UNLOCKING ICT Liberalization of Services: Thailand Experience July 2, 2013 Centara Grand Hotel, Bangkok Deunden Nikomborirak Thailand Development Research Institute 1
Presentation Outline 1. Role of Service Sector in the Thai Economy 2. Opportunities 3. Challenges 4. Conclusions & Recommendations 2
1. Role of Service Sector 3
Growth Prospects of the Thai Economy 1. Thailand needs to break away from the Middle Income Trap 2. TDRI s assessment of the impact of the minimum wage increase to 300 baht nationwide reveals that GDP growth can remain positive if labour productivity increases 8.4 %. 3. Bank of Thailand s assessment shows the Thai labour productivity needs to increase from 4% to 8% to compensate for the wage hike. 4
Thailand cannot break away from the middle income trap without a reform of the service sector 44% of labourforce is employed in the service sector Half of GDP is contributed by the service sector 100% 100% 90% 90% 80% 70% 41 41 42 42 43 45 46 45 45 46 46 45 41 44 80% 70% 52 51 51 51 49 50 50 50 49 49 50 49 50 60% 60% 50% 14 15 15 15 16 16 16 15 16 15 14 14 21 14 50% 40% 40% 30% 30% 38 39 38 39 40 41 41 41 42 42 41 43 41 20% 45 44 42 42 41 39 39 40 39 40 40 41 39 42 20% 10% 0% 10% 0% 10 10 10 10 10 10 9 9 9 9 9 8 9 1999200020012002200320042005200620072008200920102011 Agriculture Manufacturing Service Agriculture Manufacturing Service Source: National Income Account, NESDB 5
Labourproductivity in the service sector is stagnant and well below that in the manufacturing sector 1,000 baht at 1988 prices 400.00 350.00 300.00 250.00 200.00 150.00 100.00 Agriculture Manufacturing Service 50.00 0.00 19981999200020012002200320042005200620072008200920102011 Source: NESDB and Ministry of Labour 6
Labor productivity growth by sector (2007-11) ave growth (%) 80 70 60 50 40 30 20 10 0-10 2.5 0.4-1.2 3.4 3.9-5.9 3.8 69.2-3.8 0.7 6.1-0.8 Source: NESDB 7
Service sector drags economic growth YOY(%) 20 15 10 5 8 0 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990-5 -10-15 Agriculture Manufacturing Service Source: NESDB
Conclusions 1. Low labour productivity in the service sector can be attributed to the foreign equity share cap at 49% in the service sector and domestic rules and regulations that serve to entrench market power of incumbent operators. 2. Low growth and labour productivity in the service sector leads to (1) low wage (2) high costs, low quality and less advanced services, which undermine the competitiveness of the export-oriented manufacturing sector. 9
2. Opportunities 10
ASEAN Economy ranks 6 th in terms of size 18 16 14 12 10 8 6 4 2 0 15.8 EU GDP (PPP) 2011 trillion USD 15 11.3 4.5 4.4 US China India Japan 3.5 ASEAN แหล งท มา : World Bank database สามารถดาวน โหลดได ท 11 database.worldbank.org
ASEAN is becoming an increasingly important FDI destination Proportion of FDI destined in ASEAN (%) Source: World Investment Report 2012. 12
Thailand s FDI share is below her GDP share Thailand, 19.39 GDP share (2006-10) Vietnam, 8.84 Brunei, 0.71 Cambodia, 0.97 Indonesia, 32.69 FDI Share 2006-10 Brunei, 0.66 Thailand, 13.83 Vietnam, 11.68 Indonesia, 13.39 Malaysia, 11.02 Cambodia, 1.19 Lao PDR, 0.47 Myanmar, 1.2 Singapore, 9.08 the Philippine s, 11.6 Myanmar, 2.38 Malaysia, 13.87 Source: World bank database Lao PDR, 0.48 Singapore, 42.8 the Phillipines, 3.76 Source: ASEAN Investment Report 13 2011
FDI into ASEAN flows mainly into the service sector 100% 80% 60% 54.30 54.01 55.83 51.33 57.15 53.52 70.95 60.25 53.52 51.05 65.69 40% 20% 45.10 53.03 41.13 47.91 42.23 45.99 28.46 33.35 45.00 48.85 33.58 0% 0.59 3.04 6.40 0.77 0.61 0.49 0.59 1.48 0.10 0.73-7.04 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-20% Agriculture Manufacturing Services Source: ASEAN Investment Report 2011. 14
FDI into Thailand is heavily concentrated in manufacturing Agriculture 8.3 GDP share FDI share Agriculture 0.09 Manufac turing 41.17 Service 50.53 Manufactur ing 58.73 Service 41.17 แหล งท มา: ASEAN Investment Report 2011. 15
Singapore is the ASEAN Gate Keeper USD 3.14 billion USD 17.66 billion แหล งท มา: ASEAN Investment Report 2011. (AVERAGE FDI FLOW DURING 2000-2009) 16
Observations Since Thailand has a relatively restrictive FDI regime, foreign capitals flow through Singapore In future when AEC is realized, Thailand stands to receive only second hand FDI from Singapore. 17
3. Challenges 18
How to increase service sector productivity? 1. Relax FDI restrictions to promote much needed transfer of technology into the service sector. 2. Revise domestic sectoral regulations that harm competition 3. Revise rules and regulations that discourage FDI. 19
