Economic Development in Thailand in detailed point of view.


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In this report, it is expected to examine the economic and business strategies used by Thailand in the past years in detail and clearly. As well as, here, it is expected to suggest the business strategies used by Thailand for Sri Lankan application.

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Economic Development in Thailand in detailed point of view.

  1. 1. 1 | P a g e By: D.M. Sanath Dasanayaka ( University of Sabaragamuwa, Sri Lanka
  2. 2. 2 | P a g e Abstract In this detailed report, it is expected to discuss on the economic and business strategies used by Thailand for gaining a high economic growth rate and uplift the economic activities in past years such as import substitution, diversification of economy, ensuring the confidence of the economy in private sector and investors, Participation of the private sector in export production, developing strategies for alternative power sources, restructuring economic sectors, privatization, targeted industries and policy formulation and more other. As well as, the Sri Lankan application of above strategies is also discussed.
  3. 3. 3 | P a g e Content Topics Page No 1. Thailand in the economic perspective 04 2. Development and Advancement strategies of Thailand 05-10 3. Appropriate strategies in the Sri Lankan context 11-12 4. References
  4. 4. 4 | P a g e 1. Thailand in the economic perspective Thailand, the kingdom of Thailand in the official name, formerly known as Siam is in the center of the Indonesian peninsula in Southeast Asia. It is bordered to Burma and Laos by the north, to the Andaman Sea by the west and to Gulf of Thailand and Malaysia by the south. The country is a constitutional monarchy headed by king. Thailand is the world’s 51st largest country in terms of total area. It is similar to France in its scale which is approximately 513,000 square km. The population is about 64 million people. Baht is the currency using in Thailand. The capital and the largest city is Bangkok, Thailand’s political, commercial and cultural hub. Thailand is an emerging economy as well as considered as a newly industrialized country. It enjoyed the world’s highest growth rate from 1985 to 1996- averaging 12.4% annually. Thailand exports goods and services valued at around $105 billion annually. Major exports are Thai rice, textiles, footwear, fishery products, jewelry, rubber, cars, computers and electrical items. The country is ranked as the no.1 exporter of rice, valuing more than 6.5 million tons of milled rice annually. Rice is recognized as the most important crop in the country as well as about 55 percent of usable land is utilized for rice production. Electrical items, components, computer parts and cars are identified as substantial industries in the country also tourism contributes economy about 6% of the total amount. The economy of Thailand is heavily export-dependent; becoming the 2nd largest economy in Southeast Asia, after Indonesia and it is the 4th richest nation according to GDP per capita, after Singapore, Brunei and Malaysia. Forty-nine percent of Thailand’s total labor force is employed in agriculture. In 1980, it was around 70 percent. Agriculture has been turned into a more industrialized and competitive sector from labor intensive and traditional one. However, the relative contribution of agriculture to GDP has declined as the relative contribution of exports of goods and services has increased. Basically, the unemployment rate was 0.4 percent when the month of December in 2011. Selected economic indicators of Thailand (%) 2013 2014* GDP growth 4.9 5.0 Inflation rate 3.2 3.1 Current account balance( share of GDP) 0.8 0.1 Table: 01 source: Asian Development Bank * Estimates
  5. 5. 5 | P a g e 2. Development and Advancement strategies of Thailand In the 1960s, Thai economy was a mainly agricultural economy heavily Dependent on production crops, such as rice, cassava, maize, rubber, sugar cane and seafood production. During the 1980s-1990s, the economy began to boom and it was apparent as a diverse, modern and industrialized economy. Below factors have contributed to the growth, development advancement of the country’s main economic sectors, such as agriculture and fishing, manufacturing and industry and service, particularly tourism. That means the country has implemented a balance framework of policies in the major three sectors. Moreover, these policies were formulated based on requirements of business firms in any scale as small, medium and large. Import substitution This is considered as a rational approach to industrialization. Before industrialization, country had a stable agriculture sector, but after Thailand was altering its strategies, which centered on food processing and manufacturing for export purpose utilizing its wide-spread natural resources and low cost labor. This resulted to a rapid acceleration in manufacturing sector and marked a huge increase in exports. Here, at the first phase, the country exported only simple agriculture-based products, but when the time passed, Thailand realized the value of changing export strategies into technology-based manufacture. As well as this strategy gradually operated towards the development and advancement of Thai economy. Diversification of economy This strategy has also contributed heavily on the economic development of the country. Basically, industrial sector began with simple agriculture-based manufacturing and sharply progressed into more sophisticated industries through the utilization of available resources, such as ample of natural resources and low cost labor. Diversification was also assisted by Foreign Direct Investments made in a wide range of products, like electronics, chemical, property and processed food. In the 1980s, Foreign Direct Investments valued at US$8 billion. Also US$ 2.5 was from Japan and the rest from China, Korea and America. The most important factor that attracts FDIs is lower manufacturing cost in Thailand. 50% of the country’s total industrial production is manufactured in foreign investments and 20% of the total industrial workforce
