Three years from now, in 2015, Thailand will integrate with the ASEAN Economic Community (AEC), though general Thai awareness of the AEC seems negligible; AEC impacts being little understood, with AEC preparations limited only to certain groups of entrepreneurs.
As I was recently invited to participate in a seminar discussion organized by the Federation of Thai Industries and the Thai Health Promotion Foundation, entitled, "Creating a Happy Workplace Organization in the 3.0 Era," I gave my opinion from a broad economic perspective on the readiness of Thailand to integrate with the AEC, which I would like to share in two articles, this first reviewing the strengths and weaknesses of Thailand as part of the AEC.
Comparing Thailand’s strengths to those of other AEC members, I see our advantages from many angles giving Thailand opportunity to become a regional economic, trade, and investment hub.
1) Geographic location Thailand is located in the centre of the region, with most of its borders connected to neighbouring ASEAN countries. Natural disaster risks are also relatively low compared to neighbouring countries. Though Thailand faced a critical flood situation, this disaster could be predicted and defended in advance.
2) Development level Thailand has a higher development level than most countries in the region with its basic universal education, big pool of skilled workers and highly qualified personnel, its thorough high quality public health, and developed infrastructure, especially roads. Moreover, Thai law, institutions and other facilities are reasonably well developed. Thailand’s baht currency is accepted by our neighbours in border trade transactions.
3) Size of the domestic market and land area Thailand’s economy is the second largest in ASEAN, after Indonesia. Thailand’s large population size is approximately equal to each population of Myanmar and Vietnam, though the income level and purchasing power of Thai people is higher than their neighbouring countries. In addition, Thailand has enough land area for development and future investments, unlike Singapore, where space is limited.
4) Economic relations with ASEAN Thailand's trade with ASEAN was about US $7.5 billion in 2010 or 15% of the total intra-ASEAN trade value, ranking third after Singapore and Malaysia. In addition, Thailand has an Asian trade surplus of US $1.36 billion, ranked second after Singapore and was the only country from three with a trade surplus to ASEAN. This implies that Thailand will benefit from the AEC, particularly in terms of expanding exports to ASEAN.
5) Association with the global economy The Thai economy is very highly linked to international trade and foreign investment. Thailand’s degree of openness was 129% of GDP in 2005 and the expansion of Thailand’s economy always depends on foreign investment. Thailand is therefore more well-equipped and experienced in trade and attracting foreign investors than its neighbouring countries. This means that the AEC will give Thailand an opportunity to benefit from trade and investment from countries outside the AEC, more than others.
Thailand’s weaknesses fall into many opposite categories. These factors may cause Thailand to lose some benefits or opportunities affected by the AEC.
1) Lack of understanding and awareness The survey results of many institutions show that Thai people lack awareness about the AEC as to its importance, impact, and need for readiness, except for large enterprises or organizations involved in business with other countries. This lack of understanding and awareness may obstruct Thai entrepreneurs from seizing the opportunity or the chance offered by the AEC, leaving them unprepared and unable to face the impact of the AEC at the right time.
2) Unfamiliar with neighbours Thai people are not competent in English, which is an international language, and lack knowledge about their neighbours. The Thai education system does not facilitate study options on the languages, cultures and economies of neighbouring countries. Facilities are also non-conducive to trade, investment or tourism in neighbouring countries.
3) Some inconvenience in business Although the World Bank's Doing Business ranking has ranked Thailand #17 from 183 countries (Singapore is ranked #1 and Malaysia #18), some factors are obstacles to doing business in Thailand, as follows:
"Starting a business”: Investment or conducting business in Thailand involves having to contact many government agencies, with multiple processing steps, which are individually time-consuming.
"Receiving credit": SMEs have credit access restrictions and financial costs are still high because Thai financial institutions have a certain monopoly level.
"Taxation": Thailand’s corporate tax rate of 30 percent is higher than that of its neighbours. However, if the government reduces the corporate tax, this will be effective in attracting investment.
4) Higher business costs The wage rate in Thailand is increasing, while investors are looking to invest in new places that have lower labour costs than China. Investment in the world is likely to flow into the new emerging economies, such as Indonesia, Myanmar, and elsewhere. In addition, the relative costs of energy, transportation and logistics is very high, associated with high global oil prices. Therefore, Thailand is likely to lose its investment attraction.
5) Political and administrative problems The development of Thailand’s economy is slowing or sometimes restricted due to political and administrative problems, such as political conflicts, and the corruption of politicians and government officers causing high hidden costs in the business sector, and the poor performance of government agencies, etc.
Given the above analysis of the strengths and weaknesses of Thailand, we may question whether Thailand is yet prepared to cope with the AEC. The answer seems to be that we are not clear on our strategic position in the ASEAN arena. Our future direction has been forced by circumstances without planning or advance preparation. Thailand’s preparatory measures for inclusion in the AEC are not yet concrete and this situation is worrisome for the country.
The next question is how Thailand should determine a strategy to cope with AEC inclusion. I will answer this question in my next article
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