3.1How to liberalize? 1.Thailand needs a Roadmap for service liberalization 2.The Foreign Business Act 1999 needs to be amended by (1) changing the list 3 from positive list to negative list (2) identify sectors that warrants protection based on benefits to the economy and not to the specific industry 3.Take steps to liberalize the following sectors: Services supporting the manufacturing (finance and banking, insurance, transport, telecommunication and energy) Services that are monopolistic or oligopolistic 20
Liberalization Goals under AEC (mode 3) Sectors Targets Priority Sectors: 51% -2008 e-asean, 70% -2010 Healthcare and tourism services Logistics 51% - 2010 70% -2013 Construction 51% - 2010 70% -2015 Other services 51% - 2010 70% -2015 The scheduling of liberalisation commitments in each round shall be accorded with the following flexibilities: Possibility of catching up in the next round if a Member Country is not able to meet the parameters of commitments set for the previous round; Allowing for substituting sub-sectors that have been agreed to be liberalised in a round but for which a Member Country is not able to make commitments with subsectors outside the agreed sub-sectors; and Liberalisation through the ASEAN Minus X formula. 21
AFAS 7th Package (2009) -1 Subsectors AEC Target Year E-ASEAN Mobile telephone 51% 2008 70% 2010 Online information 51% 2008 70% 2010 Consultancy 51% 2008 70% 2010 Healthcare Hospital services 51% 2008 70% 2010 Medical and dental 51% 2008 services 70% 2010 AFAS7 Thailand Malaysia Singapor e Philippines Indonesia Brunei 49% 51% 73.99% 40% 49% Domestic regulation 49% 51% 100% 40% 51% No 100% 100% 100% 40% Joint operation 49% 51% 51% 40% 49% 49% 51% 100% No commitm ent commitment Domestic regulation 49% Domestic regulation 49% No commitment 22
AFAS 7th Package (2009) -2 Subsectors AEC Target Year Thailand AFAS7 Malaysia Singapore Philippines Indonesia Brunei Tourism Hotel lodging 51% 70% 2008 2010 49% 51% 100% 40% 100 100% Joint venture with local co. only Logistics Meal serving 51% 70% 2008 2010 Travel agency/ tour 51% 2008 operator 70% 2010 Storage and warehouse Maritime cargo handling Freight transportation 49% 51% 100% 40% 51% No commitment 49% 51% 100% 60% 49% No 51% 2010 49% 49% 100% 100% 49% 51% 2010 49% 49% 100% 100% 60% 51% 2010 49% 49% 100% 40% 49% commitment 49% 49% 60% 49% 49% 49% 23
Thailand s 8 th Package (August 2012) - examples Telecom - Telex Telegraph and Facsimile - Telecom Management consultant 70% equity share Tourism - บร - 6 star hotel - Tourist Information (excluding accommodation and flight reservation) Health Private hospital - Veterinary service - Rehabilitation Logistics - Transportation of frozen goods, gas and containers - Customs service - Freight shipping - Storage and warehousing for sea transport -freight reloading 24
service Services targeted to be liberalized Number of operators Name of operator Energy Purchasing and sales of gas 1 PTT. 100 Import of LPG 1 PTT. 100 Market share Gas transportation 1 PTT. 100 Gas distribution 3 PTT. 100 (including subsidiaries) Energy Electricity Generation 5 EGAT 82 (including subsidiaries) Purchasing and sales of 1 EGAT 100 electricity High voltage electricity transmission 1 EGAT 100 Telecom Satellite 1 บมจ. ไทยคม 100 25
3.2 Reform at the sectoral level Telecom Abolish the Foreign Dominance regulation announced by the NBTC in 2012 Establish rules to promote fair use of telecom network such as fair IC charges, roaming and infrastructure sharing rules Energy Third party access to gas pipeline and electricity grid networks 26
3.2 Reform at the sectoral level (2) Banking Abolish ceilings for all banking service fess established by the Bank of Thailand Lift restriction on the number of branches imposed on foreign banks. 27
3.3 Revise rules that discourage FDI Lift the 4 to 1 rule governing the hiring of foreign nationals Relax restrictions on certain professionals such as lawyers or engineers Shift investment incentive rules from L- intensive manufacturing-based to skill- intensive service-based industries. 28
4. Conclusion & Recommendations 29
Labourproductivity in manufacturing and services ($ per person per annum) The Thai economic structure mimics that of relatively less developed countries 120,000 100,000 80,000 60,000 40,000 20,000 99,379 86,417 43,622 43,373 35,025 16,832 21,900 23,057 11,021 8,819 - Singapore Malaysia Thailand the Phillpines Indonesia Service Manufacturing Source: IMD World Competitiveness Yearbook 2012 30
Service sector reform will help Thailand escape Attract foreign K & technology + dissolve monopolies and oligopolies middle income trap Capital & Technology help boost labour productivity Wage of roughly 20 million workers improve Servicesbecome more efficient Manufacturing sector regains competitiveness 31
Thank you very much!!! 32