Traditionally an agrarian nation, today Thailand boasts a complex, multifaceted economy embracing industries employing the latest and most sophisticated technology.
Several important factors have contributed to the countryΓÇÖs enviable growth. Its principal comparative advantage has been the abundance and diversity of its natural resources. Blessed with large expanses of fertile land and ideal growing conditions, Thailand not only enjoys agricultural self-sufficiency but is also the only net food exporter in Asia and one of the largest food exporters in the world.
Growth and diversification into new industrial areas have to a large extent been initiated by the dynamic private sector. Innovative private enterprise broadened the nationΓÇÖs agrarian base by exploiting the value-added potential of basic staple crops, and at the same time expanded into new product areas in response to world demand. With the government providing infrastructural support and exerting relatively limited control over private industry, a free enterprise system has emerged which has allowed development to take place at a rapid rate consistent with the needs and resources available.
With its agrarian base as the bedrock, the economy has experienced steady growth. The introduction of improved technology and marketing expertise has made Thailand a world leader in the sales of staple commodities. It has also transformed the country into a fast-rising manufacturer of sophisticated products built to international standards which find ready acceptance in world markets.
ThailandΓÇÖs primary money earners in the late 1970s were the crops grown in its rich land. Today agricultural products are produced in such quantities that in many commodities the country ranks as the worldΓÇÖs number one supplier. Thus besides being the worldΓÇÖs foremost exporter of tapioca and rice, it is a leader in the production of frozen shrimp, canned pineapple, natural rubber and sugar. Moreover, ThailandΓÇÖs industrial sector produces a wide number of goods ranging from textile products, Thai silk and ready-made garments to integrated circuits, computer and parts, electronics, plastics, jewellery, footwear, furniture and cars. In recent years, manufacturing has surpassed agricultural products in ThailandΓÇÖs GNP, while tourism has replaced agricultural products as ThailandΓÇÖs largest source of foreign exchange. The countryΓÇÖs rich reserves of minerals are eagerly sought by the worldΓÇÖs industries. Local factories have been established to manufacture industrial goods from the ores and thereby enhance their value.
Bounty of the Land and Sea
Rice forms the core of the Thai economic system. The staple food of the nation, it was the countryΓÇÖs largest single foreign exchange earner for well over a century. Thailand is the worldΓÇÖs leading exporter of rice, earning 65,516.7 million baht in 2000. In recent years though, agriculturalists have found new uses for paddy land. At the same time, modern technology has opened up new or formerly arid land to crop cultivation. The northeast and southeast, previously considered two of the least fertile areas, are now producing tapioca in large quantities and in 2000, frozen fruits earned 5,189 million baht.
The world sugar shortage of the mid-1970s triggered a boom in Thai cane sugar production. In 2000 sugar had an export earning of 25,750.3 million baht. In addition to raw cane and granulated white sugar, molasses, a by-product of sugar manufacturing, has been gaining importance. World markets have been requiring molasses in increasing quantities as an ingredient in animal feed. Additional amounts are refined locally to produce ethyl alcohol. However, due to diversification in the economy since 1987, sugar was not ranked in the top ten export earners.
Cassava cultivation on a major scale was not resumed until 1958, when it was taken up by farmers in the northeast. Foreign demand for tapioca then increased so dramatically that Thailand is now the worldΓÇÖs leading exporter. Local factories process it into flour, which is used industrially, and into the chips and pellets sold as animal feed.
Thailand is the worldΓÇÖs largest producer of natural rubber. Production in 2000 was earning 42,026.5 million baht. This substantially higher output was due largely to higher world demand and the effects of the AIDS epidemic on the demand for rubber products. Rubber plantations are mainly in the south.
Also in demand abroad are ThailandΓÇÖs numerous garden variety beans. These include mung beans, soya beans and black matpe beans--the source of the famed Far Eastern beansprouts associated throughout the world with oriental cooking. The soya bean is processed into vegetable oil by domestic factories. Other crops grown for their oils include coconuts, peanuts, palm and sunflower.
Canned rambutan and longan have found ready markets overseas but by far the most important of the countryΓÇÖs fruit exports is canned pineapple, of which Thailand is the worldΓÇÖs leading exporter. In 2000 canned and processed fruit earned 81,145.5million baht.
