Jul 01, 2015

What Thailand Needs to Do to Sustain Growth

Thailand is an emerging economy and is considered a newly industrialized country. The country is the third largest exporter of seafood in the world, and with exports valued at over $7 billion annually.

Thailand’s economy is heavily export-dependent, with exports accounting for more than two-thirds of the Gross Domestic Product (GDP). Thailand exports over $105 billion worth of goods and services annually. Major exports include rice, textiles and footwear, fishery products, rubber, jewelry, cars, computers, and electrical appliances.

In the first quarter of 2015, Thailand’s economy made a mild recovery surpassing economists’ predictions. Thailand’s GDP grew 3 percent from a year ago in the first quarter, according to the National Economic and Social Development Board. This was an improvement from the 2.1 percent year-over-year growth recorded in the fourth quarter of 2014, but still below the 3.41 percent growth projected by economists polled by the Wall Street Journal. The board’s secretary general, Arkhom Termpittayapaisith, said the growth was driven by private investment, public spending, and a recovery in tourism.

However, economists say that the growth in government spending is not enough to counter falling exports and weak local demand. The median of 17 estimates in a Bloomberg survey is for a 0.6 percent contraction in GDP.

Thailand’s Workforce

In Thailand, there are 37.53 million employed persons, of which 10.61 million are in the agriculture sector. In April 2015, the number of employed people in agriculture decreased by 0.43 million compared to a year ago.

Number of Employed Persons by Industry

Number of Employed Persons by Industry

Source: National Statistical Office, Thailand

Thailand Needs Innovation

According to economy observers, Thailand’s current development model may not be able to sustain growth in the long term. For continued growth, Thailand needs to make a shift to a knowledge-based, innovative economy.

Thailand’s current economic development derives mainly from cheap labor. With comparatively low labor costs combined with government support for infrastructure and investment incentives, the Thai manufacturing sector has thrived as the main driver of economic growth over the past few decades. Economic development without a technology industry leaves Thailand with limited trade gains because a large portion of the added value goes to foreign tech developers.

In Thailand, there are numerous public policies that aim to promote the development of a knowledge-based economy, such as tax incentives for R&D expenditure. But the effectiveness of these policies is limited. Based on three major R&D indicators – the number of scientists and engineers per million population, R&D expenditure as a percentage of GDP, and the ratio of private R&D to public R&D – Thailand is well below other countries in comparable stages of development.

As per Nonarit Bisonyabut and Chatra Kamsaeng, researchers at the Thailand Development Research Institute, the Thai government needs to do more than just institute policies to promote Thailand’s move towards a knowledge-based economy. They say that in order to maintain economic growth in the long term, the Thai government should help businesses that conduct in-house R&D instead of firms that only acquire foreign innovations.

The Need for Education Reforms

“The single most important thing for Thailand is to improve its education and skills outside Bangkok.” ~Ulrich Zachau, Country Director for Southeast Asia at The World Bank

According to the World Bank, one-third of 15-year old Thais are “functionally illiterate”. Small village schools are severely under-resourced, which makes it difficult to deliver quality education because of inadequate teaching materials, physical infrastructure, and less experienced teachers.

“The problem is particularly accurate for small village schools, which face teacher shortages and have less than one teacher per classroom.” ~Dilaka Lathapipat, Human-Development Economist at The World Bank

The World Bank suggests that the country needs to reform its education system, and can do so partly by merging and optimizing its networks of more than 20,000 “non-isolated” schools nationwide. According to Kirada Bhaopichitr, Senior Economist at the World Bank, a merger of small schools could be implemented because 85 percent of the 19,864 small schools in Thailand are less than 20 minutes’ travel away from other schools. According to the study, Thailand could drastically reduce the number of classrooms with less than one teacher per class, from 110,725 currently to only 12,600, simply by merging its 9,421 “non-isolated large schools and 16,943 non-isolated small schools” and halving their total numbers to 14,252 schools. In contrast, increasing the number of teachers per class in upcountry schools to the same level as Bangkok would require recruiting 160,000 more teachers.

Thai Tourism’s Talent Shortage

According to a recent global study by the World Travel and Tourism Council (WTTC), as many as 1.62 million fewer tourism jobs will be created in Thailand over the next 10 years unless the government and the private sector address the problem of talent shortages.

The travel and tourism industry contributed 2.35 trillion Thai Baht (THB) in 2014, accounting for 19.3 percent of the GDP. Almost 5.38 million jobs were created, ranking Thailand seventh in the world for total employment generated by the travel industry. In the research, it is highlighted that tourism has the potential to contribute 8 million jobs and 26 percent to Thailand’s GDP by 2025. But this growth will not happen without planning for talent requirements.

David Scowsill, President and CEO of WTTC, says that to address talent shortages in the industry, the Thai government needs to invest in areas of human-resource development and visa liberation. Additionally, employers need to invest in staff training, as well as providing incentives for them to stay long-term at their jobs.

“Talent shortage in tourism is not unique in Thailand. WTTC has been actively engaging in studies to show governments and industry owners why they need to invest in developing human resources. If we sit back and look at the future in the next 10 years, there are certain areas in the country that [are] going to be a problem, which is why we are saying that the government must wake up.” ~David Scowsill, President and CEO of WTTC

Thailand’s Aging Population

According to labor experts, Thailand’s population is aging faster than any other place in Southeast Asia except Singapore. According to a new study by the International Labour Organization (ILO), this will significantly impact the country’s productivity and socio-economic development. From between 1975 to 2007, the proportion of people over 60 in Thailand has doubled from 5 percent of the population to 11 percent, which is approximately 7.2 million people.

Number of Elderly Projected, by Age Group

Number of Elderly Projected, by Age Group

Source: Office of the National Economic and Social Development Board

The report’s authors say that unfavorable work conditions, insecure income, and limited social protection are daily factors for people over age 60. Additionally, the data suggests that daily and hourly wages are substantially lower for this age group, and the majority consider their incomes to be insufficient.

“This report confirms the importance of promoting decent work for older persons. Thailand is experiencing unparalleled growth of its older population. The number of over 64’s will double in only 20 years, something that took 85 years in Sweden and 115 years in France.” ~Rika Fujioka, Researcher at Regional Economic and Social Analysis Unites at the ILO

“There has been no sign of a strong economic recovery. Growth will continue to be sluggish, as only the government’s spending has showed signs of picking up, while consumption, investment and exports are still very weak.” ~Benjarong Suwankiri, Economist at TMB Bank PCL in Bangkok