Unlocking labour productivity: ICT’s role in Thailand’s future economy
Thailand has enjoyed relative success liberalising its manufacturing sector, but to avoid the middle-income trap, it needs to move to a service-oriented economy once it outgrows the labour intensive low cost manufacturing phase. The ICT sector plays a dual role in the Thai economy: both as a contributor of economic of growth on its own and as an enabler of innovation for other sectors in the economy, allowing a potential multiplier effect in the economy. A recent seminar hosted by the Joint Foreign Chambers of Commerce in Thailand ( JFCCT) and the European-ASEAN Business Centre (EABC) in Thailand took a day to examine the issue through the lens of the information and communications technology (ICT) sector. The ICT sector needs to be supported in Thailand so that it can unlock labour productivity in the service sector, said Deunden Nikomborirak, the research director for economic governance with the Thailand Development Research Institute ( TDRI). Most of Thailand’s emphasis for foreign direct investment (FDI) is on manufacturing, and low productivity growth in the service sector is dragging down economic growth, she said. The Bank of Thailand believes the country’s labour productivity needs to double from 4% to 8%, given the latest minimum wage hike to 300 baht per day. The wage hike seems to have been given without regard for labour productivity, added Dr Deunden. “Thailand has low labour productivity in part because it limits foreign equity shareholding to 49% and domestic regulations entrench the market power of incumbent operators,” she said. “This means Thailand has low quality and less advanced services, which undermines the competitiveness of export-oriented services. And services are also an input to manufacturing; these sectors do not stand alone.” Indeed, figures from the National Economic and Social Development Board (NESDB) show 44% of the labour force works in the service sector, but labour productivity has been stagnant in these fields, below 10% in every segment except real estate, which Dr Deunden said represented an outlier because prices are not tied to productivity.
“Most of Thailand’s emphasis for foreign direct investment (FDI) is on manufacturing, and low productivity growth in the service sector is dragging down economic growth”.
Although the potential benefits accrued from the planned ASEANASEAN Economic Community (AEC) could be immense, Thailand is not positioned to take advantage of them. “Thailand’s foreign investment guidelines still focus on manufacturing and industry; service is in a no man’s land,” she said. “Some 50% of Thailand’s GDP comes from services, but only 41% of its FDI is in services. Thailand only stands to realise ‘second-hand’ FDI from the AEC because of its fairly restrictive foreign investment regime, as most foreign capital flows through Singapore now. In fact, this is what happens now.” Dr Deunden insists several remedies exist for Thailand to improve its foreign investment and liberalise its service sector. The first is to relax FDI restrictions on tech transfer. “In fact, Thailand needs a whole road map for service liberalisation,” she said. “The Foreign Business Act of 1999 needs to be amended, and we need to open up more sectors to liberalisation, especially those that support manufacturing, such as banking and logistics. Other services that should be open to competition are those that are monopolistic or oligopolistic. But AEC rules have a lot of ‘flexibility’ in them, meaning you don’t necessarily have to abide by them. You can substitute a sub-sector that is not a priority for one you believe is politically sensitive. Or if none of the member countries are ready, they can just delay the measure. “There is no compliance now, as only Singapore is compliant with service liberalisation.” The ASEAN Framework Agreement on Services that Thailand signed in 2012 means that it will allow a 70% equity share to citizens of other ASEAN countries in several fields including telecom, but as of now this is not happening, said Dr Deunden. The solution is simple on paper but will take a great amount of political willpower to achieve, she added. Thailand needs to attract FDI and technology transfers, which will boost labour productivity, which then enables higher wages, leading to better services, which improves manufacturing competitiveness. In the telecom sector, Dr Deunden recommended the country abolish the foreign dominance regulations and promote fair use rules for interconnection charges, roaming, and infrastructure sharing. In banking, she suggested the central bank’s ceiling for banking fees be abolished as well as the restriction on the number of foreign bank branches. “The Bank of Thailand should not set rates for everything, as it means there is no competition and it allows tacit collusion,” she said. “And banks not being allowed to increase their percentage of foreign ownership is a legacy of the 1997 financial crisis.” Dr Deunden added energy would be quite hard to liberalise because PTT dominates the market. But for FDI, her prescription was to lift the four-to- one rule, where four local workers must be hired for every one foreign worker for foreign companies opening a branch in Thailand. And she advised the relaxing of restrictions on the movement of professionals, noting that as AEC provisions stand now there will be no free movement of labour. She finished with a stern warning: “The Thai economic structure mimics that of less developed countries, not more developed countries.” Col Settapong Malisuwan, chairman of the National Broadcasting and Telecommunication Commission’s (NBTC) telecom committee, insisted the main role of the commission is transforming the regime from concessions to licensing. He added the NBTC is also trying to promote infrastructure sharing for small operators, as well as more mobile virtual network operators, which are wireless service providers that do not own the network infrastructure. Col Settapong said he wants a mixed licensing approach using both auctions and “beauty contests”, or comparative administrative hearings, to replace concessions.
He said the importance of ICT to the economy can be seen by the figure that a 10% increase in broadband penetration raises annual GDP by 0.9% to 1.5%. Dr Bandid Nijathaworn, the head of the Thai Institute of Directors (IOD), pointed out that corporate governance is one prong to attract and retain foreign investment because companies feel more comfortable in environments where corruption isn’t tolerated. Though Thailand rose from the eight to the third place in the latest corporate governance rankings for Asia, this is mainly for listed companies and not public sector governance. “A very rapid rise in the levels of corruption in Thailand is why the country’s competitiveness is declining,” said Dr Bandid. An IOD survey this year of 1,066 companies found 93% believe the level of corruption is high to very high, while 75% said corruption in Thailand is getting worse. The IOD proposes companies and government organisations join its Collective Action Coalition (CAC) and publicly announce a zero-tolerance policy for corruption, share their experiences and compliance policies with others, and reach out to industry peers, suppliers and stakeholders to tell them of their stance. Some 167 Thai companies have already joined the CAC. Bob Fox, the chair of the JFCCT ICT group and the vice-chair of EABC’s ICT group, noted ASEAN only has two countries that have transformed their telecom state- owned enterprises into fully integrated competitive players: Singapore and Malaysia. He added that businesses crave regulatory certainty, which does not exist in Thailand, and the message the sector has conveyed is “foreign investment is not really welcome here”. Dr Panomporn Suvannapattana, the vice-president of regulatory for dtac, said the latest survey of Thai media consumption showed the average Thai spent 70 minutes per day browsing the web, 127 minutes per day on mobile apps, and 168 hours a day watching TV. “What this means is whoever has the fibre-optic cable wins the game,” he said. “You must have the cable if you want to compete.”
From left: Mr Nandor Von der Luehe, Col Settapong Malisuwan, Dr Deunden Nikomborirak, Mr John Svendgren, Mr Pekka
Dr Duanden Nikomborirak
Col Settapong Malisuwan