Section 2
Is Thailand in decline?  3 emerging symptoms

Is a country just going through a temporary period of weakness which will reverse itself, or is it only the beginning of a sustained decline?   It is typically not easy to tell until one looks back with the benefit of hindsight, and by then it is too late.  Even after ten years, Japan didn’t realize that its “lost decade” was just the beginning of several more to come. 

In the case of Thailand, to use a medical analogy, while we might not know what and how serious the underlying illness of the patient is, we can see that it is manifesting itself in the form of at least 3 symptoms which clearly indicate that all is not well with the patient’s health

Symptom 1: Shrinking share

One early sign of a company in decline is shrinking market share.  While a country is not a company, we can take a look at the country’s share in world trade and investment to see how our global footprint has evolved.  If we look back over the past 20-plus years, Thailand’s overall share of global exports decreased from 1.7% to 1.3% between 1990 and 2012.    We went from the 15th exporter in the world to the 22nd.   While we have done quite well in some new areas like auto parts, our traditional export mainstay, rice, has seen its share drop from 69% to 21%.  

In foreign direct investment (FDI), the picture is less sanguine.  Thailand’s share of global FDI dropped from 1.2% in 1990 to 0.6% in 2012, the same as that of Vietnam.  Keep in mind that Vietnam’s economy is still only a third that of Thailand, and that just 20 years ago FDI into Thailand was over 13 times that of Vietnam.  This lackluster performance reflects our declining relative attractiveness as a FDI destination.  In 2003, our rank in the AT Kearney FDI confidence index was higher than Vietnam, Malaysia, and Indonesia.  By 2012, our rank was the same (at 16), but was surpassed by Indonesia (9), Malaysia (10), and Vietnam (14).  Since many of our top exports have been FDI-driven, this does not bode well for our future exports. 

Symptom 2: Lagging our counterparts. 

Aside from looking at market share, it is standard practice for companies to benchmark themselves against their key competitors.  The short message: while we seem unable to close the gap with Malaysia, Vietnam has done a better job of trying to catch up to us.

Thailand v.  Malaysia.  In 1990, Malaysia’s GDP per capita in USD (constant 2005 PPP) was about 1.7 times that of Thailand.  In 2012, it was still 1.7 times higher.  There are several reasons for this, but one worth highlighting is that Malaysia has done a better job on the technology and R&D front.  Malaysia managed to increase its spending on R&D as a share of GDP from 0.2% in 1996 to over 1.0% in 2009, about 4 times that of Thailand (0.24%).  It also has over 3 times the number of researchers per labor force as Thailand.  Malaysia’s ability to pay more attention to such longer-term issues probably has to do at least in part with its far greater political stability.  While all of Malaysia’s Prime Ministers have come from the same party since 1957, Thailand has had 6 different governments over the past 10 years alone.      

Thailand v. Vietnam.   Vietnam’s GDP per capita went from less than a quarter of Thailand’s in 1990 to well over a third by 2012.  Again, while there are numerous reasons for this, we would like to highlight just one.  Vietnam has done quite a commendable job in the area of education for its level of income and development.  It spends a higher share of GDP on education (6.6%) than Thailand (3.8%).  Kids who should be in school stay in school.   Over 10% of primary school age children in Thailand are not in school, compared to only 1% in Vietnam.