  6. 6. 6 | P a g e is employed in projects backed by FDIs. This diversification strategy facilitated the country to acquire a high economic growth rate and the advancement in the state. Ensuring the confidence of the economy in private sector and investors The administration of Prime Minister Prem Tinsulangonda, which existed from 1980 to 1988 developed policies and programs that inspired the confidence of the private sector in both of the government and economy. These favorable policies created a greater willingness to invest in the growing manufacturing industry and support further expansion of export activities. Furthermore, it is clear that favorable policies played the ground role in the inflow of FDIs into the country. Mainly, Thailand attracted many investors from the USA making huge investments in a diverse set of projects. This carried out a significant way towards the economic development and advancement of Thailand. Participation of the private sector in export production In 1981, a significant policy was implemented which provided facilities the creation of the Joint Public-Private Consultative Committee on Economic Problems. This encouraged businesspersons to influence the public policy making through their participation in the mentioned committee. As well as it shifted the participation of the private sector up in the development of state enterprises. Private sector invested a huge sum of money in the industrial sector and the government’s task was to direct the economy in the proper way. Thailand has proved that opinions of experienced businesspersons could generate a lot of benefits in the public policy making towards the development and advancement of the economy. Mainly, the government has formed a business friendly environment through flexible laws on labor utilization and it has encouraged the private sector to participate in the economic activities in an active manner. Developing strategies for alternative power sources During the oil crisis of the period from 1970 to 1979, the country had to face severe hardships which impacted the growth and development directly. After the discovery of the country’s first natural gas field in the Gulf of Thailand in 1981, the country’s dependence on imported oil decreased. As well as, Thailand developed and implemented strategies for seeking alternative energy sources, namely, hydropower, liquefied natural gas, coal and wind power. Furthermore, Thailand is now studying the use of nuclear power. The most important benefit in nuclear power is low cost of power generation. So, these alternative power sources impacted to decrease the cost of production and shifted production levels up. On one hand,
  7. 7. 7 | P a g e export income became higher due to increased exports and on the other hand, import expenditure reduced since decreased import of oil. From the most basic level, Thai government implemented plans to gain the contribution of the private sector and foreign investors in these alternative power generation projects in order to operate them according to global accepted standards. Through attracting the private sector and foreign investors, the government benefited with the most advanced technology and a huge sum of funds to make projects a reality. Absolutely, these alternative power generation projects have been a major factor in determining the development and advancement of Thailand. Restructuring economic sectors In 1999, the International Monetary Fund (IMF) provided Thai government a loan package of US$17.2 billion for reforming financial sector of the country. Along with reforms in the financial sector, the government implemented a restructuring process in industry and agriculture sectors to increase its productivity. Government policies and regulations were rehabilitated to uplift their accountability and transparency. As well as, social reforms were carried out in education, social services and human resource development. In education, job-oriented education and on-job training programs take a specific place. Also, the government improved the quality of social services, such as healthcare, personal security and public housing schemes. In human resource development, the government is focused on the performance improvement of public officers through the transfer of knowledge and technical expertise. The government expects to equip human resource with all necessary skills and techniques since human resource is the driving force in the economic development and advancement of any economy. In this case, technology, knowledge and skills are exchanged with other countries through several mechanisms, namely, joint commissions and annual consultation programs. These reforms in economic sectors, education, social service and human resource development have played a key role in the development and advancement of the country through increased productivity of resources, such as natural and labor and increased efficiency and effectiveness in production processes in all sectors, industrial, agriculture and service. In the simple term, when skills, competencies and expertise of human resource go up, productivity increases and cost of production decreases. It affected to the development and advancement of Thai economy.
