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 World Bank Executive Summary - Thailand 2009
BANGKOK, August 18, 2009 – A joint study by the Thai government and the World Bank has found that the overall environment for investment in Thailand worsened slightly in 2007 when compared with 2004. Moreover, future investment decisions by Thai companies could well be affected by the uncertain economic and political environment.
Using a comprehensive survey of 1,043 firms taken during April-November 2007, the new report, Thailand Investment Climate Assessment Update 2008, showed that more than two-thirds of the firms rated the uncertain economic and political environment as major or severe obstacles to doing business in Thailand that year. This was twice as many companies expressing the same concern in 2004, the last time Thailand’s investment climate was assessed.
Such perceptions, however, should come as no surprise given the volatile global economic environment over the past few years, coupled with the highly volatile political situation following the 2006 coup. Although Thailand returned to democracy with the general election in December 2007, political uncertainty remains a primary concern.
"When there is high uncertainty about the political environment, investors and business managers tend to worry that changes of government could lead to changes in certain government policies and regulations that affect businesses," noted Kirida Bhaopichitr, the World Bank’s Senior Economist in Thailand, who co-authored the Investment Climate Assessment Update. "And these concerns were naturally reflected in the survey."
Perceptions of Overall Business Climate Could Impact Investment
Perceptions could impact future business decisions, said Xubei Luo, the World Bank economist who led the study team. Firms making decisions about investments will base decisions on the overall risk in the business climate as well as on the merits of the individual investment. Improving the business climate can therefore encourage more investment, thus creating additional jobs.
"If company managers are not confident that the current environment is favorable to business, they will postpone their decisions," Luo said. "In many studies we have done, we found a strong correlation between improving business environment and improving investment as well as productivity."
The survey considered specific constraints facing firms and evaluated their impact on company performance, including growth, and investment. The investment climate can be defined by three broad sets of variables. These include macroeconomic policies such as fiscal, monetary and trade policies; governance and institutions; infrastructure; and the skills as well as the education of the workers themselves.
The survey covered nine industries throughout the country, including Bangkok and other metropolitan areas. The nine industries were food processing, textiles, garments, automobile parts, electronic parts, electrical appliances, rubber/plastic, furniture/wood products, and machinery.
The investment climate assessment project was a collaborative effort by the National Economic and Social Development Board (NESDB), the Foundation for Thailand Productivity Institute (FTPI), and the World Bank. The study was sponsored by the Ministry of Industry and was built on a similar work done in 2004 by the same tripartite group.
Shortage of Skilled Workers is also Seen as Constraint
According to the Investment Climate Assessment Update, limited access to finance, unreliable infrastructure, and burdensome business regulations are some of the factors affecting business and investment decisions in Thailand. These were the same concerns most Thai firms raised in 2004.
With Thailand moving toward a knowledge-based economy, the education and the skills of its workforce are increasingly important. The report noted that the ability of Thai firms to increase their productivity may have been limited by shortages of skilled labor and mismatches of skills.
Take Tipco Foods (Thailand) PCL for example. As a company that holds 53 percent share in the country’s fruit juice market, Tipco should not have any difficulty attracting quality employees. But for the last five years, Viwat Limsakdakul, the company’s Chief Executive Officer, said he has been frustrated by the scarcity of workers who could deliver what his business really needed.
"I was not looking for people who were so technology-savvy they could build a robot like those guys in Japan – just someone who could help us develop new product lines and move up the value chain," he said. "But it’s been so difficult to find the right people to meet this need of our business. Most of the time, my employees had to wait for direction from the management what product they should develop."
Almost 40 percent of Thai firms ranked shortage of skilled workers as one of the three most difficult constraints they face in Thailand, the report said. A similar portion of firms viewed "skills and education of available workers" as a major or severe obstacle to doing business. Almost 43 percent of the surveyed firms cited lack of knowledgeable and trained workers as a reason for not doing anything innovative.
If this situation continues, this issue could have both short- and long-term implications on the Thai economy, Luo said.
"In the short term, firms could operate below full capacity because they can’t find enough competent people to do the jobs," she said. "In the longer term, this situation will limit the ability of Thai firms to improve their productivity."
Despite these concerns, Thailand’s infrastructure, regulations, and other objective investment measures are comparable with similar middle-income countries, including Brazil, China, India and Turkey. "Thailand lags behind Singapore, but that’s understandable since Singapore is a more advanced economy," Luo said.
To download the full report, visit www.worldbank.org/th |
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