Five Forces That Will Shape Thailand In The Next Five Years

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GURU SPEAK

Five forces that will shape Thailand in the next five years

By Piyasak Manason

Turn on any news channel these days, and you may not find it easy to sleep peacefully at night. Deepening crisis in the Middle East and North Africa (MENA), high and rising global oil and food prices, mob rule, and political protests: the news can quickly kill any positive thinking.

But if you turn your gaze from the near-term political and economic picture for a moment, and instead focus on the horizon, emerging into view are five forces that will shape Thailand's socio-economic perspective in the next five years. Not to be confused with Porter's five forces (a framework for business and industrial analysis), Thailand's five socio-economic forces are:

1. The global economy

2. High commodity prices

3. Increasing competition

4. Lowering competitiveness

5. Geopolitical factors

The actions of the first force, the global economy, are quite easy to foresee. One does not need a crystal ball - or sophisticated economic model, for that matter - to have a clear picture of what lies ahead.

Three current factors, especially relating to the so-called developed world, give a strong indication of the future global economic perspective: a) the deteriorating fiscal position due to high public debt in industrial nations, b ) the persistently high commodity prices, and c) the ageing population - the result of effective birth control and medical advances.

The combination of these factors will lead to lower productivity growth and stagnant economies in the developed world. As a result, consumption will fall, which will lead to lower demand for imports from Thailand. Hence, Thailand's dependence on exports as a source of growth will be hit, whether we like it or not.

The second force, high commodity prices, is no passing trend but instead a permanent feature. The lack of infrastructure and technology to increase supply in the near term, combined with the risk of supply disruption (especially from natural disasters), and the rising demand in the emerging market will inevitably put pressure on the price of a whole range of goods - from "hard" commodities such as oil, steel and iron ore, to "soft" commodities such as rice, wheat and cotton, to name but a few.

This will unavoidably lead to higher inflation, which will in turn lower the purchasing power and quality of life for ordinary people, especially the urban poor. Arguably, the net impact of rising food prices to Thailand is hard to quantify, since we are a "food surplus" country (or net exporter of food). However, our lack of a public policy to increase productivity means that our agricultural sector is still at the mercy of Mother Nature.

The third force - increasing competition and a harsher business environment - is partially caused by the trend of trade openness, which will accelerate in 2015, when Thailand becomes part of the newly established Asian Economic Community (AEC).

The creation of the AEC will change Thailand's business environment in several ways. For example, it will bring a higher degree of competition from foreign businesses in the service sector - especially in industries such as legal consultation, packaging, food retailing, and hotel/resorts.

Moreover, we might face the problem of a "brain-drain", with neighbouring countries already offering much higher compensation to accountants, legal consultants and medical personnel. As a result, Thai entrepreneurs may have to boost pay structures for this high-skilled sector, which will inevitably lead to higher wages and costs.

The forth force is lowering and declining competitiveness due to the lack of public investment for infrastructure. The evidence of this lack includes our percentage of total investment to GDP, which is as low as 20 per cent - well below those of Asia's rising stars China, Vietnam and India, where it ranges from 30-40 per cent. Thailand also lags far behind China, South Korea and Malaysia in the World Bank's performance index and its ratio of R&D expenditure to total GDP. As we all know, investment in infrastructure and R&D are the seeds of sustainable growth. The lack of such seeds, whether due to political instability or absence of policy continuity, will drag our country's competitiveness down in the long run.

The last force, the geopolitical factor, can be regarded as a wild card. Foreign political unrest in the MENA region, the situation in the Korean peninsular, and the risk of international terrorism, are key factors that will effect investors' perception, financial assets and commodity prices. On top of that, the political instability still at play after the crackdown in Thailand will play a major role in shaping the domestic political scene in the near future.

These five forces are the major factors that will shape Thailand in the next five years. Businessmen, entrepreneurs and policymakers alike will need to keep these forces in mind when planning and taking decisions.

Piyasak Manason is vice president for research and planning at Kiatnakin Bank.

-- The Nation 2011-03-10

[Bobr]

Strange that he mentions geopolitical factors but completely evades the issues of internal politics. If Thailand's internal problems grow worse, and especially if there are anything like the riots in Bangkok or the airport closure in the future, that would be the greatest impediment to economic investment and development.

[exbelg]

indeed, unstable politics in this country is left out ???

reds vs yellow

the have nots vs the one percent of elite who ownes 99% of everything in this country ?

[whybother]

indeed, unstable politics in this country is left out ???

reds vs yellow

the have nots vs the one percent of elite who ownes 99% of everything in this country ?

Don't forget the majority of the country that doesn't support either of them.

