai exporters because of its clear advantages in both time and complexity. In
addition, it also confirms that letter of credit and documentary collection require more time
to be spent on the payment process. Opening L/C with third parties can require more time
on the process. Especially for rice products such delays may negatively affect the price.
Sometimes African buyers do not want to pay the letter of credit when the stated price is
higher than the current price. Open account requires around 2 weeks processing payment.
Some manufacturing companies sell through parent companies and their policy states that
they will pay every 2 weeks.
Table 5.5: Median of time spent of each payment instrument
Payment Letter of Document Open Advance

methods Credit Collection Account Payment
Median of time
3 3 2 1
spent (weeks)
5.2.3 Differences of Average Perception on Transaction Cost, Level of Risk and

Procedural Complexity between Groups
This part tests the assumptions that perceptions of exporters on transaction cost,
level of risk and procedural complexity of each payment instrument depends on the size of
firm, the type of product, and the number of year of experience in exports to Africa. This
research categorizes size of firms into two groups: SME and large firms. Types of products
exported to Africa are classified into two groups: agricultural products and manufacturing
products; and years of experience is divided into two groups: less than or equal to 3 years
and more than 3 years. Table 5.6 shows the result of Independent t-test of differences.
There are four cases of significant differences detected by the test. First the mean of
procedural complexity of documentary collection is significantly higher for SME (4.4) than
for large firms (3.56). (See also Appendix 4) Most likely reason is large firms may have a
specific department dealing with paperwork for export while SME do not have the capacity
to do that. In addition, SME might not have much experience on dealing with document
collection because this payment method is the least common used by Thai exporters.
31
The average of transaction cost of letter of credit for agricultural product group
(5.38) is also significantly higher than manufacturing product group (4.5). (See also
Appendix 5) It shows that the transaction cost associated to letters of credit depends on the
type of product exported to Africa. The nature of agricultural products is more difficult to
prevent damage than manufacturing products. Thus Thai exporters who export agricultural
products may pay more in insurance and other processes of protection. In addition,
sometimes they may have to pay more in order to present special documents, which are
required to comply with regulation on letters of credit.
Table 5.6 also shows that mean of risk perception of documentary collection
depends on type of products exported to Africa. Average of risk perception of
documentary collection on the agricultural product group is significantly higher than for
products of the manufacturing group. Appendix 5, it can be said that mean of risk
perception of the agricultural product group is 4.67 while for the manufacturing product
group it is only 3.38. The reason may come from the fact that agricultural products having
higher risk level than manufacturing products in terms of ease of physical loss.
Agricultural exporters may face a higher risk if African buyer refuse to pay or accept B/E
and then Thai agriculture exporters may lose power on negotiation after shipment if
African buyers want to pay less than agreed.
Average risk perception of open account is significantly different between

agricultural exporters and manufacturing exporters as well. Appendix 5 shows that mean of
risk perception of agricultural exporters group is 5.5 while for the manufacturing exporters
group it is only 3.77. Agricultural exporters perceive higher risk than manufacturing
product companies because of two possible reasons. First, agriculture products are easier
to damage than manufacturing products. Secondly, from interviews, it can be stated that
large manufacturing companies export to Africa through parent companies or same
corporate group so they view a lower default payment risk of open account.
Furthermore, with 0.1 significant level, Table 5.6 shows risk perception of SME (5)
on open accounts payment instrument higher than that of large firms (3.72). (See
Appendix 4) From the interviews, it can be stated that large manufacturing exporters
export to Africa through parent companies or through the same corporate group so they
view a lower default payment risk of open account than SME.
32
Table 5.6: T- Test for equality of mean of perception on transaction cost, level of risk,
procedural complexity
t-test for Equality of Means
size of firms type of product year of experience
t Sig. t Sig. t Sig.
(2-tailed) (2-tailed) (2-tailed)
LC: transaction cost -0.308 0.761 2.132 0.047 -0.136 0.896
DC: transaction cost 0.918 0.381 1.323 0.211 -0.321 0.796
OA: transaction cost 1.647 0.127 0.263 0.806 -0.312 0.798
AP: transaction cost 0.278 0.784 1.360 0.193 0.197 0.855
LC: risk level 1.369 0.190 -0.045 0.965 -0.422 0.683
DC: risk level 0.667 0.521 2.429 0.035 0.233 0.820
OA risk level 1.781 0.095 2.525 0.033 -1.219 0.387
AP: risk level 0.426 0.675 0.158 0.876 -0.632 0.559
LC: procedural complexity 0.000 1.000 0.532 0.603 -1.590 0.140
DC: procedural complexity 2.452 0.033 1.487 0.167 0.692 0.504
OA: procedural complexity 0.760 0.475 1.284 0.281 -1.515 0.271
AP: procedural complexity 1.004 0.326 1.369 0.192 -0.161 0.882
5.3 Factors Affecting the Choice of Payment Instruments
The objective of this part is to test the assumption with Fisher’s Exact test
underlying the choice of payment methods depending on size of the firm, type of product
and years of experience in exports to Africa.
There are 3 important factors, which are size of the firm, type of product and years
of experience. All of them classify into two groups; size of firm are SME and large firm,
type of product are agricultural and manufacturing, and years of experience are less than or
equal to 3 years and more than 3 years. Choices of payment instruments are between letter
of credit, documentary collection, open account, advance payment and direct letter of
credit between Thai bank and African bank. Cross tabulation aims at testing whether
choice of payments depends on size of the firm, type of product, and years of experience or
not. For example, cross tabulation of letter of credit use and size of firm, documentary
collection and size of firm and so on.
Table 5.7 indicates that choice of payment method appear not to depend on size of
the firm, the type of product, and the number of years of experience.
Table 5.7: Fisher’s Exact Test of Payment Method
33
cross tabulation Fisher's Exact Test
Factors using payment ( yes or no) Exact Sig. (2-sided)

