CEO Survey Analysis

From the overthrow of an elected government to the death of a beloved king, Thailand has undergone serious upheaval in recent years. The state of flux in politics and society has been mirrored in the wider economy, with several years of weak consumption, falling foreign direct investment (FDI) and sluggish growth in comparison to the other emerging markets in ASEAN. 

Out of the turmoil, the military-led government has managed to fashion a coherent, long-term vision for the country, designed to escape the middle-income trap and overcome demographic challenges. Dubbed Thailand 4.0, the blueprint aims to establish a viable ecosystem for the development of advanced manufacturing and high-tech services. It is supported by the Eastern Economic Corridor (EEC), a plan to upgrade the existing manufacturing heartland into a hub for the emerging industries of the future.             

While such long-term planning is to be applauded, especially when considering that most other ASEAN states have been slow to adapt to the Fourth Industrial Revolution, it will take more than investment in hard infrastructure and new manufacturing facilities to make it a success. A recurring theme that emerged from Oxford Business Group’s on-the-ground research over the past 12 months has been the urgent need for Thailand to invest in education and skills development to ensure its workforce is equipped for the demands of a rapidly evolving economy.

In recognition of these concerns, we asked CEOs who participated in our second business barometer on Thailand to pinpoint which skills were in greatest need in the domestic labour market. There was a wide dispersion of responses, with 19% choosing engineering, 18% leadership, 16% research and development (R&D), and 13% computer technology. Looking closely at the chosen skills, we observe that they are all vital to the realisation of Thailand 4.0, indicating that significant gaps need to be filled in the workforce if the transition to a high-income, value-based economy is to be successful.

On a more positive note, 66% of respondents described their level of satisfaction with local suppliers and service providers as high or very high, demonstrating the existence of effective supply chains that should provide strong foundations for the development of advanced industries. 

Appetite for investment

Despite ongoing political uncertainty, 81% of Thailand-based executives told OBG that their firm was likely or very likely to make a significant capital investment in the year ahead. By comparison, a combined 72% of executives in the Philippines, Myanmar, Indonesia, Malaysia and Vietnam expressed the same sentiment in our recently published “OBG in ASEAN” CEO Survey. To some extent, the buoyant investment sentiment among locally based executives is a reflection of the healthy balance sheets of top corporations, with listed companies reportedly accumulating a record $34bn in cash reserves by August 2017.

Less clear from our survey data, however, is where they intend to invest. Faced with tepid consumer spending at home, an ageing society and an uncertain political situation, Thai companies invested a record $13bn overseas in 2016, with the fast-emerging economies of the Greater Mekong Subregion a prime target. It will be interesting to see if the return to democratic rule, expected by May 2019, will stimulate greater corporate investment in the domestic economy, particularly as development plans in the EEC gather pace.

Positive review of the business environment 

One of the justifications for the military-led government assuming power in 2014 was the alleged corruption of the Yingluck Shinawatra administration, which stood accused of mismanaging state subsidies and exploiting its business ties. In the years that followed, the National Council for Peace and Order (NCPO) has walked a delicate tightrope on this issue, as it sought to create popular legitimacy while also gaining the support of key figures in the political and business establishment.

The results of our survey indicate that executives are generally positive about business transparency in Thailand today, with 76% describing it as high or very high relative to the region. However, this does not necessarily indicate that business transparency in Thailand meets the highest international standards. If we place corruption under the umbrella of “transparency”, then ASEAN states generally score poorly in reputable global rankings on this issue, with the exception of Singapore.

For example, Thailand ranked 96th out of 180 nations in Transparency International’s 2017 Corruption Perceptions Index focused on the public sector, level with Indonesia and ahead of Vietnam, Philippines and Myanmar. However, Thailand performs much better in international rankings on the regulatory environment for business, placing 26th overall out of 190 countries in the World Bank’s “Doing Business 2018” report, with rankings of 16th for protecting minority investors, 34th for enforcing contracts and 26th for resolving insolvency.

Despite a relatively low score on tax (67th) in the World Bank index, 63% of participants in our survey described Thailand’s current tax environment as competitive or very competitive on a global scale. This figure is significantly higher than the 39% of executives in the five other countries who expressed the same sentiment in our recently published “OBG in ASEAN” business barometer.

As Thailand faces up to the cost burdens of an ageing population and an extensive public infrastructure pipeline, the NCPO has been keen to broaden the tax base away from a heavy dependence on income and consumption taxes, while making efforts to reduce chronic income disparities.  Under successive governments since the turn of the decade, the top tax bracket for personal income has been reduced from 37% to 35%, while tax allowances and deductions have been expanded and the corporate income tax rate slashed from 30% to 20%. New taxes tabled in 2018, but yet to take effect, include the land and buildings tax, the land windfall tax and the e-business tax, which the government hopes will generate significant revenue without hurting competitiveness or curbing economic activity in the relevant sectors.

Trade war collateral damage

A significant proportion of the data sample was collected before the simmering trade tensions between the US and China escalated into a trade war in mid-2018.  Exports contribute over 70% of Thailand’s GDP, with China the top destination for Thai goods, accounting for 12.4% of shipments, followed closely by the US with 11.2%.  Besides the negative consequences of disruptive uncertainty on global trade flows, stakeholders in Thailand have expressed concern that Chinese exports of goods and commodities once destined for the US could flood the Thai market, depressing prices and squeezing local producers.

There are also worries that any resulting slowdown in growth in China could hit the lucrative tourism market, as Chinese tourists constituted over a quarter of all foreign arrivals in 2017. Thailand’s high exposure to China was reflected in the responses of CEOs when asked about the biggest external risks to their domestic economy, with 44% choosing fluctuations in Chinese demand and 20% opting for trade protectionism. The increasingly volatile global trading environment, coupled with China’s pursuit of dominance in next-generation technologies, make Thailand’s need to diversify into higher-value industries, cultivate entrepreneurism and stimulate domestic demand ever more pressing.