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Six steps to achieve Thailand 4.0

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Bangkok – The Thai government is obsessed about Thailand 4.0 – making the Thai economy to become a digital economy. Is this possible? In the past Thailand succeeded in labor intensive manufactured goods against its competitors India, China, Vietnam, and Indonesia. In the future Thailand has to move to higher value-added activities and therefore move up in the global supply chains.

Thailand should not focus on productivity and efficiency anymore instead of concentrate on stability, infrastructure, education and entrepreneurs.

What is Thailand 4.0?

A survey from 2016 has shown that most firms have little idea of what Thailand 4.0 really means. Thailand 4.0 is the fourth economic model that aims to unlock the country from several economic challenges like leaving the middle-income trap[1] and today’s topic which is to digitalize and connect the industry.

What must be done to achieve Thailand 4.0?

Firstly, it must begin with the government. Thailand faced natural and political problems such as floods and several coup d’états in the last decades. Besides that, bureaucratic inefficiency and corruption are concerns which have a negative influence on the business climate. With changing governments, there was no steady policy for innovation which results in slower processes needed to achieve Thailand 4.0.

Secondly, Thailand needs to focus on Research and Development (R&D). Thailand’s gross expenditure on R&D was only 0,21% of the GDP which is far below its competitors (e.g. Singapore, Malaysia) and will be increased at least to 0,5% of the GDP even it is questionable if this amount will push innovation forward. The issues of government and research are related. Thai Government may have started too late to give incentives for the industry to adapt with latest technology and developed countries have for sure a time advantage.

Thirdly, Thailand needs to develop digital infrastructure. The OECD claims that the Ministry of Industry prioritized the growth of incoming FDI and export growth instead of the development of technological capabilities. Digital infrastructure starts with availability and accessibility of the internet. In 2015 nearly 40% of the Thais had access to internet which might be good for a developing country but competitors like Vietnam (52%) and Singapore (82%) fulfill the starting criteria for digitalization more. It will take time to bring broadband to every village but Thailand is on the right path to fulfill this requirement.

Fourth point is about how easy it is to start a business in the country. Top performers like New Zealand and Singapore get the first places in the 190-country ranking by the World Bank. Thailand performed well in the past but cannot hold this good position. In contrast to others Thailand has still a good score but unfortunately Thailand keeps a very corrupt country.

Fifth issue is related to education. Even though the increased Government spending for the access to secondary and tertiary education was leading to adequate expenditures compared to competing countries, the graduates are not competitive and therefore get a low rank in Asia. The outcome shows that Thais are lagging in mathematics and science and innovate less than countries with comparable education. Thailand’s universities show persistent quality weaknesses, especially in the R&D field which is important for new thinking and therefore for Thailand 4.0. The result is a skilled labor supply shortage and just a few start-ups from university graduates. Another reason is little communication and collaboration between universities and the industry.

Sixth point concerns the industry. Most of the workers only learn how to work efficiently at their working station but do not get the chance to gain more knowledge of modern working processes or R&D methods (lack of technology transfer). The Government supports the digital development of the industry but they often do not see opportunities from collaborations with one of many public research institutes. Entrepreneurship and the creation of innovative SME’s have not been supported for a long time. On top of that many firms have a traditional thinking and do not see a need for improvement. As result, patents per capita are very low and only 12% of the firms invest in R&D.

Finally, Thailand 4.0 might be out of the countries league because the requirements to reach Thailand 4.0 are not fulfilled and Thailand 3.0 is not fully transformed. Although the targets might be too hard to reach, it is good that the country is striving for competitiveness in the future instead of taking the risk of falling back.

© Bangkok Post on May 15th, 2017


 [1] The middle-income trap is a situation in which a country’s GDP growth slows after having reached the middle-income level. Middle-income countries like Thailand are squeezed between their low-wage competitors that dominate the mature industries on one side and the rich-country innovators that dominate industries of rapid technological change on the other side. (Languepin, Oliver: Thailand 4.0, what do you need to know? (2016))

Southeast Asia

CPTPP Serving Vietnam as Opportunities and Challenges

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CPTPP is originated from the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) (it is also so call P4) signed in 2005 by Singapore, Chile, New Zealand and Brunei. Since September 2008, the United States, Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan have jointly negotiated at the aim of setting up the Trans-Pacific Partnership Agreement (TPP). The TPP negotiation process ended in 2015 under the agreement of the 12 member states; however, Trump administration announced its withdrawal from the agreement in January 2017. After a number of adjustments, including postponing the implementation of the 20 TPP provisions with the expectation that the United States would return to the Agreement, the 11 remaining TPP members unanimously continued to promote this process by establishing Comprehensive and Progressive Agreement for Trans-Pacific Partnership -CPTPP). After completely reviewing the content and approved by the member parliaments, estimated by March 2018, CPTPP will officially become a large economic zone in Asia-Pacific with a population of over 460 million, contributing 14% of world GDP and 1/6 of global trade.