letter of credit 1.000
size of firm documentary collection 0.688
1. SME
open account 0.465
2. Large firm
advance payment 0.259
direct letter of credit 1.000
type of product documentary collection 0.388
1. Agricultural product open account 0.271
2. Manufacturing product
year of experience documentary collection 0.609
1. Less than and equal 3 years
open account 1.000
2. More than 3 years
Analysis and results reflect clearly advance payment is the most common used
payment method. In addition, the current used payment instruments are different between
agricultural products and manufacturing products. Furthermore, 5 cases of Independent t-
test shows that size of firms and types of products affect the average perception of
transaction cost, level of risk, and procedural complexity. Final conclusion is that choices
of payment method appear not to depend on size of the firm, the type of product, and the
number of years of experience.
34
CHAPTER 6
CONCLUSIONS AND RECOMMENDATIONS
6.1 Summary of Findings
The summary is divided into three main parts according to the study’s objectives:
the first part of summary of finding presents the current practice of payment instrument
used by Thai exporters to Africa. The following section will be a comparison of the
perception of transaction cost, time spent, level of risk, and procedural complexity of each
payment instrument. Final section provides the result of factors effects the choices of
payment.
6.1.1 Current practice of payment instruments
From the findings and the analysis part, this research finds that advance payment is
the most common used payment by Thai exporters to Africa. It is probably from Thai
exporter’s perception of high risk with African buyers and low trust level with African
buyers. From the interview, manufacturing exporters request African buyers to pay deposit
30 %, 50 %, or 70 % in advance before they produce. Thai exporters decide how many
percentages of deposit depend on a case- by- case basis. For instance, new African buyers
should pay 70% before production and then pay the rest before shipment. Thai exporters
benefit in term of low risk, low transactions cost and less procedural complexity.
Letter of credit is the second most common used payment by Thai exporters. From
in-depth interviews, many African buyers open L/C with international bank in Europe. In
addition, there is obligation for some African countries to pay by letter of credit such as
Algeria. The cost of letter of credit for African buyers is high because of non-existent of
direct link between Thailand’s financial institutions and banks with Africa. African buyers
also have to give collateral for financing.
Open account is accounted approximately 23 percent based on average case of total
export value to Africa in year 2009. Some Manufacturing companies have given
information on why they use open account payment method even if it is the most risky
among payment instruments for the exporters. They mentioned that they sell through
parent company in Japan or other companies within the same corporate group. Thus the
result of their perception of risk level is lower than agricultural exporters. Other situations,
Thai exporters trade with African buyers for long time before they trust each other to apply
open account method.
The least preferred payment method used by Thai exporter is documentary
collection. It is due to the higher risk when compared to advance payment and letter of
credit and the difficulty of paperwork as well.
It is interesting to note that Thai exporter’s trade with Africa through traders in
other countries. They do not know what is the current payment applied by African buyers.
Some exporters mentioned that they sell product through traders in China and Singapore
and they do not deal directly with African buyers.
35
6.1.2 Thai exporter’s perception of Transaction cost, time spent, level of risk and
procedural complexity of each payment instrument
Thai exporter’s perception of transaction cost is similar as the review of advantages

