Thailand’s impressive growth over the past three decades has come in no small part because of previous governments’ policies to promote FDI in manufacturing and export-oriented industries, as well as investing in ports and industrial estates along the eastern seaboard and providing special incentives to attract such sectors as automotive manufacturing. As a result, Thailand is the leading car maker in south-east Asia with 18 international brand assemblers and 2300 parts makers.
The big question for the country (other than whether it will ever get its political house in order) is where the economy goes from here. Defining its future niche has become crucial for Thailand as the Association of South-east Asian Nations Economic Community approaches its deadline at the end of 2015 for opening the region up to a freer flow of trade and services. Thailand is currently the second largest economy in the bloc, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
“Given the scale of Indonesia and the low cost of Vietnam, Thailand is potentially in the middle,” says Fraser Thompson, senior fellow at the McKinsey Global Institute. “If it doesn’t keep moving up towards more complex products it will eventually get squeezed out.”
Thailand’s Board of Investment (BoI) hopes to address that challenge with a package of incentives to be launched next year. The package was due to be launched in January 2014 but was delayed by the political crisis that culminated in the May 22 coup. One of the first steps taken by the then junta chief, now prime minister Prayut Chan-o-cha, was to take command of the BoI executive board. Between June and September, the board approved 603 project applications at the BoI worth Bt458bn ($14.1bn) that had been left in limbo by the lack of a functioning cabinet since December 2013. The BoI expects to approve new applications worth more than Bt700bn by the end of 2014, considerably less than the Bt1090bn-worth approved in 2013.
In 2015, the BoI is hoping to attract FDI to Thailand in new sectors. “We have opened new categories of businesses that are very important to the future of Thailand,” says BoI senior executive Ajarin Pattanapanchai.
The BoI, authorised to grant a maximum eight-year tax holiday to new projects, has already targeted value-added industries and R&D facilities for the past decade. “But we would like to do more,” says Ms Ajarin. “We conclude that no sector is low-tech. In textiles, for instance, there are functional textiles for fire-fighting. This is hi-tech. So we would like to promote more higher value, higher technology in every sector, for example, in nano-technology, biotech, bio-plastic, functioning fibre, organic foods, printing, electronics, medicine and advanced ceramics.”
Ms Ajarin notes that Thailand is not lacking in some of these technologies already, boasting a National Nanotechnology Center since 2003 and plenty of research centres in biotech and medicine at Thai universities.
But the BoI’s new tactic does raise the question of whether or not Thailand has sufficient human resources to supply a new wave of higher technology industries, given the country’s overall poor performance in the education field, blamed in part on the inherent weakness of the public sector after a decade of political unrest.
“What the instability has actually done is obstructed the improvement of policies that would enhance Thailand’s long-term competitiveness, such as the educational policy or infrastructure developments,” says Kirida Bhaopichitr, the World Bank's senior economist in Thailand. “Without long-term strategies it will be difficult for Thailand to move up the value-added chain and escape the middle income trap.”