BUSINESS ECONOMICS

CASE STUDY: THAILAND ECONOMIC SITUATION

AZDZHARULNIZZAM ALWI (PBS21101107)

ECO7101 BUSINESS ECONOMICS

PUTRA BUSINESS SCHOOL

12 NOVEMBER 2021
1. INTRODUCTION

THAILAND, with its population of 66 million, stands at the heart of the ASEAN Economic
Community, a 10-nation Southeast Asian common market of 660 million consumers. It has the
2nd largest economy in Southeast Asia, with a strong consumer base having a total buying
power of over US$246.11 billion. In addition to its excellent connections with the fast-growing
neighbouring CLMV (Cambodia, Laos, Myanmar and Vietnam) countries, the powerhouse
economies of nearby China and India are also easily reachable from Thailand by virtue of its
world-class infrastructure for air, land, sea and rail transportation. It also boasts excellent digital
connectivity, a highly skilled labour force and an excellent standard of living, making Thailand
an outstanding value when considering its overall cost-effectiveness. These factors, together
with the Thai government’s comprehensive policies and investment incentives, make Thailand
the preferred investment location in the region.
Thailand has been and continues to be one of the most successful countries in the region for
attracting Foreign Direct Investment (FDI), due to its numerous advantages for foreign
investors seeking to do business in Asia. It provides an attractive business climate that has
consistently received decades of support for private investment from successive Thai
governments, all of which have realized the important role of the private sector in creating and
maintaining Thailand's economic growth and prosperity along with its technological
development.

In particular, the Thailand government’s extremely positive stance toward foreign investors
mean that, unless the special incentives offered by the Board of Investment (BOI) are being
applied for, no prior government approval is necessary for making investments in Thailand,
and most sectors of the economy are open to foreign investors. Thailand continues to improve
its attractiveness for FDI through many government initiatives which seek to make the country
more accessible to those seeking to expand their presence in Asia while at the same time
reducing the amount of “red tape” required for beginning or expanding such business activities.
This has resulted in a steady improvement in the country's overall rankings as published by
independent observers, some of which are highlighted here.

Thailand's business-friendly environment consistently was the first and most important factor
of attractiveness indicators for the IMD's World Competitiveness Executive Opinion Survey.
The other factors listed as most favourable included a dynamic economy, open and positive
attitudes, a reliable infrastructure, and competitive costs. The Thailand capital, Bangkok city,
was ranked first for its affordable cost of living, high degree of English-language proficiency,
range of attractions, a wealth of world-class facilities, and numerous multinational corporate
offices. Two other Thai cities also made it into the global top ten, Chiang Mai in the north of
Thailand, and Phuket in the south.
2. THAILAND ECONOMIC OVERVIEW

Population (2020) 66.19 million

ASEAN Population 661 million

Literacy Rate (age 6 and over can read and write) 93%

Minimum Wage 313 - 336 Baht/day

GDP (2020) US$501.6 billion

GDP per Capita (2020) US$7,216.6

GDP Growth (2020) -6.1%

GDP Growth (2021, projected) 0.7% - 1.2%

Export Growth (2020) -6.5%

Export Growth (2021, projected) 16.3%

Trade Balance (2020) US$40.9 billion

Current Account Balance (2020) US$17.6 billion

International Reserves (2020) US$286.48 billion

Industrial Capacity Utilization (2020) 60.98%

Core Inflation (2020) 0.3

Headline Inflation (2020) -0.8

Consumer Price Index (Aug 2021) (2019=100) 99.63

Corporate Income Tax 10-20%

Withholding Tax 0-15%

Value Added Tax 7%

With a land area of 513,000 square kilometres, and a population of 66.56 million, Thailand's
GDP in 2019 was US$543.6 billion, with a GDP per capita of US$7,841.9, showing real GDP
growth of 2.4%. Consumer price inflation was a modest 0.7%, unemployment a low 1.0%, with
a labor force of 37.87 million (2019 data). Its current account balance was 7.0% of GDP, with
direct investment stocks inward exceeding US$222 billion, according to UNCTAD's 2019
World Investment Report. It was rated as the 26th best country overall in the 2020 edition of
the U.S. News & World Report's Best Countries report, which evaluated 73 countries based on
75 metrics such as quality of life, economic influence, power, education and eco-friendliness,
among others. Moreover, Thailand is ranked No. 1 on the US News & World Report’s chart of
the Best Countries to Start a Business 2020, among 73 participating countries across the globe.
Thailand has continued its top place on this report for the second consecutive year since 2019.

