Nine reasons why Thailand may lose out in the ASEAN race

Roberto Scaramuzza - Linkedin profile

Roberto Scaramuzza – Linkedin profile

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Thailand will have to address certain issues that affect investors’ confidence in order to keep pace with the rapidly changing business environment in ASEAN.

There will be much more competition, investors from Japan and Australia, countries among the largest sources of investment for the country, said at several recent business events in Bangkok, and Thailand should show more general awareness.

In fact, Thailand has a number of problems that could sooner or later rock its comfort zone within the regional bloc.

After two years of maintaining a presence in the country and following political and economic developments, to be able to narrow down the issues that plague the kingdom and could put the brake on its future development, must be focused the following 9 points.

1. Weak government

The Pheu Thai coalition government under Prime Minister Yingluck Shinawatra in place since 2011 has on several occasions proven that it is literally a puppet government of ousted premier Thaksin Shinawatra who is pulling the strings from his residence in Dubai through Skype video conferences with the cabinet in Bangkok. While prime minister Yingluck cuts a fine figure on foreign state visits, she is indecisive at home and – apart from her weekly TV show – has little interaction with the public, a poor hand with the media and bad political timing.

From the poor management of the flood crisis in 2011 to the disaster with the populist rice pledging scheme, many things went wrong during her term. The latest embarrassing example was that, on the same day when angry farmers stormed into Bangkok on June 25 to protest against a cut in the guaranteed rice price scheme claiming their sheer existence is at stake, the cabinet approved a $110 million brand new Airbus jet for VIP guests and government officials despite several aircraft of national carrier Thai Airways are known to collect dust at Don Mueang airport in Bangkok.

People are also increasingly bothered about the inability of the government to end the Muslim insurgency in the south which holds off investors to look for desperately needed business opportunities there. In a latest development, it seems likely that the Pheu Thai cabinet will be reshuffled in July 2013 for a fourth time after many ministers have been already replaced in October 2012 and on two other occasions before.

The aim is obviously to replace them with more hand-picked Thaksin loyalists, but the short tenures ministers have been working so far in this government did not allow them to do anything useful for the country, observers say.

2. Political instability

In 2013, tension between Thailand’s political movements increased to an extent that they sooner or later could clash again. The Red Shirts held a big rally in May 2013, and the once powerful anti-Thaksin and pro-monarchy opposition movement of the Yellow Shirts has now been succeeded by the “White Masks”, or the “V for Thailand” movement, which has already organised three mass assemblies in Thailand’s capital in June 2013, demanding the ouster of prime minister Yingluck Shinawatra. The increasing number of protests puts heavy pressure on the government which, in turn, raises the probability of another military coup, which would be the 18th since the nation became a constitutional monarchy in 1932. All these are ingredients that investors do not really appreciate.

3. Corruption

Corruption is rife in the country, from policemen scamming tourists in broad daylight to mafia-like structures in the entertainment hubs of the country to preferred judiciary treatment of the wealthy and influential. Many investment and development projects do not work without kickbacks, often to an extent bigger than already factored in by foreign investors.

In Thailand, corruption happens wherever state-related transactions take place, and the interesting thing is that the majority of the population, according to polls, is fine with that. Ironically, anti-corruption watchdogs in the country are corrupt themselves, causing the sector to flourish beyond imagination.

4. Low skills level

Foreign investors in the manufacturing sector as well in management, banking and services have repeatedly complained about the comparably low skills level of Thai employees:

  • starting from poor computer literacy
  • and reaching to a broad lack of skilled engineers and technicians
  • as well as poor management capabilities

The shortfall of skilled labours has been causing growing pain for the industry, and its roots are seen in an inefficient and poorly designed education system and a lack of incentives for employees to absolve training courses.

Thailand has a low official unemployment rate of just 0.6 per cent, thus the estimated demand of 100,000s of skilled workers for upcoming mega-projects in infrastructure and water management cannot be satisfied by locals;

at the same time, the unions are demanding to shut down borders for foreign workers to protect local jobs, a strategy that stands in strong contradiction to the ideas of the ASEAN Economic Community and could hold the country’s development back for years to come.


5. Low English proficiency

The worst thing for expats and foreign businesses is the low English proficiency of Thais, a phenomenon whose roots are not really clear.

For some reason, foreign language education has no priority neither in primary nor in high schools, and apart from some elite educational institutions English teachers in Thailand are the sort of elderly expats who just don’t care.

There are not many incentives for Thais to visit English language classes, and few of them do.

Despite Thailand is the second largest tourism destination in ASEAN with 22 million mostly non-Thai-speaking foreigners visiting the nation in 2012, it is hard for every single one of them to find an indigenous person on the street who is able to give directions in proper English or a taxi driver who even knows numbers in English when it comes to pay the bill.

Many Thais simply don’t see the necessity to learn English to an extent that would enable them to interact with foreign visitors, institutions and businesses beyond a very basic level, which results in foreigners feeling that they are being treated ignorantly.

And despite the problem has been on the table since many years, there is no government initiative to speak of to improve the situation.


6. Low productivity and low competitiveness

Thailand has long been a workbench for low-value goods and assembling, but the requirements are changing.

The country will have to get very serious about productivity, as the days of cheap labour are over since a new minimum wage has been introduced in 2013.

Investors and businesses demand that Thai workers have to become a lot smarter and get a lot better at training, since rising labour costs and logistics expenses have to be compensated with higher productivity.

Higher productivity comes with higher skills especially in the mid-level management, which, in turn, requires better educated people.

Higher productivity goes in hand with higher competitiveness, which is desperately needed for the upcoming ASEAN Economic Community.

7. Poor fiscal management

The Thai Finance Ministry and the Bank of Thailand in its role as central bank have been long at odds about the right fiscal management of the country and the management of the baht exchange rate, and the latest discourse about lowering the benchmark interest rate was fought out via the media in public, triggering concerns about who holds the reins. The indecisiveness and randomness of decisions has scared off a number of investors.

8. High reliance on tourism

The country with its lovely beaches, islands and hotels saw 22 million visitors in 2012.

A huge industry lives from tourism receipts, and with it an opulent entertainment sector that sometimes puts Thailand’s reputation in a bad light.

The steady inflow of tourists and money has led to a kind of carelessness, with scams and a tourism-related mafia abound.

In tourism forums on the web visitors constantly complain about being ripped off at holiday hot spots such as Phuket, Koh Samui and Pattaya, and police and authorities doing nothing about it.

In Bangkok, a two-tier pricing system exists in many areas, be it street food, market clothing or condo rentals, where foreigners categorically are asked to pay 20 to 50 per cent more than Thais for the same.

But as long as disillusioned travelers are constantly being replaced with new ones flowing into the country, nothing is going to change.

9. Self-protecting ignorance

Many Thais don’t like to travel abroad unless they are offered a well-paying job somewhere, not even to neighboring countries, and some will say they have “no money”, others will say they are “scared” or they don’t like it.

The fear many of them have of foreign cultures or unknown places is hard to grasp, it could be that they feel insecure as most of them cannot communicate in other languages than Thai.

It’s common knowledge that Thailand is the only country in Southeast Asia that has never been colonized and never had the obligation or chance to cope with a foreign culture.

This has, however, led to a kind of self-protecting ignorance and a very blurred imagination of the “Golden West” among many young people.

The misunderstanding or sheer lack of knowledge of other cultures leads to weaknesses in interaction with foreigners other than short-time leisure visitors, as well as foreign businesses.