The agreement is expected to establish a new common framework for regional free trade arrangement for Asia-Pacific countries, to support trade, to attract foreign investment, and to promote institution reformation in those countries. CPTPP has the basic advantages as the members of the negotiation are the countries that have been strongly committed to the trade liberalization. Given the disclosed commitments, CPTPP is considered as a model treaty for the 21st century because of its overwhelming scale and influence in comparison with other trade agreements regionally and globally.

Given the competitiveness, the economic size and the inadequacies of the current institutional system, it is surprised that Vietnam has strongly participated in CPTPP. Compared with other members, it has the least competitive economy and the loosest legal system. Despite its 20-year-old experience in the process of international economic integration, Vietnam lacks the practices in a highly competitive and demanding integration environment since it is only familiar with first-generation FTAs, where the open commitments and reform pressures are readily accepted in a transitional and distinctive economy.

Meanwhile, CPTPP’s regulations set out in the negotiations are evaluated as far beyond the ability of the current economy of Vietnam. What is the motive of Vietnam to join CPTPP?

Given the economic size of the members and the terms of trade liberalization, joining CPTPP is obviously advantage to empower Vietnamese economy in the Southeast Asia in terms of economic growth, trade as well as FDI attraction. In the economic perspective, Vietnam is a country to achieve the most benefit from the CPTPP.

Firstly, the opportunities to increase the export of goods that are the advantages of Vietnam (i.e. textiles, footwear, electronic products and equipments) are relatively high by combining the tariff reduction and the experiences in these markets.

Secondly, the attraction of foreign investment into Vietnam is greatly promising. The access to large markets such as Japan and Canada together with the clearer commitments to improve the investment environment and protect intellectual property rights will become a significant attraction for international investors. Moreover, Vietnam, under the framework of CPTPP, is able to attract large inflows from the member countries through the membership of regional economic organizations such as AFTA and ACFTA.

Thirdly, the chances of faster economic growth are strongly wide. The expansion of the major export industries such as textiles, footwear, fishery, etc., will help stimulate the income growth from domestic production, thereby support the increase of the overall demand.

Fourthly, Vietnam will have an opportunity to form a more comprehensive economic structure. CPTPP will urge the domestic investors as well as the regional ones to invest in the supporting industries to create local material resources given the extremely high standards on the place of origin.

Fifthly, it is a chance to complete the institutions that govern the market economy. CPTPP sets out a clear legal framework for not accepting concessions to any business. Because of its high and foreseen requirements on policy transparency, compared to many other agreements, CPTPP could become one of the important premises for Vietnam to carry out institutional and market reforms thoroughly and comprehensively.

However, among the countries participating in CPTPP, Vietnam achieves the lowest level of development and faces big challenges.

Firstly, the production industry structure is not consistent with the provisions of CPTPP. The economy is not well-prepared and the supporting industry is weak. With regard to the requirements of origin, the sectors which are the advantages of Vietnam’s export sector are not able to exploit the concessions from the CPTPP because their inputs do not contain domestic factors.

The second challenge is from the stagnation of the enterprise system. The adaptability to the market economy of Vietnamese enterprises is weak. The lack of an effective investment strategy for the supporting production industry and “traditional outsourcing” works have made the overall benefit of the economy declined.

Thirdly, the limitation of state enterprises’ role in the national economy becomes a content of CPTPP. The external pressure is positive only if it meets the community benefits. If the selection of CPTPP is purely commercial-economic aspect, it will not cause the objection against the reformation within the SOE system.

The fourth challenge is from the increasing competition of goods from the members of CPTPP. At present, Vietnamese enterprises are well-protected by the high tariffs. The trend and demand for zero tariff reduction will be applied to CPTPP members in the coming time. In the analysis of the export structure of CPTPP countries, it can be seen that the manufacturing industries of Vietnam facing difficulty are automobile industry and agriculture, especially the husbandry which remains mall and fragmented, and unable to compete against the large, experienced and traditional competitors.

