THAILAND IN MID-DECADE

THAILAND IN MID-DECADE WILL THE NEXT FIVE YEARS RESTORE POLITICAL STABILITY AND ECONOMIC PROSPERITY? CHRISTOPHER F. BRUTON DATACONSULT LTD. BANGKOK, THAILAND AMARI HOTEL, PHUKET THURSDAY 12 MARCH 2015

1. ASEAN countries have their own definitions, of democracy Ten countries, five types: Would-be democracies, heavily into corruption and nepotism: Philippines, Indonesia Guided democracies with long periods of one party rule: Cambodia, Malaysia, Singapore People s democracies, with no democracy at all: Vietnam, Laos Unashamed dictatorships, maybe on the mend: Brunei, Myanmar And then we have Thailand sometimes dictatorship, sometimes anarchy, sometimes Thai-style democracy But economic growth and social development possible whichever the system democracy not always good dictatorship not always bad Main criteria are: maintain stability pursue growth oriented economic policies promote and preserve rule of law

2. Two decades of instability: Thailand adolescent (born 1996, 20 years old in 2016) would have experienced: 2 Economic crises of 1997, 2008 2 Military coups of 2006, 2014 4 Constitutions: pre-1997, 1997, 2007, 2015 Bangkok twice under-siege: 2010, 2014 10 prime Ministers (assuming one new incumbent in 2016) Thaksin s own political party career went through Palang Tham, Thai Rak Thai, Palang Prachachon, Pheu Thai, what next? by contrast, no change at all over 35 to 50 years for People s Action Party (Singapore), Barisan Nasional (Malaysia), Communist Parties of Laos, Vietnam, Cambodian People s Party Thailand therefore has: disadvantage of instability and lack of continuity BUT advantages of political dynamism, innovation and experimentation ALONGWITH preservation of continuing indigenous traditions and institutions learning from past to create a better future?

3. Where is Thailand s democracy heading? Preparatory stages Constitution draft completed in April 2015 (April 17 stipulated) Constitution Drafting Committee to National Reform Council Final Constitution draft by 31 July 2015 will there be a referendum? plans for constitution promulgation in September 2015 Legislative organic laws of National Legislative Assembly in October 2015 Election Law Political Parties Law Election Commission Law Enactment of laws in December 2015 Announcement of Election date in January 2016 Election in early 2016 (potentially March 2016, before Songkran, May holidays) Indicators of new form of government National Assembly Approximately 450 members 250 representing constituencies 200 from party list six regions for party list, each party group can propose 33-35 party list candidates Senate 200 senators six-year terms indirect elections from various categories Prime Minister non-mp prime minister allowed in exceptional circumstances Constitution not yet finalised possibilities for debate / referendum?

4. Problem issues for Thailand business Thailand: the most problematic factors for doing business Factor 2014 2013 2012 2011 2010 2009 2008 2006 2015 2014 2013 2012 2011 2010 2009 2007 Corruption 21.4 20.2 16.7 14.5 11.4 11.0 10.3 14.7 Govt instability 21.0 16.5 18.6 15.2 24.8 23.7 21.5 7.7 Inefficient govt bureaucracy 12.7 13.4 14.7 11.7 13.4 13.3 12.1 17.8 Policy instability 11.8 13.5 15.8 12.9 16.4 15.4 13.0 13.9 Insufficient innovation 6.3 7.5 5.9 0.0 0.0 0.0 0.0 0.0 Inadequate infrastructure 6.3 5.2 4.0 5.3 4.7 2.8 5.2 6.0 Inadequate education 6.2 6.1 6.5 8.3 7.1 6.7 7.4 10.2 Poor work ethic 3.7 3.1 4.0 5.5 4.0 3.5 2.2 2.8 Access to finance 3.4 4.2 2.0 3.1 4.9 7.2 4.1 7.1 Tax rates 2.6 1.8 1.8 5.6 4.7 2.9 3.5 2.5 Tax regulations 2.4 2.9 1.9 2.8 3.9 6.3 5.1 8.2 Crime 1.0 1.1 1.0 2.0 0.7 1.4 0.8 0.2 Restrictive labor regulations 0.5 1.8 1.2 1.2 1.6 1.9 1.2 2.6 Inflation 0.3 0.9 4.7 5.1 0.8 2.0 8.5 4.3 Poor public health 0.3 0.7 0.6 0.0 0.5 0.2 0.6 0.0 Foreign currency regulations 0.1 1.1 0.6 6.8 1.6 1.8 4.6 2.0 Source: World Economic Forum: Global Competitiveness Reports Note: figures represent percentages of prime mentions for each year Govt instability, policy instability both major concerns since 2008 (33-40%) Corruption major concern since 2013 (20% +) Despite multilateral sector warnings, inefficient govt bureaucracy only other main concern for business (12-15%) Inadequate infrastructure / education not recognised by business as problematic factors (4-8%)