and disadvantages of each payment method. The result confirms that the letter of credit is
the highest transaction cost among other payment methods. Siam Commercial Bank’s
documents provide additional information that the advising bank charges the advising fee
to the exporters (the beneficiary) unless stated otherwise the fees could vary depending on
the country of the beneficiary. The issuing bank charges the applicant for opening the letter
of credit. The fee charged depends on the credit of the importer (the applicant), and
primarily comprises of period of letter of credit. In addition, confirming bank’s fee would
be borne by the beneficiary or the applicant depending on the term of contract.
Processing time of letter of credit and documentary collection are similarly the
same around 3 weeks while only 1 week for advance payment. Rice exporters mentioned
high risk of non-payment if the processing time of letter of credit is longer than 14 days.
Their risk increases due to the highly fluctuation of price of rice. The reason of long
processing time of letter of credit was addressed at non-direct links between Thailand’s
financial institution and banks with Africa.
The highest average of risk level for Thai exporters to Africa is open account,
which is quite high, is a bit higher than documentary collection. Thai exporter’ perception
of risk level is very low on advance payment and quite low on letter of credit. The results
of Thai exporter perception of risk level confirm the idea of secure level of payment in
SIPRO financial guide. (See Figure 2.3)
Thai exporters perceived high-complexity of letter of credit procedure because
there are many parties involved, especially the importer’s bank and the exporter’s bank.
The exporters have to carefully prepare and check all documents, which have to comply
with letter credit to claim money from buyers.
According to independent sample t-test result, it shows 5 cases, which Thai
exporter’s perceptions are significantly different between groups:
1. The procedural complexity of documentary collection depends on size of firm.
SME firm perceive significant higher level than large firms. Average level of
procedural complexity of SME is quite high but average level of procedural
complexity of large firm is quite low. The possible reasons are no-experience and
no-specific person in charge of documentary collection of SME because
documentary collection is being the least common used payment by Thai exporters.
2. The transaction cost of letter of credit depends on type of product export to Africa.
Agricultural products have higher average of transaction cost than manufacturing
firm. The nature of agricultural products is more difficult to prevent damage than
manufacturing products. Thai exporters who export agricultural products might pay
more on insurance and other process of protection. In addition, sometimes they
have to pay more to present special documents, which compliance with letter of
credit.
3. The Average of level of risk of documentary collection has significant difference
between agricultural exporters and manufacturing exporters. Agricultural products
36
can easier to damage than manufacturing products. Agricultural product may face a
higher risk if African buyers refuse to pay or accept B/E then Thai exporters will
lose power on negotiation after shipment.
4. The level of risk of open account depends on type of product export to Africa.
Agricultural exporters perceived higher risk than manufacturing exporters. There
might be two reasons support the results. Firstly, agricultural products are easy to
damage. Secondly, manufacturing companies export to Africa through parent
companies or the same corporate group so they view a low risk of open account.
5. SME’s perception of open account is more risky than large firm’s perception. From
the interview, large manufacturing exporters export to Africa through parent
companies or the same corporate group so they view a lower default payment risk
of open account than SME.
6.1.3 Relationship between choice of payment and size of firm, type of product export
to Africa, and year of experience.
From Fisher’s exact test, there is no link between choice of payment instruments
and size of firm, type of product and year of experience. There are mainly four payment
instruments, which are letter of credit, documentary collection, open account and advance
payment. In addition, one more choice of payment instrument test is direct letter of credit
between Thai bank and African bank. All the case represents that choice of payment
method appear not to depend on size of the firm, the type of product, and the number of
years of experience.
6.2 Recommendations
Recommendation in this study will be useful for Thailand and Africa business
stakeholders. They will understand more about current payment methods and policy maker
will set better banking and payment policies. Banks will benefit from knowing how to
support their customers and improving their trade finance services between Thailand and
Africa. In addition, the Thai Government will know how to improve and facilitate trade
between Thailand and Africa. Recommendations come from the result of the findings and
analysis chapter and the opinions of Thai exporters. The Recommendation part is divided
into two sections. Section one indicates recommendations from the significant findings in
this research and another section is a summary of needed support from Thai banks and the
Thai Government by the exporter’s point of views.
6.2.1 Recommendation from the findings of this research