The fifth challenge from the requirements of intellectual property protection in CPTPP is much more critical. The continuing possibility of “appearing to court” by infringing intellectual property law is present in countries previously without adequate preparation of intellectual property law. Furthermore, the requirements for increasing the level of protection of intellectual property rights over inventions, copyrights, and trade marks can lead to the escalation of drug prices and create a health burden to the emerging economy like Vietnam. More than that, the measures to protect intellectual property related to biology also affect agriculture which accounts for more than 60% of the population of Vietnam. The prices of agricultural products such as veterinary drugs, fertilizer, etc. will thereby grow significantly, which increases costs and reduces the efficiency of agricultural production in general.

In regard of the need for economic reform and the promotion of economic growth, the process of further integration into the world economy is not allowed to slow down. The question is what Vietnam needs to do to facilitate the upcoming integration roadmap.

Firstly, administrative reform and severely corruption offence are the most important things. It is shown that the WTO supports free market economy so that it could operate and develop only in a healthy competitive environment. Since the joining in the WTO, Vietnamese economy has not really created a healthy competitive environment. Meanwhile, corruption has created more conditions for interest groups to ramp up and distort even the good national policies. If the administrative procedures remain cumbersome and troublesome, corruption will still restrain the required transparency in corporate management. In accordance, CPTPP is not an opportunity, but a challenge to the whole system.

Secondly, the reformation of the legal environment and policies to ensure a single “standard” prescribed by CPTPP is a difficult for Vietnam. But in the long run, this reform of the institutional environment towards the international “rules” is a necessary condition for growth in the context of globalization. In this perspective, although adjusting the policy system involving the regulation of CPTPP is a difficult and costly process, Vietnam’s commitments can be seen as an external “push” to provide additional momentum for domestic efforts towards a transparent institutional environment and economic growth.

Thirdly, it is needed to organize the perfect communication to all classes of people, especially the business and the production circles in the countryside. The participation in CPTPP without fast updating to the farmers might cause the loss of market, the high pressure of competition, and even the legal disadvantage in disputes and sues.

Fourthly, the reform of SOE and the development of SMEs is the key solution. Given the population and economic growth, the number of enterprises in Vietnam is relatively low. This is a major constraint in economic development, employment, creation of competitive markets and the mobilization of resources from society.

In the context of limited resources and high demands of work, the development of these types of enterprise is appropriate not only to the internal capacity but also the preferences of CPTPP. Hence, it is essential to reform SOEs in a substantial way and enable them to have a transparent business environment.

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Southeast Asia

Time to Divest from Myanmar? Not Quite

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In an op-ed that ran in the Guardian last week, Hannah Lownsbrough of the NGO SumOfUs put forward a highly provocative take on the Rohingya crisis gripping Myanmar. Running just a few days before Christmas, Lownsbrough asked whether Christmas shoppers buying gifts from brands like Bulgari wanted to “consider their role in propping up the genocide of Rohingya people.” As she tells it, outside companies that source materials from Myanmar (and, by extension, their customers) are bankrolling the violence against the one of the world’s most persecuted minorities.

The article puts forward an appealingly simple narrative of corporate complicity in Myanmar’s conflict. Unfortunately, that simplicity ignores far more important factors in the Rohingya’s ongoing suffering and advocates a course of action (divestment) whose efficacy is a matter of contentious debate. Why the fixation on what the Guardian op-ed refers to as “genocide gems” just one year after the Obama administration lifted remaining US sanctions on the industry?

One possible explanation: the people advocating divestment may not be exactly who, or what, they seem. In her op-ed, Lownbrough states her organization is campaigning alongside the International Campaign for the Rohingya (ICR) to “cut off this income stream to the Burmese military.” The ICR indeed seems laser focused on pressing multinational companies do “no business with genocide” but does not otherwise seem active in supporting relief efforts.

In a peculiar coincidence, the organization seems to be led by American lobbyist Joseph Grieboski and staffed entirely by his associates. Grieboski’s wife is named as ICR co-chair, while the campaign’s treasurer is an employee at Grieboski Global Strategies and the chief strategy officer at Grieboski’s firm Grieboski Jolly Caraway is listed as the group’s “secretary.” Joseph Grieboski is also founder of the obscure “Institute on Religion and Public Policy” and known for his connections to the controversial Church of Scientology (including alleged lobbying work on its behalf).

