“Middle Income Trap and the Thai Service Sector � October 21 21, 2013 EFN Asia Conference 2103
Deunden Nikomborirak
Thailand Development Research Institute
Presentation Outline 1. Role of Service Sector in the Thai Economy 2. Opportunities 3. Challenges 4. Conclusions & Recommendations
1. Role of Service Se ctor
Growth Prospects of the Thai Economy 1. 2.
3.
Thailand needs to break away from the “Middle Income Trap” TDRI’s assessment of the impact of the minimum wage increase to 300 baht nationwide reveals that GDP growth ca n remain positive if labour productivity increases 8.4 %. Bank of Thailand’s assessment shows the Thai labour productivity needs to increase from 4% to 8% to compensate for the wage hike.
44%
Thailand cannot break away from the middle income trap without a reform of th e service sector of labour force is employed in the service sector
Half
100%
100%
90%
90%
4070% 4333% 4436% 4487% 4497% 4503% 4520% 4553% 4556% 4580%
80% 4094% 4105% 4225% 4225%
80%
70%
70%
60%
60%
of GDP is contributed by the service sector
4874% 4875% 4931% 4953% 4946% 4963% 4977% 5000% 5023% 5113% 5104% 5132% 5183%
1394% 1486% 50% 1528% 1535% 1566%
50%
40%
40%
30%
4022% 4235% 4086% 30%3810% 4295% 4140% 3857% 4121% 4184% 3826% 4084% 3900% 4113%
2060% 1354% 1350% 1542% 1380% 1550% 1577% 1473% 1585%
4502% 4420% 4247% 4240% 4211% 4130% 4102% 4040% 3971% 3971% 3947% 3926% 3862% 3870%
20% 10%
0%
1999
2001
2003
Agriculture
2005
2007
Manufacturing
2009
2011
Service
Source: National Income Account, NESDB
20% 10% 1041%995%1047%961%902%897%870%891%916%830%863% 1030% 1007% 0% 1999 2001 2003 2005 2007 2009 2011 Agriculture
Manufacturing
Service
Labour productivity in the service sector is stagnant and well below that in the manufacturing sector 1,000 baht at 1988 prices 400 350 300 250 200 150 100 50 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NESDB and Ministry of Labour
Agriculture Manufacturing Service
Labor productivity growth by sector (2007-11) ave growth (%) 80 70 60
69.2
50 40 30 20 10 2.5 0.4 0 electricity gas water -1.2 -10
Source: NESDB
3.4
3.9 finance
3.8 -5.9
0.7 education -3.8
6.1 -0.8
20
Service sector “drags” economic growth
YOY(%)
15 10 5
-10 -15
Source: NESDB
Agriculture
Manufacturing
Service
2010
2008
2006
2004
2002
2000
1998
1996
1994
-5
1992
1990
0
Conclusions 1.
2.
Low labour productivity in the service sector can be attributed to the foreign equity share cap at 49% in the servi ce sector and domestic rules and regulations that serve to e ntrench market power of incumbent operators. Low growth and labour productivity in the service sector leads to (1) low wage (2) high costs, low quality and less ad vanced services, which undermine the competitiveness of th e export-oriented manufacturing sector.
2. Opportunit ies
ASEAN Economy ranks 6th in terms of size 18 16 14 12 10 8 6 4 2 0
GDP (PPP) 2011 – trillion USD 15.8
15 11.3
EU
US
China
4.5
4.4
India
Japan
3.5
ASEAN
แหล่ง ที่ม า : World Bank database สามารถดาวน์โ หลดได้ท ี่
ASEAN is becoming an increasingly important FDI destination Proportion of FDI destined in ASEAN (%)
Source: World Investment Report 2012.
