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Prepared by:

D.M. Sanath Dasanayaka (sanath.dasanayaka@outlook.com)

University of Sabaragamuwa, Sri Lanka

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Content

Topics Page No

1. Thailand in the economic perspective 01

2. Development and Advancement strategies of Thailand 02-07

3. Appropriate strategies in the Sri Lankan context 08-09

4. References

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1. Thailand in the economic perspective

Thailand, the kingdom of Thailand in the official name, formerly known as Siam is in

the center of the Indonesian peninsula in Southeast Asia. It is bordered to Burma and Laos by

the north, to the Andaman Sea by the west and to Gulf of Thailand and Malaysia by the

south. The country is a constitutional monarchy headed by king. Thailand is the world’s 51st

largest country in terms of total area. It is similar to France in its scale which is

approximately 513,000 square km. The population is about 64 million people. Baht is the

currency using in Thailand. The capital and the largest city is Bangkok, Thailand’s political,

commercial and cultural hub.

Thailand is an emerging economy as well as considered as a newly industrialized

country. It enjoyed the world’s highest growth rate from 1985 to 1996- averaging 12.4%

annually. Thailand exports goods and services valued at around $105 billion annually. Major

exports are Thai rice, textiles, footwear, fishery products, jewelry, rubber, cars, computers

and electrical items. The country is ranked as the no.1 exporter of rice, valuing more than 6.5

million tons of milled rice annually. Rice is recognized as the most important crop in the

country as well as about 55 percent of usable land is utilized for rice production.

Electrical items, components, computer parts and cars are identified as substantial

industries in the country also tourism contributes economy about 6% of the total amount. The

economy of Thailand is heavily export-dependent; becoming the 2nd largest economy in

Southeast Asia, after Indonesia and it is the 4th richest nation according to GDP per capita,

after Singapore, Brunei and Malaysia.

Forty-nine percent of Thailand’s total labor force is employed in agriculture. In 1980, it

was around 70 percent. Agriculture has been turned into a more industrialized and

competitive sector from labor intensive and traditional one. However, the relative

contribution of agriculture to GDP has declined as the relative contribution of exports of

goods and services has increased. Basically, the unemployment rate was 0.4 percent when the

month of December in 2011.

Selected economic indicators of Thailand (%)

2013 2014*

GDP growth 4.9 5.0

Inflation rate 3.2 3.1

Current account balance( share of GDP) 0.8 0.1

Table: 01 source: Asian Development Bank * Estimates

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2. Development and Advancement strategies of

Thailand

In the 1960s, Thai economy was a mainly agricultural economy heavily Dependent on

production crops, such as rice, cassava, maize, rubber, sugar cane and seafood production.

During the 1980s-1990s, the economy began to boom and it was apparent as a diverse,

modern and industrialized economy.

Below factors have contributed to the growth, development advancement of the

country’s main economic sectors, such as agriculture and fishing, manufacturing and industry

and service, particularly tourism. That means the country has implemented a balance

framework of policies in the major three sectors. Moreover, these policies were formulated

based on requirements of business firms in any scale as small, medium and large.

Import substitution

This is considered as a rational approach to industrialization. Before industrialization,

country had a stable agriculture sector, but after Thailand was altering its strategies, which

centered on food processing and manufacturing for export purpose utilizing its wide-spread

natural resources and low cost labor. This resulted to a rapid acceleration in manufacturing

sector and marked a huge increase in exports. Here, at the first phase, the country exported

only simple agriculture-based products, but when the time passed, Thailand realized the value

of changing export strategies into technology-based manufacture. As well as this strategy

gradually operated towards the development and advancement of Thai economy.

Diversification of economy

This strategy has also contributed heavily on the economic development of the

country. Basically, industrial sector began with simple agriculture-based manufacturing and

sharply progressed into more sophisticated industries through the utilization of available

resources, such as ample of natural resources and low cost labor. Diversification was also

assisted by Foreign Direct Investments made in a wide range of products, like electronics,

chemical, property and processed food.