Flowers are also an important export item. Thailand is one of the worldΓÇÖs biggest suppliers of orchids. There are about 2,000 commercial growers, mostly in the Bangkok area. Major markets are Japan and European countries.
In the past, beef production was a profitable farming sideline but in recent years growing demand brought about by the increase in population and urbanisation and by a rising standard of living has led to specialisation in livestock breeding and commercial stock farming using scientific methods. High quality cattle, pigs and poultry have been imported to improve local breeds through cross breeding. It has also been shown that cattle thrive on coconut plantations if the space between the trees is planted with suitable grass.
Thailand has export markets for pork in Singapore and Hong Kong and is trying to gain entrance into the potentially large Japanese market. Increased scientific beef cattle production will also be a boon to the fast-growing leather and tanning industry.
ThailandΓÇÖs wide variety of hard and soft wood forests has created a burgeoning wood industry. Tropical evergreens, hill evergreens, mangroves, deciduous dipterocarps and mixed deciduous are processed to produce firewood, stick lac, gum benzoin, rattan used in the manufacture of cane furniture, bamboo used both for furniture and paper, dyes, tanning bark and a huge variety of medicinal herbs, leaves and roots.
ThailandΓÇÖs waters are every bit as bountiful as its fields and forests. Thailand is the worldΓÇÖs foremost exporter of frozen shrimp; squid and cuttlefish are also popular export items. According to the Fisheries Department, a fleet of more than 16,000 powered vessels plying the waters off the countryΓÇÖs roughly 3,000 km. coastline catch approximately 2.6 million tons of marine products a year.
Freshwater fish abound. Besides the many varieties which breed naturally in rivers, lakes and streams, there are those raised by rice farmers in their flooded paddy fields and harvested together with the rice. In addition, the Fisheries Department is vigorously promoting freshwater aquaculture by farmers with large ponds. Freshwater prawns are also plentiful.
Mining and fuel products in Thailand are rich and varied, with 2002 production amounted to about 29,997.1 million baht. Thai products of minerals were dominated by lignite, limestone. Gypsum and gold ranked next in importance .
Exports earning was 13,258,03 million baht in 2002, of this 2,067.7 million baht came from gold export to Australia by Akara Mining Ltd. that started to operate at the end of 2001. Gold, for centuries, has been the biggest money-maker among Thai minerals. Export of gypsum ranked second among minerals, earning 2,038.0 million baht.
Gemstones, among them the legendary Siamese rubies and sapphires, have also long been mined in Thailand. ThailandΓÇÖs coloured gems market is one of the worldΓÇÖs largest. Export of gems and jewellery in 2002 earning was 93,310.2 million baht. In addition, many different minerals, ores and metals are being exported. The major minerals exported are tin, natural gas, gold, gypsum, zinc, tantalum, lead, feldspar and barite.
Minerals mined but not exported include limestone, basalt, marl, lignite, potash, rock salt and glass sand , all of which are used by local manufacturers.
In recent years, the limelight has shifted to other modern buried treasures: natural gas and oil in the Gulf of Thailand. The countryΓÇÖs dependence on imported oil rose from 50 percent of the total energy consumption in 1962 to 75 percent in 1981. Although producing and utilising indigenous sources of energy for substitution, such as natural gas, lignite, hydro power and non-conventional energy sources, Thailand remains dependent on imported oil because domestic consumption of energy increases 5 percent per year while the production is just 30 percent per year of the quantity of domestic consumption. Thus, dependence on foreign energy sources was up to about 6.0 percent in 2002. Thai import of energy was dominated by crude oil.
Natural gas and oil have been discovered in the north, northeast, and in the Gulf of Thailand.The new Eastern Seaboard industrial centre comprises a gas separation plant, a petrochemical complex and other manufacturing facilities. Located in three eastern provinces--Chon Buri, Rayong and Chachoengsao-it covers 8.3 million hectares of land. After the successful laying of a 425 km. Natural gas submarine pipeline, from the Erawan gas field in the Gulf of Thailand to the onshore terminal and then to the Bang Pakong and South Bangkok power plants, the gas came on stream in 1981.
