As voters go to the poll this Sunday, everything that matters for the people of this country is on the line, from structural reforms of political institutions and a constitutional rewrite to welfare policies to address income inequality.
But in the longer term, what will stimulate and sustain Thailand's forward momentum will be its economic revival. It is imperative that the election this weekend ends up with economic restructuring and reforms to raise Thailand's game and regain the country's competitive footing that has been lost over the past decade of political malaise and economic doldrums.
To be sure, the economy has not been disastrous. It has just been subpar, well below potential, with trend growth of just over 3% in recent years, while peer competitors, such as Vietnam, have expanded twice as much. Lower growth has also come with a higher concentration of wealth in the private sector, resulting in oligarchic conglomerates hogging the lion's share of the pie.
A downstream consequence of this wealth accumulation is the yawning income divide between the super-rich and the ordinary poor. It is high time to focus on enlarging the pie while enabling it to be shared more equitably across segments of society and across the business sector of varying sizes.
In a break from the past, all parties in this election are populist in one way or another. While the focus on social welfare, subsidies and safety nets is needed, these populist policies will not lead to a competitive boost in the real economy amid geopolitical and geoeconomic headwinds and challenges.
For economic dynamism going forward, what Thailand needs in the short and intermediate term is not new plans to create more special economic zones to attract new types of industries but to focus more on improving our ability to make foreign investors confident that being based in Thailand answers their need to create value for their investment. This has more to do with strengthening domestic absorptive capacity in local firms so they can become indispensable to foreign investors.
In addition, improving and streamlining an outdated and cumbersome regulatory structure to make it consistent with what foreign investors are looking for in their supply chains amid the changing context of globalisation would provide a more appealing environment than traditional financial investment and tax incentives.
After all, foreign investors need to answer to their shareholders why being in Thailand is better than in another country. Notwithstanding the conventional investment incentives like tax and special zones, what determines investment locations has more to do with an overall ecosystem that adds tailored and specific advantages to foreign investors' activities, rather than generic financial incentives that can be obtained anywhere.
The Board of Investment is a case in point. Its incentive structure is old-style, focused on tax reductions and exemptions. Yet its legal infrastructure to ease business investments from abroad remains cumbersome and silo-oriented, resulting in a high degree of red tape.
The BoI's outdated mindset needs an overhaul. The future of manufacturing will no longer be about inviting foreign investors to invest in Thailand and bring all the technological sophistication in higher value-added sectors.
Rather, providing an ecosystem of capable suppliers that can be plugged into global supply chains that are increasingly transformed to meet higher social and environmental standards while at the same time being fragmented along geopolitical lines is the next rule of the game.
Offering tax and financial enticements is old-style and will not lead to a leaner, greener, and smarter growth strategy that can both cope with and capitalise on an adverse external environment where the United States and China are locked in conflict over trade and technological prowess.
It is instructive to point out Thailand's sliding position in global competitiveness indices. For example, in 2017-2018, prior to Covid-19, Thailand was ranked 32nd, compared to Malaysia at 23rd and Singapore at 2nd, according to the World Economic Forum.
While this still looks better compared to Vietnam's 55th position, the gap is closing as Thailand is falling behind over time. Our average annual GDP growth from 2000-20 is 3.5%, compared to the 5% average in Asean, rendering the Thai economy the slowest-growing, just ahead of Brunei, according to the Asean Secretariat. In the same period, Vietnam has expanded by more than 6% on an annual average.
The trend is worrying, as Thailand is projected to grow at around 3-3.6% in 2023, compared to the 5.6% average of Asian developing economies, according to the IMF. For foreign direct investment, another key engine of the economy, data are equally alarming. The stock and flow of foreign direct investment (FDI) have fallen steadily over the past two decades, while the country has lost its position as the top inward FDI destination in Southeast Asia. In 2022, Thailand ranked 4th as a FDI destination, trailing Singapore, Indonesia, Vietnam and Malaysia, according to the Asean secretariat.
To be fair, this declining performance also reflects the changing context of globalisation that, in turn, affects the way multinational companies make decisions on their FDI footprints.
The rapid globalisation period in which multinational firms rapidly expanded abroad in search for lower-cost production in far-flung corners of the world has been disrupted by many factors, including increasing costs in major emerging economies like China, the 2008-09 financial crisis, and the slowdown of trade and investment liberalisation.
The "slowbalisation" trend that is characterised by reduced trade and investment integration already started before the pandemic and increasing geopolitical tensions add complexity to global value chain management.
What this means is that companies are rethinking their foreign investment strategy and reconfiguring their global investments. Companies are no longer just seeking low cost from extending their value chain to places with lowest-cost advantages.
Rather, they are looking for higher value from their overseas investments as their focus shifts toward creating value from the intangibles and indirect benefits of services, knowledge, and innovation.
Foreign investment decisions of multinational firms are not only driven by the search for cost efficiency but also the need to shorten and secure supply chains, seeking alternative suppliers, or even responding to industrial policy actions, such as the US Chips and Science Act and the Inflation Reduction Act.
Beyond the election and government formation, there will be policymaking pressure to follow through with various populist pledges. But the major parties that take office should make no mistake that Thailand's economic pie is hitting a plateau, that economic expansion is sliding down instead of climbing up in global value chains.
At the rate of the past decade, we risk being a labour-intensive, low value-added-service-dependent economy, attractive for tourism but devoid of innovation and the upskilling and education needed to weather and thrive in the new global competitiveness environment. This election must bring with it overdue changes that can raise Thailand's competitiveness game.
Pavida Pananond is Professor of International Business Strategy at Thammasat Business School, Thammasat University.