Country Analysis Report: Thailand In-depth PESTLE insights PDF

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COUNTRY ANALYSIS REPORT Thailand In-depth PESTLE insights Publication Date: December 2011 OVERVIEW Catalyst This profile analyzes the political, economic, social, technological, legal, and environmental (PESTLE) structure of Thailand. Each of the PESTLE factors is explored in terms of four parameter...

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COUNTRY ANALYSIS REPORT

Thailand In-depth PESTLE insights Publication Date: December 2011

OVERVIEW Catalyst This profile analyzes the political, economic, social, technological, legal, and environmental (PESTLE) structure of Thailand. Each of the PESTLE factors is explored in terms of four parameters: current strengths, current challenges, future prospects, and future risks.

Summary Key findings Thailand has followed prudent policies, but high levels of corruption derail developmental initiatives Over the years, the Thai government has encouraged higher levels of public investment in order to foster rapid economic growth. In June 2010, former Prime Minister Abhisit Vejjajiva planned to launch the Reconciliation Plan to protect the nation's main institutions, redress inequalities and injustice, enable constructive communications between the political parties, and put into motion a political process that is democratic, efficient, and transparent. The current coalition government headed by Prime Minister Yingluck Shinawatra aims to enhance the competitiveness of Thailand by broadening market access for businesses as part of its economic policy, promoting trade and investment, engaging in free trade agreements and co-operation frameworks to expand international economic linkages, providing solutions to the menace of drugs, preventing and fighting corruption, raising the standard of living of the Thai people through wage increases and tax relief, and developing the health insurance system. These prudent policies are expected to help the country’s development. However, alleged high levels of corruption could counter the government’s strong policies. The purportedly widespread corruption in the country’s political and bureaucratic machinery hinders prospective investment. Transparency International's Corruption Perceptions Index for 2010 ranked Thailand 78th out of 178 countries. In the World Bank’s 2010 Worldwide Governance Indicators, the country was ranked in the 46.9 percentile for control of corruption. The series of corruption scandals facing the country covers procurement scams involving hospital equipment and school supplies,

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Overview

construction tenders, and political appointments, which could derail developmental works undertaken by Thailand. Political parties squabbling over corruption charges could also lead to political instability.

Thailand has a healthy banking system; however, the increasing fiscal deficit is worrying Thailand is a major international financial center, with an integrated banking system network. The banking sector plays a significant role in the economy, with estimated financial sector assets at 200% of GDP. Loans expanded by 13.4% in the first quarter of 2011 compared to the same period in 2010. Gross non-performing loans of the system declined to THB300bn ($9.81bn) in the first quarter of 2011, compared to THB371bn ($11.4bn) in the same period in 2010. Net profit during the quarter increased to THB32.1bn ($1.04bn), compared to THB27bn ($830m) in the first quarter of 2010. The Thai Asset Management Company, which was founded in 2001 to acquire and dispose of distressed and non-performing assets from state and private sector financial institutions after the financial crisis, was dissolved in September 2011 after absorb ing debts totaling THB774bn ($25.3bn) during the last decade. However, the government’s increasing fiscal deficit is a cause for concern. The government has set the national budget for 2011–12 at THB2.3tn ($77.2bn), an increase from THB2.1tn ($63.5bn) in 2010–11. In November 2011, the prime minister submitted a draft budget bill for 2012 that called for expenditure of THB2.38tn ($77.2bn). If implemented, the populist policies promised by the current government during its election campaign could cost THB2tn ($65.4bn) over five years. The budget deficit in 2010 was $8.1bn, or 2.7% of GDP. It is expected that the budget deficit will rise to around THB400bn ($13.4bn) in 2011–12, or 3.9% of GDP. The increasing fiscal deficit will make it difficult for the government to enjoy strong public finances for both social welfare and economic development programs.

Although Thailand has a strong social security system, increasing income and developmental disparity is a cause for concern Thailand included social protection in its 11th National Economic and Social Development Plan. Prime Minister Yingluck Shinawatra aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of living of the Thai people through wage increases and tax relief, and develop the health insurance system. The government raised the daily minimum wage of more than 20,000 public sector workers to THB300 ($10) in October 2011, while the Central Wage Committee intends to raise the private sector minimum wage by around 40% from April 2012. The government has embarked upon a strategic plan to make Thailand a welfare society by 2016. According to the deputy permanent secretary for social development and human society Napa Setthakorn, the second strategic plan scheduled for 2012–16 will extend the country’s social security system to cover all groups of people, including those in the non-formal sector. The government will also seek to develop the quality of and raise funds for social security services. However, there is income and development disparity in the country. While Bangkok and its suburbs are prospering, the barren northeast remains poor. The rapid economic growth in and around Bangkok has further marginalized the country’s less developed regions. In addition, the country faces significant income inequality; for example, the average wage levels of employees participating in the private and public sectors in the northeast are around three times lower than those in Bangkok and twice as low as those in the central region. Per capita government expenditure in the northeast – particularly on health and agriculture – is also comparatively lower than other regions and below the central region by almost half. The government needs to tackle the regional disparity in income and development, as it could lead to an increase in crime and anti-national activities in the country.