5. Impact of political risk factors on economic and business Political risk DOES affect economic growth, investment commitment and business decisionmaking But business in Thailand has based decision-making on uncertain political stability Incoming foreign investment less used to Thailand, so more affected Thailand has progressed well, but could have done much better Assumptions for next five years Elections WILL be held in 2016 Guided democracy or effective politics as usual system will emerge Man-in-Dubai will continue to disrupt, with local support base Protectionism will continue to handicap economic opening Mekong Region market hub status will enhance Thailand s attractiveness but resource-rich, big market Indonesia will be major counter attraction Inevitable non-political constraints for Thailand s growth Education despite periodic reform efforts, still relatively poor performance even if reform achieved instantly, takes 5 to 10 years to take effect within economy Population restructuring ageing population, contracting workforce: neighbour countries can supply only lowlevel labour Corruption improvements cannot change mindsets / traditions immediately: takes time

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Thailand in mid-decade: will the next five years restore political stability and economic prosperity? 6. Short-term economic indicators to watch 20 15 10 5 0-5 -10 IMA Asia 25 20 15 10 5 0-5 -10-15 -20 IMA Asia THAILAND: GDP Growth (YoY %) THAI: Consumption and Investment, YoY % Private Consumption Fixed Investment Moderately good prospects low inflation adequate foreign reserves modest public debt current account surpluses strong manufacturing base Overall economic activity variable past performance Recession / flooding impact during 2008/2011 supportive Chinese / Japanese relations to offset US / EU standoffs Export / productivity challenges Consumer confidence recovering excessive household debt (90% of GDP) rural incomes hit by commodity price cutbacks Investment recovery Pent-up past demand stimulating short-term private sector recovery Public sector infrastructure schemes can stimulate demand (if not delayed) potential for strong Chinese / Japanese / Korean investment in higher tech industries Baht currency uncertainties strong US$ trend should weaken Baht, strengthen exports But risk of relative stronger Baht

7. Longer-term uncertainties 12 10 8 6 4 2 % growth 5.4 THAILAND: GDP & Inflation Trends, % 10.3 0 1980-85 IMA Asia 1985-90 8.6 1990-95 0.4 1995-00 5.1 2000-05 3.6 2005-10 % inflation Real growth Inflation 2.8 2010-15 4.0 2015-20 6 5 4 3 2 1 0 GDP growth halved since 1985-95 shrinking labour force, loss of momentum during political transition Relatively low international and domestic inflationary pressures Capital expenditure will outpace GDP growth fixed investment to GDP ratio will edge higher capital expenditure will dominate economic activity in 2015-2020 Demographic transition risks severe fall in population growth towards ageing population and eventual population decline

8. Thailand in ASEAN (+ China, India) Gross Domestic Product, current prices (Countries ranked by 2015 size) (US$ billion) Country 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 China 4,547.70 5,105.80 5,949.60 7,314.50 8,386.70 9,469.10 10,355.00 11,285.10 12,235.10 13,263.30 14,353.00 15,518.90 India 1,223.20 1,365.30 1,708.50 1,880.10 1,858.70 1,876.80 2,047.80 2,247.60 2,447.30 2,672.50 2,908.30 3,181.90 Indonesia 510.5 538.6 709.3 845.6 877.8 870.3 856.1 915 975.3 1,051.10 1,137.10 1,230.90 Thailand 272.6 263.7 318.9 345.7 366 387.3 380.5 397.5 417.8 441.2 466.5 493.3 Malaysia 231.1 202.3 247.5 289.3 305 313.2 336.9 375.6 413.4 449.7 490.6 535.8 Philippines 173.6 168.5 199.6 224.1 250.2 272.1 289.7 330.3 369.2 412.9 462 517.3 Singapore 192.2 192.4 236.4 274.1 286.9 297.9 307.1 320.2 331.4 343.3 355.9 369.1 Vietnam 98.3 101.6 112.8 134.6 155.6 170.6 187.8 204.5 219.4 238.8 259 281.4 Myanmar 34.6 38.1 49.6 56.2 55.8 56.8 65.3 73.6 82.2 91.4 101.5 111.9 Brunei 14.4 10.7 12.4 16.7 17 16.1 17.4 17.5 17.9 18.1 19.1 19.8 Cambodia 10.4 10.4 11.3 12.9 14.1 15.5 16.9 18.4 20.1 22 24 26.3 Laos 5.3 5.6 6.8 8.1 9.4 10.8 11.7 12.8 14.1 15.5 17.3 18.7 Statistical source: International Monetary Fund, October 2014 Thailand is ranked as second-largest economy in ASEAN until 2017, when surpassed by Malaysia, and becomes fourth largest economy in 2019, when surpassed also by the Philippines Vietnam was 36% of the size of Thailand in 2008, but will become 55.5% of Thailand by 2019 Myanmar was 12.7% of the size of Thailand in 2008, but will become 21.8% of Thailand in 2019 but still a very small player overall Thailand in 2008 was US$272.5 billion out of ASEAN total US$1,543 billion equal to 17.7%, while in 2019, Thailand US$493.3 billion out of US$3,604.5 or 13.7%, falling slightly behind

