“Overview of Business Climate in Thailand”
Mr. Winichai Chaemchaeng
Deputy Director-General, Department of Trade Negotiations
Ministry of Commerce
At the 17th Australia-Thailand Joint Business Conference
InterContinental Hotel, Bangkok
7 November 2007
Ladies and Gentlemen,
It is my great pleasure and honor to be here today at the 17th Australia-Thailand Joint Business Conference and to have an opportunity to deliver a keynote address to a distinguished audience of regional business leaders.
The topic of my presentation today is on the “Overview of Business Climate in Thailand” and I intend to touch upon current conditions of the Thai economy as well as Thailand’s trade and investment policies.
Current Conditions of the Thai Economy
Ladies and Gentlemen,
This year we have seen a number of incidents, both external and internal, that could potentially undermine the stability and growth of the Thai economy. Despite all odds, Thailand has been able to achieve a reasonable level of economic stability so far, with economic growth predicted at 4.0 to 4.5 percent for the whole year.
Exports remain a major force behind Thailand’s economic growth. In the first three quarters of this year, Thailand’s exports have surpassed 110 billion US dollars, a 16.1 percent increase from the same period of last year, while imports have amounted to 102 billion US dollars, a 6.4 percent increase. It might be worth noting that, in the first three quarters of this year, Thailand has been able to realize a trade surplus of 8 billion US dollars, compared to a trade deficit of 0.7 billion US dollars during the same period of last year.
This upsurge in Thai exports is due to favorable growth in many of Thailand’s main export markets, namely ASEAN, the European Union, and Japan, together with successful penetration of new export markets such as China, India, the Middle East, and Eastern Europe which has helped compensate for declining growth in the United States, the largest single export market for Thailand. It is very likely that Thai exports in 2007 will comfortably meet the target of 12.5 percent increase over exports of last year and that the year will end in trade surplus.
To sum up the structure of Thailand’s trade, our major exports comprise computers and parts, motor vehicles and parts, electronic integrated circuits, rubber, and plastic polymers, with major export destinations ranging from the United States, Japan, China, and Singapore. Whereas our major imports comprise crude oil, machinery and parts, chemicals, electronic circuit panels, and electrical machinery and parts, with major import sources being Japan, China, the United States, and Malaysia.
Apart from exports, other factors that have helped Thailand sustain economic stability and growth include:
· Low inflation – Inflation this year is expected to fall within a range of 1.5 to 2.5 percent, compared to the 4.7 percent inflation last year.
· Low interest rates – Policy rate has been adjusted to 3.25 percent, down from 5 percent last year, which encourages consumption and investment.
· Salary adjustment for government workers and state enterprise workers – A roughly 4 percent rise in salary for government workers and that for state enterprise workers have been approved in June and August respectively, which also have positive effect on consumption.
· Increased political certainty – The announcement of date of the general election of 23 December 2007 has reduced the degree of political uncertainty and in turn boosted confidence of both consumers and investors.
On the other hand, there also are factors, both external and internal, that could pose challenges to the continuing growth of the Thai economy, among others:
· Global economic slowdown – Incidents such as the United States’ recent trouble in the sub-prime markets can dampen the country’s growth prospects. As demand from a big importer like the United States falls, its trade partners around the world, possibly Thailand and Thailand’s other trade partners, will likely be experiencing adverse effects on their exports of goods and perhaps on some areas of services like tourism.
· Appreciation of the Baht – The Thai Baht has continued to appreciate against the US dollar, from 38 Baht per US dollar in 2006 to around 34 Baht per US dollar recently, which could be a concern for some exporters.
· Increased competition – Thailand will have to face intense competition from other countries such as Vietnam, China and India especially in the production of cheap goods.
· Volatility of oil price – The price of crude oil has been fluctuating greatly along an upward trend, which bounds to raise production costs and cost of living in general.
These positive and negative factors will continue to influence the performance of the Thai economy into next year, when Thailand’s economic growth is estimated at 4.5 to 6.0 percent, an improvement from current year, and inflation is expected to remain low. In addition to exports, Thailand’s economic growth next year will be driven by consumption and investment; that is, increased private consumption as well as increased public investment in infrastructure or the so-called “mega-projects”.
Ladies and Gentlemen,
Speaking of investment, this year investment is expected to grow by 1.5 percent, down from a growth of 4.0 percent last year, as investor confidence remains quite weak.
However, in the first three quarters of this year, investment promotion application to the Board of Investment of Thailand has increased which could be interpreted as a good sign that private investors have made preparation to invest in the near future.
Another positive sign is that the level of capital goods imports has adjusted upward, getting closer to the level of capital goods imports in the same period of last year.
To date, a number of Australian investors have been attracted by Thailand’s strong economic base and its relatively cheap labor, and have made their investment, for example, in the automotive and auto-component industries and logistics services. The Thailand-Australia Free Trade Agreement or TAFTA and AANZFTA to be concluded next year would help promote investment between Thailand and Australia as it lowers tariffs between the two countries as well as facilitates movement of goods and services as well as movement of skilled labor across the borders.