As a government-owned enterprise, the Petroleum Authority of Thailand (PTT) is engaged in the business of oil supply, oil refinery, gas pipeline operation, gas processing plant operation and petroleum industry. With the co-operation of other government agencies, PTT has been responsible for the development and exploitation of fossil fuel resources in the country.
Sector Performance
Over the past two decades, the national income has increased by approximately eight percent per year. Moreover, growth has been broadly based, with all economic sectors participating in the development process.
The fabric of the Thai economy remained virtually unchanged up to the late 1950s. In the early 1960s, the industrial and service sectors began supplementing agriculture as significant income and employment generators Today, Thailand is still predominantly an agrarian country, with about 48.58 percent of its working population engaged in agricultural production and earning about 11.76 percent of the national income. Over the years, however, the industrial and service sectors have been increasing their shares of the total GDP.
Significant structural changes in the Thai economy have taken place since the early 1960s. AgricultureΓÇÖs share of the national income declined steadily from about 40 percent in 1960 to 11.76 percent in 1998. At the same time, the manufacturing sector expanded very rapidly, increasing its portion of the national income from 13 percent in 1960 to 32 percent in 1998. Such a structural change does not, however, imply that agricultural output failed to rise during the period. On the contrary, it increased by about five percent per year. Moreover, a high degree of diversification took place, enabling Thailand to boost its export items from only three major commodities namely rice, teak and rubber in the early 1950s to more than 11 main agricultural produce in 1998.
The industrialisation process initiated during the 1960s was geared towards import substitution. It was succeeded in the 1970s by a drive to produce export oriented items. By the mid 1970s Thailand was exporting manufactured goods ranging from cement to watch parts, including canned fruit, garments, chemical products, transport equipment and television sets. In 2000 manufactured exports accounted for 2,077,848.5 million baht or about 74.8 percent of total export earnings.
International trade is vital to the Thai economy. ThailandΓÇÖs entry into foreign markets in the mid 19th century enabled its economy to expand rapidly. Today, export and import transactions together account for about half of the national income. Although there were annual deficits in the balance of trade, the balance of payments recorded continuous surpluses throughout the 1960s and early 1970s. Sharp increases in oil prices since 1970, however, affected the balance of payments position severely. Large tourist earnings and foreign capital inflow put the balance of payments back into a surplus position.
The public sector supports the growth process by providing developmental facilities through the construction of basic infrastructure and by creating a conducive environment for the private sector to operate effectively.
Despite the steady increase in population, real per capital income has doubled over the past two decades. At current prices, it increased from 4,000 baht per head in 1970 to 80,491 baht per head in 2000. The proportion of the countryΓÇÖs population living at the subsistence level has declined from around half in the early 1960s to less than a quarter in recent years.
In short, the performance of the Thai economy over the past two decades has ranked high among developing countries. Some basic economic problems such as income disparity, the need to conserve natural resources, the uncertainty of export markets, and the need for improving administrative efficiency, remain to be solved but judging by past performance as well as from the present economic outlook, it is clear that Thailand has the potential to expand its economy and thereby improve the welfare of its citizens.
Highlights of Major Economic Sectors
Agriculture and Mining Sectors
The agriculture sectorΓÇÖs contribution to the Gross Domestic Product declined from 39.4 percent in 1961 to ΓÇö0.9 percent in 2000 due primarily to the rapid expansion of other sectors of the economy. However, agriculture will continue to be a dominant sector of the Thai economy for years to come.
In 2000, farm population comprised approximately 44.44 percent of the total employed population. If the people indirectly engaged in agric-business industries were also included in the estimate, labour force absorption by agriculture totalled 48.58 percent.
Agriculture exports were the major source of foreign exchange earning during the 1960s and 1970s. However, as ThailandΓÇÖs progress towards industrialisation increased, manufactured exports gained importance. In 2000, exports of agricultural products amounted to only about 10.59 percent of total exports compared with the share of 40 percent in 1982.
Major Crops Field crops, which accounted for 24 percent of agricultural output in 1998, increased at an annual average rate of 8 percent between 1961 and 1998. Agricultural production was still dominated by seven major crops: rice, tapioca, rubber, maize, sugar cane, mung beans and tobacco leaves, most of which were grown primarily for export.