In the 1980s, Foreign Direct Investments valued at US$8 billion. Also US$ 2.5 was

from Japan and the rest from China, Korea and America. The most important factor that

attracts FDIs is lower manufacturing cost in Thailand. 50% of the country’s total industrial

production is manufactured in foreign investments and 20% of the total industrial workforce

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is employed in projects backed by FDIs. This diversification strategy facilitated the country

to acquire a high economic growth rate and the advancement in the state.

Ensuring the confidence of the economy in private sector and investors

The administration of Prime Minister Prem Tinsulangonda, which existed from 1980

to 1988 developed policies and programs that inspired the confidence of the private sector in

both of the government and economy. These favorable policies created a greater willingness

to invest in the growing manufacturing industry and support further expansion of export

activities. Furthermore, it is clear that favorable policies played the ground role in the inflow

of FDIs into the country. Mainly, Thailand attracted many investors from the USA making

huge investments in a diverse set of projects. This carried out a significant way towards the

economic development and advancement of Thailand.

Participation of the private sector in export production

In 1981, a significant policy was implemented which provided facilities the creation

of the Joint Public-Private Consultative Committee on Economic Problems. This encouraged

businesspersons to influence the public policy making through their participation in the

mentioned committee. As well as it shifted the participation of the private sector up in the

development of state enterprises. Private sector invested a huge sum of money in the

industrial sector and the government’s task was to direct the economy in the proper way.

Thailand has proved that opinions of experienced businesspersons could generate a lot of

benefits in the public policy making towards the development and advancement of the

economy. Mainly, the government has formed a business friendly environment through

flexible laws on labor utilization and it has encouraged the private sector to participate in the

economic activities in an active manner.

Developing strategies for alternative power sources

During the oil crisis of the period from 1970 to 1979, the country had to face severe

hardships which impacted the growth and development directly. After the discovery of the

country’s first natural gas field in the Gulf of Thailand in 1981, the country’s dependence on imported oil decreased. As well as, Thailand developed and implemented strategies for

seeking alternative energy sources, namely, hydropower, liquefied natural gas, coal and wind

power. Furthermore, Thailand is now studying the use of nuclear power. The most important

benefit in nuclear power is low cost of power generation. So, these alternative power sources

impacted to decrease the cost of production and shifted production levels up. On one hand,

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export income became higher due to increased exports and on the other hand, import

expenditure reduced since decreased import of oil.

From the most basic level, Thai government implemented plans to gain the

contribution of the private sector and foreign investors in these alternative power generation

projects in order to operate them according to global accepted standards. Through attracting

the private sector and foreign investors, the government benefited with the most advanced

technology and a huge sum of funds to make projects a reality. Absolutely, these alternative

power generation projects have been a major factor in determining the development and

advancement of Thailand.

Restructuring economic sectors

In 1999, the International Monetary Fund (IMF) provided Thai government a loan

package of US$17.2 billion for reforming financial sector of the country. Along with reforms

in the financial sector, the government implemented a restructuring process in industry and

agriculture sectors to increase its productivity. Government policies and regulations were

rehabilitated to uplift their accountability and transparency. As well as, social reforms were

carried out in education, social services and human resource development.

In education, job-oriented education and on-job training programs take a specific place.

Also, the government improved the quality of social services, such as healthcare, personal

security and public housing schemes. In human resource development, the government is

focused on the performance improvement of public officers through the transfer of

knowledge and technical expertise. The government expects to equip human resource with all

necessary skills and techniques since human resource is the driving force in the economic

development and advancement of any economy. In this case, technology, knowledge and

skills are exchanged with other countries through several mechanisms, namely, joint

commissions and annual consultation programs.

These reforms in economic sectors, education, social service and human resource

development have played a key role in the development and advancement of the country

through increased productivity of resources, such as natural and labor and increased

efficiency and effectiveness in production processes in all sectors, industrial, agriculture and

service. In the simple term, when skills, competencies and expertise of human resource go

up, productivity increases and cost of production decreases. It affected to the development

and advancement of Thai economy.

