Focus on Thailand (IBR 2013)

Focus on: ThailandGrant Thornton International Business Report 2013

120+

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10.4% growth

countries where ourAudit, Tax and

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approx.$366bn

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10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


32ndlargesteconomyglobally GDP

approx.$366bn

67m people and growing

Focus on: Thailand 2

Introduction

Focus on: Thailand

Thailand is an emerging economy of more than 67m people. In 2012, its GDP was approximately US$366bn, making it the 32nd largest economy in the world.

Drawing on official data sources, such as the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), and the Grant Thornton International Business Report (IBR), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Thailand and more than 12,500 globally, over the past 12 months.

Ian Pascoe Managing partnerGrant Thornton Thailand

T +66 (0)22 05 8100 E [email protected] www.grantthornton.co.th

120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


“The important dynamic elements that I’ll be considering will be certainly the consumer’s

disposable income and how that will pan out into 2014. I’m keeping a very close

eye on the tourism sector. The more tourist that come to Thailand, the better it is for businesses. We are also looking at the

government to start their major infrastructure programs

that we believe will certainly help push the economy.”

Mr. Rituraj MohanManaging director

Boots Retail (Thailand) Ltd

2013 GDPgrowth cut to

3.7%

“The important dynamic elements that I’ll be considering will be certainly the consumer’s

disposable income and how that will pan out into 2014. I’m keeping a very close

eye on the tourism sector. The more tourist that come to Thailand, the better it is for businesses. We are also looking at the

government to start their major infrastructure programs

that we believe will certainly help push the economy.”

Mr. Rituraj MohanManaging director

Boots Retail (Thailand) Ltd


The Thai economy is entering a transition phase in its macro-economy. This change has been felt markedly in 2013. Fuelled by an increase in the minimum wage, very low unemployment, a change in World consumption towards higher-technology goods and still-low productivity, growth of just 1% in exports is projected for 2013.

Focus on: Thailand

The economies of Thailand’s major trading partners are performing relatively strongly, and tourism has rebounded well in 2013, up around a projected 23%, with Time magazine reporting that Bangkok was the most visited city in the world by the 2013 Global Destination Cities Index. These externally positive facts reinforce that Thailand’s economic performance is due to domestic issues.

The potent mixture of this slowdown, mixed with expensive and out-of-control populist stimulus measures has resulted in consumer disquiet. Domestic consumption has slowed over a longer-than-expected period as consumers grow concerned about their household debt. This has been steadily increasing for some

These welcome changes will assist to drive growth however will take time for their full effect to impact the economy. As a result we believe Thailand will finish 2013 on a more subdued economic note than it started.

Economy

Export destinations (2012)Import originations (2012)

ChinaJapanUSHong KongOthers

ChinaJapan

USUAEOthers

Source: Bank of Thailand (2013)

11.7%

20.0%

14.9%

6.3%5.3%

53.4%

10.2%

9.9%

5.7%

62.4%

Revised in October, 2013 2013 Fcst

GDP (%) 3.7

Exports (%) 1

Headline inflation (%) 2.2

Core inflation (%) 1

Current account (US$ bn) -6.8

years. From 2008 to now, it rose ata pace of 12.8% per year, and its size relative to GDP has gone from 56% to 79%.

However, the Bank of Thailand has indicated this is a result of stimulus policies and that figure should decline as such policies are wound back. Notwithstanding these policies, the outstanding public debt continues to remain relatively low at 5.30 trillion baht, or 44.63% of GDP, as of 31st August, 2013.

This protracted consumer slowdown has meant that the Bank of Thailand has adjusted their forecast for GDP growth downwards three times during the last 10 months from over 5% to 3.7% (actual growth was 6.5% in 2012).

The government have announced a series of measures that should help combat some of these effects:• a change to the corporate tax

rate to 20%• some important changes to

manufacturing privileges announced by the well regarded export-focussed Board of Investment (BOI). These includea move away from labour-driven manufacturing towards more higher-value goods in production

• massive infrastructure spending plans of around $64billion, to be invested before 2020. Whilst it is expected that these will move ahead, it is likely that the start date will be delayed meaning there will be little effect on the growth numbers in 2014.



GDP (%) 4.8

Exports (%) 7


Core inflation (%) 1.2

Current account (US$ bn) -7

120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise




GDP (%) 4.8

Exports (%) 7


Core inflation (%) 1.2

Current account (US$ bn) -7

schemeRice-pledging

continuesgrowthcut to

2014 GDP

4.8%


Focus on: Thailand

Thailand faces strong headwinds in 2014. Thailand’s labour productivity is not increasing. With unemployment of 0.8% and continued wage infl ation, Thailand’s workforce is rapidly becoming less competitive. Whilst the change in the BOI privileges means that the manufacturing orientation will change, it will not happen quickly.

Unfortunately, Thailand’s service-related industry will struggle to take up the slack. Competition remains nascent in a number of industries for several reasons, for example the restrictive Foreign Business Act (FBA) and the continued monopoly of State Owned Enterprises. This lack of competition simply condones current ineffi ciencies which affects the economy at large.

