SINGAPORE -- The swathe of smog covering a wide stretch of Southeast Asia is having a profound effect on the business environment and public health in the region. Caused by Indonesian forest fires, the haze has affected Indonesia, Singapore and Malaysia, even recently creeping into Southern Thailand and is developing into one of the worst cases in history. Although recent rainfall has cleared skies in certain areas, there are still concerns that the dry weather caused by El Nino will cause the air pollution to last until the beginning of 2016, casting a shadow over the region's economic outlook.
Singapore's tourism industry has taken a big hit. On a recent hazy afternoon in the city-state, a group of Thai tourists wearing respiratory masks took photos in front of the iconic Marina Bay Sands hotel, but the background was barely visible through the smog. Another man from the Philippines complained how the haze is affecting his family's sightseeing plans. "We wanted to visit Sentosa Island, but if the haze gets any worse, we'll have to stay inside the hotel," he said.
According to the Association of Singapore Attractions, early estimates suggest that the number of visitors has dropped around 5-10%. Chua Hak Bin, an economist at Bank of America Merrill Lynch, says the haze will have 0.1-0.4% downward effect on Singapore's gross domestic product as the country's tourism and retail sectors may be hurt by less activity. Euston Quah, head of the economics department at Singapore's Nanyang Technological University, estimates that damage to the city-state's economy caused by the haze could exceed $300 million, well over the estimated $50 million damage in 2013, during the last severe Southeast Asian haze.
The haze is caused by land clearing on the Indonesian island of Sumatra and in the Kalimantan region. Large areas of forest are burned to make way for palm and pulpwood plantations. Drier weather in the region caused by the El Nino phenomenon -- the rise in seawater temperature off the coast of South America -- tends to exacerbate the Southeast Asian haze. According to Quah, El Nino this year was "the highest in 50 years," likely prolonging the impacts of the haze.
Jakarta is under considerable pressure both domestically and internationally to deal with the problem. It has already caused multiple deaths in Indonesia and has been a setback for the tourism industry. The government calculates that the economic loss from the haze will exceed 20 trillion rupiah ($1.4 billion).
Flag carrier Garuda Indonesia canceled at least 449 domestic flights in September due to poor visibility. The company's revenue for the July-September period fell 6% to $1 billion from the same period last year. "The cost is big," said Garuda Chief Financial Officer Ari Askhara, adding that it is unclear when passenger numbers will recover.
Indonesian President Joko Widodo recently cut short his first visit to the U.S. since becoming president to deal with the issue, a move widely seen as an attempt to win support from Indonesians. Singapore and Malaysia have offered support by sending aircraft and helicopters to extinguish fires in South Sumatra. Rainfall in late October lowered the number of forest-fire hot spots, but Indonesia is facing mounting calls from neighboring countries to combat the root cause of the fires and prevent a recurrence of the haze.
Pressure from a frustrated public and environmental agencies has prompted a reaction from local businesses. In Singapore, a number of retailers and online supermarkets have removed paper products sourced from companies named by the Singaporean government as having possible links to the haze-causing fires. In early October, the Association of Banks in Singapore released a set of responsible financing guidelines that highlight deforestation and forest degradation as points to consider in financing decisions.
Some industries have managed to find bright spots amid the gloom. According to analysts, the thick smoke may be a blessing in disguise for ailing plantations in Malaysia, as the longer-than-usual haze is likely to disrupt palm oil production and provide a much-needed boost to the commodity's price. MIDF Research estimates that the average crude palm oil price will rise from 2,175 ringgit ($506) per metric ton this year to 2,300 ringgit in 2016.
A global downward trend in demand for commodities pushed palm oil prices down to a six-year low of 1,802 ringgit in August. But prices began to rally as the threat emerged of a dry spell in Malaysia and Indonesia brought about by El Nino. The arrival of the haze further compounded the situation, as the thick smoke hampers photosynthesis and threatens the quality of oil palm crops. IOI Corporation, Malaysia's leading oil palm plantation operator, expects a 10% decline in yield from its normal level to push up crude palm oil prices.
In Singapore, electronics store chain Best Denki saw the sales volume of air purifiers triple in September compared to a year ago, as people rushed to protect themselves against the haze when it entered the city-state. Others have come up with unique ways to turn the haze into a marketing opportunity. Ride-hailing app Uber launched its "Breathe easy Singapore" campaign in late September, offering free mask delivery to its users. The one-day event reached "thousands of people," said Uber spokesman Karun Arya.
Unaffected regions within Southeast Asia have turned into getaway destinations. A 34-year-old Japanese expatriate in Singapore is hastily planning a one-week vacation to Bangkok in early November with her 1-year-old son. "I'm worried about the health risks to my son," she said. "And it's so annoying to have to wear facemasks to go out. I'm really looking forward to swimming in the hotel pool."
Nikkei staff writers Wataru Suzuki in Jakarta, CK Tan in Kuala Lumpur and Yukako Ono in Bangkok contributed to this report.