Macro level efforts towards globalization of Thailand

Transcription

1 2010 Macro level efforts towards globalization of Thailand CHUOP Theot Therith ជ ប ឋ តឋឋរបញទ ធ 12/29/2010

2 Table of Content Part I Introduction I.1. Relevance Concept Globalization and Its Level Macro Level of Globalization... 1 I.2. Background and Current Situation of Thailand Political Situation Economy Situation... 2 Part II Discussion on the Topic II.1. Analysis on Macro Level Efforts of Thailand towards Globalization Flow of Capital Trade Movement of Technology Labor Movement... 8 II.2. Discussion on Board of Investment (BOI) policies... 8 II.3. Analysis on Key Indicators of Global Integration of Thailand II.4. SWOT Analysis on Macro Levels Efforts of Thailand (SWOT Matrix) Part III Conclusion and Recommendation III.1. Conclusion III.2. Recommendation References

3 REFERENCES 1. International Business: The Challenge of Global Competition- Donald A. Ball, Wendell, Paul, J. Michael and Michael S. Minor, McGraw-Hill/Irwin, New York, International Business Environment (Handouts)- Dr. T. R. Dash, BBU, August, Publications of World Bank, WTO, UNCTAD 4. BOI web site: 5. Keynote speech of prime minister on 14/07/2010 PM meets Japanese investors and on 18/06/2010 PM meets investors.

4 Part I INTRODUCTION I.1. RELEVANCE CONCEPT Globalization and Its Level: Integrating the economy into the world economy removing all sorts of barriers (A world without walls). There are 2 levels of globalization: Levels of Globalization Micro Level - Organization - Industry/Firm Macro Level (Country s Economy) Macro level of globalization: Globalization involves creating an environment in which (1) Capital of one country can freely flow to other countries of the world, (2) All sorts of trade barriers can be removed, (3) Technology can move freely among the countries without any restriction and (4) Unrestricted movement of labor takes place. Flow of Capital Labor Movement Globalization Trade Technology Movement 1

5 I.2. BACKGROUND AND CURRENT SITUATION OF THAILAND Political Situation A unified Thai kingdom was established in the mid-14th century. Known as Siam until 1939, Thailand is the only Southeast Asian country never to have been taken over by a European power. A bloodless revolution in 1932 led to a constitutional monarchy. In alliance with Japan during World War II, Thailand became a US treaty ally following the conflict. A military coup in September 2006 ousted then Prime Minister THAKSIN Chinnawat. The interim government held elections in December 2007 that saw the former pro-thaksin People's Power Party (PPP) emerge at the head of a coalition government. The anti-thaksin People's Alliance for Democracy (PAD) in May 2008 began street demonstrations against the new government, eventually occupying the prime minister's office in August and Bangkok's two international airports in November. The PAD ended their protests in early December 2008 following a court ruling that dissolved the ruling PPP and two other coalition parties for election violations. The Democrat Party then formed a new coalition government and ABHISIT Wetchachiwa became prime minister. In October 2008 THAKSIN went into voluntary exile to avoid imprisonment for a corruption conviction, and has since agitated his followers from abroad. THAKSIN supporters re-organized into the United Front for Democracy Against Dictatorship (UDD) and rioted in April 2009, shutting down an ASEAN meeting in Phuket, and in early 2010 protested a court verdict confiscating most of THAKSIN's wealth. Since January 2004, thousands have been killed as separatists in Thailand's southern ethnic Malay-Muslim provinces increased the violence associated with their cause. Economy Situation With a well-developed infrastructure, a free-enterprise economy, generally proinvestment policies, and strong export industries, Thailand enjoyed solid growth from 2000 to averaging more than 4% per year - as it recovered from the Asian financial crisis of

