Rolling Along Smoothly: Thailand’s Path For Economic Growth
Not content with being the world’s 13th largest automotive producer, Thailand’s development of Special Economic Zones set in motion its ambitions to transform into a knowledge-based economy. By Jonathan Chou
The second-largest economy in ASEAN after Indonesia, Thailand’s economy is expected to grow 3.2 percent in 2017 according to the 2016 Thailand Economic Monitor released by the World Bank. The country has numerous free trade agreements, including those with in ASEAN, Australia, New Zealand, China, Korea and Japan.
According to the Thailand Board of Investment (BOI), foreign investments totalling US$4.3 billion were approved in the first seven months of 2016. Japan was the largest foreign direct investment (FDI) source, followed by China, Australia, Singapore and Indonesia.
An Export Hub
The country has active industrial sectors that are dependent on the machinery and metalworking industries to meet growing demand. Subsequently, machinery and parts are one of the country’s largest import categories, ranking second in terms of highest import value, according to the Thai Ministry of Commerce.
Due to ongoing regional economic expansion, Thailand is also a growing export hub for machinery and parts in Southeast Asia, with exports increasing over 200 percent since 2004, according to the BOI. The country’s top export in 2016 was automotive parts and accessories, while machinery and parts were in sixth place, followed by iron, steel and products in tenth.
Rolling Along
The automotive manufacturing industry is a robust sector in Thailand. Being the world’s 13th largest automotive manufacturer in the world, the country is Southeast Asia’s largest vehicle producer and the world’s largest manufacturer of one-ton pickup trucks, according to the Royal Thai Embassy to Washington, USA.
Thai-made vehicles are produced and licensed by Japanese, European and American automotive producers, such as Toyota, Honda, BMW, Ford and General Motors. In fact , Japanese Original Equipment Manufacturers (OEMs) have an 85 percent market share while the remaining 15 percent goes to European and American OEMs, according to a report by ASEAN Briefing.
Thailand’s automotive cluster has around 700 Tier 1 companies and 1,700 Tier 2 and 3 companies, employing over 500,000 (almost 80 percent) of the country’s total automotive workforce.
While a sizeable portion of vehicles are for domestic sales, the majority are exported throughout the region through the ASEAN Free Trade Area agreement. A total of 178,798 vehicles were produced in March this year, of which 84,801 were sold domestically. The remaining were then exported, according to the Thai Automotive Industry Association.
With almost 85 percent of assembled parts and components in the country produced domestically, machinery and metalworking needed to support automotive manufacturing in Thailand are seeing strong demand.
Looking Skywards
Thailand’s construction market is also seeing growth. In 2015, the sector grew by 15.8 percent, a significant improvement over 0.1 percent in 2013 and 3.7 percent in 2014, and the industry contributed 2.8 percent to the country’s GDP, according to research firm Oxford Business Group.
The industry reached US$41.4 billion in 2016 with about US$17.9 billion coming from private investments and US$23.4 billion from the public sector, including infrastructure, according to Solidiance. The consulting firm also elaborated on current trends and the future outlook in Thailand’s construction sector:
- Residential market shift
With public transportation lines under construction, the city centre is gradually expanding to different vicinities outside of Bangkok. Residential condominiums are seeing especially strong growth.
- Regional shopping hub
The growth of commercial building market is driven by a higher demand for shopping malls to accommodate the rising amount of tourists from China and ASEAN. Thai shopping mall developers plan to invest more than US$2.83 billion over the next three years to expand and open new stores.
- New industrial zones for growth
Industrial construction developments are mostly observed in Special Economic Zones, where high value-added industries (such as aviation, robotics and medical) are given BOI privileges and incentive schemes.
The Thai government has also approved the development of the Eastern Economic Corridor, a five-year plan which concentrates on construction of transport infrastructure, sea, and rail. This move is aimed to position Thailand as a major economic zone in the region.
Thailand 4.0
While its industrial sectors are continuing to grow, the country is aiming to make a transition to a knowledge-based economy by announcing “Thailand 4.0”.
The first three economic models were focussed on agriculture, light industry and heavy industry respectively for growth. Thai Prime Minister General Prayut Chan-o-cha said that the fourth economic model would aim to develop the country as a knowledge-based economy, with an emphasis on research and development, science and technology, creative thinking, and innovation.
He added that “Thailand 4.0” will also focus on sustainable economic growth and development with emphasis on protecting the environment.
Super Clusters
Efforts to move the country into the new economic model can be seen with the launch of the 2015-2021 Investment Promotion Strategy by the BOI.
The aim of this initiative is to promote high value-added industries, investment clusters, development in the southern provinces, and establish Special Economic Zones in border areas.
Priority is given to investments in high-tech and creative industries, service industries that support the development of a digital economy and industries that utilise local resources. Under the new strategy, tax incentives and non-tax incentives (such as guarantees or protection measures) are granted to investors who fit the relevant criteria.
Prime Positioning
As part of the economically developing Southeast Asian region and close proximity to emerging global economic powers (China and India), Thailand’s export-focussed automotive sector and developments in the SEZs and East Economic Corridor show signs of growing demand for machinery and metalworking.
The government’s focus to develop its country’s high value-added industries could also mean a higher demand for more sophisticated machinery in future.
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