There are seven important recommendations from the result of this research. All of
them will benefit Thai exporters, Thai banks and Thai Government. Five recommendations
are shown:
1. An international agreement should be proposed between the Thai Government and
the African Governments to facilitate and promote trade in the future. The result
shows that the most current payment method is advance payment because of low
level of trust between Thai exporters and African buyers. The Thai Government
37
should play important role on supporting and assuring when Thai exporters trade
with African buyers. This will enhance cooperation and relationship among these
two parties. The Federal Government of Nigeria, for instance, has signed an
agreement with Thai Government to import rice to stave off an impending food
crisis in the country in 2008. (Aliyu,2008)15 Nigeria is a major rice importer from
Thailand due to it imported rice for 844,322 metric tons in 2008 which valued
approximately Baht 20 billion (Thai Rice Exporters Association, 2010)16.
Accordingly, the Export-Import bank of Thailand has signed a landmark
memorandum of understanding to exchange trade and investment information with
Nigeria’s Bank of industry Limited. This example of cooperation between the Thai
Government and the African Governments to support business and international
trading activities are able to picture some cooperation between the Thai and the
Nigerians.
2. Since there was almost no direct links between Thai’s financial institute and banks
with Africa, both Thai exporters and African importers suffered from the high
transaction cost and long procedure of letter of credit. According to the result, 63 %
of Agricultural exporters of Thailand apply the letter of credit. Thai Government
and bank should see the necessity of direct link of financial institution between
Thailand and Africa to reduce transaction cost and processing time of payment.
In the competitive world, Other Asian countries are active to move strategically
into Africa and they have built financial and banking link in the African Continent.
For example:
• The Industrial and Commercial Bank of China (ICBC) bought 20% of Standard
Bank of South Africa, the largest bank in Africa for 5 billion USD in cash (before
other acquisitions in Russia, Australia and Dubai)
• The Chinese Exim Bank has completed an important deals with the Banking sector
in Angola
• Malaysian and Indian Banks are making significant moves in the same direction
The financial infrastructures in Thailand can be the key factor to support the future
mutual trade growth which needs the substantial assistance from Royal Thai
Government. A proposed solution from a researcher of the Asian Institute of
Technology (AIT) will consist in the fact that the exporters (especially Thai rice
exporters) will request African rice importers to open direct LCs with the reliable
African banks such as the Standard Bank of South Africa (SB). SB is the largest
bank in the African Continent with A- rating and strong liquidity (Tier 1 capital
15
Aliyu, A. 2008, Nigeria: Food Scarcity - FG to Import Rice from Thailand [online], available:
http://allafrica.com/stories/200804300801.html [accessed 27 April 2010]
16
Thai Rice Exporters Association, 2010. Thai rice export situation report
38
adequacy ratio 11.2%)17. SB has the capacity to process such transactions and can
offer competitive, tailor-made and cost-effective services to Thai exporters. SB can
guarantee that Thai exporters will be paid in US dollars (from local currencies)
without having to request African importers' banks overseas to confirm LCs.
3. The current payment practice in Africa is different from one country to another
country therefore this information should be promoted to all stakeholders. For
example, Nigerian and Algerian import plenty of agricultural products from
Thailand and most of the payments have been done by the letter of credit method.
The letter of credit system, therefore, should generally to be improved. However,
South Africa and Kenya have different structure of payments leading to the most
popular payment method by “advance payment”. The exporters should also be
supported at the right point.
4. The findings are shown that the average of transaction cost of the letter of credit,
risk level of the open account and the Documentary Collection are significantly
different between agricultural exporter and manufacturing exporter. Thus banks and
Thai Government should provide different help and support because their needs
between groups are different. Agricultural exporters face higher risk and
transaction cost than manufacturing exporters. Bank and Thai Government should
create a new product to support a specific group.
5. In addition, the result also shows that average of perception of risk level,
procedural complexity is different between SME and large firm. Government
should support SME because of small size firm has a few power on negotiation. In
addition bank and Thai Government should guide and help SME on how to deal
with paperwork and secure payment.
6.2.2 Summary of Recommendation from Thai exporter point of view.