6 98. Thai exports - mostly machinery and electronic components, agricultural commodities, and jewelry - continue to drive the economy, accounting for more than half of GDP. The global financial crisis of severely cut Thailand's exports, with most sectors experiencing double-digit drops. In 2009, the economy contracted 2.8%. The Thai government is focusing on financing domestic infrastructure projects and stimulus programs to revive the economy, as external trade is still recovering and persistent internal political tension and investment disputes threaten to damage the investment climate. 3

7 Part II DISCUSSION TO THE TOPIC This part will discuss on the macro level efforts of Thailand. It consists of 4 main points: (1) Analysis on Macro Level Effort of Thailand towards Globalization, (2) Discussion on Board of Investment (BOI) policies, (3) Analysis on Key Indicators of Global Integration of Thailand, and (4) SWOT Analysis on Macro Levels Efforts of Thailand (SWOT Matrix). II.1.ANALYSIS ON MACRO LEVEL EFFORT OF THAILAND II.1.1. OVERALL EFFORTS TO MOVE FORWARD OF THAILAND Five-Point National Plan: H.E. Mr. Abhisit Vejjajiva, Prime Minister of the Kingdom of Thailand has laid out the five-point national reconciliation plan upon which various committees have been created and various initiatives are being crafted. Issues that will be addressed include: unity among Thai people to show reverence and respect for the Monarchy; national reform agenda that includes addressing the disparities and inequity; political reform, including constitutional amendments; media reform; and also embark upon a fact-finding mission on the incidents that transpired from the protests in April and May. Committee for helping Japanese Business: The committee has promptly been set up for helping Japanese business who has been affected by unrest. This committee headed by Secretary General of prime minister. 6 days 63 million opinions: Earlier of July, 2010, the Government organized the 6 days 63 million opinions campaign with a view to hearing opinions, concerns and grievances from the general public so that they can be addressed appropriately. This is the first time that any Thai government to date has undertaken such an exercise and fully allowed people from all walks of life and across the country to participate. The government deeply cares for the people and is ready and willing to listen to all their voices. The government wants the people to be part of this historic reconciliation process and to build the country together. 4

8 Restoring images & reputation as a 1 st tourist destination: Efforts are being made to restore Thailand s image and its reputation as a premier tourist destination. Tourism operators will be called on to help find a way to restore this sector. As a start, tax incentives are being offered to boost the domestic tourism market. Fees have been cut to provide some relief to affected airlines and provide a bridge until we re-enter the peak season of tourism. PM s commitment: PM committed to strengthening the economic competitiveness in the global economy, he said, Thai is not just to stimulate the economy and take us out of the recession, but also to lay the foundation for our long term competitiveness. We will transform ourselves from being a low cost production base to becoming a producer of high technology, high quality products. Generous investment incentives have already been offered for projects meeting this objective, such as to R&D activities, high technology production, and human resources development. One Start One Stop center (OSOS): This is one measure that has placed under one roof representatives of all the ministries that investors would need to talk with in order to establish or expand their business in Thailand, thereby greatly easing the process. MOU between BOI & PACC: In an effort to improve transparency, the BOI has signed a memorandum of understanding with the Office of Public Sector Anti-Corruption Commission (PACC) to prevent wrongful activities, and dealing between investors and state officials, and to provide a channel for all investors, facing this problem to seek a remedy. II.1.2. MACRO LEVEL EFFORTS THINK ASIA, INVEST THAILAND A. Flow of Capital Assuring investors a cost-efficient investment through BOI and Ease of doing business in Thailand: the BOI and its overseas offices always ready to extend assistance to investors from around the world. In particular, special incentives are being offered to 6 key sectors under the Thailand Investment Year package. Ease of doing business: 5