[Orac]

"The actions of the first force, the global economy, are quite easy to foresee. One does not need a crystal ball - or sophisticated economic model, for that matter - to have a clear picture of what lies ahead."

Nice to know that someone knows what is going to happen here!

[Thai at Heart]

Strange that he mentions geopolitical factors but completely evades the issues of internal politics. If Thailand's internal problems grow worse, and especially if there are anything like the riots in Bangkok or the airport closure in the future, that would be the greatest impediment to economic investment and development.

Unstable politics has been the norm here for 70 years. The more it changes, the more it stays the same.

[blazes]

indeed, unstable politics in this country is left out ???

reds vs yellow

the have nots vs the one percent of elite who ownes 99% of everything in this country ?

Yes, this is spot on.

There are parallels between the Bkk elite and what is going on in MENA, where all those "dictators" have been in power, protected from reality, for so long that they genuinely are unaware that there is a problem "down below".

Well, at least in Thailand we have the semblance of democracy and a few Red shirts prepared to sacrifice their lives to keep drawing the elite's attention to the absolute poverty that exists in this country.

The wages here (compared to Korea, Japan etc) are shameful.

If the Thai government does not swiftly move to raise the minimum wage and ensure the rule of law, root out corruption, this and this alone will be the Problem that Thailand will have to face in the next five years.

[Finlaco]

I've lived in BKK for three years and occasionally read the BKK Post. Never really enjoyed the Nation cos of the type face. The regular Nation postings on TV, really show how poor the level of journalism is, in Thailand. Another poor article. We're all entitled to our opinions, but the No1 factors has to be internal politics, red shirts, yellow shirts and the south and the passing of the old guard.

[humqdpf]

I find much to disagree with in this article.

Thailand's economy is a lot more robust than people think. Why has the Thai currency been consistently strengthening over the past few years? Especially when these years were ones of political turmoil, conflict in the south, closed airports, riots etc etc. Add in the feature that Thailand has some strict laws about foreign direct investment and it really makes you wonder.

What we have to learn is that Thailand's economy does not rely on the primary sectors of tourism or agriculture alone. The key to value added in Thailand is manufacturing. Again, this is not the sort of manufacturing usually found in Vietnam but involves instead high value-added manufacturing of sophisticated components.

Place into the mix that Thailand has low wages and salaries, especially in the case of highly skilled personnel. Yes, neighboring countries have low paid professionals but they do not have the skill-set of the Thais.

The writer of the article appears to think that Thai exports are solely dependent on demand in Western countries, which the writer claims will slow down due to structural factors. In fact, the writer confuses The Global Economy for Western Economies. But Thailand exports all over the world, including to its neighbors. As its neighbors grow, so will Thailand's exports to those economies grow. Growth in Asia is frequently underestimated by many commentators - where will the growth in aviation come in the future? In Asia. Where will the growth of automobile and white goods come in the future? In Asia. The fact that this growth is starting from a very low level should not bother us - it is still growth

Everyone will face high commodity prices in the future - that is a given. It will affect all countries who do not have their own resources equally through inflation. Thailand has some oil but this will not be enough to radically insulate Thailand. Since most of its competitors will also face the same problems with respect to high commodity prices, this will be a level playing field.

The fact about food production is that we are always at the mercy of Mother Nature. While Thailand can take measures to mitigate the effect of climate change, there is very little that Thailand can do to reduce final prices in agriculture through productivity in the face of rising commodity prices, especially oil. Increased output or value added through productivity invariably requires the use of oil - the fact remains that leaving aside the temporary use of Burmese labor in farms and agribusinesses, getting more food out of the same piece of ground requires increased mechanization and that invariably requires oil.

I am not sure that Thailand will be knocked off its exporting perch by the arrival of the AEC. Competition to sell exports is already tough - Thailand currently competes with the Chinese in the export markets. Why the AEC would create a harsher business climate does not follow through. The writer would have to spell this out for us.

The brain-drain argument does not make sense. Thai professionals tend not to want to work abroad, preferring to keep in with their family and other networks at home. Study abroad? Yes. But Thai middle class professions get lonely abroad when they are separated from their networks and circle of friends. Only the non-professionals end up in countries such as in the Middle East. There is much more brain-drain from Western countries and that does not seem to affect those economies.

The fourth issue which the writer describes as "lowering competitiveness" goes some way to describing where Thailand is going. Yes, Thailand does not invest in infrastructure enough. However, its infrastructure is not terrible. WHile Vietnam, China and India are investing far higher amounts in highways and the like, it must be remembered that Thailand's infrastructure is far ahead of Vietnam and India. Yes, Bangkok should have a fully integrated public transport system with prices within the reach of the majority - the current rail system is too small, too expensive and not integrated enough. But this does not have a huge effect on the GNP of Thailand.

