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Key challenges to becoming high-income country

Jun 28. 2019
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By Wichit Chaitrong
The Nation

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HUMAN RESOURCE development and decentralisation of politics and the economy will be key factors in lifting Thailand to a high-income country, after economic development over the past half century focused on infrastructure and urbanisation.

The National Economic and Social Development Council recently proposed raising Thailand from an upper middle-income country to a high-income one with per capita income of US$15,000 (Bt460,500) annually from $6,000 (Bt184,200) in 2016. Thailand has been trapped in the upper-middle income bracket for more than a decade as per the World Bank’s benchmark. 

The state-owned think tank forecast that annual economic growth of 5 per cent would see Thailand become a high-income country within 20 years, starting from 2017. The total factor productivity growth would need to accelerate to 3 per cent annually from 1.7 per cent in 2015. This is a highly ambitious goal judging from the “new normal” of slower GDP growth at around 3.8 to 4 per cent in recent years.

The junta-backed government initiated the flagship Eastern Economic Corridor (EEC) development project, which the current coalition government has vowed to continue with a combined public and private investment in the first five years of over Bt1 trillion (over $40 billion). Policymakers expect the EEC’s successful implementation to play a key role in driving the economy to the next stage. 

However, not everyone agrees. 

“Economic development over the past 40 years has been concentrated in the central and eastern coastal regions, while other parts of the country have not seen much development,” said Yongyuth Chalamwong, research director at the Thailand Development Research Institute (TDRI), an independent research house. The government has prioritised the EEC but special economic zones in the North, Northeast, West and South are not getting much attention, he said.

Over the course of many years, people from other parts of the country have migrated to the central and eastern regions to find higher-paying jobs. 

“What they have done is just send their money back to their hometowns where manufacturing bases have not been developed,” he said, adding that this was not enough to power their hometown economies.

Thailand needs to seriously develop border cities to act as the centre of gravity for border trade and investment with neighbouring countries, he said.

As the same time, Thai politics is also highly centralised, with Bangkok as the seat of political power. 

Political scientists such as Prajak Kongkirati often blame the centralised system for preventing other regions from being able to manage their own affairs. 

The Interior Ministry still controls the whole administration through its appointed provincial governors, who largely serve their bosses in Bangkok rather than cater to the needs of the local people. “The lack of political decentralisation has a wider impact, as the system inhibits new talents who can lead their local communities or bring about regional development,” said TDRI president Somkiat Tangkitvanich. 

“While economics and politics remain centralised, it is very hard for a large part of the population to have a high income,” said Yongyuth.

To achieve high-income status, the country would also need more skilled labour to replace a reduction in the workforce because of Thailand’s ageing society. 

The global technological shift is also affecting the country. 

“As disruptive digital technology changes the landscape of the global economy, Thailand will need a more skilled labour force to drive the agriculture and non-agriculture sectors,” said Yongyuth.

“Labour productivity growth in the agricultural sector is alarmingly low and has even been in negative territory in some years while productivity in the services and manufacturing sectors is about 3 per cent and 4 per cent respectively,” he added. 

“To achieve high-income country status, our labour productivity growth should accelerate to 5 per cent.” 

As technology drives industries towards semi- or full automation, we will need fewer workers and this could cushion any impact from a demographic change. But we need a more highly skilled workforce, he said. 

In the short-term, Thailand would need to depend on imported professionals to train local teachers or workers in order to upgrade education and skills of the labour force, then in the long-term the country could rely on its own skilled workforce. 

Several vocational schools and manufacturers in the eastern seaboard have already started training programmes. “We want more students graduating from vocational schools, but most Thai students still prefer studying in universities,” lamented Orapin Sermpraphasilp, chairperson of the Federation of Thai Industries of the Eastern Region. 

Sompop Manarungsan, president of Panyapiwat Institute of Management, said labour needs skills in four areas: finance, information technology, language (especially English), and professional standards. Many Thai workers lag behind in these areas compared with their Asean peers in Indonesia, Philippines and Vietnam, he said. He cited higher English skills among Filipinos and strong IT knowledge in the Indonesian and Vietnamese labour force.

 

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