According to the World Economic Forum, Thailand's Global Competitive Index 4.0 ranking
improved to 38th place (out of 140 countries) in 2018, up from 40th place a year earlier, while
the World Bank Group's 2020 Ease of Doing Business report ranked Thailand 21st out of 190
countries, up to six places from the previous year. Among areas in this report which showed
the greatest improvement was a reduction in the number of steps required and amount of time
needed for obtaining construction permits, and the score for ease of shareholder suits that in
turn helped improve the ranking for protecting minority investors. Thailand's topical score for
getting electricity was an outstanding 98.7 (out of 100), which earned it 6th position in that
category.

In June 2021 Monetary Policy Report, the Thailand economy was projected to expand 1.8
percent in 2021 and 3.9 percent in 2022. Additional fiscal stimulus from the new Emergency
Decree, clearer plans for vaccine procurement and distribution, as well as strong merchandise
export growth on the back of trading partners’ economies would help the Thailand economy to
avoid a sharp slowdown.

Percentage Per Year 2020* 2021 2022

GDP Growth -6.1 1.8 3.9

Headline Inflation -0.8 1.2 1.2

Core Inflation 0.3 0.2 0.3

Note : *
https://www.bot.or.th/English/MonetaryPolicy/MonetPolicyComittee/MPR/Pages/default.aspx.
Source: Bank of Thailand

Year on year, Thailand's rankings have improved in many areas. Its trade surplus as a
percentage of GDP was ranked 28th globally, and its current account surplus earned it a 16th
place ranking. Its ranking was 14th largest for agricultural output, while Thailand's
manufacturing output was ranked 18th worldwide. It was ranked the world's 25th largest
exporter. Industrial output qualified Thailand for a 20th place ranking. Overall, Thailand's
economy was ranked 26th in size, and 27th for services output. Despite worldwide economic
headwinds, Thailand's economy has continued to move forward, with application requests for
new factory openings total to 2,889 units, creating new employment opportunities for almost
85,000 workers in 2019 according to the Industry Ministry.
Thailand is one of the top 3 export bases in ASEAN, but like most countries, has suffered from
the continuing effects of the Covid-19 crisis, which has impacted both imports and exports
negatively. According to the Commerce Ministry, in 2020 Thai exports contracted 6.6% to
US$226.7 billion, which was nonetheless good than the previously forecasted decline of over
7%. In 2020, imports fell by 13.5% to US$186.9 billion. Thailand's top 5 export categories in
2020 were motor cars, parts and accessories, automatic data processing machines, precious
stones and jewellery, rubber products, and polymers of ethylene, propylene, etc. As of Jan
2021, Thailand's top 10 major trading partners in order from largest to smallest were China,
Japan, USA, Malaysia, Vietnam, Australia, Indonesia, Singapore, South Korea and India.

Thailand is well-connected to the fast-growing CLMV sub-region by excellent transportation

infrastructure, including rail, road, water and airways. Businesses based in Thailand have
access to a domestic market of 69 million people, with 52 million middle-class consumers.
Additionally, the CLMV region includes 242 million consumers located within 1,000
kilometres, ASEAN provides 660 million consumers all within 3,000 kilometres, while all of
Asia within 5,000 kilometres includes 4.6 billion consumers. Ongoing national investment in
and rapid development of Thailand’s logistics systems are helping to integrate the country’s
transportation system with those of other emerging economies. This brings vast opportunities
for cross-border trade and investment, making Thailand an ideal investment destination.
Thailand offers the rewards of almost tariff-free trade with 18 different nations, including major
global economies such as Australia, China, New Zealand and South Korea, as well as the
ASEAN community. Thailand has signed 13 FTAs, not including the Regional Comprehensive
Economic Partnership (RCEP) that is targeted for ratification in 2021 and is expected to cover
roughly one-third of global GDP.