This emphasis on continuing old ineffi ciencies can be witnessed in full in Thailand’s rice-pledging scheme. This has resulted in losses to the State of approximately $10bn since its inception 2 years ago, the loss of Thailand’s world number 1 position in rice exports, and the continuance and even the extension of unproductive farming methods. This has created an “untameable beast” forcing the government to indicate it will continue with the policy in 2014 despite strong opposition from leading industrialists, the IMF, and academics.

Thailand’s education system requires signifi cant reform as it has not changed

in-line with more modern teaching methods. This means the resultant product of the education system is not well suited to the demands of the modern workforce requiring productivity and multi-tasking. The Tablet Project for all school children certainly is an interesting experiment to attempt to modernise the system however it suffers from a lack of direction, content and teacher-training.

Notwithstanding the above, we remain cautiously optimistic in the medium to long term as:• the worldwide economy continues

to recover which should bode well for Thailand’s manufacturing sector albeit anaemically

• Thailand’s tourism sector continues to be buoyant provided political stability is maintained

• there should be increasing trade liberalisation brought about by new major Free Trade Agreements like the AEC and the Thailand-EU agreement, and later by the Trans-Pacific Partnership Agreement (TPP)

Economic outlook

• the well-conceived Infrastructure mega-projects and focus on inter-regional connectivity is extremely positive for Thailand. Delays to the spending means we are unlikely to see much positive effect in 2014

• the Bank of Thailand noted in its October report that the Thai economy “began to stabilize and show signs of improvement in some sectors”.

Key external parameters are noted to be quantitative easing (QE) tapering, fi scal impasses in the US and any reductions in the “Abenomics”-inspired QE in Japan.

With these factors in mind, the Bank of Thailand reduced its GDP growth forecast for 2014 in October to 4.8%. It also reduced its export growth and current account forecasts too. It is our view that there remain signifi cant challenges in the year ahead, leading to a slower rate of growth than this, however Thailand should return to more robust growth from 2015 thru 2017.

67m people

67mpeople

and growing

and growing

67mpeople

and growing

“The government should be transparent in their mega-projects and have a clear plan in each project. They should review and evaluate their

populist policy’s and whether they really drive real GDP or not, and fi ne-tune them. Most important is the labour issue. The

government should develop skilled labour and resolve the labour shortage issue. The 300-baht [minimum wage] policy has been announced and we know that national productivity has not

increased at all”

Mr. Thana ThiramanusManaging director

Property Care Services (Thailand) Ltd

“The government should be transparent in their mega-projects and have a clear plan in each project. They should review and evaluate their

populist policy’s and whether they really drive real GDP or not, and fi ne-tune them. Most important is the labour issue. The

government should develop skilled labour and resolve the labour shortage issue. The 300-baht [minimum wage] policy has been announced and we know that national productivity has not

increased at all”

Mr. Thana ThiramanusManaging director

Property Care Services (Thailand) Ltd


67m people

67mpeople

and growing

and growing

67mpeople

and growing

Focus on: Thailand

Net percentage of Thai businesses expecting an increase

Source: Grant Thornton IBR 2013

53

28

31

44

28

-10

17

2 2

18

4

24

Exports Investment

2012 (average)Q2-2013

Revenue Profi ts

Q3-2013

ASEANThailand

Net percentage of businesses optimistic for the economic outlook


0%

-20%

-50%

-10%

-40%

10%

20%

30%

40%

-30%

-60%

Q42011

Q22012

Q32012

Q12013

Q22013

Q32013

Q42012

Q12012

Thai business confi dence fell to its lowest level since the 2011 fl oods in Q3-2013, dropping to net -28% – meaning more business leaders are pessimistic than are optimistic for the economy over the next 12 months – down from 22% the previous quarter.

By contrast, the ASEAN average ticked up to 39% in Q3 from 26% in Q2, driven by sharp increases in the Philippines and Vietnam. Importantly for the wider growth of the region, Chinese business optimism rebounded from a record low of 4% in Q2, to 31% in Q3.

This negativity is feeding through to business leader confi dence in the growth of their own operations. While net 31% of Thai businesses expect revenues to rise over the next 12 months, -10% expect their profi ts to rise (meaning a majority expect a decrease in profi ts), down from 28% in Q2. Export prospects remain depressed with just net 2% of business leaders expecting an increase, the same as Q2, and down from an average of 17% in 2012. The proportion of businesses planning to increase investment in plant and machinery has also dropped, declining from 18% in Q2 to just 4% in Q3.

Business growth prospects

67m people

67mpeople

and growing

and growing

67mpeople

and growing

67m people

67mpeople

and growing

and growing

67mpeople

and growing

67m people

67mpeople

and growing

and growing

67mpeople

and growing

67m people

67mpeople

and growing

and growing

67mpeople

and growing67m people

67mpeople

and growing

and growing

67mpeople

and growing

67m people

67mpeople

and growing

and growing

67mpeople

and growing 2633

120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


34

53

31

38

“This is really the year to focus on preparing

for the AEC. There’s no doubt that we [Thailand] have to invest in our infrastructure in order to

prepare for both the opportunities and challenges that come

with that.”