  8. 8. 8 | P a g e Privatization Thai government’s aim is to encourage capital inflows into the key economic sectors of the country. In 2006, the government of Thaksin Shinawatra implemented a privatization process for state-owned enterprises. In this, several state-owned enterprises were privatized other than the Petroleum Authority of Thailand, Airport Authority of Thailand and Mass Communication Organization of Thailand. Also, the 1999 State Enterprises Corporatization Act facilitated the framework for formulating government organization into stock companies and corporations as an alternative to privatization. Foreign investors were also allowed to participate in privatization with several restrictions provided by the Foreign Business Act of 1999. This strategy encouraged capital inflows to the country and facilitated to bring advance technology and techniques into the economy. Through privatization, effectiveness and efficiency of enterprises increased also the quality of the manufacturing and service sector was uplifted. This privatization program strengthened the process of development of Thailand. As well as, Thai government has taken appropriate steps to avoid the drawbacks of the privatization process. Targeted industries and policy formulation The government of Thailand is highly concerned about the position in which the country should be put in the competitive world. It expects to improve industries that can add value to the domestic economy (creating more jobs, preserving environment and managing natural resources in the proper way). As well as Thai government is more willing to find market niches (market segments that are not large in the scale to attract many competitors) that have been served by no other country, specially, market segments in which China is not competing. The below market segments have been identified as valuable. These industries are more suitable for Thailand according to its expertise. Here, they are the industries that the country can work upon at the best productivity and efficiency.  Automobile and parts  Agriculture  Fashion, such as jewelry, leather goods and Thai silk  Healthcare, spa and long-stay tourism  Electronic  Energy and renewable energy
  9. 9. 9 | P a g e Thai government has already prepared action plans to work on selected industries. Here, government authorities are responsible for designing, implementation, monitoring and trouble-shooting in selected industries. In the present, Thailand has become the finest country in agricultural industry in the entire world. Thailand promoted its agricultural programs in the name of kitchen of the world. In this, the government has identified industrial segments that the country can operate with available resources at low cost, achieving higher productivity and efficiency as well as the government reviews that the country’s expertise is match with the selected industries. Now, Thailand is working upon suitable industries, increasing its resources and labor employment also the country is heading to sustainable development and growth. Favorable policies for FDIs In recent years, laws and policies for FDIs have been reviewed according to changing development objectives and investors’ needs. Laws and policies are reviewed every five year time. Mainly, policies and laws for FDIs in Thailand are more flexible than policies of other countries in the region, such as Vietnam and Indonesia. Basically, FDI incentives and approval are centralized in Thailand, but in Vietnam, it is not centralized. Furthermore, in Thailand, FDI marketing is so strong. It provides all details on economy, Thailand’s attractions and opportunities, promotion policies, investment incentives, international cost comparison, BOI services and approval procedure to foreign investors accurately and on time. Details are summarized in brochures also websites and slide presentations on FDIs are frequently updated. These details can be downloaded from the website of the Board of Investment. Moreover, details are presented in six languages (English, German, French, Japanese, Chinese, and Thai). So, investing in Thailand is more convenient for foreign investors. Currently, the country has attracted more investors mainly, from the USA and the European Union than other countries in the southeast region. However, ultimately, attracting foreign investors has become a directly-related factor with the development and advancement of the country. Research & Development and infrastructure development Research and Development has been a key factor in the development process of any country. R&D facilitates innovations, lowers the cost of production and finds new ways of manufacturing. Absolutely, it changes operations of a country and an economy in the proper way. Basically, Thailand has made reservations on R&D activities focused on hardware, automation systems, computer-based control technology, total quality management, supply