9. Thailand in ASEAN (+ China, India) Gross Domestic Product per capita (Countries ranked by 2015 size) (Current prices US$) Country 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Singapore 39,722.10 38,577.00 46,569.70 52,870.50 54,007.30 55,182.50 56,113.00 58,146.00 59,867.40 61,712.90 63,677.60 65,701.80 Brunei 38,444.90 28,237.50 31,981.90 42,436.00 42,402.40 39,658.80 42,239.30 41,833.20 41,900.80 41,706.30 43,483.90 44,351.80 Malaysia 8,372.20 7,203.30 8,658.70 9,955.80 10,331.30 10,456.90 11,062.00 12,127.20 13,123.90 14,037.80 15,056.60 16,170.30 China 3,424.40 3,826.00 4,437.00 5,428.80 6,193.80 6,958.70 7,572.40 8,211.50 8,858.70 9,555.80 10,289.80 11,070.60 Thailand 4,110.00 3,943.10 4,740.30 5,114.70 5,390.40 5,675.80 5,550.30 5,771.70 6,040.40 6,352.40 6,690.80 7,047.50 Indonesia 2,209.90 2,298.80 2,984.90 3,508.20 3,590.70 3,509.80 3,404.00 3,587.10 3,769.70 4,005.70 4,272.40 4,559.80 Philippines 1,918.30 1,851.50 2,155.40 2,379.40 2,612.10 2,790.90 2,913.30 3,256.30 3,568.70 3,913.10 4,292.80 4,711.90 Vietnam 1,154.50 1,181.40 1,297.20 1,532.30 1,752.60 1,901.70 2,072.70 2,233.50 2,370.70 2,554.00 2,741.20 2,947.60 Laos 862 890.6 1,069.70 1,236.20 1,414.50 1,593.60 1,697.10 1,824.20 1,969.10 2,118.20 2,322.00 2,473.20 India 1,052.70 1,158.90 1,430.20 1,552.50 1,514.60 1,509.50 1,625.60 1,761.10 1,892.70 2,040.00 2,191.10 2,366.10 Myanmar 705.3 771.6 998.4 1,120.90 1,103.30 1,113.40 1,269.80 1,420.00 1,572.50 1,736.00 1,913.60 2,097.20 Cambodia 742.6 736.3 783.5 882.6 950.9 1,028.10 1,103.50 1,180.80 1,273.00 1,372.50 1,479.00 1,593.60 Statistical source: International Monetary Fund, October 2014 Thailand is ranked as fourth highest in per capita GDP in ASEAN, maintaining that position through 2019 Vietnam, which had a per capita GDP of 28% of Thailand in 2008 will rise to 41.8% by 2019 Myanmar, which had a per capita GDP of 17.2% of Thailand in 2008 will rise to 29.75% of Thailand by 2019