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Overview

Research and development expenditure in the country is growing, but weak intellectual property rights protection is an issue The government has planned a holistic set of measures for promoting research and development (R&D) in the country. In 2009, the Higher Education Commission launched the National Research Universities Project to build capacity and strengthen human resources in R&D and innovation. The government allocated THB100–500m ($2.9–14.5m) in annual funding support to each university for three years as part of the project. The country’s annual expenditure on R&D is expected to reach THB100bn ($2.4bn), or 1% of GDP, by the end of the 11th National Economic and Social Development Plan in 2016. The government offers many financial incentives to increase private investment in R&D. Although the country’s R&D agenda is still not under a single body, the government is working to develop collaboration among the various agencies and ministries under its first 10 year science, technology, and innovation plan. These developments coupled with an increase in investment would augment Thailand’s position as an R&D leader. However, the country has a very weak track record in terms of intellectual property rights (IPR) protection. The country is recognized as one where IPR protection and enforcement are key issues. In 2010, the Office of the US Trade Representative retained Thailand on its Priority Watch List due to the high level of copyright piracy in the country, which placed it among the poor performers. According to the International Intellectual Property Alliance, losses due to software piracy were estimated at $344m in 2010. The international community has regularly urged the country to improve its performance in IPR enforcement.

The country has a strong business environment, but lacks robust labor laws The business environment in Thailand has improved considerably over the years According to the World Bank's Doing Business 2012 report, which measures the ease of doing business within a country, Thailand was ranked 17th out of 183 economies. The report said the country has made starting a business easier by introducing a one-stop shop. According to the 2011 Index of Economic Freedom, Thailand was ranked 62nd out of 179 countries and 10th out of 41 Asian countries. Thailand scores highly in fiscal freedom, government spending, monetary freedom and labor freedom when compared to the world average. It fared much better than its overall rank on the enforcement of contracts, ease of securing credit for business and closing a business. Starting a business takes an average of 32 days in the country, compared to the world average of 34 days, while obtaining a business license takes less than the world average of 209 days. These factors are important indicators of a positive business climate. However, the country is in dire need of labor market reform in order to become competitive. Workers are not protected by law from employer reprisals for union activities prior to the registration of the union, and employers can use loopholes in the Labour Relations Act to fire union leaders prior to government certification of unions. Under the current labor policies, migrant workers are exposed to abusive and discriminatory practices in the workplace. The government has proposed a private insurance scheme for migrant workers instead of access to the Workmen’s Compensation Fund (WCF). Unlike the WCF, there is no legal binding on the employer to provide private insurance coverage to migrant workers. This policy is expected to have a negative impact on the estimated 2 million migrants in the country. The government has to ensure that labor laws provide equal rights and protection for all workers.

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Overview

Although Thailand has strong environmental policies, it is also responsible for high levels of pollution Thailand has a strong environmental policy framework in place to address its environmental and energy concerns. The government has initiated several policies and measures with a focus towards ensuring a cleaner environment. The country has implemented a 20 year plan for the Enhancement and Conservation of National Environment Quality (1997–2016). In October 2010, the Thai cabinet agreed to impose a new tax on polluting industries as part of its efforts to conserve the environment. However, rapid industrialization has outpaced environmental management, resulting in increased pollution levels in Thailand. A significant proportion of the country’s forest cover has been lost, while around 50% of its rivers and lakes suffer from poor water quality. The rampant use of land and water without proper planning has led to climate change that threatens to impact the low lying central region in a big way; the recent spate of devastating floods are a case in point. Airborne particulate pollution levels have worsened in the northern province of Chiang Rai, with levels of carbon monoxide, sulfur dioxide, nitrogen dioxide, and lead that are above internationally recognized levels. CO2 emissions increased from around 187 million metric tonnes in 2002 to around 268 million metric tonnes in 2010. It is expected that the increasing pollution levels will cause the environment to deteriorate further in the coming years, and could harm the health of both the Thai people and the economy.

PESTLE highlights Political landscape The improvement in bilateral relations with Cambodia has diminished the risk of conflict. Prime Minister Yingluck Shinawatra visited Cambodia in September 2011, and both countries have agreed to jointly develop maritime areas in the Gulf of Thailand. According to the World Bank’s 2010 Worldwide Governance Indicators, the country performed poorly in every single parameter, recording low percentile ranks in terms of voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption.