Since 1970 the increase in crop production has come from both the expansion of cultivated areas and improvements in yields. In response to high agricultural prices, the total area planted has continued to increase. Furthermore, farmers are switching from crops with relatively low returns per hectare to those with higher earnings. Performance, however, varies considerably: sugar cane, rubber and tapioca yields have been increasing significantly, rice and maize yields growing slowly, and kenaf yield declining. The trend towards crop diversification continues in response to price incentives as the proportion of cropped area devoted to rice declines.
Although the national average rice yield has remained low, a recent trend clearly indicates certain structural changes in production. At present, rice cultivation is undertaken in intensive irrigated areas, wet season irrigated areas, and rain fed areas. Intensive irrigated areas, which enable farmers to produce at least two crops a year, increased phenomenally from 407,488 hectares in 1977/78 to 4.96 million hectares in 1997/1998. Furthermore, there is ample evidence that yields in both intensive and wet-season irrigated areas have risen sharply during the past five years. About four million hectares of paddy land now benefit from wet-season flood control to keep fields free of excess water which would damage crops. Nevertheless, the remaining six million hectares represent rice production in rain fed areas where limited access to modern technology and inputs results in low yields.
Livestock Livestock production is second in importance in the agricultural sector. Between 1988 and 1997, its share of the total GDP of agriculture declined from 1.7 percent to 0.89 percent.
The government has been trying to improve beef and dairy production through crossbreeding and artificial insemination using high grade stock imported from United States, Switzerland, Germany, Denmark, and Australia. Likewise, indigenous breeds of swine have been improved through crossbreeding with pure breds imported from abroad. The Livestock Department has set up swine breeding centres throughout the country and has conducted a nationwide artificial insemination programme.
Of all livestock raised for the market, poultry has improved the most. Pure bred chickens are popular among poultry raisers and research in breeding and management with the aim of improving egg production and feed conversion rate has been conducted with great success. As a result, frozen chickens have become one of the countryΓÇÖs important exports.
Forestry A 2000 satellite photo survey showed that forest areas in Thailand had diminished to only 12.97 million hectares or about 25.28 percent of the countryΓÇÖs total land area. Most of the devastated forest areas are located in the northeast, the north, the upper part of the central plains and the west, where there were extensive slash-and-burn agricultural practice by villagers and illegal log poaching.
In view of the depletion of forest resources and the governmentΓÇÖs restrictions on cutting, the growth rate of forestry output declined from an annual average of 2.61 percent during the Second Five Year Plan (1967-1971) to 0.25 percent during the Fifth Five Year Plan (1982-1986). The Royal Forest Department undertook various reforestation projects in various areas of 607,492 hectares in 1980, 648,512 hectares in 1987 and about 655,904 hectares in 1998.
Fisheries ThailandΓÇÖs fishing industry is dependent on marine catches. Fish from natural fresh waters, commercial fish farms, and irrigated paddy fields account for less than 10 percent of the total catch. The remainder comes from the sea.
During the Fifth Five Year Plan (1982-1986) fishery output increased by an annual average of 2.45 percent as compared with the 4.49 percent per year during the Fourth Plan (1977-1981), 3.4 percent per year during the Third Plan (1972-1976), and 18.6 percent per year during the Second Plan (1967-1971). Depletion of marine resources during the Sixth Five Year Plan (1987-1991) reduced fishery output so much that the government is effectively enforcing regulated fishing to ensure sustainable yields for both present and future generations. An alternative which the government has undertaken to encourage the production of fish helps to expand freshwater fish farms to offset declining marine catches. Towards this end, about 45 freshwater fishery stations have been set up.
To overcome the effect of 200 mile economic zones, the government has promoted private joint fishing ventures with foreign countries aimed at alleviating the problem of limited fishing sources, in addition to private joint ventures in the waters of Indonesia, Malaysia, Bangladesh, Australia, India, Vietnam, Cambodia and Myanmar. Further expansion of such joint ventures holds bright prospects.