10. Thailand in ASEAN (+ China, India) by population (Countries ranked by 2015 size) (million persons) Country 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 China 1,328.00 1,334.50 1,340.90 1,347.40 1,354.00 1,360.80 1,367.50 1,374.30 1,381.10 1,388.00 1,394.90 1,401.80 India 1,162.00 1,178.10 1,194.60 1,211.00 1,227.20 1,243.30 1,259.70 1,276.30 1,293.10 1,310.10 1,327.30 1,344.80 Indonesia 231 234.3 237.6 241 244.5 248 251.5 255.1 258.7 262.4 266.1 269.9 Philippines 90.5 91 92.6 94.2 95.8 97.5 99.4 101.4 103.5 105.5 107.6 109.8 Vietnam 85.1 86 86.9 87.8 88.8 89.7 90.6 91.6 92.5 93.5 94.5 95.5 Thailand 66.3 66.9 67.3 67.6 67.9 68.2 68.6 68.9 69.2 69.5 69.7 70 Myanmar 49 49.3 49.7 50.1 50.5 51 51.4 51.8 52.3 52.6 53 53.4 Malaysia 27.6 28.1 28.6 29.1 29.5 29.9 30.5 31 31.5 32 32.6 33.1 Cambodia 13.9 14.1 14.4 14.6 14.9 15.1 15.3 15.5 15.8 16 16.3 16.5 Laos 6.1 6.3 6.4 6.5 6.6 6.8 6.9 7 7.2 7.3 7.4 7.6 Singapore 4.8 5 5.1 5.2 5.3 5.4 5.5 5.5 5.5 5.6 5.6 5.6 Brunei 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Statistical source: International Monetary Fund, October 2014 Thailand was fourth largest country by population in ASEAN in 2008 and will remain in 2019, but population growth in Indonesia, the Philippines and Vietnam will be much greater Myanmar s population was previously forecast to have overtaken Thailand, but the recent census suggests a much lower population than previously estimated Total ASEAN population in 2008 was 575 million, with Thailand at 66 million, representing 11.5%. By 2019, ASEAN population will reach 662 million, with Thailand at 70 million, therefore 10.6%, a slight reduction, which will accentuate in later years as Thailand s population begins to decline

11. Thailand in ASEAN: the longer range view in 2030 and 2050 PwC Study on World leading economies: No. 2014 Ranking 2030 Ranking 2050 Ranking Country GDP (PPP) GDP (PPP) No. Country US$bn US$bn No. Country GDP (PPP) US$bn 1 China 17,632 1 China 36,112 1 China 61,079 3 India 7,277 3 India 17,138 2 India 42,205 9 Indonesia 2,554 5 Indonesia 5,486 4 Indonesia 12,210 21 Thailand 990 21 Thailand 1,847 20 Philippines 3,516 27 Malaysia 747 24 Malaysia 1,554 21 Thailand 3,510 28 Philippines 695 26 Philippines 1,508 22 Vietnam 3,430 32 Vietnam 509 28 Vietnam 1,313 24 Malaysia 3,327 Source PwC: The World in 2050: will the shift in global economic power continue? According to PwC, Thailand maintains its positions at 21 in World order through 2050 The Philippines edges gradually ahead, and Vietnam begins to catch up Note that the World order relates to GDP (PPP) size, not per capita income: Indonesia, the Philippines, Vietnam will have larger populations therefore lower per capita incomes But the Philippines, Malaysia, Indonesia will have growing working population, whereas Thailand s working population will fall, while that of Vietnam will level off

12. How will Thailand look, 5 years from now? Population growth will continue to slow, both compared with the past, and also Thailand s neighbours, particularly the least developed ones Urbanisation will continue, with Bangkok growing most noticeably along completed and completing mass transit lines There will be particularly strong growth in the secondary cities, especially those first reached by high speed train: Nakhon Ratchasima, Chonburi, Sattahip / Rayong, subsequently Central, Southern, Northern and Northeastern cities Highway development will be more limited, except for Pattaya / Sattahip and Bangkok / Nakhon Ratchasima, but rail logistics will gain acceptance only gradually Bangkok urban road traffic will be gridlock, necessitating vehicle access limitation Retail trade will be saturated: department stores in every province, convenience stores at every street corner; main development of Thai retail will be offshore Hospitality industry will polarise between high-end Western / Asian and mass budget, with transport likewise: high speed rail cannot match airline convenience Energy will be increasingly alternative with Thailand residual resources turned to industrial use Education and healthcare will catch up with demand, with smaller enrolments for education and healthcare for ageing population Agriculture will modernize with smaller, older, better educated labour-force Labour intensive industry will concentrate in border zones with transborder labour High-tech industries will need to compete with rival providers in ASEAN, potentially losing market share Workers will work shorter hours, but beyond 65, with longer life-spans, more challenging retirement financing provision Chambers of Commerce will hold even more meetings, with even fewer attendees