Bangkok Post – Trying a new approach

Greater efforts to cultivate globally competitive local businesses could be a productive approach to improve the Thai economy.

Bank of Thailand governor Sethaput Suthiwartnarueput recently suggested Thailand adopt the “globally competitive localism” concept rather than relying on quick solutions such as attempting to bolster GDP and attract foreign direct investment.

Local entrepreneurs must be encouraged to emphasise their strengths, including cultural assets, developing new value-added products and services to better compete in the world market. Mr Sethaput said he believes this strategy would support the country’s long-term economic expansion.

While this concept offers promise, the process of executing it could face obstacles.

RELUCTANT TO CHANGE

To enhance local businesses’ capabilities and improve the national economy, Thailand needs a decentralised state administration policy. However, policymakers prefer not to change their decades-long management practices, said Ennoo Suesuwan, a member of the National Economic and Social Development Council.

Over the past 40-50 years, he said Thailand’s economic development, measured by GDP growth, has mostly benefited those at the top of society.

A significant portion of the population — 12.4 million — hold a state welfare card as they remain below the national poverty line, earning annual income of 100,000 baht or less.

It will be tough for the country to compete globally when at a local level, Thailand remains weak, said Mr Ennoo, a former president of the Bank for Agriculture and Agricultural Cooperatives. He questioned whether this environment could foster sustainable development.

If Thailand continues to follow the same development methods used five decades ago, nothing will change, said Mr Ennoo.

He said decentralising power to local authorities is key to creating change that will strengthen communities, turning them into an economic force for the country.

Thailand had fiscal decentralisation laws for 20-30 years, allocating 38% of the expenditure budget to local areas, but unfortunately local authorities never received the full amount as stipulated, according to Mr Ennoo.

Moreover, some governments have employed “tricky” methods such as transferring the budget for projects the central government wants to implement into the hands of local government, having them carry out the projects instead. These administrations would then claim the budget had been allocated under the fiscal decentralisation law, he said.

Mr Ennoo, who was on the drafting committee for the country’s 20-year National Strategic Plan during the Prayut Chan-o-cha administration, said it is unfortunate the plan for decentralised development has not been implemented seriously.

According to the strategic plan, decentralised development would have four five-year phases aimed at developing communities or rural areas, with a goal of reaching the same prosperity level as cities. Once local areas become prosperous, there would be sufficient jobs to support young people, allowing them to return to their hometowns without needing to migrate to the country’s central region or a handful of large cities.

This development of rural areas should help surrounding areas to improve economically, providing employment opportunities and making commuting more convenient, according to the plan.

Mr Ennoo said to strengthen communities, some laws require revision to allow greater flexibility, permitting local governments to handle all matters related to residents’ daily lives, except for national security and military issues.

One reason politicians are reluctant to relinquish more power to local governments is they have a “hidden agenda”, referring to a personal interest in budget allocation, he said.

ACCESS TO FUNDING

Facilitating access to finance for local entrepreneurs, particularly restaurateurs, would increase their competitiveness, said Thaniwan Kulmongkol, president of the Thai Restaurant Association.

Some Thai restaurants are family-owned businesses that have been passed down from one generation to the next. Often these businesses gradually accumulate capital from sales to expand, which inevitably takes a long time, she said.

To improve the competitiveness of restaurants domestically and internationally, Ms Thaniwan proposed the government support and facilitate access to funding or loans for business expansion.

“In a sluggish economy, the government should support small and medium-sized restaurants, enabling them to access soft loans from specialised financial institutions,” she said.

The central bank should hold talks with commercial banks to urge them to relax their lending criteria for restaurant operators, said Ms Thaniwan.

She said the government should also facilitate operators learning business-related skills and knowledge in areas such as store management, legal know-how and R&D.

With a combination of capital, capability and knowledge, Ms Thaniwan said restaurateurs can develop new dishes and menus, providing consumers with exciting new choices.

“Supporting Thai restaurants would help the tourism sector attract foreign tourists here and promote Thai cuisine globally,” she said.

To improve the quality of restaurants nationwide, Ms Thaniwan urged all stakeholders to set food safety, sanitation and quality management systems standards, publicising them among visitors to the country.

This requires cooperation from eateries, local government agencies and the government to elevate the status of Thai restaurants, she said.

KEENER TO BE GREENER

If local entrepreneurs can develop innovative products that meet the specific needs of consumers as well as environmental standards, they would have a better chance of competing globally, said Sureeyot Khowsurat, chief executive of SET-listed Ubon Bio Ethanol (UBE).

This is the challenge Thai companies face in gaining global recognition in applying the globally competitive localism concept, she said.

UBE, an ethanol producer based in Ubon Ratchathani, diversified into flour manufacturing to produce value-added items for sale domestically and overseas.

Ms Sureeyot said the company did not consider locally grown cassava to be solely an edible plant for sale in markets, opting to examine the crop’s features to develop new products.