The mining industry in Thailand is dominated by tin. However, with later developments, the output of other minerals such as fluorite, gypsum and lignite has become more prominent. In addition, significant increases in the output of a number of other minerals such as iron, antimony, manganese and lead have been achieved. During the Third Five Year Plan (1972-1976), new mineral deposits were found and output expanded to include tungsten (wolfram and scheelite), baryte and zinc. The value of zinc production declined from 665.3 million baht in 2001 to about 950.6 million baht in 2002. Mineral output in Thailand to a significant extent depends on foreign demand as domestic consumption remains low.
During the past decade, the mining sector expanded slowly. Its share in the total Gross Domestic Product remained about 2.0 percent
Mineral processing industries developments in this sector point to future expansion of zinc, potash, gold and gypsum processing facilities.
In summary, ThailandΓÇÖs prospects for industrial exports in the near future appear bright. This assessment is based on five major factors: capable producers who now have a strong and flexible agricultural base; much closer contact with world markets than before; low cost skilled labour capable of producing advanced industrial products; the dynamism of East Asian trade and investment growth; and a relatively well functioning economic system free from distortion by high levels of protection or rapid inflation.
The Manufacturing Sector
ThailandΓÇÖs industries have traditionally been closely linked with agriculture. From the post-war years up to the late 1950s, the major processing facilities were rice mills, sawmills, sugar mills, ice factories, textile and gunny bag factories, tobacco leaf curing plants and cottage industries, such as fabric weaving and basketry, to supply local needs. All these industries grew up as a result of free market forces and with limited government assistance.
Modern industrialisation started in the early 1960s. Although the first Industrial Investment Promotion Act was promulgated in 1954, it was only implemented in 1960 with the establishment of the Board of Investment. The Act was revised in 1962 to promote investment in specific activities, mainly through tariff protection, tax holidays and reduction of taxes on imported raw materials and machinery. A new law was introduced in 1972 in accordance with the governmentΓÇÖs shift in policy from an import-substitution to an export-oriented economy.
Growing at an average rate of approximately 10 percent per year since 1960, in 2001 manufacturing accounted for more than 30.2 percent of the national income; employed 15 percent of the entire labour force; and accounted for 84.93 percent of exports, making it the nationΓÇÖs largest sector. In 1960, industrial activity was concentrated on food processing, which accounted for over one-third of total manufactured products. Other significant products were beverages, tobacco, garments and chemical compounds. In the 1960s, the fastest growing was the petroleum products industry, averaging 103.1 percent per year. However, in the 1980s, the average growth rate declined to only 5 percent per year as a result of diversification of the industrial sector.
Intermediate products, among them machinery, iron and steel, metal products, and non-metallic products also expanded rapidly. As a result of the relatively high growth rates of these industries, structural change took place in this sector. Instead of concentrating on a few industries, the manufacturing sectorΓÇÖs activities broadened to encompass several new groups of industries. Thus, in 1970 more intermediate products were manufactured, e.g. electrical machinery, transportation equipment, textiles and garments, not only to substitute for imported products, but also for exported products.
In the 1980s, textiles and garments were the most important industry, accounting for 29.2 percent of principal export, while canned food accounted for 12.7 percent in 1988.
Viewing the past two decades of industrial development in Thailand, the following observations can be made:
A high degree of diversification has taken place in the industrial sector. As a result, industrial activity in Thailand today has become more evenly distributed among many groups of industries and is more diversified than in the 1960s.
The growth of manufacturing output during the 1960s was characterised by import substitution. Since the 1960s, the share of consumer and manufactured goods among ThailandΓÇÖs total imports declined continuously, while that of intermediate and capital goods increased. By the 1970s, the Thai economy reached the stage where component parts and other intermediate capital goods could be produced locally. As a result, many locally made industrial products could rely on local raw materials and semi-finished products. These raw materials produced with high quality are also being used to generate export-oriented products from Thailand.
In the early 1960s,Thai exports consisted almost entirely of primary commodities. A decade later the manufacturing sector had developed to the extent that it could serve the demand in the world market. Thai export-oriented industries began to gain prominence. Also conducive circumstances in the world market at that time called for a shift in policies from producing for domestic markets to producing for export. The textile boom which started in the 1970s came basically in response to export potential. The import quota on Japanese goods imposed by the U.S. enabled Thai textiles to capture a larger share of that market. The sugar boom which began in the 1970s was in response to the sudden increase in the world price. Production of other items such as food products, animal feed, chemical products, pharmaceuticals, iron and steel products, and electrical components also grew in response to domestic and foreign demands.
