Remarks by M.R. Pridiyathorn Devakula on "Thailand Moving Forward Economic reforms under the interim

 

I know you are all asking: How fast can we move our economy forward and what can we do to speed things up even further?  These questions are to be expected, especially when you ask people in my generation who still remember the good old days when the Thai economy was growing over 7% p.an. in the 60’s and the 70’s during the first phase of industrialization, and the rapid economic expansion period between 1986 to 1996 when the average growth rate was as high as 9.25% because of our nation’s discovery of natural gas which then led to the emergence of Petrochemical Industries and many other related industries in the Eastern Seaboard. Unfortunately, the good old days of experiencing such high growth figures are over but this is not really a cause for alarm. Let me explain why. 

 

The slower rate of economic growth has actually been a new norm in most developed and developing countries around the world for quite some time now. In the case of Thailand, even if we exclude last year’s figure as our economy was plagued by political conditions, our economic growth, on average, over the last 5 to 6 years was already less than 3%.

 

Our private investment has slowed down due to the increase of labor cost as well as the shortage of labor.  Export has also slowed down as some of our industries are losing their competitiveness to the competitors from other newly emerging economies in ASEAN, such as Vietnam and Indonesia.  

However, the good news is that there is a growing trend that some of the Thai industries have managed to successfully expand their production bases into newly emerging economies across ASEAN, as well as China, in order to access the local market and to maintain the competitiveness of their products and brands around the world.

 

With various production bases, these Thai companies have made successful strategic decisions and have now become leading players in the world market for their respective products; SCG-ceramic, Mitrphol-Sugar, and Srithai Superware-melamine, just to name a few.  However, the actual trading activities for these products from their overseas bases are being done outside Thailand due to the shortcoming of our tax policy.

 

In order to move our economy forward, therefore, this Government has successfully implemented some very important strategic policy decisions over the past few months, which will be key to boosting our growth for many years to come.

 

First, we have implemented the New Investment Promotion Strategies starting from 1st January this year in order to increase our competitiveness in the world market.  We have altered the list of promotional industries to provide more privileges to strategic and high-potential industries that we feel they deserve more of our support; that is industries which compete based on high and clean technologies, innovation, efficiency, and creativity.  We believe that these industries will provide a new platform for more sustainable economic growth.  We want to attract more of these new industries to move our economy up the value ladder so that our products can be more differentiated and we can better compete in world markets.  We are already moving into this direction with a specific plan of actions.

 

Take Thailand’s plastics industry, for example.  This industry has an ambitious – but I believe achievable – goal; that is, to become one of the global hubs for the emerging bioplastics industry.  We have already been successful in capturing some of the most sizable worldwide biopolymer investment into Thailand, which will then enable us to link our large agricultural base with our plastics industry in order to become a highly competitive and more environmentally friendly centre for making plant-based plastics.  These new investment incentives will help us achieve just that.  

 

With Thailand being Southeast Asia’s largest plastics processing industry, comprising more than 3,000 companies, clearly you will agree that this move is a significant step in the right direction.  (Bioplastics can also help us achieve one of our social goals of reducing income inequality as it will give our farmers more valuable end markets to sell their crops.  What I am sharing with you now is not just ideas and visions but we already have our implementation program in place.  We are already looking at investments, infrastructure, and cutting-edged research and development.)  This is just one of the many examples of new lines of advanced industries which we have recently added onto our new list of investment promotion.

 

As for our existing industries, which we have been championing, such as Automobile, Food, and Petrochemical, we will continue to maintain our leading status by introducing more advanced lines of product.  For instance, we will move up from producing eco-cars to hybrid cars and electric cars and also from normal-grade to specialty-grade petrochemical products.

 

Second, in December last year, this Government also approved a new package to attract more companies to establish their International Headquarters (or IHQs) and International Trading Companies (or ITCs) in Thailand.  What it means is we will NOT collect income tax from dividends and capital gains from investments in overseas subsidiaries; we will NOT charge any tax on income received from providing services to subsidiaries such as training services, treasury management services, and procurement services.  Neither will we charge any tax on the profits from their trading of products that were purchased from foreign sources and sold to foreign destinations.  

