“UNLOCKING ICTUNLOCKING ICTUNLOCKING ICTUNLOCKING ICT””””Liberalization of Services: Liberalization of Services: Liberalization of Services: Liberalization of Services:

Thailand ExperienceThailand ExperienceThailand ExperienceThailand Experience””””

July 2, 2013July 2, 2013July 2, 2013July 2, 2013

CentaraCentaraCentaraCentara Grand Hotel, BangkokGrand Hotel, BangkokGrand Hotel, BangkokGrand Hotel, Bangkok

Deunden NikomborirakDeunden NikomborirakDeunden NikomborirakDeunden NikomborirakThailand Development Research InstituteThailand Development Research InstituteThailand Development Research InstituteThailand Development Research Institute

1

Presentation Outline

1.1.1.1. Role of Service SectorRole of Service SectorRole of Service SectorRole of Service Sector in the in the in the in the

Thai EconomyThai EconomyThai EconomyThai Economy

2.2.2.2. OpportunitiesOpportunitiesOpportunitiesOpportunities

3.3.3.3. ChallengesChallengesChallengesChallenges

4.4.4.4. ConclusionsConclusionsConclusionsConclusions & Recommendations& Recommendations& Recommendations& Recommendations

2

1111. Role of . Role of . Role of . Role of Service Service Service Service SectorSectorSectorSector

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 labour force is employed

in the service sector

Half of GDP is contributed by the

service sector

10 10 10 10 10 10 9 9 9 9 9 8 9

38 39 38 39 40 41 41 41 42 42 41 43 41

52 51 51 51 49 50 50 50 49 49 50 49 50

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Agriculture Manufacturing Service

45 44 42 42 41 39 39 40 39 40 40 41 39 42

14 15 15 15 16 16 16 15 16 15 14 14 21 14

41 41 42 42 43 45 46 45 45 46 46 45 41 44

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Agriculture Manufacturing Service

Source: National Income Account, NESDB 5

Labour productivity in the service sector is stagnant

and well below that in the manufacturing sector

Source: NESDB and Ministry of Labour

1,000 baht at

1988 prices

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

19981999200020012002200320042005200620072008200920102011

Agriculture

Manufacturing

Service

6

Labor productivity growth by sector (2007-11)

2.5 0.4

-1.2

3.4 3.9

-5.9

3.8

69.2

-3.8

0.76.1

-0.8-100

1020304050607080

ave growth (%)

Source: NESDB 7

Service sector “drags” economic growth

Source: NESDB

-15

-10

-5

0

5

10

15

20

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Agriculture Manufacturing Service

YOY(%)

8

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. 2. 2. 2. OpportunitiesOpportunitiesOpportunitiesOpportunities

10

ASEAN Economy ranks 6th in terms of size

15.815.815.815.8 15151515

11.311.311.311.3

4.54.54.54.5 4.44.44.44.43.53.53.53.5

00002222444466668888

1010101012121212141414141616161618181818

EUEUEUEU USUSUSUS ChinaChinaChinaChina IndiaIndiaIndiaIndia JapanJapanJapanJapan ASEANASEANASEANASEAN

GDP (PPP) 2011 GDP (PPP) 2011 GDP (PPP) 2011 GDP (PPP) 2011 –––– trillion USDtrillion USDtrillion USDtrillion USD

แหลง่ทีม่าแหลง่ทีม่าแหลง่ทีม่าแหลง่ทีม่า : World Bank database : World Bank database : World Bank database : World Bank database สามารถดาวนโ์หลดไดท้ี่สามารถดาวนโ์หลดไดท้ี่สามารถดาวนโ์หลดไดท้ี่สามารถดาวนโ์หลดไดท้ี่database.worldbank.orgdatabase.worldbank.orgdatabase.worldbank.orgdatabase.worldbank.org 11

ASEAN is becoming an increasingly important FDI destination

Source: Source: Source: Source: World Investment Report 2012.World Investment Report 2012.World Investment Report 2012.World Investment Report 2012.