Thailand likes to take a slower road to development. There is too much rigidity in its class system - look at how some Vietnamese people can go from rags to riches in a generation whereas the class system only seems to be upset in Thailand by foreigners marrying Thais and thereby allowing a local girl to build a house larger than that of the local doctor. But this class rigidity has an economic effect - if you become a doctor because your dad is a doctor and can therefore gets you access to medical education and a job, that means that those with the best aptitudes do not necessarily get the highest positions. Nepotism and cronyism are two significant features that tend to lower economic growth. And to this extent, the writer has some purchase in his argument.

But the fact that Thailand likes to take the slower road to development does not mean that Thailand will be swamped by other countries in Asia. Yes, Vietnam will eventually reach a higher GNP than Thailand - I said eventually and we must remember that by then Vietnam will probably have twice the population of Thailand. But even when that happens, this will not mean that Thailand will be uncompetitive or will be swamped by the larger population of Vietnam. In fact, it will probably benefit from the rising of the neighboring economies. If anything, that is something that Thailand should try to break through - the SE Asian curse whereby each SE Asian country knows much more about the USA than about its immediate neighbors.

Thailand will not be unaffected by the global and regional storms ahead. But we must remember that those storms do not have only Thailand's name on them. All countries will have to weather those storms. What is remarkable about Thailand is its ability to weather the storms - remember the Asian crisis, SARS, Bird Flu. Not to mention all the coup, Bangkok riots, closed airports, insurgency in the South, political problems etc. There is clearly much more to the Thai economy than meets the eye.

Incidentally, I am not Thai. Nor am I a complete fan of Thailand. I too have a lot of difficulties with Thailand in many respects, including aspects of its immigration policy, the fact that it has not signed up for UNHCR conventions, corruption especially among the police, the way it treats foreign direct investment, to name just a few. But lets not fool ourselves - the Thai economy is a lot more robust than its critics like to think it is.

[whybother]

Yes, this is spot on.

There are parallels between the Bkk elite and what is going on in MENA, where all those "dictators" have been in power, protected from reality, for so long that they genuinely are unaware that there is a problem "down below".

Well, at least in Thailand we have the semblance of democracy and a few Red shirts prepared to sacrifice their lives to keep drawing the elite's attention to the absolute poverty that exists in this country.

The wages here (compared to Korea, Japan etc) are shameful.

If the Thai government does not swiftly move to raise the minimum wage and ensure the rule of law, root out corruption, this and this alone will be the Problem that Thailand will have to face in the next five years.

"The wages here (compared to Korea, Japan etc) are shameful."

If the wages in Thailand matched Korea and Japan, the cost of living would sky rocket, food prices would go through the roof, most manufacturing companies would leave the country and all of the service companies supporting them would go broke.

Wages do have to rise, but matching Korea or Japan is not something that can be done over night (or probably not in 5 years) and it has to be matched by productivity increases.

[blazes]

Another problem not covered?

"Farmers living in the same district have been fighting over water supply, and in many cases they have pointed guns at one another. We are gathered today to seek solutions before things get worse," he said.

The farmers in the upriver areas demand that water, at the rate of 8 cubic metres per second, be released to areas between Canals 1 and 8 for 15 days and that one of the irrigation chiefs get transferred.

[jimbeam1]

"The actions of the first force, the global economy, are quite easy to foresee. One does not need a crystal ball - or sophisticated economic model, for that matter - to have a clear picture of what lies ahead."

Nice to know that someone knows what is going to happen here!

It's written in the stars.

jb1

[ozzieovaseas]

"Moreover, we might face the problem of a "brain-drain", with neighbouring countries already offering much higher compensation to accountants, legal consultants and medical personnel. As a result, Thai entrepreneurs may have to boost pay structures for this high-skilled sector, which will inevitably lead to higher wages and costs."

WELL..at least thai citizens ARE ALLOWED the option of being able to work and/or be citizens in foriegn countries

If all these so called "brains" leave Thailand for greener pastures, then som num na...maybe then the country will be forced into improovement by default.. by way of having to employ other nationalities, instead of sticking to protectionist policies.

But no...Thai citizens will continue to enjoy the freedom of looking for better paying work in neighbouring countries, sending money back to thailand while Thailand keeps its descriminatory policies not allowing forigners to do jobs that a Thai can do in Thailand.

