Time to broaden our economic horizons

Time to broaden our economic horizons

Current government policies seem likely to bring growth of 3.3% this year, and 3.5% in 2017. (Photo by Patipat Janthong)
Current government policies seem likely to bring growth of 3.3% this year, and 3.5% in 2017. (Photo by Patipat Janthong)

As it stands, the Thai economy stands a good chance of rebounding. The government has projected growth of 3.3% for this year and 3.5% for next year. Nonetheless, there are indications that the economic rebound will be unsustainable.

Such growth, if achieved, is unlikely to be healthy because it will be focused on certain sectors, and lack quality. Similarly, the country's growth structure is not broad-based and relies mostly on two key drivers: public investment and tourism.

Such engines, concentrated on particular industries, will not bring about healthy growth in the long run. The government's economic strategy runs counter to the need to accelerate broad-based growth in all sectors of the Thai economy.

By concentrating their spending on infrastructure megaprojects and the tourism industry as a means of boosting the sluggish economy, the current government is neglecting three quarters of the Thai economy that is in urgent need of stimulation.

Government investment, in fact, represents only 5% of gross domestic product (GDP). Moreover, the impact of the government's growth plan will be limited to the construction sector, which has a relatively short supply chain, benefiting only contractors and construction material manufacturers.

Whenever I talk to business operators, they usually point out that the economy's projected recovery will not be as healthy as the figures represent. Such numbers are achievable only by pouring state money into projects, boosting the growth numbers. Given the limited room for government borrowing, it is implausible to continue banking on public investment for an extended period of time.

Growth in tourism will also be fractional, concentrated on revenue generation at key tourism hotspots. Its supply chain is as short as that of state investment. Moreover, this industry is also prone to potential risks as it is highly sensitive to adverse events such as natural disasters.

Private consumption and private investment have yet to recover.

Private consumption, which accounts for about 50% of GDP, is expected to slowly recover from growth in consumption of non-durable products -- goods that quickly wear out -- and the service industries. However, consumption of durable goods is still not showing clear signs of recovery.

Meanwhile, the current problem of low private investment is likely to persist owing to tepid business confidence.

Thai investors prefer to put their money in overseas investment portfolios. During the first half of this year, foreign investment by Thai businesses totalled 600 billion baht. Meanwhile, foreign direct investment in Thailand has significantly diminished, falling to 60 billion baht during the first six months from its peak of 300 billion.

State investment can bring about a partial boost to business confidence. But the real focus should be given to private investment. However, the corporate sector will maintain a wait-and-see approach when it comes to private investment in the lead-up to and in the aftermath of the next general election, expected to take place by the end of next year.

The bleak outlook for private consumption and investment implies that a promising investment climate has yet to arrive. If Thailand fails to bring back a conducive investment environment, the prospect of 3.5% growth will be less likely.

The export sector, which has declined for three consecutive years, has been a drag on the Thai economy. One can blame it on low demand due to the stagnant global economy. The main problem is actually the inability of our export products to connect with the evolving needs of the global market.

A lack of innovation in new high-value products, such as automobiles and electronics, has kept the Thai export sector from flourishing.

Historically, Thailand's export growth has been derived mainly from low value-added exports such as agricultural and food products and construction materials. The prospects of growth in high-value products, which in total account for more than 50% of the Thai export sector, remain bleak.

Moreover, Thai businesses have become stagnant when it comes to developing new products to meet the last decade's evolving global demands.

Unlike the export boom 15 years ago, the manufacturing of new, high-value products in Thailand has been limited. We need to look at Vietnam's export sector as a good example of change.

Our neighbour's exports have continued to trend upwards because they have been continually investing in new products. The country has also enjoyed huge investment from South Korea.

Therefore, Thailand should focus on industries that have high potential for growth such as the medical, transportation and logistics, auto parts, commercial electronics and food processing industries.

These industries have better potential than others to drive growth and move the country toward its 4.0 model, the government's value-based economic plan that involves using technology and innovation to achieve growth.

With support from the government, through investment incentives and the promotion of research and development, businesses would soon adapt the evolving global trends.


Naris Sathapholdeja is Senior Director of TMB Analytics.

Naris Sathapholdeja

Senior Director of TMB Analytics

Naris Sathapholdeja is Senior Director of TMB Analytics.

Do you like the content of this article?
COMMENT (2)