The economy of Thailand is an emerging economy which is heavily export-dependent, with exports accounting for more than two thirds of gross domestic product (GDP) The exchange rate is Baht 33.00/USD. Thailand has a GDP worth 8.5 trillion Baht (on a purchasing power parity (PPP) basis), or US$627 billion (PPP). This classifies Thailand as the 2nd largest economy in Southeast Asia after Indonesia.
Despite this, Thailand ranks midway in the wealth spread in Southeast Asia as it is the 4th richest nation according to GDP per capita, after Singapore, Brunei and Malaysia.It functions as an anchor economy for the neighboring developing economies of Laos, Burma, and Cambodia. Thailand’s recovery from the 1997-1998 Asian financial crisis depended mainly on exports, among various other factors. Thailand ranks high among the world’s automotive export industries along with manufacturing of electronic goods.
Most of Thailand’s labor force is working in agriculture. However, the relative contribution of agriculture to GDP has declined while exports of goods and services have increased.Tourism revenues are on the rise. With the instability surrounding the recent coup and the military rule, however, the GDP growth of Thailand has settled at around 4-5% from previous highs of 5-7% under the previous civilian administration, as investor and consumer confidence has been degraded somewhat due to political uncertainty.
The incumbent elected civilian administration under Samak Sundaravej in power from January 29 to September 9, 2008 stated that the economy will have grown by 5.5% to 6% by the end of 2008. Due to rising oil and food prices, the annual inflation rate for 2008 shot up to 9.2% in July; a 10-year high, but it will unlikely reach double digit rates later this year as oil and food prices are stabilizing.
History
Thailand had historically been a tiger economy with average growth rates of 9.4% from 1985 to 1996. The military administration under prime minister Prem Tinsulanonda in power from 1980 to 1988 began to open up the country’s economy to international trade.
However, after the 1997-1998 currency crisis, millions of people were unemployed and impoverished and it wasn’t until 2001 that Thailand regained momentum over the baht and economy.
Thailand’s 23rd prime minister, businessman Thaksin took office in February 2001 with the intention of increasing domestic activity and reducing Thailand’s reliance on foreign trade and investment. Since then, the Thaksin administration has refined its economic message, embracing a “dual track” economic policy that combines increased domestic activity with Thailand’s traditional promotion of open markets and foreign investment.
This set of policies is popularly known as Thaksinomics. Weak export demand held 2001 GDP growth to 2.2%. In 2002/03/04, however, increased domestic activity and an export revival fuelled better performance, with real GDP growth at 5.3%, 7.1% and 6.3% respectively. However, in 2005, under rising oil prices and trade deficits, severe droughts and floods, the Southern Thailand Insurgency reaching its peak, uncertainty of the future of Thaksin’s government and the tourism aftershocks of the Indian Ocean Earthquake Tsunami on December 26, 2004, economic growth slumped to 4.5%.
In 2005 Thailand also had a current account deficit of -4.3% of GDP, or US$ -7.6 billion. Ever since 2006 Thailand has once again a surplus in its current account and in 2006 the economy was buoyed by strong export growth, however, the military coup d’état on September 19, 2006, which ousted the prime minister and abrogated the 1997 constitution, along with the December 2007 elections, cast uncertainty.
The present elected civilian administration under Samak Sundaravej in power since January 29, 2008 estimates that by the end of this year the economy will have grown by about 5.5% to 6%. Despite the rapid growth of the industrial and financial sectors over the last decades, agriculture and tourism remain the most important sources of revenue.
Macro-economic trend
Before the 1997 financial crisis, the Thai economy had years of manufacturing-led economic growth–averaging 9.4% for the decade up to 1996. Relatively abundant and inexpensive labor and natural resources, fiscal conservatism, open foreign investment policies, and encouragement of the private sector underlay the economic success in the years up to 1997.
The economy of Thailand is an advocate of the free enterprise system. Certain services, such as power generation, transportation, and communications, are state-owned and operated, but the government has considered privatizing them in the wake of the financial crisis.
The Royal Thai Government welcomes foreign investment, and investors who are willing to meet certain requirements can apply for special investment privileges through the Board of Investment. To attract additional foreign investment, the government has modified its investment regulations.
The organized labor movement remains weak and divided in Thailand; only 4% of the labor force is unionized. In 2000, the State Enterprise Labor Relations Act (SELRA) was passed, giving public sector employees similar rights to those of private sector workers, including the right to unionize.
49% of Thailand’s labor force is employed in agriculture. Rice is the country’s most important crop; Thailand is the #1 exporter in the world rice market. Other agricultural commodities produced in significant amounts include fish and fishery products, tapioca, rubber, grain, and sugar. Exports of processed foods such as canned tuna, pineapples, and frozen shrimp are on the rise.
Thailand’s increasingly diversified manufacturing sector made the largest contribution to growth during the economic boom. Industries registering rapid increases in production included computers and electronics, garments and footwear, furniture, wood products, canned food, toys, plastic products, gems, and jewelry. High-technology products such as integrated circuits and parts, electrical appliances, and vehicles are now leading Thailand’s strong growth in exports.
