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China-ASEAN Free Trade Area Quarterly Report (Q1-6)

Post Time:2014-08-25 11:08:00

Thailand Special Manuscript

Thailand is poised to become regional hub for ASEAN

By Economic Intelligence Center, Siam Commercial Bank

As the largest economy in Greater Mekong Sub-region and the second-largest in Southeast Asia, Thailand offers immense opportunities to investors aiming to capitalize on its strategic setting between the South China Sea and the Indian Ocean, a highly-literate labor force greatly familiar with advanced technology, and a market of 65 million population with growing purchasing power.

The market integration of 10 Southeast Asian economies in the form of the ASEAN Economic Community (AEC), set to formally begin on the eve of 2016, will enhance Thailand’s competitive edge dramatically. Businesses in Thailand can further leverage its direct land access to four of the fastest-growing markets, a much larger talent-pool, and efficient logistical linkage to the region’s population of 600 million and millions more further afield.

Sound macro fundamental and stability. Thailand is an economy with a high degree of openness given its size. Merchandise exports and international tourism together account for as much as 75% of the country’s output, and in 2013 foreign direct investment, most of which enjoys competitive tax benefits, reached USD 13 billion or 15% of total private investment. The economy is adequately backed by a strong foreign reserve position (the equivalent of 8 months of imports) and relatively low and stable inflation. The openness of the economy and financial stability allow Thailand to be at the forefront in benefiting from global demand recovery while being immune from any abrupt shock in the international financial market should it occur.

Thailand has weathered several crises in the past and proved itself to be a resilient economy. The economy has doubled in size since the 1997 Asian financial crisis, thanks to a series of restructuring efforts by the private sector and successive governments. The Great Flood in late 2011 caused great damage to several production facilities, but it also provided an opportunity for the manufacturing sector, which accounts for one-third of the economy, to replace or upgrade machinery and technology in order to enhance productivity in the face of increasing wages – a phenomenon seen not only in Thailand but also in almost all countries in the region. The efficiency boost and the continuing growth in high value-added industries are now Thailand’s new engines of growth.

Auto industry leading the way. Thailand has the potential to develop various industries to become an ASEAN production hub. Notably among this group is the automotive and parts industry. At present, Thailand is ASEAN’s largest car manufacturer and one of the Worlds' top 10 automotive manufacturers. Thailand aims to increase auto production to 3 million units by 2017, which translates into a 5-percent increase in production per year. The target is realistic and achievable, as Thailand possesses a strong supply chain that extends throughout the value chain. Some 90% of auto parts used in light commercial truck assembly are sourced locally. In addition to the readiness of the supply chain, Thailand’s automotive industry also has strong demand growth potential from ASEAN’s low car penetration rate. The Thailand Automotive Institute has prepared to support future demand by developing labor skills for 300,000 workers during 2011-2016 and will join hands with universities to launch automotive engineering programs. Furthermore, auto producers are also exercising internal adjustments by, for example, intensifying the use of technology in the manufacturing process, focusing on developing standards, and conducting R&D on new products.

Thailand the World's Kitchen. Thailand also has a competitive edge in the agricultural processing and food industries, as Thailand is one of the top 5 net food exporters in the world, and highly equipped with raw materials, production technologies, quality, and food safety standards. Thailand is currently in the process of developing the “Thailand Food Valley”, which will fully integrate the value chain: from raw materials and manufacturers to research institutes. This development focuses on adding value to products, in addition to marketing and brand creation, with emphasis on products where Thailand has high development potential, such as rice, meat, fruits, and vegetables. The success of the project will help Thailand enhance the country’s competitiveness in the food cluster and will strongly position itself as the “The World's Kitchen”.

Booming healthcare and beauty trend. Thailand’s development potential for new wave industries that match global trends, such as an aging society, wellness, and the environment, should be highlighted, as these developments could differentiate Thailand from its ASEAN peers. Businesses that are on top of the list are healthcare services, in which Thailand has a recognized advantage in providing better service at a lower cost. The aging-society phenomenon has given rise to growing health awareness, resulting in changing health care demand. Hence, new opportunities arise, such as specialty hospitals and ambulatory surgery centers that offer general treatment and less complex surgery services. Furthermore, there are also high growth opportunities for beauty clinics and plastic surgery services, as Thailand possesses some of the best plastic surgeons while providing services at a rate 3 times cheaper than Korea. The trend therefore allows Thailand’s healthcare business to grow while using the country’s tourism competitiveness to attract foreign patients with less complex health conditions or those who require short-duration treatment processes.

Green-tech potential. In line with the global “Go Green” trend, biotechnology is another business with high growth potential in Thailand. Bio-plastics is an industry to focus on,  forecast to grow globally by a rate of 50% per year during the next 2-3 years due to higher demand. This is especially true for the packaging industry, as bio-plastics are naturally degradable and more environmentally friendly. Thailand has high bio-plastic development potential due to the existing plastic industry supply chain and abundant agricultural feedstock such as cassava and sugar cane, in addition to abundant agricultural residues such as rice straws, rice husks, and barks. Such feedstock also supports the growth of electricity generation by bio-fuels, another business with cost advantages for Thailand. Furthermore, the government provides support for the industry, in which businesses with existing feedstock can add value to their products and produce electricity for self-use or for sale to the government. Hence, now is an opportune time for Thailand to expedite the development of new industries, in order to get ahead of competitors while supporting agricultural commodity prices.

Competitive and quality. Compared to the other countries in ASEAN, Thailand possesses a competitive edge in various manufacturing and service businesses in becoming a regional hub due to its advantages in terms of geography, specialized skills, and infrastructural readiness. Government policies will also help facilitate investment, such as investment promotion schemes that provide more flexible incentives and infrastructural development, which will enable Thailand to be a strong hub for regional clusters. Furthermore, Thailand’s brands have gained more recognition in the global market. The enhanced image of “Brand Thailand” is quality, refinement, diversity, and distinction.

With strong fundamentals and enhanced competitiveness in high value-added industries, Thailand stands poised to strengthen its status as an ASEAN economic powerhouse, and one of the World's most important trade and investment centers.

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