Economic landscape Thailand's diversified manufacturing sector is a significant contributor to the country's growth. In 2010, the industrial sector contributed 44.7% of GDP, with output increasing from THB2.3tn ($53.1bn) in 2002 to THB4.3tn ($119.5bn) in 2010. The Thai Chamber of Commerce has estimated that the recent floods have cost the economy $33bn and 1 million jobs due to loss of assets and lower output. The industry ministry has claimed that the country’s high technology exports could slide by as much as 40% in 2012.

Social landscape Thailand had a literacy rate of 95.7% for the total population in 2010. The government spent around 4.3% of GDP on education during 2006–09. The high literacy rate signifies the presence of a large educated workforce.

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Overview

With thousands of homes surrounded by water since July 2011, the nation's medical experts are warning of an outbreak of disease, with the population facing the threat of cholera, gastrointestinal diseases, and typhoid.

Technology landscape The number of patents granted to Thailand by the US Patent and Trademark Office increased from 25 in 2005 to 60 in 2010, which shows remarkable progress in terms of the country's innovation scenario. Thailand faces a shortage of skilled workers, which could limit the country’s technological innovation and productivity. Its gross enrolment ratio in tertiary education is only 45%, which needs to be improved in order to increase the skilled workforce.

Legal landscape Thailand has announced major tax reforms to encourage investment and support the market through increased domestic consumption. Tax reforms are expected to increase tax revenues, as well as helping increase business investment in the country. Thailand’s Foreign Business Act strictly limits the level of foreign investment, especially in the services sector. The World Bank’s Investing Across Borders 2010 report stated that Thailand’s restrictions on foreign equity ownership were the most stringent among 87 countries.

Environmental landscape In October 2010, the Thai cabinet agreed to impose a new tax on polluting industries as part of its effort to conserve the environment. The tax rates are expected to be set based on the type of pollution, including water, air, and industrial waste. According to environmentalists in the country, a record 27 environmental activists have been killed in the past 16 years for fighting to save land from illegal developmental projects and campaigning against the sand mafia and illegal timber logging.

Country Analysis Report: Thailand © Datamonitor. This brief is a licensed product and is not to be photocopied

Published 12/2011 Page 5

Overview

Key fundamentals Table 1:

Thailand – key fundamentals

GDP, constant 2000 prices ($bn) GDP growth rate (%)

2009

2010

2011f

2012f

2013f

2014f

2015f

170.9

184.2

191.0

199.5

208.8

218.4

228.4

-2.3

7.8

3.7

4.5

4.6

4.6

4.6

2,562.2

2,739.9

2,820.3

2,926.3

3,035.5

3,166.5

3,305.9

Inflation (%)

-0.8

3.3

4.0

4.1

4.2

4.3

3.7

Exports, total as a percentage of GDP

72.8

76.1

79.0

74.6

70.1

65.8

62.0

Imports, total as a percentage of GDP

68.5

75.6

73.5

70.0

66.5

63.1

60.1

Mid-year population, total (millions)

66.7

67.2

67.7

68.2

68.8

69.0

69.1

1.5

1.0

0.9

0.9

0.8

0.8

0.8

170.9

184.2

191.0

199.5

208.8

218.4

228.4

GDP, constant 2000 prices, per capita ($)

Unemployment rate (%) Mobile penetration (per 100 people)

Source: Datamonitor

Country Analysis Report: Thailand © Datamonitor. This brief is a licensed product and is not to be photocopied

DAT AM ONIT OR

Published 12/2011 Page 6

Table of Contents

TABLE OF CONTENTS Overview

1

Catalyst

1

Summary

1

Key Facts and Geographic Location

12

Key facts

12

Geographic location

13

PESTLE Analysis

14

Summary

14

Political analysis

15

Economic analysis

18

Social analysis

22

Technological analysis

25

Legal analysis

28

Environmental analysis

31

Political Landscape

34

Summary

34

Evolution

34

Structure and policies

36

Performance

41

Outlook

42

Economic Landscape

43

Summary

43

Evolution

43

Structure and policies

45

Performance

47

Outlook

60

Social Landscape

61

Summary

61

Evolution

61

Structure and policies

61

Performance

64

Country Analysis Report: Thailand © Datamonitor. This brief is a licensed product and is not to be photocopied

Published 12/2011 Page 7

Table of Contents Outlook Technological Landscape

66 67

Summary

67

Evolution

67

Structure and policies

67

Performance

68

Outlook

71

Legal Landscape

72

Summary

72

Evolution

72

Structure and policies

72

Performance

75

Outlook

75

Environmental Landscape

76

Summary

76

Evolution

76

Structure and policies

76

Performance

77

Outlook

79

Appendix

80

Ask the analyst

80

Datamonitor consulting

80

Disclaimer

80

Country Analysis Report: Thailand © Datamonitor. This brief is a licensed product and is not to be photocopied

Published 12/2011 Page 8

Table of Contents