Industries
1. Agriculture, forestry, and fishing
In 2008 agriculture, forestry, and fishing contributed only 8.4% percent to GDP. Thailand is the world’s leading exporter of rice and a major exporter of shrimp. Other crops include coconuts, corn, rubber, soybeans, sugarcane and tapioca.
In 1985 Thailand officially designated 25 percent of the nation’s land area for protected forests and 15 percent for timber production. Protected forests have been set aside for conservation and recreation, while production forests are available for the forestry industry. Between 1992 and 2001, exports of logs and sawn timber increased from 50,000 cubic meters to 2 million cubic meters per year.
The regional avian flu outbreak led to a contraction of Thailand’s agricultural sector during 2004, and the tsunami disaster of December 26, 2004, devastated the west coast fisheries industry. In 2005 and 2006 agricultural GDP was stated to have contracted by 10 percent.
2. Mining and minerals
Thailand’s major minerals include fluorite, gypsum, lead, lignite, natural gas, tantalum, tin and tungsten. The tin mining industry has declined sharply since 1985, and so Thailand has become a net importer of tin. As of 2008, the main mineral export was gypsum.
Thailand is the world’s second largest exporter of gypsum after Canada, even though government policy limits gypsum exports to prevent price cuts. In 2003 Thailand produced more than 40 types of minerals with an annual value of about US$740 million. However, more than 80 percent of these minerals were consumed domestically.
In September 2003, in order to encourage foreign investment in the mining industry, the government relaxed severe restrictions on mining by foreign companies and reduced mineral royalties payable to the state.
3. Industry and manufacturing
In 2007 industry contributed 43.9% of gross domestic product (GDP) but employed only 14% of the workforce. This proportion is the opposite of the one applying to agriculture. Industry expanded at an average annual rate of 3.4 percent during the 1995–2005 period. The most important subsector of industry is manufacturing, which accounted for 34.5 percent of GDP in 2004.
Thailand is becoming a center of automobile manufacturing for the Association of Southeast Asian Nations (ASEAN) market. By 2004 automobile production had reached 930,000 units, more than twice as much as in 2001. Two automakers active in Thailand are Toyota and Ford. The expansion of the automotive industry has led to a boom in domestic steel production. Thailand’s electronics industry faces competition from Malaysia and Singapore, while its textile industry faces competition from China and Vietnam.
4. Energy
In 2004 Thailand’s total energy consumption was estimated at 3.4 quadrillion British thermal units, representing about 0.7 percent of total world energy consumption. Thailand is a net importer of oil and natural gas, but the government is promoting the use of ethanol to reduce imports of petroleum and the gasoline additive methyl tertiary butyl ether.
In 2005 daily oil consumption of 838,000 barrels per day (133,200 m3/d) exceeded domestic production of 306,000 barrels per day (48,700 m3/d). Thailand’s four oil refineries have a combined capacity of 703,100 barrels per day (111,780 m3/d). Thailand’s government is considering establishing a regional oil processing and transportation hub, serving the needs of south-central China. In 2004 natural gas consumption of 1,055 billion cubic feet (2.99-1010 m3) exceeded domestic production of 790 billion cubic feet (2.2-1010 m3).
Also in 2004, estimated coal consumption of 30.4 million short tons exceeded coal production of 22.1 million short tons. As of January 2007, proven oil reserves totaled 290 million barrels (46,000,000 m3), and proven natural gas reserves were 14.8 trillion cubic feet (420 km3). In 2003 recoverable coal reserves totaled 1,492.5 million short tons.
In 2005 Thailand consumed about 117.7 billion kilowatt-hours of electricity. Electricity consumption rose by 4.7 percent in 2006 to 133 billion kilowatt-hours. According to the state electricity utility, the Electricity Generating Authority of Thailand, power consumption by residential consumers has been increasing because of more favorable rates given to residential customers over the industry and business sectors. Thailand’s state-controlled electric utility and petroleum monopolies are undergoing restructuring.
5. Services
In 2007 the services sector, which ranges from tourism to banking and finance, contributed 44.7% of gross domestic product and employed 37 percent of the workforce.
Tourism
Tourism makes a larger contribution to Thailand’s economy (typically about 6 percent of gross domestic product) than that of any other Asian nation. Most tourists come to Thailand for various reasons — mostly for the beaches and relaxation, although with the ongoing insurgency in the deep South, Bangkok has seen a large increase in tourism over the past years.
Also, a sharp increase in tourism from other Asian countries has contributed largely to Thailand’s economy even though the Baht has gained strength compared to most other currencies in the past two years. In 2007 some 14 million tourists visited Thailand. The Thai tourism industry includes a thriving sex industry. Successive Thai governments, however, continue to neglect sex workers rights under labor laws persist in the criminalization of sex workers, allowing corrupt authorities and employers to exploit sex-workers’ labor.
