Global Perspectives
National Economic Profiles from IIC Partners
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Thailand
RGC Executive Search
By Anthony Ainsworth
RGC Executive Search
November 2007
Thailand has a rapidly growing auto asembly complex, global stature in rice exports and continuing strong foreign investment. But the country that looked like one of Asia’s big winners in the 1980s and 90s is losing some of its lustre due to entrenched interests and ongoing political turmoil.
Thailand, once termed an economic Tiger, has struggled since the 1997 crisis to regain its former position within ASEAN (the Association of Southeast Asian Nations). Prior to 1997 it was one of the great success stories in Asia, averaging almost nine per cent annaul growth from the early 1980s through till the mid 1990s – when a combination of macro economic policies, including a fixed currency and a heavy reliance of foreign debt to fund the domestic economy, forced the currency to float and many bankruptcies to follow. The financial sector has not fully recovered with many banks still holding large portfolio’s of non-performing loans (NPL). It has been the reluctance of many banks to deal with the NPLs and the bureaucratic legal system, combined with turbulent politics, that has left Thailand a less attractive investment destination compared to China, India and even Vietnam.
Politics and the Economy – hard to separate
Thailand has been a constitutional monarchy since 1932, though the army has always been heavily involved in Thai politics. When the generals have not been in power they has always been keen to flex their muscles on the sidelines. Coups have been a regular part of Thai politics since 1932.
The economy is in a stage of transformation from being the darling of Japanese and US investment, mainly in electronics, autos and consumer goods, to one where Thailand finds itself in the void — losing appeal to China, Vietnam and India, which are all actively liberalizing their economies. At the other side of the economic spectrum, Thailand is deemed not to have a competent enough workforce to compete in more value-added spaces, such as hi-tech and bio-tech.
Education – a major structural weakness
The lack of a modern platform in primary and secondary schools receives much of the media’s attention for the failure of successive governments to provide a thorough revamp of the whole system. In this regard, government is frequently criticized for living in the 1950s. The end result is that the majority of secondary school students and even many graduates are ill equipped to handle the roles and challenges of a modern day work place. Without a major overhaul Thailand is rapidly losing its competitive edge.
The Economy - numbers at a glance
GDP per capita: US$9,100
GDP growth, 2007 projected: 4-4.5%
GDP by sector: services 50%; industry 41% and agriculture 9%
Inflation: 2%
Population: 62million (roughly the same size as France)
Thailand is the largest rice exporter in the world, shipping 6.5 million tons of milled rice annually.
According to the World Investment Report 2006, FDI (foreign direct investment) inflows into Thailand were around US$ 3.7 billion in 2005, ranked only number four in Southeast Asia after Singapore, Malaysia and Indonesia.
Exports – the single most important driver of the economy
From the early 1980s, Thailand has set its stall as an export-led economy and the importance of exports has continued unabated post crisis. In fact, the country is more and more reliant on exports as domestic demand and local private investment remain subdued.
Since the turn of the century, exports have grown on average by 18 per cent, year on year, with the 2006 figure valued at US$130 billion.
The auto sector – one major success
One of its manufacturing success stories has been the steady growth of automobile assembly in Thailand. Spearheaded by the major Japanese auto companies focusing on pickups (Thailand is the third largest pick-up market in the world after the US, and Australia). Toyota, Honda, Isuzu and Nissan all have major plants, as well as Hino the truck maker. Sedan and SUV production has also been boosted over the last five years.
In the mid 1990s GM and Ford developed large export focused plants.
Over a million vehicles are produced annually in Thailand with 36 per cent destined for the export markets with a value in excess of US$8 billion.
Thailand is now the tenth largest auto assembly market in the world.
The Thai economy — where is it going?
Despite the best efforts of its junta-led government, Thailand has, in effect, taken a neutral to negative stance on the importance of FDI, partly because of a lack of a clear strategy and different interest groups muddying the waters.
Thailand economy’s is now very much at a crossroads. Much will depend on whether the Democrats, considered the strongest single party, can win and lead a pro business coalition and bring some much-needed strategic policy planning to the fore.
Facing considerable competition from all quarters, Thailand can no longer afford to rest on its laurels. It should be seeking to emulate its competitors by starting to take a much more liberal stance to competition and foreign investment, something that many of the powerful Thai-controlled family companies may stonewall via their connections.
Sir Anthony Ainsworth is a director with RGC Executive Search, Bangkok (www.rgc.co.th) and a long-time member of IIC Partners, Executive Search Worldwide (www.iicpartners.com). IIC Partners has served international executive search clients for more than two decades and is ranked among the top 10 global search organizations, with more than 50 offices in 38 countries. |