9 20 th /world before 2006 & 12 th /world in Maintaining an investor-friendly environment - Well-developed of infrastructure as world class standards - Modern industrial estates - Impressive industrial clusters - State of the art transportations - Communication facilities - Logistics system OSOS and Single Point: this additional service is created with the aim to complement (07/2010) -- not to compete with the existing OSOS. The Single Point will make documentation process for starting a business quicker and easier. Indeed, it will actually cut the time for this procedure from four days to 90 minutes. Tax incentives for MNC in establishing ROH in Thailand: the cabinet of Thailand has recently approved the tax incentives for multinational companies in establishing Regional Operating Headquarters (ROH) in Thailand, by putting in a package which is probably the most attractive in the region. Within this package, the ROHs will enjoy, for 15 years, a tax break for income earned outside Thailand and only 10% corporate income tax on income earned domestically. The expatriates of these ROHs will also benefit from the reduced personal income tax rate of 15% for eight years. These incentives, which have been effective since the beginning of this month, will revive confidence and attractiveness for foreign companies in Thailand. B. Trade Commitment: Thai s prime minister as well as the Royal Government has committed to free & fair trade (regional & international trading systems), to strengthening the economic competitiveness in the global economy, and to securing competitive advantage based on quality & excellence not cheap labor. 6

10 Free Trade Agreements (FTA): Evidence of Thailand s commitment to be an active and leading member in the global economy is found in Thailand s many free trade agreements. The ASEAN China Free Trade Agreement, which entered into force at the outset of this year, and which As Thailand embraces, created a market of 1.7 billion consumers, with trade of US$1.23 trillion. ASEAN, Japan, Australia, New Zealand, India and others all have some form of trade agreement with Thailand that enables investors in these countries to grow and participate in the true sense of globalization. Thailand s strategic location in South East Asia is home to more than 580 million consumers in fast growing market. Exports Market and Imports: Thai s major export market today is ASEAN, which accounts for about 21% of all of Thailand s export value. The first half of the year saw US$21.7 billion in exports to ASEAN, increasing 55.19% year on year. The European Union is another block of countries that together account for about 12% of Thailand s export value. Japan and the United States are also important partners. the Ministry of Commerce has announced that exports from January to June 2010for the first half of this year totaled US$93.07 billion. That is a growth by 36.6% increase year on year compared with the same period of last year. During the same period, imports rose 51.7% to US$86.69 billion, resulting in a surplus of 6.38 billion. In addition, the Commerce Ministry has increased its growth target for exports in 2010 from 14 percent to 19 per cent, with a projected export value of USD 183 billion. Exports sector: Thai exports value is equal to 2/3 of GDP. The major exports sector are (1) Rice (leading exporter in the world), (2) Shrimp (major exporter in the world, (3) Crops such as coconuts, corn, rubber, soy beans, sugarcane & tapioca, (4) Agriculture, forestry and fishing is 8.4% of GDP) in 2008, (5) Minerals include fluorite, gypsum, lignite, natural gas, and (6) Industrial sector is 44% of GDP. Monetary policy: Monetary Policy Committee of the Bank of Thailand maintain price stability & keep inflation between 0 and 3.5% per year. 7

11 C. Technology The BOI is also cooperating with the National Science and Technology Development Agency in setting up a fund for private-public sector cooperation on R&D activities and hightech training, under the BOI s skills, technology, and innovation scheme. Increased occupational training & education Measures to strengthen the science & technology, high-technology and R&D sectors. C. Labor Movement To make Thailand more a attractive, early May this year (2010), the BOI approved changes in the regulation on visas and work permits for foreign exports & technicians working on R&D project, extending the period from 2 years to 4 years. II.2. DISCUSSION ON THE BOARD OF INVESTMENT POLICIES New BOI vision for is your partner for sustainable investment New BOI mission for : (1) Policy formulation: formulate policy to promote innovation, technology, social and environmental development. (2) Proactive investment promotion, (3) Excellent services for pre & post investment services, (4) Enabling environment development: create enabling environment, infrastructure, laws & regulations, problem solving. (5) Improving participation process: increase participation of all stakeholders in investment promotion process. Activities Eligible for BOI Investment Promotion : Sector 1 Agriculture and Agricultural Products, Sector 2 Mining, Ceramics and Basic Metals, Sector 3 Light Industry, Sector 4 Metal Products, Machinery and Transport, Equipment, Sector 5 Electrical Appliances and Electronics Industry, Sector 6 Chemicals, Paper and Plastics, and Sector 7 Services and Public Utilities. BOI Incentives TAX Incentives (1) Corporate income tax holidays up to 8 years 8