In the first three quarters of this year, Australian investors have submitted investment promotion applications for 16 projects valued at 944 million Baht, which is lower than last year’s figures. This could be due to political uncertainty and worries about certain trade and investment-related policies. So I would like to take this opportunity to discuss some aspects of Thailand’s trade and investment policies which would hopefully clear up some of the uncertainties around the issues.
Thailand’s Trade and Investment Policies
Ladies and Gentlemen,
Let me assure you that Thailand is pursuing free and fair trade regime and has every intention to welcome and encourage foreign investment.
The Ministry of Commerce has set out four policy objectives, that is:
· To build Thailand into a “Trading Nation”
· To cultivate more “Service Providers”
· To strengthen “Competitiveness”
· To lay groundwork for Thailand to become an “Investor-Country”
In order to achieve the said policy objectives, seven trade policy measures have been carefully crafted, namely:
1. Export-oriented, Business-driven Trade
· The Ministry of Commerce will continue to collaborate closely with the private sector in order to maintain and enhance the momentum of our export growth and to encourage creation of new exporters, especially small and medium-sized enterprises (SMEs).
· A focus will be placed upon improvement of supply chain management and logistics with an aim to reduce costs of production.
· In addition, outward investment in areas where Thai entrepreneurs are already competitive such as agriculture and agro-business will be supported.
2. Stability and Prosperity of the Agriculture Sector
· As agriculture has long been vital to the Thai economy, it is important to ensure that the sector is able to thrive within a fair and equitable environment.
· The Ministry of Commerce will set guidelines leading to agriculture price stability that is fair to producers, consumers, and the overall economy with least government intervention.
· Efficient distribution of agriculture produces will be further improved through better logistics system.
3. Consumer Welfare Protection
· Consumer welfare protection will be ensured primarily through close monitoring of commodity and consumer prices.
· Consumer groups networking and engagement will be encouraged. At the same time, the Ministry of Commerce will improve its channels to provide information on standards and products to consumers.
4. Development of Services Sector
· As services is important to the future of Thai economy, the Ministry of Commerce is working to develop and promote certain high potential service sectors, for example, tourism and travel related services including restaurants, health related services such as spas, international education services, and construction services.
· Support will also be given to services provided by small and medium-sized enterprises (SMEs) at local level, which would be beneficial for long-term development of rural areas and of the economy.
5. Trade Regulatory Reform
· The Ministry of Commerce has been working to revitalize and improve legal environment for doing business in Thailand as it is necessary that we have a strong and accountable legal framework in place.
· The Ministry has undertaken to review existing laws such as Competition Law and Foreign Business Act, and initiate new ones such as Retail and Wholesale Act.
· All these have taken place with full recognition of the role of foreign investment in the Thai economy as well as common business practices, with an aim to build a leveled playing field for all players, local and international, to ensure that Thai consumers will be the ultimate beneficiaries.
· Let me assure you that your legitimate concerns have been and will be taken into account in the law-making process.
6. Competitiveness Enhancement and Capacity Building
· The Ministry will step up its efforts in providing basic understanding on issues relating to trade, investment and the global economy to local and provincial communities, education institutions and consumers and producers’ associations.
· Attention will also be placed on other selected issues such as utilization of intellectual property rights protection and how it could help Thailand in the future.
7. Free and Fair Trade with Appropriate Safety Net
· The Ministry of commerce still adheres strongly to free and fair trade principle, and will continue to be active and supportive of trade liberalization at the multilateral and regional levels. Besides, we will continue to engage our trade partners in discussions at a bilateral level, including FTA negotiations.
· In carrying on these activities, we will ensure that there is sufficient public participation in the negotiation process.
· Last but not least, Liberalization Adjustment Fund has been established to assist businesses that find adjusting to meet trade liberalization difficult to implement.
Ladies and Gentlemen,
I now would like to touch briefly on the topic of Foreign Business Act as it is one of the biggest concerns in the mind of foreign investors, and misunderstanding on the issue has more or less affected decision to invest in Thailand in the past year.
First of all, the Foreign Business Act has been in place for a long time. The Ministry of Commerce has sought to amend the Act only to close existing loopholes and to do away with unclear interpretations. It is by no means our intention to impose any new restrictions. The amendment is to create transparency, good governance, law compliance, better enforcement and restatement of the basic thrusts of the existing law.
Thailand will honor our rights and obligations under international agreements – multilateral, regional and bilateral – the provisions of which will supersede the general provisions of the Foreign Business Act.
When the amendment comes into effect, the existing rights of investors will be either grandfathered or they will be given flexibility to adjust. Moreover, investments under BOI privilege promotion programs have been exempted from this law.
Ladies and Gentlemen,
I would like to end with a note of assurance that the Thai government is doing its best to restore confidence in our economy and to create a business climate in which Thailand, as a host country, and foreign investors can both feel comfortable.
Thank you for your kind attention.