  10. 10. 10 | P a g e chain management, just-in-time production system and manufacturing process control. As well as, the government is encouraging the private sector to invest in R&D activities and providing facilities needed for the sustainable development. In the present, the country allocates 0.2% of the country’s GDP in R&D activities also the amount of expenditure is expected to increase in the upcoming fiscal year. Thailand is more concerned on developing infrastructure facilities, such as water, electricity, transportation (road, aviation and water) social facilities, like housing in both urban and rural areas with the view of facilitating and developing small and medium scale enterprises. Through focusing more on rural areas, unemployment rate of these areas has decreased and living standards of people have uplifted. Thai government developed rural according to certain standards since developing rural areas and improving people’s living standards and expanding their earning capabilities were identified as key strategies for development. In the simple term, the country was able to expand its production capabilities by using its unemployed resources and low cost labor at a lower cost with higher earning also profits. Mainly, public-private partnership is very important in infrastructure development in Thailand. Currently, the government is willing to commence the biggest infrastructure development with US$ 60 billion. 64% of the total budget will be spent on 31 railways including 4 high-speed rail projects. 24% will be allocated on road development and 12% is planned to spend on water and aviation transportation. The main aim is to boost the production capability of the construction sector in these projects. With all these projects and programs, the government expects to increase per capita income to US$ 10,000 from the present amount of US$ 5000 during the next 10 years. 3. Appropriate strategies in the Sri Lankan context In the Sri Lankan application, several development strategies are most appropriate for realizing a high economic advancement. Selected industries Sri Lanka has more ancestral knowledge in several economically significant industries, such as agriculture, jams and tourism. So, the country can be specified in those industries with a high level of competitive advantage. In this strategy, Sri Lanka should select industries in which the country can operate more efficiently and effectively at a lower cost level with a higher productivity. Here, talents of employees, resources availability and cost effectiveness have to be considered. Then, this directly affects on the development of the economy.
  11. 11. 11 | P a g e Mainly, when the productivity goes up cost tends to decrease as well as that leads to a high development level. Increasing private sector participation Basically, the government can encourage private sector in many significant sectors in the economy. It is very important to uplift the competitiveness of the economy. Mainly when the competitiveness goes up quality of products and services eventually exceeds to previous level. But, on the other hand there should be a fair and transparence procedure of rules and regulations to ensure the confidence of private investors. Private investments can be implemented in many sectors, like transportation, production, agricultural and infrastructure development programs. As well as, the government can attract foreign investors in to the country. Developing alternative power sources In the present, the country is mainly dependent on imported crude oil and hydro power. But in the long-term, the country is capable in investing for alternative power sources, such as nuclear, solar power, thermo power and wind power. That can bring the cost of production down at a considerable proportion also those projects give benefits in the long run. It is easy to find appropriate lands for solar, thermo and wind power plants mainly in Northern and Eastern provinces. On the other way round, the government is capable in encouraging private investors to invest in these projects. In this strategy, the expenses on imported oil decrease also the country benefits with long-term sustainable power sources. Research and Development Every developed country allocates a considerable amount of their GDP on Research and Development activities. It has been identified as crucial factor for getting a high development level. The government of Sri Lanka can also allocate an appropriate proportion on R&D. In R&D, new methods of manufacturing are created also it reduces cost of production. Basically, the government can implement R&D activities in industrial and agricultural sectors.
  12. 12. 12 | P a g e Encouraging small and medium scale enterprises The government should encourage not only large-scale enterprises but also small and medium scale enterprises in both urban and rural areas. Furthermore, through this strategy, the resource utilization and labor employment are expected to uplift. This leads to a higher development level. Small and medium scale industries can be mainly encouraged through favorable regulations, subsidies and providing market facilities for their productions. As well as, developing rural infrastructure facilities can make more favorable impacts on those industries.
  13. 13. 13 | P a g e References Asian Development Bank (2013), Asian Development Outlook, Manila. Bank of Thailand (2011), Economic Summary of Thailand in 2010, Bank of Thailand, Bangkok. Buampongpattana, W. (2013), Infrastructure and PPPs Development in Thailand, Kyoto University. Chancharoen, N. (2012), Study Results and City Case: Private sector-local government interactions in Thailand, Thailand Environment Institute. Daniel, I.P., Tritos, L., Amrik, S. and Sukun, B. (2007), Manufacturing Strategies and Innovation Performance in Newly Industrialized Countries. Pathmanand, U. (2001), Globalization and Democratic Development in Thailand. Vietnam Development Forum (2005), MOI-VDF Joint Mission on Industrial Policy Formulation of Thailand.