12 (2) Import duty reductions or exemptions on machinery and raw materials NON-TAX Incentives (1) 100% ownership land rights for foreign investors (2) Land ownership for businesses (3) Work permit for technicians Policies for investment promotion (1) Activities of Special Importance and Benefit to the Country: obtain the highest privileges (NOT subject to corporate income tax exemption cap). Examples are energy conservation and STI-related activities. (2) Priority Activities: obtain the highest privileges (subject to corporate income tax exemption cap). Examples are the agriculture sector, high-tech, and public utilities. (3) Decentralization Policy: provides different incentives based on zones. (4) Electrical Appliances and Electronics Industry Investment Promotion: provide incentives beyond just zoning location. (5) Cluster Industry Policy: provide incentives for the projects locating in specific zones, such as textile industrial zones, gem and jewelry industrial zones, and printing industrial zones. (6) Specific Sector Policy: examples are automotive industry and tourism industry 9

13 Revision of promoted activities (1) Regroup activities. Amend the eligible activities of 7 sectors and 156 subactivities since August 2000 into 129 sub-activities. (Effective 14 September 2009) (2) Incentives in each activity based on importance or specific agenda. (3) Increase incentives and relax conditions. (4) No elimination of activities or reduction of incentives. (5) New activities, such as manufactures of nano materials or products from nano materials, manufactures of musical instrument, manufactures of Completely Build Unit (CBU) or Completely Knockdown (CKD) of houses, service industrial zones. 10

14 Revision of incentives (1) Increase incentive for technology development supporting industries (2) Increase incentive for tourism business and hygiene business, including hygienic paper and its products. New package for regional operating headquarters 11

15 Strategy to promote Thai overseas investment: the BOI has set up the Thai Overseas Investment Promotion Subcommittee for consideration as below: (6) Guidelines on drafting a law to promote Thai overseas investment (7) Issue new law on Thai overseas investment promotion (8) Amend the Investment Promotion Act, B.E.2520 in order to cover Thai overseas investment promotion (9) Guidelines on establishing a permanent organization to be responsible for Thai overseas investment promotion (10) Upgrade its operation into a bureau under the supervision of the BOI Strategy 12

16 II.3. ANALYSIS ON THE KEY INDICATOR OF GLOBAL INTEGRATION OF THAILAND Following are the key indicators of global integration of Thailand: f Output, Employment and Prices Real GDP (% change y-y) Industrial production index (2000=100) (% change y-y) Unemployment (%) Real wages (% change y-y) 1/ Consumer price index (% change y-y) Public Sector Government balance (% GDP) 2/ Domestic public sector debt (% GDP) 3/ Foreign Trade, BOP and External Debt Trade balance (billions US$) Exports of goods (billions US$) (% change y-y) Key export (% change y-y) 4/ Imports of goods (billions US$) (% change y-y) Current account balance (billions US$) (% GDP) Foreign direct investment (billions US$) 5/ External debt (billions US$) 6/ (% GDP) Short-term debt (billions US$) 6/ Debt service ratio (% exports of g&s) Foreign exchange reserves, gross (billions US$) (months of imports of g&s) Financial Markets Domestic credit (% change y-y) 7/ Short-term interest rate (% p.a.) 8/ Exchange rate (Baht/US$, ave) Real effective exchange rate (2000=100) 9/ (% change y-y) Stock market index (Dec. 1996=100) 10/ Memo: Nominal GDP (billions US$)

