December 29, 2016 1:00 pm JST

Thailand struggles to escape 'middle-income trap'

Nurturing professionals key to advancing industry

TAMAKI KYOZUKA, Nikkei staff writer

A worker checks a car at a plant in the eastern Thai province of Rayong.

BANGKOK -- Thailand's once-booming economy now finds itself struggling to escape the middle-income trap -- an economic ceiling developing countries often hit.

In December, U.S. company Goodyear Tire & Rubber started building a new production line at its aircraft tire plant in Pathum Thani Province, north of Bangkok. The new plant is set to begin producing state-of-the-art radial tires in 2018. A Goodyear executive said the company chose Thailand for its prime location at the heart of Asia's growing aircraft market.

German electronics giant Robert Bosch has started construction of a research and development facility for fuel injectors in Thailand, the third of its kind in Asia after similar plants in Japan and China.

Several Japanese companies ventured into Thailand to cope with the yen's appreciation after the 1985 Plaza Accord. Improvements in transport infrastructure and supporting industries such as materials and components also prompted overseas companies to enter the country.

It is the auto and electronics industries that have benefited most. In 2012, Thailand overtook France to become the world's tenth largest car producer with 2.45 million units. The country is also behind 30% of global production of hard disk drives.

But Thai growth now seems to have lost momentum. The country has grown at an average pace of 2.7% over the past five years, ranking ninth among the 10 members of the Association of Southeast Asian Nations. The country was hit hard by floods in 2011 and a military coup in 2014. And the sluggish growth appears to be far more than just a hiccup.

According to data from the Japan External Trade Organization, factory workers in Bangkok earn $344 a month, nearly twice as much as their counterparts in Vietnam and Myanmar. But delays in industrial development to meet rising labor costs have seen the country's gross domestic product per capita remain under $6,000 since it topped $2,000 22 years ago.

Investing in skills

Nurturing highly skilled human resources, as well as tax benefits, will be key to attracting further investment. Last year, Thai state oil conglomerate PTT opened the Vidyasirimedhi Institute of Science and Technology, or Vistec, in the east of the country.

Vistec conducts research in areas such as biodegradable resins and renewable energy. Professor Jumras Limtrakul, the institute's president, said the goal is to nurture candidates who could go on to become Nobel laureates.

The government also plans to give a 15-year personal income tax exemption for foreign professionals working within the country's Eastern Economic Corridor project. Kanit Sangsubhan, a member of the EEC's special economic working group on investment, said they plan to attract human resources as well as investment from overseas.

The Thaksin Shinawatra administration, which ran from 2001 to 2006, tried to pull in production of fuel-efficient cars and food processing to turn the country into the "Detroit of Asia" and the "kitchen of the world." But the constant upheaval of regime changes has seen the formulation of long-term policy neglected.

The interim government of Prime Minister Prayuth Chan-ocha has embarked on a 20-year plan, and sought to enact laws guaranteeing its implementation beyond general elections scheduled for next year that will return the country to civilian rule.

 

Asia300

PTT Public Co., Ltd.

Thailand

Market(Ticker): BKK(PTT)
Sector:
Industry:
Energy Minerals
Oil Refining/Marketing
Market cap(USD): 36,264.97M
Shares: 2,856.29M

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