Tapioca, the hard, white grains obtained from cassava, is a key raw material for producing both flour and biofuel, she said. Tapioca can be used to make ethanol, which can be mixed with gasoline to produce gasohol.

Tapioca can be processed to make flour, but UBE wants to expand beyond that product, she said.

“Manufacturers in the starch business tend to focus on selling commodity-grade products at inexpensive prices, but we compete with them by offering speciality-grade products to earn more revenue,” said Ms Sureeyot.

UBE’s speciality-grade products include gluten-free flour and organic cassava-derived flour, which has some distinctive characteristics such as a high level of fibre and a low sugar content.

Organic and non-gluten flour products have attracted great interest from consumers in the US, she said.

UBE earlier announced a collaboration with experts from Chulalongkorn University to identify special enzymes that can be used to develop functional ingredients, which can be utilised to produce functional foods, medical items and daily-use products.

Functional food offers nutrients and energy, with some entrepreneurs hypothesising it can also modulate functions in the body to reduce the risk of developing certain diseases.

Ms Sureeyot also stressed the importance of environmentally friendly products if Thai companies want to compete in the global market.

“Our rivals may have an advantage over us in terms of operating costs, but consumers are more concerned about the environmental, social and governance standards of companies,” she said.

Consumers in the US and Europe tend to buy more products manufactured in ways that emit less pollution and reduce carbon dioxide emissions, said Ms Sureeyot.

This consumer preference could potentially become a non-tariff barrier preventing Thai companies from exporting their products, restricting their ability to compete globally, she said.

FOREIGN DEPENDENCY

Despite a slowdown in foreign direct investment (FDI), Thailand’s economy still needs to depend on foreign businesses expanding to support local businesses under the globally competitive localism concept, said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries.

Thailand’s market share of global FDI net inflows is 0.63%, up slightly from an average of 0.57% per year from 2001 to 2005, Mr Sethaput revealed earlier.

To strengthen Thai businesses, the government needs to ensure foreign firms in Thailand use products made by local entrepreneurs as raw materials in their manufacturing processes, said Mr Kriengkrai. This will help Thai businesses to develop their operations for global competition, he said.

Several Chinese car companies registered in Thailand recently announced they would support Thai auto parts manufacturers by using locally produced parts.

Chinese electric vehicle (EV) manufacturers have vowed to purchase EV components produced in Thailand. Local content will account for up to 90% of all EV components, according to the Board of Investment.

Chongqing-based Changan Automobile, which committed to an investment in Thailand of up to 10 billion baht, will commence its manufacturing with 60% of the output comprising local content. In the future, the proportion of local content is set to increase to 90%.

Great Wall Motor wants 80-90% of the components for its EVs to be produced locally. These companies are participants in the state’s incentive scheme to develop EV production.

“FDI promises substantial benefits, as the resources and technology used to make goods and services are brought into the host country,” said Mr Kriengkrai.

NEW ECONOMY

Wutthiphum Jurangkool, chief executive of Nok Air, said improving the economy upcountry and promoting tourism in second-tier cities would support local businesses and create growth opportunities for the country.

He said each city offers unique resources and selling points, catering to new demand, which could serve the novel S-curve sectors.

These cities should be developed by focusing on their strengths, using a long-term plan of 10-20 years to bolster their positions, he said. The cities should not compete against each other, said Mr Wutthiphum.

For instance, he said Thailand has an opportunity to invest in aviation maintenance, repair and operations facilities, becoming a regional hub in the Eastern Economic Corridor.

However, Thailand lacks skilled workers in these industries. In many areas, including aviation, Thai operators still require foreign investors to learn from their knowledge and shared expertise, said Mr Wutthiphum.

“Building a new economy in the provinces would require an enormous budget before it could turn a profit. It’s difficult to encourage domestic companies to invest without any state support, as most tourists prefer to stick to easy, attractive options such as Bangkok, or cities in other countries,” he said.

The government should support the private sector by providing sufficient infrastructure such as transport, water and electricity supply, while offering attractive investment incentives, said Mr Wutthiphum.

If the new economy grows locally, it will eventually benefit airlines and domestic aviation, as households would earn more income, increasing domestic travel demand, he said. Some areas of the country have inactive airports because they cannot attract flights, said Mr Wutthiphum.

COOPERATION NEEDED

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said state agencies need to work in unison to improve people’s quality of life, while small businesses can be promoted in areas of strength such as food, tourism, wellness and logistics. Human resources must also be developed to support new industries, while transforming traditional energy structures to green energy, said Mr Sanan.

The chamber devised a plan with the government to develop 10 secondary provinces that offer potential in terms of trade, investment and tourism. The campaign promotes tourism by advocating targeted provinces globally, developing public utility systems and infrastructure for secondary cities, and promoting sustainable development.