17 The major key indicator of global integration of Thailand Key Indicator f Real GDP (% change y-y) Exports of goods (billions US$) (% change y-y) Imports of goods (billions US$) (% change y-y) Trade balance (billions US$) Foreign direct investment (billions US$) Graph of Real GDP (% change y-y)

18 Graph of Trade Graph of FDI

19 II.4. SWOT ANALYSIS ON MACRO LEVELS EFFORTS OF THAILAND (SWOT MATRIX) SRENGTHS Ease of doing business Strong economic fundamental Board of Investment (mechanism & policies) During 1 st quarter of Economic growth: 12% (highest for 15 years) - Household consumption expenditure growth of 4% - Private investment growth 15.8% - Unemployment at a very low percentage OPPORTUNITIES Major regional markets opportunities Favorable geographical location as the land bridge between South and East Asia JTEPA, ASEAN member, Sub-Region, ASEAN-India (will be effective 2016), ACFTA ASEAN Economy Community (be realized by 2015) make single market in ASEAN (pop: 0.5 billion, a combined GDP 1.5 trillion) Other Free Trade Agreement (Japan, Australia, New Zealand) - Manufacturing production expanding by 22.8% WEAKNESSES Political instability State in emergency To much nationalism THREATS Global recession Debt crisis in EU Regional competition Thailand faces from its neighbors. Competition with regional giants: China, India, and Indonesia. 16

20 Part III CONCLUSION AND RECOMMENDATIONS III.1. CONCLUSION In conclusion, Thailand has being done its efforts for moving forward and toward globalization, in particular, during the difficult time of the political instability from 2006 to the end of 2009 and the world economic crisis in So despite the obstacle of global recession, and despite the political protests situation that received so much press, Thailand has weathered the storm and as in the past we have emerged with a clear purpose and in a stronger position. Thailand is now poised to take full advantage of the global economy and the Board of Investment will continue to be responsive to the needs of the day, while pursuing a long term policy of sustainable development and building a creative knowledge based economy. Beside the advantages of BOI, Thailand has strong economic fundamental and ease of doing business as strengths points, and for 1 st quarter of this year (2010) Thailand has economic growth 12%, private investment growth 15.8%, etc. Especially, Thailand can attract & maximize its benefits from the opportunity in the region and global, such as JTEPA, ASEAN, Sub-Regions (Mekong Sub Region), ASEAN-India, ACFTA, and so on. Therefore the efforts of Thailand towards globalization will be exactly achieved/succeed. Although Thailand has high possibilities of developing itself into globalization, the country has to cope with weaknesses/constraints and threats that raise obstacles to the global integration. Those barriers are global recession, debt crisis in EU, and other major challenges: Regional competition Thailand faces from its neighbors. Competition with regional giants: China, India, and Indonesia. Moreover, Thailand still meets the challenges with political instability, state in emergency (unrest, criminal behavior) especially during April 2009 that the emergency decree s still in place in Bangkok and a number of provinces. And during that time the number of project was fallen. 17

21 III. 2. RECOMMENDATION: Thailand must be substantial and growing increase in regional competition Thailand faces from its neighbors. Thailand must define a forward looking competitive strategy for a relatively small size economy (compared to regional giants: China, India, and Indonesia). Deeply understanding on the business environment around the world, in particular, the selected countries for doing business and the competitive product, market and country. Thailand must transform itself to becoming a producer of high technology, and high quality through capacity building, technological and innovative development. Thailand must continue to strengthen the investment policies through existing efforts like BOI, OSOS, investment promotion policies and etc. Thailand should consider clearly what sectors will easily be impacted when the country meets recession or the world has economic crisis. Then the government can set up the preventing strategies like subsidize by suspending with tax holiday on profit or reducing the rate of tax on export. Government must define an efficient and effective reconciliation policy to solve the internal conflict and in order to ensure peace, political stability, security and social order as an example in Cambodia context, win-win policy was successful implemented. Government should eliminate the emergency decree that has placed in Bangkok & a number of provinces. 18