Restructuring the economy the only way forwards, experts say

Compared to its neighbours, the Thai economy has grown at a slower pace in recent times, well below its potential, analysts say. In the first quarter of 2024, it grew by 1.5% year-on-year, while in 2023, it expanded by just 1.9%.

This is not only a result of the global economic conditions but also due to the country's production structure, which has led to a decline in the competitiveness of Thai-produced goods on the global market, causing decreased exports and impacting overall GDP growth. Efforts have been made to target specific industries and promote the Eastern Economic Corridor (EEC) to attract investment but have yet to show palpable results.

Exports are a crucial driver of the Thai economy, but competition with regional rivals has become more challenging. In the first four months of 2024, the value of Thailand's exports was $94.274 billion, compared to Vietnam's $123.928 billion and Malaysia's $100.836 billion. This reflects Thailand's inability to compete effectively within the region.

Additionally, foreign direct investment (FDI) has been relatively low. The National Economic and Social Development Council (NESDC) reported that Thailand's FDI is significantly lower than that of many other countries. In 2023, Indonesia's FDI net flow was $21.701 billion, Malaysia's was $18.500 billion, Vietnam's was $8.255 billion, and Thailand's was only $2.969 billion.

Prime Minister Srettha Thavisin has repeatedly stated that the Thai economy is facing several challenges, including weakened purchasing power, vulnerability among the grassroots population, climate change and structural issues such as an ageing society, competitiveness, household debt, and non-performing loans. Most of these issues require structural adjustments and fundamental economic reforms, which the government is currently undertaking. However, discussions are necessary to expedite these reforms.

Sakkapop Panyanukul, senior director of the Financial Markets Department at the Bank of Thailand (BOT), remarked that one of the reasons that the Thai economy is growing at a slower rate relates to structural problems. Given the low economic growth, various aspects need to be adjusted. Measures that facilitate structural adjustments and increase productivity in Thailand are essential, he stressed. The issue of access to credit, especially for vulnerable groups and SMEs, is a significant topic of discussion for the Monetary Policy Committee (MPC).

Nonarit Bisonyabut, a senior researcher at the Thailand Development Research Institute (TDRI), agrees, saying that this restructuring must align with global megatrends.

In addition to the production sector, which should meet the demand for globally trending goods and services such as the silver economy (catering to an ageing society), greater emphasis must also be placed on the green economy, clean energy, and sustainable tourism.

“The restructuring of the Thai economy must develop to meet global demands. It should involve Thai participation in businesses that produce goods, manufacture components, provide skilled labour, and engage in research and development related to these areas. Fundamentally, the aim should be to promote widespread involvement, not just limited to a few major capitalists,” he said.

Thailand has plans in place in this regard, but implementation has not yet reached the desired level. For example, the soft power policy is a good idea, but it may ultimately not reach the broader population who would benefit from it.

As for the restructuring of the economy, using investment attraction measures can support the restructuring process but given the intense competition among countries, the Board of Investment (BOI) must evaluate and improve its strategies,

Kriangkrai Thiennukul, president of the Federation of Thai Industries (FTI), stated that the traditional drivers of the economy, such as exports, are facing issues with declining popularity of products and the relocation of high-value manufacturing, such as electronics, away from Thailand.

"The FTI has a clear direction that industrial restructuring should align with global trends to strengthen the Thai economy by promoting 12 industries within the S-Curve & New S-Curve framework," said Kriangkrai.

Additionally, the FTI is restructuring the so-called “First Industries “to enhance competitiveness through four key changes:

-       Transitioning from Original Equipment Manufacturing (OEM), which is seen as producing outdated and less desirable products, to Original Design Manufacturing (ODM) and Original Brand Manufacturing (OBM);

-        Shifting from labour-intensive methods to the use of digital technology, machinery, and automation systems;

-        Moving from profit-focused production to production that also emphasises environmental sustainability; and

-        Upgrading from unskilled labour to high-skilled labour.

“This restructuring aims to help Thai entrepreneurs adapt and remain competitive in the long term, aligning with global trends. Countries with advanced technology seek clean energy sources for their manufacturing bases. Thailand can attract such investments by offering non-polluting industries like electric vehicles (EVs), chip manufacturing, and semiconductors,” Kriangkrai added.

Tim Leelahaphan, assistant managing director for Economics in Thailand and Vietnam at Standard Chartered Bank , stated that restructuring the Thai economy will take time due to its long-term nature, addressing issues such as enhancing competitiveness and resolving problems related to an ageing society. However, he also emphasised the need for short-term economic stimulation.