3. ECONOMIC IMPACT OF COVID-19 ON THAILAND

Thailand’s economy in 2020 is expected to contract by -6.5 percent in 2020 while the economy
is projected to expand by 2.8 percent in 2021, down from the previous projection, mainly due
to the new epidemic of the COVID-19 in many countries. However, the government stimulus
measure would continue to play an important role in sustaining the economy amid
uncertainties.

Inspector General of the Ministry of Finance, Acting Director-General of the Fiscal Policy
Office and Spokesperson of the Ministry of Finance, (Ms. Kulaya Tantitemit) stated that the
Thailand economy is expected to contract by -6.5 percent in 2020 (within the range of -6.8to -
6.3 percent), which would be a smaller contraction than the previous forecast at -7.7percent as
of October 2020.
This recovery primarily stems from effective controls on the spread of the COVID-19 together
with relief measures and stimulus packages by the government which eventually resulted in the
continuity of the economic recovery in the second half of 2020. It is expected that private
consumption and private investment would contract by -0.9 percent (within the range of -1.2
to -0.7 percent) and -8.9 percent (within the range of -9.2 to -8.7 percent), respectively.

These two components improved from the previous forecast, which stood at -3.0 percent and -
9.8 percent, respectively. In addition, the value of Thai merchandise exports in 2020 would
show a gradual improvement by -6.6 percent (within the range of –6.8 to -6.3 percent), better
than the previous projection, which was at -7.8 percent.

Thailand economy in 2021, the Ministry of Finance expects the economy to expand by 2.8
percent (within the range of 2.3 to 3.3 percent), lower than previously assessed, mainly due to
the emergence of the new epidemic of the COVID-19 in many countries, including Thailand.
Consequently, this could affect Thailand’s economic activities, international arrivals, and
limited admission to Thailand, causing a significant decline in the number of foreign tourists.

However, effective COVID-19 vaccines coupled with extensive vaccination coverage, ongoing
fiscal measures, including Half-half Scheme, and additional financial measures by Specialised
Financial Institutions (SFIs) as well as the continuation of the remaining disbursement on the
Emergency Decree Authorizing the Ministry of Finance to Raise Loans to Solve Problems, to
Remedy and Restore the Economy and Society as Affected by the Coronavirus Disease
Pandemic, B.E. 2563 (2020) of 1 Trillion Baht would be the key driver to mitigate adverse
impacts on the economy going forward.

This government’s implemented measures would support private consumption and maintain
the level of employment in labour markets in the period ahead. Accordingly, private
consumption and private investment are projected to grow up by 2.5 percent (within the range
of 2.0 to 3.0 percent) and 3.4 percent (within the range of 2.9 to 3.9 percent), respectively. With
regard to public sectors, public consumption would grow by 6.1 percent (within the range of
5.6 to 6.6 percent) while public investment would remain high at 12.1 percent (within the range
of 11.6 to 12.6 percent). Meanwhile, the value of Thai merchandise exports is expected to pick
up at 6.2 percent (within the range of 5.7 to 6.7 percent) in line with the outlook of the main
trading partners’ economies. For internal stability, headline inflation in 2021 is projected to
turn positive at 1.3 percent (within the range of 0.8 to 1.8 percent) owing to a gradual rise in
crude oil prices and a significant recovery in domestic demand.

The Thailand economy in 2021 would gradually recover in tandem with the recovery of global
economic activities, supported by the efficacy and distribution of the COVID-19 vaccine and
stimulus packages in many countries. Nevertheless, the economic recovery would remain
highly uncertain and depend on: -

1. effective controls of the 2019 COVID outbreak,

2. vaccine efficacy and vaccination coverage in many countries, and

3. uncertain economic policies in advanced economies and greater vulnerabilities in the

global financial system.

