Thai business heads give the government passing marks
PETER JANSSEN, contributing writer
BANGKOK Thai Prime Minister Prayuth Chan-ocha may not be popular with human rights groups and democracy activists, but he has earned a certain respect from local and expatriate business executives.
"Whenever I meet him he tells me, 'Don't complain! Tell me how,'" said Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand. "We told the government that if there is no investment in infrastructure, there is no foreign investment. If he wants to stay in power, he has to make sure it's happening. He cannot sit in that post and do nothing."
Thailand's economy has been flaccid since the military coup two years ago, notching up just 0.9% annual growth in 2014 and 2.5% last year. The World Bank has forecast 2.5% growth in 2016, below the 3.1% predicted by the Bank of Thailand, which recently lowered its forecast due to weakening exports. Exports rose a scant 0.4% in the first five months of 2016 from the same period in 2015, and the outlook remains poor. Nonetheless, the government recently set a target of 5% annual growth between 2017 and 2021.
"Earlier on we were expecting 3% growth this year, now [after the U.K.'s Brexit decision] we are looking at 2.8%," said Nalin Chutchotitham, chief economist at HSBC Thailand. "The political uncertainty in Europe and uncertainty in regard to trade policies could cause delays in some export orders around the world, so ... Thailand could be impacted indirectly."
Thailand's export-led economy -- exports amount to 65% of gross domestic product -- has been faltering due primarily to slowing global demand, especially in China. Thailand is also becoming less competitive in some sectors such as electronics, with foreign investors shifting to Vietnam, where labor costs are lower. A decade of political upheaval -- with two coups and occasionally violent street protests -- has also taken its toll.
The political conflict centered on controversial former Prime Minister Thaksin Shinawatra, who first came to power in 2001 and then again in 2005, winning strong election mandates. Part of Thaksin's appeal was his ability to get things done, thanks to his monopoly on power -- sometimes with a strong whiff of corruption. Bangkok's Suvarnabhumi Airport, the last Thai megaproject under Thaksin, was pushed through, opening days before he was overthrown in 2006.
The 2006 coup spawned a military-led government dubbed the "Tom and Jerry" cabinet because of its obsession with chasing down former Prime Minister Thaksin Shinawatra, cat-and-mouse style, turfing out acolytes from the administration and undoing some of his more populist policies. By contrast, the Prayuth regime has been more focused on policies to keep the private sector and foreign investors happy.
"The government is very conscious of trying to make it easier to do business here given the increasingly competitive environment in the region for foreign direct investment," said Darren Buckley, country head of U.S. bank Citi for Thailand, Cambodia, Myanmar and Laos and chairman of the Association of International Banks in Thailand. "Incentives for regional headquarters, relaxation of some of the visa rules, a focus on digitization as a national priority and enhanced anti-corruption measures are steps in the right direction, with more still to do."
STIMULUS EFFORTS Prayuth's first economic czar, former Deputy Prime Minister Pridiyathorn Devakula, helped launch Thailand on the path toward the digital economy and push through a new tax package for international headquarters and international trade centers to compete with Singapore and Hong Kong. After Pridiyathorn's departure a year ago, Prayuth's new czar, Deputy Prime Minister Somkid Jatusripitak, has primed the pump with long-term public investment plans and short-term consumption led stimulus packages.
Somkid has adjusted tax incentives for 10 industrial clusters, each focusing on a new industry -- next-generation cars, smart electronics, upscale medical tourism, agriculture and biotechnology, food, industrial robotics, logistics and aviation, biofuels and biochemicals, digital products and medical services. The clusters will be located in the Eastern Economic Corridor along Thailand's east coast industrial belt. The Thai cabinet has approved an initial budget of 300 billion baht ($8.59 billion) for related infrastructure projects.
Economists say that for Thailand to succeed in the new value-added sectors, it will need a value-added labor force, which the country's abysmal education system does not seem ready to provide. "But it's a good start," Nalin said. "I think it's like a wake-up call to Thailand. In the end, it is productivity and innovation that can help us grow, not cheap labor or adding on machinery."
The EEC might boost Thailand's competitiveness in the long term, but in the short-term Prayuth faces a formidable challenge keeping annual growth at 3% or above. This year, Thailand's twin engines for growth are tourism and public spending. After some weak periods, tourism is performing reasonably well. In the first five months, the country drew some 14.2 million foreign tourists, up 12.9% year-on-year, with Chinese tourists driving the numbers. The tourism ministry has targeted a total of 32 million visitors this year. But officials know that mass tourism is hardly a sustainable economic engine in an era where one terrorist incident can send shock waves throughout the entire sector.
The private sector is particularly keen to see whether the government can push its ambitious plans for 20 fast- tracked infrastructure projects -- roads, mass transit lines in Bangkok, dual track rails and some more dubious plans for high-speed train lines -- by next year, when an election is planned.
Cabinet approvals will be sped up by the use of Article 44 under the interim constitution, which provides Prayuth absolute power to fast-forward projects by bypassing bureaucratic requirements such as thorough environmental impact assessments, before a referendum is held on Aug. 7 over a new charter. The projects would eventually pump about 1.6 trillion baht into the economy.
"They need to do something to show to the investors -- and to the public too -- with the referendum coming up," said Charl Kengchon, managing director of the Kasikorn Research Center. "I think they are doing the right thing, but it will take more than infrastructure, more than the EEC. It takes other ingredients like labor, education and competition issues."
Despite the increased public spending, which was up an annual 30% last year and will grow 11.5% this year, consumer confidence surveys have consistently found that Thais remain concerned about the future. Household debt remains perilously high at 82% of GDP, and manufacturers are not hiring because of excess capacity. In early July, Toyota Motors Thailand, one of the country's biggest employers, launched its first-ever voluntary redundancy program, aimed at shedding 10% of its regular workforce. Many other automakers in Thailand have been quietly sacking part-time workers, as their factories are operating at only 60-70% capacity.
To boost Thailand's manufacturing and exports, the global economy needs to recover, which Prayuth cannot accomplish even with Article 44. But he does seem determined to push through his other plans for the economy, including a new land and building tax that would have been hard for an elected government to achieve.
"Regardless of the outcome of the referendum, the current government can carry on with their projects and initiatives because they are going to ensure that they have a mechanism built into the new constitution to do so," said Kasikorn's Charl. "I think they are going to carry on with this legacy no matter which constitution they use."