There are many recommendations from survey and interview. Basically, Thai
exporters need help and support from banks and Thai Government to improve payment
system and trade flow between Thailand and Africa. Most of Thai exporters see the
opportunity in African markets and enthusiasm to increase volume of trade.
6.2.2.1 Summary of recommendations for Bank from Thai exporter’s point of views
There are 11 exporters give recommendation out of 34 exporters in sample group.

To sum up, there are three major recommendations for bank to support trade between
Thailand and Africa. There are improving payment systems, providing useful information,
and promoting convenient service.
1. Improving payment system: Eleven exporters need a direct letter of credit from
African buyers to reduce cost and time of transaction. It will be better if Thai banks
have correspondent bank in Africa then Thai exporters and African buyers can open
letter of credit directly without third parties such as international bank in Europe.
From the interview, the letter of credit process takes longer than two weeks and
agricultural products price is dramatically fluctuate, thus sometimes African buyers
refuse to pay when current price is lower than commitment price that mentioned in
17
Standard bank group report, 2008
39
letter of credit. International trade manager of bank provide information about
correspondent banks in Africa. There is a few of correspondent banks in limited
countries in Africa such as South Africa and Nigeria. However banks still need to
expand and improve system to smooth trade flow with the African Continent.
2. Providing useful information: Seven-exporters recommend that banks should
provide a service of credit screening of African banks and African buyers.
Information should up to date and reliable. Moreover, useful information can
reduce risk taking by Thai exporters. The useful information might help Thailand to
boost trade and open opportunity for Thai exporters and investors.
3. Promoting convenient service: Five-exporters mentioned that banks should
provide a convenient and reliable service for the exporters. Bank’s service should
be easy to contact and connect with African markets. In addition, trade finance’s
services should comply with Thai Government’s policy to support trade between
Thailand and the African Continent.
6.2.2.2 Summary of recommendations for Thai Government from Thai exporter’s

point of views
There are ten - exporters present what they need from Thai Government. Thai
exporters need support from Thai Government in three main areas, which are financial
service, marketing, and information supporting.
1. Financial service supporting: Five exporters mentioned that Thai Government
should consider and give more financial support for Thai exporter and African
buyers. For example, China already opened Export bank in South Africa, which
facilitates investment and doing export insurance for exporter.
Thai government should active and better at giving special credit for Thai exporters
to increase sale opportunity in African markets. In addition, Thai Government
should provide export guarantee with low charge for exporters in early stage. It
may improve opportunity for the exporters, who want to trade in emerging market
once that market is quite stable, government can gradually reduce support. This
solution will possibly encourage trade in Africa and open new markets.
Up to now, Exim Thailand plans to support and promote international trade
between Thailand and Africa by offering comprehensive financial services to assist
Thai exporters. For example, Exim Thailand signed a memorandum of
understanding with the Bank of Industry of Nigeria on June 3, 2008. However, Thai
exporters commented on high transaction fees of service.
Exim Thailand and other relevant partners should continue developing and building
financial infrastructure between Thailand and Africa to reduce cost and time
processing of trade.
2. Market support: Four-exporters need help to open market because African
markets are uncertain for Thai exporters’ perception. There are many factors that
are not predictable in some African countries such as devalue currency exchange,
high tax and regulation, and political risk. Therefore, the Thai government is
supposed to help and cooperate with African governments to insure trade and
40
investment policy such as negotiating in reduce tax, free trade agreement and
international trade agreement between Thailand and African countries.
For example, “Thailand-Africa Banking” seminar sponsored by Exim Thailand and
the Ministry of Foreign Affair, it may help to bridge banking and financial gaps and
make transactions more business-friendly between Thailand and Africa.
Furthermore, there are many ways of market support from Department of Export
Promotion to open new opportunity in African markets such as road show, trade
fair, and other events to promote export and investment.
3. Information support: Four-exporters mentioned that they need useful and reliable
information about Africa market to create a good business partner. Good
information can possibly reduce risk in doing business with African partners.
Therefore, the Thai government should provide up to date and reliable information
center. In addition, the Thai government might support trade and investment
through local area promotion center in Africa. Another problem when trade with
African buyers is language for business communication. The information should be
reachable for Thai exporters.
6.3 Research Limitations and Suggestions for Further Studies
This research has some limitations, which happened from its nature, so further
studies should be support or give confidence for more comprehensive result. There are
some limitations in this research will be recommended for further studies as follows;
1. Sample size: sample size in this research is only 34 exporters. If further studies
increase more sample size, it could be more specific conclusion. When sample size
increase, it could lead to study more particular in type of product export to Africa.
In this research, types of product are only agricultural product and manufacturing
product. Type of product can be more than two groups for further study.
2. Data source: data source in this study were only survey and interview from Thai
exporters and Thai banks. Further study should expand scope of study by
concerning the opinion and the perception of African importers and African banks
as well. It could be more complete of all party’s point of view. In addition, in this
research plan to interview only three leading companies so further study should
interview variety of the exporters and other Government departments.
3. Variable: the research studies the current practice payment instruments used by
Thai exporter to Africa and understand the choice of payment in three main factors:
sizes of firm, types of product export to Africa, and years of experience. Further
study can come up with other factors such as the African markets.
41
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43
Appendix
Appendix 1: Questionnaire for a survey
Survey Topic: Study of payment instrument between Thai exporters and African
buyers
Company name (option): ……………………………………………………………………
1. Size of company:
[ ] fixed capital <= 200 million baht [ ] fixed capital > 200 million baht
2. Type of exported products to Africa
[ ] Rice [ ] other cereals [ ] automotive / auto part and accessories
[ ] Article of iron and steel [ ] cement and lime [ ] others (please, define……………….)
3. Year of experience on trade with Africa
[ ] Never [ ] less than 1 year [] 1-3 years [ ] ≥ 3 years
If you answer “Never” in question 3, please go to part 2
Part 1: describe practice of using payment instrument of Thai exporters from Africa
importers
4. Estimate how much of export value to Africa in year 2009 by your company?
[ ] < 500,000 USD [ ] 500,000 – 1,000,000 USD [] 1,000,001- 5,000,000
USD
[ ] 5,000,001- 10,000,000 USD [ ] 10,000,001- 20,000,000 USD [ ] > 20,000,000 USD
5. Which payment method you used for export to Africa?
Payment Do you use each How many % of Rank top three countries of Africa
method payment method total export to using each method
for export to Africa?
Africa?
Yes No 1 2 3
L/C
Document
collection
Open
account
Advance
payment
(Total = 100 % )
44
Part 2: advantage and disadvantage of each method
6. What is your assessment of the transaction cost, level of risk and level of
procedural complexity of each payment method?
 Put Number from 1 to 6 for each method of three columns.