Thailand’s FDI share is below her GDP share GDP share (2006-10) FDI Share 200610 Veitnam; 11.68 Brunei; 0.66Cambodia; 1.19 Indonesia; 13.39
Pao PDR; 0.4 Vietnam; 8.84
Thailand; 13.83
Brunei; 0.71 Cambodia; 0.97
Thailand; 19.39
Malaysia; 11
Indonesia; 32.69
Myanma
Singapore; 9.08
the Phillipine
Lao PDR; 0.48
Malaysia; 13.87 the Philippines; 11.6 Myanmar; 2.38
Singapore; 42.8
Source: World bank database
Source: ASEAN Investment Report 2011
FDI into ASEAN flows mainly into the service s ector 100% 90% 80% 70%
5430%
5401%
5583% 5133% 5715% 5352% 7095%
6025%
5352% 5105%
6569%
60% 50% 40% 30%
5303% 4510%
20%
3335% 4500% 4885% 3358%
2846%
10% 0%
4113% 4791% 4223% 4599%
59% 2000
-704% 2001
304% 2002
77% 2003
Agriculture
61% 2004
49% 2005
59% 2006
Manufacturing
640% 2007
148% 2008
Services
Source: ASEAN Investment Report 2011.
10% 2009
73% 2010
FDI into Thailand is heavily concentrated in manufacturing
FDI share
GDP share
Agriculture 8.3
Agriculture 0.09
facturing
Service 50.53 Manufacturing 58.73
แหล่ง ที่ม า: ASEAN Investment Report
Service 41.17
Singapore is the “ASEAN Gate Keeper” USD 3.14 billion
USD 17.66 billion
แหล่ง ที่ม า: ASEAN Investment Report 2011. (AVERAGE FDI FLOW DURING 2000-2009)
Observations • Since Thailand has a relatively restrictive FDI regime, foreign capitals f low through Singapore • In future when AEC is realized, Thailand stands to receive only “secon d hand FDI” from Singapore.
3. Challeng es
How to increase service sector productivity ? 1. Relax FDI restrictions to promote much needed transfer of technology into the service sector. 2. Revise domestic sectoral regulations that harm competition 3. Revise rules and regulations that discourage FDI.
3.1 How to liberalize ? 1.Thailand needs a “Roadmap” for service liberalization 2.The Foreign Business Act 1999 needs to be amended by (1) changing the list 3 from positive list to negative list (2) identify sectors that warrants protection based on benefits to the economy and not to the specific industry 3.Take steps to liberalize the following sectors: •. Services supporting the manufacturing (finance and banking, insurance, transport, telecommunication and energy) •. Services that are monopolistic or oligopolistic
Services targeted to be liberalized service Number of Name of operator Market share operator Energy Purchasing and sales of gas Import of LPG Gas transportation Gas distribution
1 1 1 3
PTT. PTT. PTT. PTT.
100 100 100 100 (including subsidiaries)
Energy Electricity Generation
5
EGAT
1
EGAT
82 (including subsidiaries) 100
1
EGAT
100
1
บมจ. ไทยคม
100
Purchasing and sales of electricity High voltage electricity transmission Telecom Satellite
3.2 Reform at the sectoral level
3.2 Reform at the sectoral level (2)
• •
•
3.3 Revise rules that discourage FDI
Lift the 4 to 1 rule governing the hiring of foreign nationals Relax restrictions on certain professionals such as lawyers or engin eers Shift investment incentive rules from L-intensive manufacturing-based to ski ll-intensive service-based industries.
4. Conclusion & Recommendations
Labour productivity in manufacturing and services ($ per person per annum)
120000 100000
99379 86417
80000
The Thai economic structure mimics that of relatively le ss developed coun tries
60000
43622 43373
40000
16832
20000 0
35025
Singapore
21900 11021
Thailand
Service
23057 8819
Indonesia
Manufacturing
Source: IMD World Competitiveness Yearbook 2012
Service sector reform will help Thailand escape mid income trap ‌ Attract foreign dle K&
technology + dissolve monopolies and oligopolies
Capital & Technology help boost labour productivity Wage of roughly 20 million workers improve Services become more efficient
Manufacturing sector regains competitiveness
Thank you very much !!!