About 40 years ago, natural gas was discovered in the Gulf of Thailand, creating excitement across the country. This period marked the dawn of Thailand's golden era. Following this discovery, the Eastern Seaboard Development Project was initiated to develop the eastern coastal region. Foreign investment poured in, enabling the economy to expand at a double-digit rate while raising hopes that Thailand would become Asia's fifth tiger.
However, the dream was shattered by internal political instability and poor economic policy management, culminating in the 1997 financial crisis known as the Tom Yum Kung crisis.
The Tom Yum Kung crisis was triggered by excessive lending by financial institutions and the liberalisation of the country's financial market, allowing commercial banks to borrow money from foreign financial institutions to provide loans to businesses.
Reviving domestic investment has proven to be a challenge for the government to push the long-stagnant economy out of its low-growth trap.
INVESTMENT STIMULUS NEEDED
Pornchai Thiraveja, director-general of the Fiscal Policy Office under the Finance Ministry, said since the 1997-98 financial crisis, the total investment ratio of both the public and private sectors fell below 25% of GDP.
In 2023, the total investment value tallied 2.6 trillion baht, nearly the same level as 25 years ago, which was 2.7 trillion baht. In 1996, before the crisis, Thailand's total investment to GDP ratio was as high as 51%.
Private investment against GDP, which reached a peak of 41% in 1995, dropped to 18% in 2023. Public investment to GDP peaked at 13% in 1997 but has ever since steadily declined and stood at 6% in 2023.
Mr Pornchai emphasised the need for Thailand to speed up stimulating investment to drive the economy and address long-standing structural economic issues accumulated over many decades.
Mr Pornchai emphasised the need for Thailand to speed up stimulating investment to drive the economy and address long-standing structural economic issues accumulated over many decades.
According to Mr Pornchai, Thailand's current economic engines include private consumption, which accounts for 59% of GDP, total investment, which makes up 24% of GDP (with private sector investment at 18% and public investment at 6%), public consumption from fiscal budget disbursements at 15% of GDP, and exports and imports.
Exports of goods and services account for 69% of GDP, with goods exports at 58% and services exports at 12%, while imports of goods and services represent 66% of GDP, with goods imports at 54% and services imports at 12%.
"It is necessary to shift our investment towards new engines of growth, which include 10 sectors such as agriculture, food and biotechnology, healthcare, and automotive and machinery," he said.
"According to the Board of Investment, estimated investments in these 10 sectors are projected to reach 465 billion baht in 2023, 579 billion baht in 2024 and 638 billion baht in 2025."
According to Mr Pornchai, in the past and up to the present, Thailand has undertaken investments in several megaprojects.
An elevated section of the Bang Pa-in-Saraburi-Nakhon Ratchasima Motorway (M6). According to Mr Pornchai, in the past and up to the present, Thailand has undertaken investments in several megaprojects including infrastructure. Photo courtesy of Nakhonratchasima Highway District 2
Significant ones have included Suvarnabhumi International Airport, which began construction in 1960 and opened in 2005, the Eastern Seaboard Development Programme in 1982, the electric train projects in Bangkok and surrounding provinces that started construction in 1990 and continue to the present, the Mass Rapid Transit project starting in 1997 and ongoing, the Eastern Economic Corridor (EEC) beginning in 2018 with a total infrastructure investment of 650 billion baht, the integrated entertainment complex project with an investment of about 100 billion baht, and the Land Bridge with an investment of about 1 trillion baht.
Moreover, the government is initiating future investment projects under the "Ignite Thailand" initiative, which includes eight visions:
1. A tourism hub, aiming to enhance secondary cities, upgrading small and medium-sized enterprises (SMEs) and promoting soft power through tax measures.
2. A wellness and medical hub which focuses on integrating healthcare with tourism to generate national income and support SMEs.
3. An agriculture and food hub, aimed at elevating agricultural and food production to make Thailand a food centre.
4. An aviation hub, enhancing infrastructure to enhance SMEs' capabilities.
5. A logistics hub, investing in Land Bridge infrastructure to connect two coastlines to boost business opportunities for the country, develop ease of doing business, enhance competitiveness and attract investment.
6. A future mobility hub, supporting electric vehicle production and creating a conducive ecosystem for rapid growth for the automotive industry.
7. A digital economy hub, attracting digital industry investment, supporting startups to become unicorns and adjusting conditions and criteria for venture capital in SMEs.
8. A financial hub, enhancing the financial system and capital market, promoting digital assets to accommodate future financial investments, and developing carbon credit trading alongside environmental preservation.
Mr Pornchai said plans are also afoot to enhance other transportation systems within and outside the country, aiming to spread economic opportunities from major cities to smaller towns.
The Transport Ministry plans to expand primary and secondary roads by 2050, increasing the length of the country's motorway tenfold from 250 kilometres to nearly 2,500 km and expanding national highways to four lanes covering 20,000 km at present to 23,000 km, from the north to the south.
A 51-km section of the M81 motorway, from tambon Wangtaku in Nakhon Pathom's Muang district to tambon Nongkhao in Kanchanaburi's Tha Muang district. Photo courtesy of the Department of Highways
By 2030, the nationwide rail system will expand, increasing double-track rail by 2,000 km to 5,500 km for nationwide coverage and connecting Thailand with China and Malaysia. Bangkok and regional electric train routes will increase 2.5 times to cover almost 700 km, and high-speed trains will connect three airports and the border with Laos at Nong Khai.
For deep-sea port development, Laem Chabang port will be expanded, and the Land Bridge project will be invested in.
ECONOMIC PROSPECTS
Finance Minister Pichai Chunhavajira said the economy should not grow below 3.5%, but during the past five years (2019-23), when the country faced a heavy blow from the adverse impact of the Covid-19 pandemic, the economy grew by an average of only 0.4%.
"Thailand's economic growth has been low for a long time and is trending downwards," he said.
This year, the National Economic and Social Development Council projects growth of around 2.4-2.5%. After the 2024 budget took effect in April, Mr Pichai said he believed accelerated government investment disbursements should push the economy close to 3%.
Economic growth in 2025 is expected to be around 3%, but with additional government stimulus measures, it could exceed that figure, he said.
Meanwhile, Kasikorn Research Center (K-Research) views the structural economic issues as the country's industrial sector lagging behind global market demands, urging the government to overhaul the industrial sector significantly.
This year, K-Research expects the Manufacturing Production Index (MPI) to contract by 2%, marking the second consecutive year of decline.
According to the research house, industrial production may continue to slow or even contract further, with the MPI potentially shrinking by 2% this year, following a 3.8% decline last year.
This year, K-Research expects the MPI to contract by 2%. The primary reason is the significant negative performance of key items within the MPI during the first four months of the year, particularly in the sectors of electronic equipment, automobiles and construction materials.
Although the food sector may still grow, K-Research said it may not be sufficient to offset the decline in other sectors. This results in a bleak outlook for the MPI in the coming period, making the manufacturing sector less of a contributor to the economy this year.
Last year, industrial production's role in the Thai economy gradually declined to about 25% of GDP, generating 4.5 trillion baht in revenue, down from 27% in 2022 and 30% in 2021. This indicates an urgent need for a significant overhaul of Thailand's industrial sector.
According to K-Research, the lack of investment in enhancing national competitiveness over the past decades has become more apparent, especially compared to Vietnam, which once lagged behind Thailand but now exports more high-tech products than Thailand.