(Where; 1= very low, 2=low, 3= quite low, 4=quit high, 5= high, 6= very
high)
Transaction cost Level of risk Level of procedural

complexity
L/C
Documentary
collection
Open account
Advance payment
7. On average how much time is spent on each transaction for deferred payment method?
<1 1 2 3 1 >1
week week week week month month
L/C
Documentary
collection
Open account
Advance payment
8. What would be the support you expect from Thai banks to facilitate your transactions
with Africa?
………………………………………………………………………………………………
9. What would be the support you expect from the Thai Government to facilitate your
transactions with Africa?
……………………………………………………………………………………………
10. If there is a direct link between Banks in Thailand and in Africa (e.g. Correspondent
bank), would you accept to use this direct bank services instead of using third parties such
as international banks and traders?
[ ] Yes
[ ] No
(Please explain: why?):
……………………………………………………………………………………
11. What are your recommendation for better trade transactions and more profitability of
Thai exporters and African importers?
………………………………………………………………………………………………
45
Appendix 2: Questions for an interview
Interview questions for top ten exporters;
Company name (option) : ……………………………………………………………………
1. Size of company:
[ ] SME (fixed capital <= 200 million baht) [ ] large firm (fixed capital > 200 million
baht)
2. How much of experience on trade with Africa? ……………….. Years
3. Type of exported product to Africa
[ ] Rice [ ] other cereal [ ] automotive / auto part and

accessories
[ ] Article of iron and steel [ ] cement and lime [ ] others (please,