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Privatization

Thai government’s aim is to encourage capital inflows into the key economic sectors of

the country. In 2006, the government of Thaksin Shinawatra implemented a privatization

process for state-owned enterprises. In this, several state-owned enterprises were privatized

other than the Petroleum Authority of Thailand, Airport Authority of Thailand and Mass

Communication Organization of Thailand. Also, the 1999 State Enterprises Corporatization

Act facilitated the framework for formulating government organization into stock companies

and corporations as an alternative to privatization. Foreign investors were also allowed to

participate in privatization with several restrictions provided by the Foreign Business Act of

1999.

This strategy encouraged capital inflows to the country and facilitated to bring advance

technology and techniques into the economy. Through privatization, effectiveness and

efficiency of enterprises increased also the quality of the manufacturing and service sector

was uplifted. This privatization program strengthened the process of development of

Thailand. As well as, Thai government has taken appropriate steps to avoid the drawbacks of

the privatization process.

Targeted industries and policy formulation

The government of Thailand is highly concerned about the position in which the

country should be put in the competitive world. It expects to improve industries that can add

value to the domestic economy (creating more jobs, preserving environment and managing

natural resources in the proper way). As well as Thai government is more willing to find

market niches (market segments that are not large in the scale to attract many competitors)

that have been served by no other country, specially, market segments in which China is not

competing. The below market segments have been identified as valuable. These industries are

more suitable for Thailand according to its expertise. Here, they are the industries that the

country can work upon at the best productivity and efficiency.

Automobile and parts

Agriculture

Fashion, such as jewelry, leather goods and Thai silk

Healthcare, spa and long-stay tourism

Electronic

Energy and renewable energy

Thai government has already prepared action plans to work on selected industries.

Here, government authorities are responsible for designing, implementation, monitoring and

trouble-shooting in selected industries.

In the present, Thailand has become the finest country in agricultural industry in the

entire world. Thailand promoted its agricultural programs in the name of kitchen of the

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world. In this, the government has identified industrial segments that the country can operate

with available resources at low cost, achieving higher productivity and efficiency as well as

the government reviews that the country’s expertise is match with the selected industries.

Now, Thailand is working upon suitable industries, increasing its resources and labor

employment also the country is heading to sustainable development and growth.

Favorable policies for FDIs

In recent years, laws and policies for FDIs have been reviewed according to changing

development objectives and investors’ needs. Laws and policies are reviewed every five year

time.

Mainly, policies and laws for FDIs in Thailand are more flexible than policies of other

countries in the region, such as Vietnam and Indonesia. Basically, FDI incentives and

approval are centralized in Thailand, but in Vietnam, it is not centralized. Furthermore, in

Thailand, FDI marketing is so strong. It provides all details on economy, Thailand’s

attractions and opportunities, promotion policies, investment incentives, international cost

comparison, BOI services and approval procedure to foreign investors accurately and on

time. Details are summarized in brochures also websites and slide presentations on FDIs are

frequently updated. These details can be downloaded from the website of the Board of

Investment. Moreover, details are presented in six languages (English, German, French,

Japanese, Chinese, and Thai). So, investing in Thailand is more convenient for foreign

investors. Currently, the country has attracted more investors mainly, from the USA and the

European Union than other countries in the southeast region. However, ultimately, attracting

foreign investors has become a directly-related factor with the development and advancement

of the country.

Research & Development and infrastructure development

Research and Development has been a key factor in the development process of any

country. R&D facilitates innovations, lowers the cost of production and finds new ways of

manufacturing. Absolutely, it changes operations of a country and an economy in the proper

way.

Basically, Thailand has made reservations on R&D activities focused on hardware,

automation systems, computer-based control technology, total quality management, supply

chain management, just-in-time production system and manufacturing process control. As

well as, the government is encouraging the private sector to invest in R&D activities and

providing facilities needed for the sustainable development. In the present, the country

allocates 0.2% of the country’s GDP in R&D activities also the amount of expenditure is

expected to increase in the upcoming fiscal year.

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Thailand is more concerned on developing infrastructure facilities, such as water,

electricity, transportation (road, aviation and water) social facilities, like housing in both

urban and rural areas with the view of facilitating and developing small and medium scale

enterprises. Through focusing more on rural areas, unemployment rate of these areas has

decreased and living standards of people have uplifted. Thai government developed rural

according to certain standards since developing rural areas and improving people’s living

standards and expanding their earning capabilities were identified as key strategies for

development.