One important aspect of industrial development in Thailand has been the private sectorΓÇÖs rapid response to shifting market demands. This is reflected in the changing structure of manufactured imports and exports since the early 1960s.
In 1955, ThailandΓÇÖs imports of manufactured goods accounted for about 75 percent of the total value of imports. By 1993 the proportion had declined to about 28 percent but capital goods such as machinery and transport equipment, increased from 28.9 to about 45.8 percent. Import of raw materials also increased remarkably.
On the export side, ThailandΓÇÖs manufactured exports contributed about 2.4 percent of total export earnings in 1957. This had risen to 64.45 percent by 1993. For the period 1983-1993, the share of basic manufactured goods rose from 17.8 percent to 18.23 percent, and machinery increased from 5.7 percent to 30.0 percent while the export of miscellaneous manufactured goods increased from 10.1 percent to 20.8 percent.
In the current phase of ThailandΓÇÖs industrial development, dating from the realignment of the Japanese yen and other major currencies, the country is benefiting from a major regional restructuring of manufacturing. Production of a new range of intermediate manufactures is being fuelled by a wave of foreign investment and industrial relocation from Japan, Taiwan and other Asian NIEs, in addition to the U.S. and other countries.
On the whole, ThailandΓÇÖs manufacturing sectorΓÇÖs performance has been impressive. With its ability to expand and adapt to world market conditions, the country can look forward to further diversification and growth and to resultant increased prosperity.
Taking into consideration the availability of resources and the potential of projects already underway, one may expect the following industries to grow in significance over the next decade.
Agro - based industries At present Thailand has abundant supplies of farm produce. The advantage of establishing additional food processing industries is, therefore, apparent. Large scale commercial livestock production offers unlimited growth potential. Other agro-based industries with good prospects include palm oil, vegetable oil, canned fruit, and paper pulp.
Non-ferrous construction materials
ThailandΓÇÖs cement industry is reputedly the largest in Southeast Asia; prior to the 1970s, the country was a net exporter. But during the uncertain period following the oil crisis, the Thai government took measures to control inflation by freezing the prices of major commodities including cement. As a result, investment in this industry was delayed, and the country became a net importer of cement. By mid 1979, however, with government encouragement, a massive expansion of capacity was underway which turned Thailand back into a net exporter of cement by 1982. Other construction materials with strong potential are aluminium, glass and ceramics. The economic boom of the 1980s led to another surge in the construction sector.
Chemical products With current market demand, the chemical products industry is expected to expand rapidly over the next few years. Items in this group include herbicides, pesticides, cosmetics, and commodity polymers.
The Organized Financial Market
ThailandΓÇÖs financial market comprises commercial banks, finance companies, agricultural cooperatives, savings cooperatives, life insurance companies, pawn shops and credit fanciers. In addition, there are a number of specialised financial institutions, namely the Government Savings Bank, the Bank for Agriculture and Agricultural Cooperatives (BAAC), the Industrial Finance Corporation of Thailand (IFCT), the Government Housing Bank, and the Export Import Bank of Thailand (EXIM Bank), and SME Bank. In response to the economic crisis in early 1997, several new organisations were established to implement financial sector restructuring, namely the Financial Sector Restructuring Authority (FRA), the Radanasin Bank (RAB - originally intended as a good bank, but changed status to a commercial bank), the Asset Management Corporation (AMC) and the Thai Asset Management Corporation (TAMC).
Within the organised financial markets, commercial banks have played and will continue to play the most important role in the Thai economy. With regard to the outstanding credit extended by various institutions, commercial banks were the most active, accounting for 78 percent in 2002.1 Finance companies accounted for about 3 percent and the remaining was shared by other institutions.
With regard to the outstanding amounts of credit extended by the various institutions, commercial banks also play the leading and most active role, accounting for 73 percent in 2001.1 Finance companies accounted for about 10.2 percent and the remaining was shared by other institutions.