 

Moreover, Thai companies that expand production bases overseas can now enjoy these tax privileges and, therefore, trade their products produced in various production bases from their headquarters in Thailand without any tax burden.  Foreign companies that have production units in Thailand as well as in our neighboring countries, can set up their regional headquarters in Thailand and enjoy such tax benefits as international headquarter status. Foreign trading companies without production units can also apply for the International Trading Companies privilege and carry out their out-out trading businesses from the trading bases in Thailand without paying any taxes.  To make it even more attractive, the personal income tax on expatriate staff of the International Headquarters and Trading Companies is now reduced to 15%, which is half of the normal rate.

 

We hope that, with these new special privileges for the IHQs and ITCs, Thailand will soon turn into a global trading hub in a very near future.  We also hope that this new package will contribute to even higher growth in our service sector and intra-ASEAN trade as well as trade between ASEAN and other countries outside the region.    

 

Ladies & Gentlemen,

The third important move that this Government has recently made is to do with launching new industries that will better utilise existing natural resources in Thailand.  For instance, Thailand has huge deposits of potash ore, estimated at 400 billion tons, which have yet to be commercially exploited. Therefore, this Government has already begun to support potash mining, using the most advanced and clean potash mining technology.  The first potash mining concession is about to be granted within next month, followed by the second one in June.  More exploratory licenses have also been recently issued.

 

Another natural resource that is not yet fully utilised for producing downstream products is rubber.  We are producing about 4 million tons of rubber, making Thailand the biggest producer of rubber in the world.  But we are using only 550,000 tons for producing rubber products in Thailand.  Therefore, we are determined to attract more producers of rubber products. Instead of just waiting for investors to come to us, we have already successfully invited – and approved – a good proposal from a potential investor in China to set up production plants for Automobile tyres.   Eight more plants have also agreed to invest in Thailand.  Just as we have made good progress with potash and rubber, we will continue to look for natural resources that could be developed as additional industrial base.

 

Last but not least, let me share with you another key element of our economic policies which is now in its pipeline; that is the promotion of  “Digital Economy”.  This is an area where Thailand, today, still lags behind our friends in the region but soon, I should hope that this will no longer be the case.

 

Currently, our Government is planning to work with the private sector to develop hard infrastructure, such as a national broadband network, a spectrum to provide 4G wireless broadband services, the establishment of a national government data center and increasing the number of international internet gateway facilities. At the same time, soft infrastructure – mainly necessary laws and regulations related to cyber security, e-commerce and paperless public services – will also be developed to enhance the private sector’s confidence in terms of online-trade and any potential legal disputes.

 

By the end of next year, we want internet access to be made available to every single village in Thailand in the first phase of our plan and to reach every household in a year after that.  

With this digital network, a more effective use of ICT for economic and social developments across Thailand will result in greater productivity and more equity in terms of opportunities.  Venture Capital will also be made available to support the young Thai talents in promoting their productions of digital content. Many new platforms will be provided to develop software talents including embedded software.  These are just some examples of the exciting developments that are about to be taking place in our country.  As we speak, we are simply waiting for the National Legislative Assembly to pass a law that will empower us to start our plan according to what I have just described to you.

In conclusion, I would like to reassure you all that the Thai economy is not just back on the right track but now is the best time to take part in many of the key developments that are taking place in this country.  

 

Of course, some of you may continue to ask all the questions you need about democracy, political reconciliation, and so on, but one thing is clear: Thailand is shifting into the next gear and sustainable economic growth is undeniably key to our social and political stability.  And whoever comes in as the next Thai Government leader will not have to start from scratch because every economic policy this Government is implementing right now is in the interest of our long-term economic development.  

 

Ladies & Gentlemen,

What I have been talking about so far is just some key examples of our efforts to improve competitiveness of our export sector in the long run and to also add the dimension of overseas trading in order to speed up the growth of our economy.  Of course, there are also other much needed reforms or economic restructuring that this Government has also been working on and this will be covered by our Minister of Energy, Dr. Narongchai Akaraseranee.

 

In short, I believe that, with all the reforms and economic restructuring, which have been implemented and will be implemented, the Thai economy will present itself with much more exciting opportunities for private investors and overseas traders and this should put Thailand on the path of achieving consistently healthy economic growth once again.

 

Thank you.

 

A keynote address by Deputy Prime Minister M R Pridiyathorn Devakula at the international conference "Thailand: Moving Forward"

organised by The Nation and Wall Street Journal at Dusit Thani Hotel on Jan 29.