4. SECTOR THAT CAN REVIVE THE ECONOMY OF THAILAND

Competitive Business Costs

Prime office space in Bangkok, Thailand’s capital, is an outstanding value. As compared to

other leading cities in the region, Bangkok is nearly half of the cost of Ho Chi Minh City, only
40% of the cost of Seoul and Singapore, and a quarter of the cost of New Delhi, Tokyo and
Beijing. Wages are also quite reasonable for such a highly trained and educated workforce. As
wages across the ASEAN region rise due to economic growth, the wage inflation rate in
Thailand is among the lowest in the ASEAN region.

In addition to capital infrastructure, the Thai government is committed to capacity building in

human resource development, especially in Science, Technology, Engineering and
Mathematics (STEM) education as part of its comprehensive strategy to become a regional
leader in ASEAN. Thailand’s Ministry of Education partnered with the Southeast Asian
Ministers of Education Organization (SEAMEO) to host the first two SEAMEO regional
centres for STEM education and for Sufficiency Economy Philosophy for Sustainability.

As well, the government has designed a wide range of vocational education programs,
including Dual Vocational Education and Training, Cooperative Education, Work-Integrated
Learning (WiL) and Talent Mobility (TM), to ensure that Thailand workforce has the right
skills and is able to meet the requirements of future jobs, especially in emerging technologies
such as robotics, automation and AI.

The Second Home Of International Companies

As a regional economic centre, with all its numerous advantages, it should come as no surprise
that Thailand has become the second home for numerous global MNEs, and a supply chain hub
for major industries. These foreign investment activities have been enabled by streamlining
government legislation, a growing domestic market, and access to resources such as finance
and technical knowledge.

Digital Infrastructure Development

The government of Thailand has been emphasizing its digital development for a number of
years through its focus on the Thailand 4.0 economic model, which seeks to move the country
past previous economic development models which focused on agriculture, light industry and
advanced industry. It seeks to transform Thailand into a “value-based” digital economy.

The four main objectives of Thailand 4.0 are economic prosperity, social well-being, raising
human values and protecting the environment. In the case of digital infrastructure, this has
translated into major advances in technology, particularly in support of smartphones and
broadband connectivity. Thailand has invested Baht 15 billion to launch a country-wide village
broadband network to provide affordable high-speed internet to over 25,000 villages across
Thailand.

Another major development project is the Digital Park Thailand, which is located on 284 acres
in Chonburi province, on the country's eastern seaboard coast. The park supports economic
development by facilitating access to the submarine cable system, landing station and data
centre. Thailand is also connected directly to the AAE-1 (Asia-Africa-Europe 1) submarine
cable, which recently upgraded its cable to use state-of-the-art 200 Gbps transmission
technology for connecting Europe, the Middle-East, India and on to Hong Kong.

Additionally, the National Science and Technology Development Agency (NSTDA) has
established the Software Park Thailand in Nonthaburi to support and strengthen Thailand's
software entrepreneurs’ competitiveness by promoting technology transfers, providing courses
for the training of IT professionals, supporting local and international collaborations, and
providing office facilities and rooms for conferences, meeting and training for software
companies.

The Eastern Economic Corridor (EEC)

Building on the success of the Eastern Seaboard, the Thai government is presently developing
the Eastern Economic Corridor (EEC), a flagship megaproject that aims to become the
ASEAN-leading economic zone for industrial, infrastructure, and urban development.
Spanning over 13,000 sq.km. across the three provinces of Chonburi, Rayong, and
Chachoengsao, the EEC has designated areas including the Eastern Airport City (EECa), the
Eastern Economic Corridor of Innovation (EECi), Digital Park Thailand (EECd), Thammasat
Integrated Medical Innovation Centre (Pattaya) (EECmd), and additional promoted industrial
estates/industrial zones.

During the first five years, approximately US$ 50 billion of combined public and private
investment projects are expected in the EEC. To further support innovation-led business within
the EEC, the investment environment features numerous tax and non-tax incentives.