The easing of the monetary crisis, the renewed vigorous growth of the Chinese economy, the relatively stable internal political situation following the 2008-2009 Thai political crisis, and the 2009 flu pandemic having less of an impact as initially feared, have changed the tourism outlook for 2010. Thailand experienced a decrease of international visitors of 16% over the first six months of 2009 but the last four months of 2009 have seen a return of foreign tourists to Thailand with a marked increase in the months of November and December. The provisional numbers for 2009 have now been revised upwards to close to 14 million international visitors, which is a decrease of only 4% compared to 2008.
6. Banking and finances
Dangerous levels of nonperforming assets at Thai banks helped trigger the attack on the Thai baht by currency speculators that led to the Asian financial crisis in 1997-1998. By 2003 nonperforming assets had been cut in half to about 30 percent.
Despite a return to profitability, however, Thailand’s banks continue to struggle with the legacy of the financial crisis in the form of unrealized losses and inadequate capital. Therefore, the government is considering various reforms, including establishing an integrated financial regulatory agency that would free up the Bank of Thailand to focus on monetary policy.
In addition, the Thai government is attempting to strengthen the financial sector through the consolidation of commercial, state-owned, and foreign-owned institutions. Specifically, the government’s Financial Sector Reform Master Plan, which was first introduced in early 2004, provides tax breaks to financial institutions that engage in mergers and acquisitions.
The reform program has been deemed successful by outside experts. In 2007, there were three state-owned commercial banks and five state-owned specialized banks, 15 Thai commercial banks, and 17 foreign banks in Thailand.
The Bank of Thailand sought to stem the flow of foreign funds into the country in December 2006. This led within one day to the largest drop in stock prices on the Stock Exchange of Thailand since the 1997 Asian Financial Crisis. The massive selling by foreign investors amounted more than US$708 million.
Labor
Thailand’s labor force was estimated at 36.9 million in 2007. About 49% were employed in agriculture, 37% in services, and 14% in industry. In 2005 women constituted 48 percent of the labor force and held an increasing share of professional jobs. Less than 4% of the workforce is unionized, but 11% of industrial workers and 50% of state enterprise employees are unionized.
Although laws applying to private-sector workers’ rights to form and join trade unions were unaffected by the September 19, 2006, military coup and its aftermath, workers who participate in union activities continue to have inadequate legal protection. According to the U.S. Department of State, union workers are inadequately protected. Thailand’s unemployment rate lies at 1.5% percent of the labor force.
External trade
The United States is Thailand’s largest export market and second-largest supplier after Japan. While Thailand’s traditional major markets have been North America, Japan, and Europe, economic recovery among Thailand’s regional trading partners has helped Thai export growth.
Recovery from the financial crisis depended heavily on increased exports to the rest of Asia and the United States. Since 2005, the rapid ramp-up in export of automobiles of Japanese makes (esp. Toyota, Nissan, Isuzu) has helped to dramatically improve the trade balance, with over 1 million cars produced annually since then. As such, Thailand has joined the ranks of the world’s top ten automobile exporting nations.
Machinery and parts, vehicles, electronic integrated circuits, chemicals, crude oil and fuels, and iron and steel are among Thailand’s principal imports. The recent increase in import levels reflects the need to fuel the production of high-technology items and vehicles.
Thailand is a member of the World Trade Organization (WTO) and the Cairns Group of agricultural exporters. Thailand is part of the ASEAN Free Trade Area (AFTA). Thailand has actively pursued free trade agreements. A China-Thailand Free Trade Agreement (FTA) commenced in October 2003. This agreement was limited to agricultural products, with a more comprehensive FTA to be agreed upon by 2010.
Thailand also has a limited Free Trade Agreement with India, which commenced in 2003; and a comprehensive Australia-Thailand Free Trade Agreement which started 1 January 2005.
Thailand started free trade negotiations with Japan in February 2004, and an in-principle agreement was agreed in September 2005. Negotiations for a US-Thailand Free Trade Agreement are underway, with the fifth round of meetings held in November 2005.
Tourism contributes significantly to the Thai economy, and the industry has benefited from the Thai baht’s depreciation and Thailand’s stability. Tourist arrivals in 2002 (10.9 million) reflected a 7.3% increase from the previous year (10.1 million in 2001).
Bangkok is one of the most prosperous parts of Thailand, and heavily dominates the national economy, with the infertile northeast being the poorest. An overriding concern of successive Thai Governments, and a particularly strong focus of the recently ousted Thaksin government, has been to reduce these regional disparities, which have been exacerbated by rapid economic growth in Bangkok and the financial crisis.
Although little economic investment reaches other parts of the country except for tourist zones, the government has been successful in stimulating provincial economic growth in the Eastern Seaboard of Thailand, and the Chiang Mai area. Despite much talk of other regional developments, these 3 regions and other tourist zones still dominate the national economy.
Although the economy has demonstrated moderate positive growth since 1999, future performance depends on continued reform of the financial sector, corporate debt restructuring, attracting foreign investment, and increasing exports. Telecommunications, roadways, electricity generation, and ports showed increasing strain during the period of sustained economic growth and may pose a future challenge. Thailand’s growing shortage of engineers and skilled technical personnel may limit its future technological creativity and productivity.