RegionsAsia PacificRocky economic road ahead for Thailand

Rocky economic road ahead for Thailand

A shortage of trained staff and a forecast declining labour market mean that radical reform will be needed to retain investors’ interest in the country, a report suggests.

Thailand’s government must tackle major challenges if it is to keep up with competing Asian economies Singapore, South Korea and Japan and maintain investor interest, suggests a report by Verisk Maplecroft.

Written by Mihai Hribernik, senior Asia analyst for the business management consultancy, the report concludes that:
• Thailand will need to significantly boost the skills and productivity of its workers to still attract investment.
• Sustained structural reforms will be required to offset a declining labour force – forecast to shrink by 3.4m by 2030.
• Managing political risks will be crucial, as instability reduces Thailand’s competitiveness and frustrates reform efforts

Hribernik comments that Thailand’s goal of becoming a high-income hub of technology and innovation will be thwarted unless the country’s skills shortage and low productivity are addressed.

Employers report shortages of trained staff – even in sectors such as tourism requiring lower levels of skills – with the shortfall most acute in sectors requiring technical and foreign language skills.

These knowledge-intensive industries that form the backbone of ‘Thailand 4.0’; a major structural reform programme aimed at spurring innovation and investment in high-value added industries such as robotics, smart electronics, aviation and digital technology.

Despite a high literacy level of nearly 97%, inadequate public expenditure and lacklustre enrolment rates contributes to the skills shortage. Other factors include poor English language skills, the poor quality of tertiary and vocational education programmes – requiring employers to invest heavily into retraining staff – and outdated regulations. Government efforts to improve the education system have so far achieved limited success.

Added to this, Thailand’s working-age population is forecast to decline by 3.4m in the years ahead, from an estimated 48.8m in 2017 to 45.4m in 2030. To boost the skills and productivity of a dwindling workforce “a time horizon of 13 years is not extensive, particularly considering the range and depth of structural reforms required,” says Hribernik.

The risks to Thailand 4.0

Reforming the education system is not the only challenge, as Thailand’s unstable political climate could undermine any progress made. Historic data evidences that political instability erodes productivity and competitiveness. Although Thai workers are still among the more productive in South-East Asia – outpacing those in the Philippines, Indonesia and Vietnam – this competitive edge is steadily eroding.

Thailand’s real wage growth has generally outpaced increases to productivity over the past 11 years. Productivity growth has declined in times of political instability – in particular following mass protests in 2010 and the 2014 coup. Wages, however, continued to increase in 10 out of the 11 years – including in times of crisis – and outpaced productivity increases in seven of those years.

Hribernik concludes that the country’s competitiveness will probably continue falling in the absence of significant reforms to boost workforce skills, and this trend could accelerate substantially in the event of renewed instability.

Yet despite the major challenges in moving up the value chain in line with the world’s fourth industrial revolution, “the failure of ‘Thailand 4.0’ is by no means a given.” Reforms to overhaul tertiary education, provide better vocational training and boost language skills, could still yield results, and offset the country’s shrinking workforce.

Such improvements would maintain Thailand as an attractive investment destination. The country alternatively faces the prospect of pricing itself out of the market, with foreign companies unable to justify employing workers with outdated skillsets, whose productivity is unable to match their costs.

“Much will depend on Thailand’s ability to reduce the number of political storms that regularly affect the country,” says Hribernik. “Renewed civil unrest or violence – perhaps as a result of the military junta’s attempts to cling to power – could mean the death knell of ‘Thailand 4.0’ and the country’s dream of becoming rich before it becomes old.”

Whitepapers & Resources

2021 Transaction Banking Services Survey

Banking 2021 Transaction Banking Services Survey

CGI Transaction Banking Survey 2020

CGI Transaction Banking Survey 2020

TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation