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Thailand Investment Climate Assessment Update. Xubei Luo The World Bank Bangkok August 21st, 2008. Background and Sample of Firms. Thailand Investment Climate Assessment Update is based on round 2 of survey; round 1 of survey was done in 2004 Survey Covers - PowerPoint PPT Presentation
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Thailand Investment Climate Assessment Update
Xubei Luo
The World Bank
Bangkok
August 21st, 2008
2
Background and Sample of Firms
Thailand Investment Climate Assessment Update is based on round 2 of survey; round 1 of survey was done in 2004
Survey Covers 9 industries: Auto components, electrical appliances,
electronic components, food processing, furniture/wood products, garments, machinery & equipment, rubber & plastics, and textiles (1,043 firms in 2007 survey))
6 regions: Bangkok & vicinity, Central, East, North, Northeast, and South
Firm size: Small, Medium, and Large Foreing-owned and Thai-owned Exporting and non-exporting
3
Main messages Big picture of Thailand’s investment climate
Changes between PICS 2004/07: Objective indicators – worsened slightly Subjective perceptions – worsend significantly
International perspective: middling among other countries
Key obstacles of investment climate Uncertain macroeconomic environment and inadequate
access to finance Shortage of skilled labor Cumbersome regulatory procedures Unreliability of infrastructure
4
Key obstacles of investment climate
Top Constraints to Business and Investments (PICS 2007)
(Percent of 1,043 firms in 9 manufacturing industries surveyed)
Source: Thailand Productivity and Investment Climate Study 2007 (PICS 2007), World Bank, NESDB and Foundation of Thailand Productivity Institute
12.5
21.7
35.8
40.6
0 5 10 15 20 25 30 35 40 45
Inadequate &unreliable
infrastructure services
Regulatory burden
Skilled labor shortage
Macroeconomicuncertainty and access
to finance
Percent
5
Structure of Thailand ICA Update
Thailand’s investment climate todayThailand’s investment climate today Investment climate and enterprise
productivity Macroeconomic environment and
access to finance Skills and innovation Regulatory framework Public infrastructure
6
Objective indicators shows a slight worsening in investment climate (I)
0
20
40
60
80
100
120
140
% sales withoverduepayment
% firms withoverdraft facility
% of newinvesments
finance by localcommercial
banks
Value ofcollateral
required as % ofloan value
% of newinvestmentfinanced by
internal funds orretained earnings
Per
cent
2007 2004
Objective Measures of Access to Finance
Access to commercial bank loans have become slightly more difficult, especially for small and medium firms
7
0
1
2
3
4
5
6
7
8
No. of Weeks to fill vacancy forprofessional position
No. of Weeks to fill vacancy forskilled production worker position
No. of Weeks to fill vacancy forunskilled production worker
position
2007 2004
Objective indicators shows a slight worsening in investment climate (II)
Objective Measures of Skills Availability
Professional staff are slightly more difficult to find
8
0
5
10
15
20
25
30
35
40
45
Average days toobtain permits
issued by centralgovernment to
start production
Number of daysto obtain mostrecent license,
permit, approvaland certificate
Number of daysto deal with
agencies
% of manager timedealing withregulations
Days to clearimport custom
Days to clearexport custom
2007 2004
Objective Measures of Regulatory Framework
Objective indicators shows a slight worsening in investment climate (III)
Some administrative procedures takes slightly longer time
9
Objective indicators shows a slight worsening in investment climate (IV)
Objective Measures of Infrastructure Services
Duration of infrastructure service interruptions are slightly longer
0
2
4
6
8
10
12
14
16
18
20
Yea
rly
nu
mb
er
of
po
wer
ou
tages
Pro
du
ctio
n
loss
due
to
po
wer
ou
tag
es
(%)
Yea
rly
nu
mb
er
of
wat
er
inte
rru
pti
on
s
Av
erag
e ho
urs
of
each
wat
er
inte
rru
pti
on
Yea
rly
nu
mb
er
of
ph
on
e
inte
rru
pti
on
s
Av
erag
e ho
urs
of
each
tele
ph
on
e
inte
rru
pti
on
2007 2004
10
Thailand’s investment climate is middling compared to other countries (I)
1.6
2.3
2.9
3.2
3.4
3.7
5.2
8.8
0 2 4 6 8 10
Indonesia
Turkey
Russia
India
Korea
Germany
Thailand
Brazil
Weeks
Time required to fill the most recent vacancy for
SKILLED production workers (weeks)
Source: Thailand PICS 2007 and Global PICS
11
Thailand’s investment climate is middling compared to other countries (II)
Objective Measures of Bureaucratic Process
Source: Thailand PICS 2007 and Global PICS
0
2
4
6
8
10
12
14
16
18
Days to obtainoperating license
Days to clear exportscustoms
Days to clear importcustoms
Thailand(2007) China(2003) Indonesia(2003)
S. Korea(2005) Malaysia(2002) Vietnam(2005)
India(2006)
12
Thailand’s investment climate is middling compared to other countries (III)
Objective Measures of Infrastructure Services
0
5
10
15
20
25
30
Value lost dueto electrical
outages (% ofsales)
Days to obtainelectrical
connection
Days to obtainwater
connection
Daysto obtainfixed-line phone
Thailand(2007) China(2003) Indonesia(2003) S. Korea(2005)
Malaysia(2002) Vietnam(2005) India(2006)
Source: Thailand PICS 2007 and Global PICS
13
Subjective perceptions worsened significantly
0%
10%
20%
30%
40%
50%
60%
70%
Macro
eco
no
mic
insta
bil
ity
Eco
no
mic
po
licy
un
cert
ain
tyS
kil
ls a
nd
ed
ucati
on
of
av
ail
ab
le w
ork
ers
An
ti-c
om
peti
tiv
e
pra
cti
ces
Co
st
of
Fin
an
cin
g
Tax
ad
min
istr
ati
on
Ele
ctr
icit
y
Cu
sto
ms a
nd
tra
de
reg
ula
tio
ns
Access t
o d
om
esti
c
cre
dit
Tra
nsp
ort
ati
on
Lab
or
reg
ula
tio
ns
Tele
co
mm
un
icati
on
s
Bu
sin
ess p
erm
its
2007 2004
Perception of Investment Climate Indicators as Major or Severe
Obstacles to Doing Business
(Percent of Firms)
14
Perceptions becomes reality as they affect investment decisions
Business Sentiment Index
36
38
40
42
44
46
48
50
20
05
Jan
Ap
r
Jul
Oct
20
06
Jan
Ap
r
Jul
Oct
20
07
Jan
Ap
r
Jul
Oct
Source: Bank of Thailand Source: BOT and NESDB
Private Investment growth and
Capacity Utilization
70
71
72
73
74
75
2004 2005 2006 2007
Perc
ent
0
2
4
6
8
10
12
14
16
18
Perc
ent
Real private investment growth (Right)
Capacity utlization rate (Left)
15
Structure of Thailand ICA Update
Thailand’s investment climate today Investment climate and enterprise Investment climate and enterprise
productivityproductivity Macroeconomic environment and
access to finance Skills and innovation Regulatory framework Public infrastructure
16
Thailand’s productivity growth is smaller than China & India
Sources of GDP growth - China, India, & Thailand(Annual average % increase)
0
2
4
6
8
10
1978-93 1993-04 1978-93 1993-04 1978-93 1993-04
Employment Capital investment
Total factor productivity Others
IndiaChina Thailand
Source : Barry Bosworth and Susan Collins (Thailand’s data is from WB study with NESDB, 2005)
17
From PICS 2007, which types of firms have higher productivity
Older firms Larger firms Foreign-owned firms Exporting firms Firms better equipped with new /
computer-controlled machinery Firms engaging in R&D
18
What investment climate is conducive for productivity
Stable policy and macroeconomic environment
Well functioning financial system Abundant skilled labor Efficient regulatory framework Adequate and reliable infrastructure
services
19
Structure of Thailand ICA Update
Thailand’s investment climate today Investment climate and enterprise
productivity Macroeconomic environment and Macroeconomic environment and
access to financeaccess to finance Skills and innovation Regulatory framework Public infrastructure
20
Unstable macroeconomic and policy environment affected firms’ investment decision
Percentage of firms that considered these to have adversely affected their investment decisions substantially or very substantially in 2006-2007
0%
10%
20%
30%
40%
50%
60%
70%
80%
Oil
pric
es
Raw
mat
eria
lpr
ices
Exc
hang
era
te
Inte
rest
rate
Com
mod
itypr
ices
Infl
atio
nra
te
Polic
ies
onin
vest
men
t
Polic
ies
onfo
reig
nca
pita
l
21
Rising oil prices and appreciated baht was unfavorable to business and investment
Exchange Rates
70
75
80
85
90
95
2004 2005 2006 2007
Rea
l Eff
ecti
ve E
xcha
nge
Rat
e In
dex
(199
4=10
0)31
32
33
34
35
36
37
38
39
40
41
Bah
t/U
S$
REER (Left) Baht/US$ (Right)
Diesel Price
14.59
25.6625.59
20.03
10
12
14
16
18
20
22
24
26
28
2004 2005 2006 2007
Bah
t/L
iter
Source: Energy Policy and Planning Office (EPPO) Source: Bank of Thailand (BOT)
22
Rise in interest rates had raised the cost of financing new investments
Average Interest Rates Faced by Firms
0%
1%
2%
3%
4%
5%
6%
7%
Average interest rate forshort term domestic liability
Average interest rate for longterm domestic liability
2007 2004
Source: PICS 2007 & PICS 2004
Minimum Lending Rate of Commercial Banks
Source: Bank of Thailand (BOT)
2.8
7.27.55.9
0
1
2
3
4
5
6
7
8
2004 2005 2006 2007
Per
cent
23
Higher interest rates plus higher collateral requirement…led to greater use of retained earnings & small increase in bank loans
Percentage-point Difference between 2007 and 2004
-10%
0%
10%
20%
30%
40%
50%
% of firms withoverdraft facility
% of firms withbank loan
% of firmsfinanced working
capital & newinvestment by
local commercialbanks
% of firmsfinanced working
capital & newinvestment by
internal funds orretained earnings
Value of collateralrequired as % of
loan value
All Small Medium Large
Objective Indicators of Firms’ Access to Finance
24
Firms need to increase protection against macroeconomic volatility
Percentage of Firms Used These Methods to Deal with Macroeconomic Uncertainties
0%
10%
20%
30%
40%
50%
60%
Pro
du
ctivity
imp
rove
me
nt
Fin
din
g n
ew
su
pp
lie
rs
Lo
ng
te
rm
co
ntr
act
Fin
an
cia
l
he
dg
ing
instr
um
en
t
Pri
cin
g in
diffe
ren
t
cu
rre
ncy
Inve
stin
g
ab
roa
d
No
me
asu
re
take
n
All Small Medium Large
25
Lack of knowledge is a bottleneck and small firms are particularly vulnerable
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
No measure taken
Lack o
f know
ledge
Electrical Appliance
Small
Medium
Large
Food Processing Textile
Garment
Auto parts
Electronic Component
Domestic
Machinery & Equipment
Foreign
Rubber & Plastics
Furniture & Wood Product
Firms Reporting Not Undertaking any Measure vs. the Lack of Knowledge on Coping Measures (Percent of firms)
26
Structure of Thailand ICA Update
Thailand’s investment climate today Investment climate and enterprise
productivity Macroeconomic environment and
access to finance Skills and innovationSkills and innovation Regulatory framework Public infrastructure
27
Shortage of skills remained a key obstacle for Thailand to move towards a knowledge economy
% of Firms Identifying Labor Skill Level as a Major or Severe Constraint
0 10 20 30 40 50
Cambodia(2003)
Korea(2005)
Turkey(2005)
Philippines(2003)
India(2006)
Indonesia(2003)
Vietnam(2005)
Malaysia(2002)
China(2003)
Thailand (2004)
Thailand(2007)
Brazil(2003)
28
Skilled production workers are in short supply relative to other countries
1.6
2.3
2.9
3.2
3.4
3.7
5.2
8.8
0 2 4 6 8 10
Indonesia
Turkey
Russia
India
Korea
Germany
Thailand
Brazil
Weeks
1.0
1.4
1.5
2.1
2.2
2.3
2.5
2.5
0 1 2 3
Indonesia
Turkey
Russia
Korea
Thailand
Germany
India
Brazil
Weeks
Time required to fill the most recent vacancy for skilled production workers
(weeks)
Time required to fill the most recent vacancy for unskilled production
workers (weeks)
29
Filling vacancies take time because applicants lack skills that firms look for
3.9
8.6
13.1
19.4
23.4
31.6
0 5 10 15 20 25 30 35
Universities not producingenough graduates
Applicants demand veryhigh wage
No applicants for unskilledworkers position
Applicants lack requiredtechnical skills
Applicants lack requiredbasic skills
High turnover of newrecruits
Percent
Percent of firms identifying these issues as the most important reason
for job vacancies
At the professional level, quantity is not a problem
30