Mr. Thomas Nyborg Managing directorPandora Production Co. Ltd

2626263333


a struggle

Thaibusiness

34

53

31

38

“This is really the year to focus on preparing

for the AEC. There’s no doubt that we [Thailand] have to invest in our infrastructure in order to

prepare for both the opportunities and challenges that come

with that.”

Mr. Thomas Nyborg Managing directorPandora Production Co. Ltd


Focus on: Thailand

Bureaucracy also remains a major concern. More than two in fi ve businesses cited regulations and red tape in both 2012 and 2013, around double the level reported before the fi nancial crisis (20% in 2007). Infrastructure concerns are also more pressing for Thai businesses compared with ASEAN peers: more than a third cite poor quality transport (37%) and ICT (34%) infrastructure.

However, the most pressing overall concern in Q3-2013 was economic uncertainty, perhaps refl ecting both political and economic problems both at home and abroad. This was cited as a constraint on growth by 80% of business leaders, above the Q2 result and the ASEAN average (both 60%).


42 3742

2937

52

Regulations & red tapeLack of skilled workersShortage of orders

ICT infrastructure Shortage of fi nanceTransport infrastructure

ThailandASEAN

Net percentage of businesses citing factor as a constrainton growth (next 12 months)

Business leaders in Thailand feel far more constrained in their ability to grow their operations compared with peers across the ASEAN region. Over the past 12 months, over half of Thai business leaders (53%) have cited a lack of demand as a constraint on growth, rising to 60% in Q3 alone – the highest level since Q4-2011. A lack of skilled workers (see next page) is also cited by over half of businesses (52%).

Business growth constraints

120+

15,000

10.4% growth


growthcut to

2014 GDP

4.8%


a struggle

Thaibusiness

unemploymentrate

schemeRice-pledging

continues

0.8%

Auditorsworldwide

2013 GDP


people67 million

GDP

approx.$366bn

Ranked in

Combined global


revenues of$300m


growth cut to

3.7%


$4.2bn

More than

revenues2012


One of the



‘large six’



million jobs

needs to create

100India


Talent




Over

32ndlargesteconomy


to rise


“The government should solve the labour

shortage for the export industry. Maybe they should look for joint ventures with

neighbouring countries.”

Mr. Anchatach Taechamatavorn Chairman, Manufacturers Public Co. Ltd

unemploymentrate

0.8%

“The government should solve the labour

shortage for the export industry. Maybe they should look for joint ventures with

neighbouring countries.”

Mr. Anchatach Taechamatavorn Chairman, Manufacturers Public Co. Ltd


Focus on: Thailand

Percentage of businesses citing a lack of skilled workers as a constraint on growth (next 12 months)

Percentage of businesses expecting an increase in employment (next 12 months)


Thailand is going through a serious talent drought. The World Bank recently reported that a lack of skilled labour has become the biggest impediment to doing business in Thailand, while the Ministry of Labour said that demand for workers outstripped supply for the fi rst time in 2013. The government estimates that 300,000 people are unemployed, which represents just 0.8% of the labour force. As a result so these skills shortages, average wages rose by around 50% in the decade to 2010.

Talent shortages

ThailandASEAN

ThailandASEAN

More than 50% of businesses in Thailand cite a lack of skilled workers as a constraint on their expansion plans, ten percentage points higher than the ASEAN average (42%) where unemployment rates are higher. This is however, far from a new phenomenon: in 2008, 68% of Thai businesses claimed that a lack of the right people was stopping them from growing.

The outlook for hiring workers has declined steadily over the past four quarters, falling from net 48% in Q4-2012 to 0% in Q3-2013. Traditionally, Thailand has plugged skills gaps with migrant workers from neighbours such as Myanmar, Cambodia and Laos, but with businesses issuing a collective warning on profi ts, they are unlikely to be needed in the short-term. Longer term however, a review migration policies and incentives, and improvements to the education system will be needed to ensure that the Thailand continues to offer the right people to support its development.

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

67m people

67mpeople

and growing

and growing

67mpeople

and growing

67m people

67mpeople

and growing

and growing

67mpeople

and growing

80%

70%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

2008 2010 20112009 2012 2013

© 2013 Grant Thornton International Ltd.

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to theirclients and/or refers to one or more member firms, as the context requires.

Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provideservices to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.

www.gti.org

CA1310-01

IBR 2013 methodologyThe Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.

The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in mid-market businesses, defined in Thailand as those with 20-599 employees.

Q3 data is drawn from 3,300 interviews globally (50 in Thailand) conducted in September 2013. 2013 average data is drawn from over 12,500 interviews (200 in Thailand) conducted between December 2012 and September 2013.

To find out more about IBR, please visit: www.internationalbusinessreport.com.

Dominic KingGrant Thornton International LtdGlobal research manager T +44 (0)207 391 9537E [email protected]

Lakpilai Worasaphya Grant Thornton ThailandSenior manager – Marketing & communications T +66 2 205 8142 E [email protected]