1Q 2019 has gone by and we are fast approaching the mid-year mark. Thus far, the Thai economy has demonstrated mixed results, with modest expectations for the months ahead. The World Bank has cut down Thailand’s growth projection from 3.9% to 3.8% amid an anticipated global slowdown. The Bank of Thailand appears to agree and trimmed its growth outlook from 4.1% to 3.8%. At the same time, the Bank cut down export growth estimates from 7% to 3%. The performance of the country’s largest banks has also left some room for improvement, as they posted declining net earnings in the first quarter of this year.
Despite these sub-optimal reports, export figures experienced a surprising uptake in February, after 4 months of consistent decline beginning in October 2018. Still, businesses remain concerned over the uncertainty of the election outcome, as well as the country’s rising household debt.
The government has meanwhile been busy trying to shore up growth in struggling sectors. In April, the government approved a 20 billion baht stimulus package aimed at revitalising the economy. Contained in the package is a series of tax cuts for consumers, as well as allowances for special mortgages and cash subsidies. While this initiative gets underway, mega projects like the EEC are still on track for completion, promising a key stimulus for the economy as each element of infrastructure is put into place.
The April economic stimulus package indicates that the government is reaching for quick wins, as a means of jump-starting the economy in the short term. However, there are other ways to stimulate the economy through the pursuit of low-hanging fruits, without resorting to massive government expenditure and fiscal stimulus. Many of these involve improving the experience of businesses trying to operate within Thailand. The country saw a small drop in its World Bank ‘ease of doing business’ ranking in 2019, falling from 26th to 27th place in this essential measure.
While concrete government subsidies and other incentives are welcomed by the business community, there are ways to facilitate business without spending a fortune. Among these would be a decision to cut back on red tape, and align foreign investment regulations to allow related transactions to proceed with minimal administrative fuss. An option to streamline work permits and stay visas – making the application process more transparent, less time-consuming, and easier to understand – would represent another welcome improvement.
The government could also be more flexible in its support of investments, understanding that the valuable businesses of the future need not be the most high-tech, or among newly emerging industries such as nanomaterials or biotechnology. Recent efforts at investment promotion have seemingly overlooked the fact that certain improvements to basic industries can add significant value to the economy.
For example, new designs or manufacturing process improvements for everyday use products may be “low tech” and would not appear at first glance to be fit for investment promotion. But improving economic competitiveness is more often than not a “long march” marked by step-by-step improvements and innovations. Spectacular inventions and leaps of technological advancements are rare. Incremental innovations, consistent upgrades to quality and processes, and willingness to explore novel ways of supplying existing products or services are factors distinguishing a successful business from its competitors. For instance, new ergonomic designs and production methods for basic consumer goods such as plastic water bottles could bring innovation to a common product while improvements in recycling efficiency could lower cost and thus enhance price competitiveness. Such efforts, are often not new investments but part of a business’s constant improvement process. Such improvements and minute innvoations are not supported under existing investment promotion schemes.
No doubt a reorientation of the government’s incentive structures would be a challenge, requiring the amendment of existing laws and regulations. Indeed, changing such policies often proves to be much more difficult than enacting new ones – but it must be done. The economy of the future, for which the current incentives were designed, is in large measure about flexibility and adaptation. Sticking to rigid policies, no matter how well-meaning, goes against the very spirit that the Thai government hopes to embrace.
In order to succeed in a dynamic environment, true success requires the ability to constantly rethink prior assumptions.