In the simple term, the country was able to expand its production capabilities by using

its unemployed resources and low cost labor at a lower cost with higher earning also profits.

Mainly, public-private partnership is very important in infrastructure development in

Thailand. Currently, the government is willing to commence the biggest infrastructure

development with US$ 60 billion. 64% of the total budget will be spent on 31 railways

including 4 high-speed rail projects. 24% will be allocated on road development and 12% is

planned to spend on water and aviation transportation. The main aim is to boost the

production capability of the construction sector in these projects.

With all these projects and programs, the government expects to increase per capita

income to US$ 10,000 from the present amount of US$ 5000 during the next 10 years.

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3. Appropriate strategies in the Sri Lankan context

In the Sri Lankan application, several development strategies are most appropriate for

realizing a high economic advancement.

selected industries

Sri Lanka has more ancestral knowledge in several economically significant industries,

such as agriculture, jams and tourism. So, the country can be specified in those industries

with a high level of competitive advantage. In this strategy, Sri Lanka should select industries

in which the country can operate more efficiently and effectively at a lower cost level with a

higher productivity. Here, talents of employees, resources availability and cost effectiveness

have to be considered. Then, this directly affects on the development of the economy.

Mainly, when the productivity goes up cost tends to decrease as well as that leads to a high

development level.

Increasing private sector participation

Basically, the government can encourage private sector in many significant sectors in

the economy. It is very important to uplift the competitiveness of the economy. Mainly when

the competitiveness goes up quality of products and services eventually exceeds to previous

level. But, on the other hand there should be a fair and transparence procedure of rules and

regulations to ensure the confidence of private investors. Private investments can be

implemented in many sectors, like transportation, production, agricultural and infrastructure

development programs. As well as, the government can attract foreign investors in to the

country.

Developing alternative power sources

In the present, the country is mainly dependent on imported crude oil and hydro power.

But in the long-term, the country is capable in investing for alternative power sources, such

as nuclear, solar power, thermo power and wind power. That can bring the cost of production

down at a considerable proportion also those projects give benefits in the long run. It is easy

to find appropriate lands for solar, thermo and wind power plants mainly in Northern and

Eastern provinces. On the other way round, the government is capable in encouraging private

investors to invest in these projects. In this strategy, the expenses on imported oil decrease

also the country benefits with long-term sustainable power sources.

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Research and Development

Every developed country allocates a considerable amount of their GDP on Research

and Development activities. It has been identified as crucial factor for getting a high

development level. The government of Sri Lanka can also allocate an appropriate proportion

on R&D. In R&D, new methods of manufacturing are created also it reduces cost of

production. Basically, the government can implement R&D activities in industrial and

agricultural sectors.

Encouraging small and medium scale enterprises

The government should encourage not only large-scale enterprises but also small and

medium scale enterprises in both urban and rural areas. Furthermore, through this strategy,

the resource utilization and labor employment are expected to uplift. This leads to a higher

development level. Small and medium scale industries can be mainly encouraged through

favorable regulations, subsidies and providing market facilities for their productions. As well

as, developing rural infrastructure facilities can make more favorable impacts on those

industries.

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References

Asian Development Bank (2013), Asian Development Outlook, Manila.

Bank of Thailand (2011), Economic Summary of Thailand in 2010, Bank of Thailand,

Bangkok.

Buampongpattana, W. (2013), Infrastructure and PPPs Development in Thailand, Kyoto

University.

Chancharoen, N. (2012), Study Results and City Case: Private sector-local government

interactions in Thailand, Thailand Environment Institute.

Daniel, I.P., Tritos, L., Amrik, S. and Sukun, B. (2007), Manufacturing Strategies and

Innovation Performance in Newly Industrialized Countries.

Pathmanand, U. (2001), Globalization and Democratic Development in Thailand.

Vietnam Development Forum (2005), MOI-VDF Joint Mission on Industrial Policy

Formulation of Thailand.