Maybe these neighbouring countries should follow the example and ban Thai citizens from working in their own countries, until some changes are made and Thailand comes into the table with some 21st century level playing field thinking. And not just in labour laws, but all over the board.

I can just imagine the uproar, if in Australia, the foriegn spouses of Aussie citizens had to report like criminals to immigration every three months.

It will be interesting to see whether any Thai laws will have to be ammended in order for them to become part of the AEC in 2015.

I wonder, will the (very) slight shift in thinking that Abbhisits government insinuates be enough to make them realise they can't continue to have everything their own way, as they have done allthroughout history?

[thailandadam]

Socio-economically, it seems that, like in most parts of the world, Thailand will experience an increasing squeeze of the middle class, with the dominant owning class ruling the working class...

[whybother]

"Moreover, we might face the problem of a "brain-drain", with neighbouring countries already offering much higher compensation to accountants, legal consultants and medical personnel. As a result, Thai entrepreneurs may have to boost pay structures for this high-skilled sector, which will inevitably lead to higher wages and costs."

WELL..at least thai citizens ARE ALLOWED the option of being able to work and/or be citizens in foriegn countries

If all these so called "brains" leave Thailand for greener pastures, then som num na...maybe then the country will be forced into improovement by default.. by way of having to employ other nationalities, instead of sticking to protectionist policies.

But no...Thai citizens will continue to enjoy the freedom of looking for better paying work in neighbouring countries, sending money back to thailand while Thailand keeps its descriminatory policies not allowing forigners to do jobs that a Thai can do in Thailand.

Maybe these neighbouring countries should follow the example and ban Thai citizens from working in their own countries, until some changes are made and Thailand comes into the table with some 21st century level playing field thinking. And not just in labour laws, but all over the board.

I can just imagine the uproar, if in Australia, the foriegn spouses of Aussie citizens had to report like criminals to immigration every three months.

It will be interesting to see whether any Thai laws will have to be ammended in order for them to become part of the AEC in 2015.

I wonder, will the (very) slight shift in thinking that Abbhisits government insinuates be enough to make them realise they can't continue to have everything their own way, as they have done allthroughout history?

"WELL..at least thai citizens ARE ALLOWED the option of being able to work and/or be citizens in foriegn countries"

Do you mean that foreign citizens are not allowed work in Thailand???? When will they be kicking me out?

[chainarong]

Add a Sixth: People power. That will cause afew stomach upsets.

[metisdead]

Speculation, comments and discussion of either a political or personal nature are not allowed when discussing HM The King or the Royal family.

Even veiled speculation is not allowed. Posts have been removed.

[atsiii]

I agree there are many challenges facing Thailand, several of which are identified in the article. But I would suggest that the pervasive systemic corruption that now exists at all levels is another force to be dealt with--and one that is shaping Thailand's future today in many undesirable ways.

[geriatrickid]

Another problem not covered?

"Farmers living in the same district have been fighting over water supply, and in many cases they have pointed guns at one another. We are gathered today to seek solutions before things get worse," he said.

The farmers in the upriver areas demand that water, at the rate of 8 cubic metres per second, be released to areas between Canals 1 and 8 for 15 days and that one of the irrigation chiefs get transferred.

http://www.thaivisa....tle-over-water/

Glad someone realizes that it is water that has a big influence. Add in energy supplies and the future is grim for Thailand. Thailand is incapable of energy self sufficiency and all it will take is a few more spikes in oil prices to see the deforestation of Thailand go into high gear as drought and cutting of forests for fuel supply destroys Thailand's land.Look at Haiti to understand the impact.

[dananderson]

Mr.Manason states "that we might face the possibility of a "brain drain"." Given the lack of quality education available, I just don't see that happening.

[Hawaiian]

Another problem not covered?

"Farmers living in the same district have been fighting over water supply, and in many cases they have pointed guns at one another. We are gathered today to seek solutions before things get worse," he said.

The farmers in the upriver areas demand that water, at the rate of 8 cubic metres per second, be released to areas between Canals 1 and 8 for 15 days and that one of the irrigation chiefs get transferred.

http://www.thaivisa....tle-over-water/

Glad someone realizes that it is water that has a big influence. Add in energy supplies and the future is grim for Thailand. Thailand is incapable of energy self sufficiency and all it will take is a few more spikes in oil prices to see the deforestation of Thailand go into high gear as drought and cutting of forests for fuel supply destroys Thailand's land.Look at Haiti to understand the impact.

You hit the nail on the head. There is no substitute for water. Every year Thais complain about drought. There is no shortage of water, just poor management of water resources. What's going to happen when China brings the Mekong to a trickle and deforestation causes a drastic reduction in rainfall? Not a pleasant thought.