English proficiency and IT skills remain weak for skilled local production workers
0 20 40 60 80 100
Technica/professional
Team-working
Adaptability
Social
Problem-solving
Time management
Communication
Leadership
Creativity/innovation
Numerical
IT
English language
Percent
PICS 2004 PICS 2007
% of Firms Rating Certain Skills as Poor or Very Poor
31
Lack of qualified personnel limits firms innovation efforts
43.6 42.7
9.4
4.2
0
10
20
30
40
50
High cost offinancinginnovativeactivities
Lack ofknowledgeable
and trainedpersonnel
Insufficientknowledge about
possibleinnovativeactivities
Low returns toinnovative activity
Per
cent
Percent of firms reporting these as a reason for not engaging more in innovative activities
Innovative Activities includes
1. Technological innovation e.g. upgrading of machinery
2. Process innovation e.g. new process of producing the same product
3. Product innovation e.g. developing new products
4. Commercial innovation e.g. joint ventures
5. Marketing innovation e.g. branding
32
Structure of Thailand ICA Update
Thailand’s investment climate today Investment climate and enterprise
productivity Macroeconomic environment and
access to finance Skills and innovation Regulatory frameworkRegulatory framework Public infrastructure
33
Regulatory constraints are more binding for larger firms
0
5
10
15
20
25
30
35
40
Taxadministration
Customs andtrade
regulations
Laborregulations
Businesslicensing andregistration
Percent
All firms Small Medium Large
Percent of Firms that Cited Each Regulatory Issue
as a Major or Severe Obstacle
34
More firms in all industries reported a higher regulatory burden in 2007 relative to 2004
Percentage of firms reporting at least one of the four reguatory issues as a major obstacle to business
0%
10%
20%
30%
40%
50%
60%
70%
Textile
s
Ele
ctr
ical
Appliance
Ele
ctr
onic
com
ponents
Auto
part
s
Food
pro
cessin
g
Garm
ents
Machin
ery
&
Equip
ment
Furn
iture
&
Wood
Pro
ducts
Rubber
&
pla
stics
2007 2004
Firms Reporting At Least One of the Four Regulatory Issues as a Major Obstacle to Business
35
Some industries face a longer time to obtain permits to start production and hihger uncertainties
0 10 20 30 40 50 60 70
Electronic components
Garments
Rubber & plastics
Furniture & Wood Products
Food processing
Machinery & Equipment
Auto parts
Textiles
Electrical Appliance
All Industries
Days
(22)
(147)
(115)
(82)
(25)
(23)
(19)
(21)
(22)
(23)
Average Days to Obtain Permits to Start Production
Figures in () are standard deviations from mean
36
Some regulatory issues negatively affected firms’
investment decisions – from in-depth interviews Delayed and partial VAT refunds Delayed import tax refund and unclear
codes for goods categorization Bureaucratic procedures and unnecessarily
high frequency of inspections Multiple agency contacts for standard
certifications Price administration and uncertainties in
foreign business participation & specific industrial policies
37
Structure of Thailand ICA Update
Thailand’s investment climate today Investment climate and enterprise
productivity Macroeconomic environment and
access to finance Skills and innovation Regulatory framework Public infrastructurePublic infrastructure
38
The share of logistical costs in total product costs increased from 2004-07, and is the highest in the
North, Northeast, and South
0%
1%
2%
3%
4%
5%
6%
7%
8%
Thailand Bangkokand
vicinity
Central East North Northeast South
2007 2004
39
The share of logistics costs in total product cost is the highest for food processing firms
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Food
pro
cessin
g
Furn
iture
and
wood
pro
ducts
Rubber
and
pla
stics
Ele
ctr
ical
applia
nces
Garm
ents
Machin
ery
and
equip
ment
Textile
s
Auto
com
ponents
Ele
ctr
onic
com
ponents
2007 2004
40
Thank youThank youContact persons:
Dr. Kirida Bhaopichitr (Bangkok)kbhaopichitr@worldbank.org
Dr. Xubei Luo (Washington)xluo@worldbank.org
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