Finding a place for Thailand's SMEs
Thailand's economy appears both odd and contradictory. On one hand, it continues to expand in the 3% range, an appealing growth trend by international standards. On the other hand, cursory and anecdotal evidence suggests the Thai economy is mired in a prolonged malaise.
To the extent that the economy has expanded, the growth has accrued in too few hands among big-business conglomerates, while the government has driven up debt levels with profligate projects to buy off players on the lower rungs of the economy.
Shaking Thailand out of its economic despondency requires a more comprehensive approach, with integrated economic planning and restructuring so far unseen from this fragile and short-sighted coalition government.
Two recent developments say a lot about the diverging fates faced by different actors in the Thai economy. One is the spectacular and swift demolition of the British embassy compound in Bangkok, a regal architectural icon that rose on Ploenchit Road almost a century ago.
Notwithstanding debates about the UK government's judgement in trading national prestige and dignity for a pot of money, what will take the embassy's place is another mega shopping complex run by the Central Group, the same retail conglomerate that bought a sizeable chunk of the plot nearly a decade ago.
Cases of a major foreign country selling land to a major local property developer are not uncommon. What makes this one notable is that the developer is among a small handful of giant conglomerates that seem to eat up the lion's share of lucrative business opportunities in Thailand.
A prime example is the rapid expansion of convenience stores over the past few decades, coupled with the eradication of mom-and-pop stores. CP All, which aims to increase the number of 7-Eleven branches to 13,000 in 2021, was among the business empires handed a slice of the cake in Thong Fah (Blue Flag) shops, operated under the government's Pracharath welfare scheme.
However, the business giants' success comes at the expense of small- and medium-sized enterprises (SMEs) which are key to creating a more dynamic and diversified Thai economy .
Although the economy is undoubtedly suffering impacts from the global slowdown, the policies under Prime Minister Prayut Chan-o-cha's rule over the past five years have generated mixed results that favoured big business over smaller players.
A 2018 report by Credit Suisse ranked Thailand as the world's most unequal country, with the richest 1% of the popultion possessing more than two-thirds of the country's total wealth, at 66.9%. In 2016, Thailand's distribution of wealth was ranked as the world's third most unequal behind Russia and India. The slide to worst spot reinforced the impression that Thailand's richest have gained the most from the country's moderate economic growth.
It was no surprise when the government strongly denied the 2018 report, claiming that it unfairly ranked Thailand against only 39 mostly richer OECD member-countries, and citing as indications of success other macro-economic indicators like the number of people above the poverty line. Yet micro-economic indicators tell the opposite story regarding the country's largest conglomerates and their SME counterparts.
For example, indicators on SME loans released by Siam Commercial Bank, show a strong decline in 2019 compared to 2016. Not only did SME lending contract 1.2% year on year in 2019, compared to a 3.6% expansion in 2016, but the rate of non-performing loans among SMEs almost doubled over the same period.
In contrast, prospects are a lot brighter for Thailand's business elites. According to Forbes Thailand's 50 Richest List, the fortunes of the top billionaires have been on the rise over the same period.
Leading the pack have always been the Chearavanont brothers, whose combined wealth grew from US$18.5 to US$29.5 billion from 2016 to 2019. Meanwhile, the Chirathivat family of the Central Group rose to the second place on the list, with their wealth swelling from US$13 to US$21 billion in the past three years.
That robustness of financial health is not shared by smaller entrepreneurs. A second and poignant development highlighting the contrasting fate of local SMEs is the recent growth in suicide rates due to financial adversity. In mid-August, a spate of suicides was attributed to economic difficulties, including parents with a young daughter taking their lives in the wake of business bankruptcy. Certainly, motivations for suicide are not confined to economic problems, and the most common causes remain mental health disorders and substance abuse. But the Department of Mental Health stresses that financial problems have now become one the most worrying risk factors for suicide among the working population.
While the profitability of private businesses always depends on their own actions, Thailand's regulatory environment and economic planning also play a crucial role. To allow economic wealth to be distributed more broadly, a country's economic policy should prevent the bigger fish from too easily gobbling up the smaller ones. Government concessions that promote and prolong monopolistic rents for big conglomerates need to be curbed. Yet, examples of these deals granted under the Prayut-led government abound, including the King Power's airport duty-free contracts and the CP Group's entry into the railway industry with no prior experience.
On the flip side, domestic SMEs need to be nurtured through policies that emphasise longer-term competitiveness beyond cost advantages. As well as additional funding, other important objectives -- such as innovation, creativity and productivity -- should be crucial goals for SME development policy. To be sure, immediate stimulus measures cannot be ruled out, but they should only be part of a more broad-based and comprehensive outlook. Such short-term policy habits of this junta-transformed government have already led to nearly 2 trillion baht of additional government debt over the past five years. Splurges like the latest 316-billion-baht economic stimulus package risk depleting government's coffers while having little impact on long-term economic sustainability across business sectors.
Thailand's big business has had it relatively easy, thanks partly to favourable deals that enhance their scale and scope. To create a more level playing field, policymakers should be mindful not to feed the fat lions with easy prey while handicapping smaller players with short-sighted and unproductive handout measures that do little to strengthen their business prowess.
Pavida Pananond, PhD, is Associate Professor of International Business at Thammasat Business School, Thammasat University.
Thammasat University associate professor
Pavida Pananond is associate professor of International Business at Thammasat Business School, Thammasat University.