define……………….)
Part 1: describe practice of using payment instrument of Thai exporters from Africa
importers
4. Estimate how much of export value to Africa in 2009?
…………………………………………………………………………
5. Which payment method you used for export to Africa?
Payment Do you use each How many % of Rank top three countries of Africa
method payment method total export to using each method
for export to Africa?
Africa?
Yes No 1 2 3
L/C
Document
collection
Open
account
Advance
payment
(Total = 100 % )
46
6. Which type of L/C is used?
[ ] direct L/C between Thai banks and African banks
[ ] confirmed L/C by international third party banks
[ ] Others (please, define……………………. )
7. Which type of documentary collection is used?
[ ]D/P : (document against payment: immediately payment)
[ ] D/ A: (document against acceptance: credit terms)
[ ] please, define how many days of credit terms is allowed …… days
8. Which type of open account is used?
[ ] Buyers will pay immediately when they receive goods
[ ] Buyers get credit terms
[ ] please, define how many days of credit terms is allowed …… days
9. Which type of advance payment is used?
[ ] Buyers come to Thailand and pay cash directly
[ ] Buyers make transfer through banks
Part 2: advantage and disadvantage of each method
10. What is your assessment of the transaction cost, level of risk and level of
procedural complexity of each payment method?
 Put Number from 1 to 6 for each method of three columns.
(Where; 1= very low, 2=low, 3= quite low, 4=quit high, 5= high, 6= very high)
Transaction cost Level of risk Level of procedural

complexity
L/C
Documentary
collection
Open account
Advance payment
47
11. On average how much time is spent on each transaction for deferred payment method?
<1 1 2 3 1 >1
week week week week month month
L/C
Documentary
collection
Open account
Advance payment
12. What are the difficulties of each payment method? For example, have you addressed
any problem of guarantee of product and other problem issues?
L/C: …………………………………………………………………………………
Documentary collection: …………………………………………………………
Open account: ………………………………………………………………………
Advance payment: ………………………………………………………………
13. What is your preferred payment method for export to Africa? And why?
………………………………………………………………………………………………
14. What would be the support you expect from Thai banks to facilitate your transactions
with Africa?
………………………………………………………………………………………………
15. What would be the support you expect from the Thai Government to facilitate your
transactions with Africa?
………………………………………………………………………………………………
16. If there is a direct link between Banks in Thailand and in Africa (e.g. Correspondent
bank), would you accept to use this direct bank services instead of using third parties such
as international banks and traders?
[ ] Yes
[ ] No
(Please explain: why?):

………………………………………………………………………………………
17. What are your recommendation for better trade transaction and more profitability of
Thai exporters and African importers?
48
Appendix3: Trade between Thailand and Africa from year 1992 – 2009
YEAR VALUE : US DOLLAR
TOTAL TRADE EXPORTS IMPORTS TRADE

BALANCE
2009(Jan.- 7,783,308,533 6,385,112,266 1,398,196,267 4,986,916,000

Dec.)
2008 9,073,951,555 6,762,072,526 2,311,879,029 4,450,193,498
2007 6,631,770,690 4,682,936,782 1,948,833,908 2,734,102,875
2006 5,397,440,842 3,377,442,392 2,019,998,449 1,357,443,943
2005 4,479,970,941 2,876,314,209 1,603,656,733 1,272,657,476
2004 3,820,454,261 2,512,958,698 1,307,495,563 1,205,463,135
2003 2,578,373,963 1,613,154,922 965,219,041 647,935,881
2002 2,366,807,526 1,471,782,940 895,024,586 576,758,354
2001 2,261,375,594 1,510,193,951 751,181,642 759,012,309
2000 2,118,395,276 1,307,775,838 810,619,437 497,156,401
1999 1,974,056,779 1,185,445,071 788,611,709 396,833,362
1998 1,688,821,638 1,082,565,380 606,256,257 476,309,123
1997 1,955,837,505 1,005,174,014 950,663,490 54,510,524
1996 1,868,367,741 974,459,440 893,908,301 80,551,138
1995 2,032,582,007 1,201,879,952 830,702,055 371,177,896
1994 1,701,713,046 999,455,118 702,257,928 297,197,190
1993 1,650,159,983 973,163,658 676,996,324 296,167,334
1992 1,441,056,694 827,051,034 614,005,660 213,045,374
Source: Thai Ministry of Commerce

(http://www2.ops3.moc.go.th/hs/trade_yearly/report.asp)
49
Appendix 4: Transaction cost, time spent, level of risk and procedural complexity are
dependent on size of firm.
size of
company N Mean
Lc:tranaction SME
9 4.7778
cost
Large firm 12 4.9167
LC: risk level SME 9 3.1111
LC: procedural SME
9 5.0000
complexcity
DC:tranaction SME
5 3.8000
cost
Large firm 9 3.5556
DC: risk level SME 5 4.2000
Large firm 9 3.7778
DC: procedural SME
5 4.4000
complexcity
Large firm 9 3.5556
OA: tranaction SME
6 2.0000
cost
OA risk level SME 6 5.0000
OA: procedural SME
6 2.6667
complexcity
AP: tranaction SME
14 1.6429
cost
AP: risk level SME 14 1.6429
AP: procedural SME
14 1.8571
complexcity
50
Appendix 5: Transaction cost, time spent, level of risk and procedural complexity are
dependent on type of product.
type of product N Mean