Does this mean there are ulterior motives behind the SumOfUs/ICR campaign against foreign companies who do business in Myanmar? The ICR’s website makes no mention of funding sources (other than pointing visitors to a donate button). However, one of Grieboski’s major clients is the 57-country Organization for Islamic Cooperation (OIC). The OIC, which technically represents the entire Islamic world but in practice is closely aligned with Saudi Arabia, has offered more rhetorical support for the Rohingya than concrete assistance.

If there were a deeper connection between the OIC and the ICR, it would be a bizarrely roundabout way of responding to the crisis. Fully 860,000 Rohingya men, women, and children have sought refuge in Cox’s Bazar in Bangladesh. The UN and other aid organizations need hundreds of millions of dollars to assist up to 1.2 million people impacted by the crisis.

Funding shortfalls mean those organizations do not have the resources on hand to handle the sheer scope of the exodus. The UN’s Office for the Coordination of Humanitarian Affairs (OCHA) has met only 35% of its $434 million US fundraising target. The $15 million in aid Saudi Arabia’s King Salman pledged for the Rohingya in September does not stake up to the generosity of previous monarchs: during a previous crisis 2012, King Abdullah donated $50 million. Before that, King Faisal allowed many Rohingya families to resettle in Saudi Arabia. Salman, for reasons that remain unclear, later moved to deport many of them.

There are reasons for Riyadh to dissimulate its criticism of Myanmar, many of them economic. Saudi oil uses a new, 771-kilometer pipeline that starts in Rakhine State and traverses Myanmar to reach customers in China’s Yunnan Province. Myanmar’s central location gives it a key role in Saudi regional economic aspirations. Curiously, the ICR has not called on companies like Saudi Aramco to abandon their interests in the country.

Saudi Arabia isn’t the only Muslim country with a problematic stance. Bangladesh has taken in the vast majority of the Rohingya to flee Rakhine State over the past few months, but is making their stay a precarious one. Bangladeshi prime minister Sheikh Hasina is moving ahead with a proposal to resettle 100,000 Rohingya refugees on a remote, flood-prone island liable to being completely submerged by the tides. Dhaka signed a deal with Myanmar to repatriate displaced Rohingya to Myanmar, even as Rohingya villages still burned.

The campaign to force corporate interests out of Myanmar raises a broader question: what, if anything, would divestment actually do for the Rohingya? Campaigners like SumOfUs point to apartheid-era South Africa to illustrate the power of ostracization. However, comparing South Africa in the 1980s to Myanmar today is problematic at best. This is not least because Suu Kyi, the one leader who could translate a global divestment campaign into effective grassroots action, is herself guilty of ignoring the crimes perpetrated against the Rohingya by her country’s military.

One of the most important factors driving the Rohingya crisis is the fear, hatred, and suspicion with which even pro-democracy members of Myanmar’s Buddhist majority view their Muslim neighbors. While Myanmar’s military is obviously implicated in the deadly attacks on Rohingya communities, vigilante groups and the Buddhist nationalist movement have actively stoked and committed anti-Muslim violence for years.

Having grown accustomed to decades of seclusion, it is difficult to imagine Myanmar’s generals or sectarian extremists bowing to pressure from abroad. Economic isolation may instead produce the same retrenchment Myanmar’s junta fostered for decades. Western officials recognize that blanket sanctions and economic disengagement are unlikely to help the Rohingya, but even the targeted measures now under consideration by American policymakers could undermine Myanmar’s economy and end up strengthening domestic support for the military’s anti-Rohingya campaign.

As Hannah Lownsbrough herself wrote in the Guardian, untangling the conflict between Myanmar’s government and its Rohingya will “not be straightforward.” Unfortunately, changing the government’s behavior is also far more complicated than her piece lets on. If the international community (and especially Muslim-majority countries) want to help the Rohingya, they should look directly to the refugee camps where the need is greatest.

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Southeast Asia

Bringing electricity to all corners of Southeast Asia

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Providing electricity access for all remains a critical topic in many parts of the developing world. The challenge is especially acute in Southeast Asia, one of the most dynamic regions of the global energy system, but whose rich and varied environment defies one-size-fits-all energy solutions.

(more…)

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