Lc:tranaction cost agricultural product 8 5.3750
manufacturing product 13 4.5385
LC: risk level agricultural product 8 2.7500
LC: procedural agricultural product
8 5.1250
complexcity
DC:tranaction cost agricultural product 6 3.8333
DC: risk level agricultural product 6 4.6667
DC: procedural agricultural product
6 4.1667
complexcity
OA: tranaction agricultural product
4 1.7500
cost
OA risk level agricultural product 4 5.5000
OA: procedural agricultural product
4 3.2500
complexcity
AP: tranaction cost agricultural product 10 1.9000
AP: risk level agricultural product 10 1.6000
AP: procedural agricultural product
10 2.0000
complexcity
51

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PAYMENT

According to a report of The Ministry of Commerce of Thailand (MOC), export

1.2 Problem Statement

Source: The Ministry of commerce of Thailand

Figure 1.2: Thai exports as percentage to Africa by product

Source: The Ministry of commerce of Thailand

1.5 Scope and Limitations

1.6 Research Organization

OVERVIEW OF METHOD OF PAYMENT IN INTERNATIONAL TRADE

This chapter reviews the different payment methods in International trade. It

2.1 Method of Payment in International Trade

The detail of the documentary collection procedure shows on Figure 2.1

The International chamber of commerce’s (ICC) commission on banking technique

The Letter of Credit process will be shown clearly on Figure 2.2:

Figure 2.2: Process of the Letter of Credit (L/C)

2.1.4 Advance Payment

Advantages and Disadvantages of Documentary Collection

Advantages and Disadvantages of Letter of Credit (L/C)

Source: Method of payment in international trade, SITPRO financial guide

OVERVIEW OF THAILAND TO AFRICA TRADE

3.1 Trend in trade

Source: The Ministry of Commerce of Thailand

Figure 3.2: Growth rate of export value to Africa

Source: The Ministry of Commerce of Thailand

3.2 Structure of the Trade

2006 2007 2008 2009(Jan.-

Total Trade 2.09 2.26 2.54 2.72

Export 2.60 3.04 3.80 4.19

Import 1.57 1.39 1.29 1.05

Source: The Ministry of Commerce of Thailand

There are five categories of export products: agricultural, agro-industrial, principal

description 2006 2007 2008 2009 2006 2007 2008 2009

Total 3,377.4 4,682. 6,762. 6,385. 100.0 100.0 100.0 100.00

5. Others (special transaction : 1,720.1 6.1 0.0 - 50.93 0.13 - -

Source: The Ministry of Commerce of Thailand

3.3 Top- Twenty Export Destinations in the African Continent

Source: The Ministry of commerce of Thailand

4.2.1 Demography of sample group

Groups SME Large Agricultural Manufacturing ≤3 yrs >3 yrs

4.3 Data Analysis and Interpretation Methods

4.3.1 Data Estimating Method

Data on the choice of payment instruments and characteristic of exporters are

FINDINGS AND ANALYSIS

5.1 Current Practice of Payment Instruments

5.1.1 Estimation of each Payment Instruments used by Thai Exporters to Africa

Estimate export % Estimate export %

The results of the percentage estimation of each payment instruments by type of

5.1.2 Payment Methods Ranking

Table 5.2: Payment Method Ranking in Significant African Market

South Africa Kenya Nigeria Algeria

Range of Rank of payment

5.2.1 Average Perceptions on Transaction Costs, Risk level, and Procedural

Transaction Cost Level of Risk Procedural Complexity

N Mean N Mean N Mean

Table 5.5: Median of time spent of each payment instrument

Payment Letter of Document Open Advance

5.2.3 Differences of Average Perception on Transaction Cost, Level of Risk and

Average risk perception of open account is significantly different between

5.3 Factors Affecting the Choice of Payment Instruments

Table 5.7: Fisher’s Exact Test of Payment Method

Factors using payment ( yes or no) Exact Sig. (2-sided)

CONCLUSIONS AND RECOMMENDATIONS