Proportion of FDI destined in ASEAN Proportion of FDI destined in ASEAN Proportion of FDI destined in ASEAN Proportion of FDI destined in ASEAN (%)(%)(%)(%)

12

Thailand’s FDI share is below her GDP share

FDI Share FDI Share FDI Share FDI Share 2006200620062006----10101010

Source: World bank databaseSource: World bank databaseSource: World bank databaseSource: World bank database Source: ASEAN Investment Report Source: ASEAN Investment Report Source: ASEAN Investment Report Source: ASEAN Investment Report 2011201120112011

Brunei,

0.66

Cambodia,

1.19

Indonesia,

13.39

Lao PDR,

0.47

Malaysia,

11.02

Myanmar,

1.2

the

Phillipines,

3.76

Singapore,

42.8

Thailand,

13.83

Vietnam,

11.68

Brunei,

0.71

Cambodia

, 0.97

Indonesia

, 32.69

Lao

PDR,

0.48

Malaysia,

13.87

Myanmar

, 2.38

the

Philippine

s, 11.6

Singapore

, 9.08

Thailand,

19.39

Vietnam,

8.84

GDP share (2006-10)

13

FDI into ASEAN flows mainly into the

service sector

Source: ASEAN Investment Report 2011.

-20%

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.59-7.04

3.04 0.77 0.61 0.49 0.596.40

1.48 0.10 0.73

45.10 53.03 41.13 47.9142.23 45.99

28.46

33.35 45.00 48.85

33.58

54.3054.01 55.83

51.3357.15 53.52

70.9560.25

53.52 51.05

65.69

Agriculture Manufacturing Services

14

FDI into Thailand is heavily concentrated in

manufacturing

แหลง่ทีม่า: ASEAN Investment Report 2011.

Service

50.53Manufac

turing

41.17

Agriculture

8.3

GDP share

Service

41.17

Manufactur

ing

58.73

Agriculture

0.09

FDI share

15

Singapore is the “ASEAN Gate Keeper”

USD 17.66

billion

USD

3.14

billion

แหลง่ทีม่า: ASEAN Investment Report 2011. (AVERAGE FDI FLOW DURING 2000-2009)16

Observations

• Since Thailand has a relatively restrictive Since Thailand has a relatively restrictive Since Thailand has a relatively restrictive Since Thailand has a relatively restrictive FDI regime, foreign capitals flow through FDI regime, foreign capitals flow through FDI regime, foreign capitals flow through FDI regime, foreign capitals flow through SingaporeSingaporeSingaporeSingapore

• In future when AEC is realized, Thailand In future when AEC is realized, Thailand In future when AEC is realized, Thailand In future when AEC is realized, Thailand stands to receive only “second hand FDI” stands to receive only “second hand FDI” stands to receive only “second hand FDI” stands to receive only “second hand FDI” from Singapore.from Singapore.from Singapore.from Singapore.

17

3333. . . . ChallengesChallengesChallengesChallenges

18

How to increase service sector productivity ?

1.1.1.1. Relax FDI restrictions to promote Relax FDI restrictions to promote Relax FDI restrictions to promote Relax FDI restrictions to promote much needed transfer of technology much needed transfer of technology much needed transfer of technology much needed transfer of technology into the service sector.into the service sector.into the service sector.into the service sector.

2.2.2.2. Revise domestic Revise domestic Revise domestic Revise domestic sectoralsectoralsectoralsectoral regulations regulations regulations regulations that harm competitionthat harm competitionthat harm competitionthat harm competition

3.3.3.3. Revise rules and regulations that Revise rules and regulations that Revise rules and regulations that Revise rules and regulations that discourage FDI.discourage FDI.discourage FDI.discourage FDI.

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3.1 How to liberalize ?

1.1.1.1.Thailand needs a “Roadmap” for service liberalizationThailand needs a “Roadmap” for service liberalizationThailand needs a “Roadmap” for service liberalizationThailand needs a “Roadmap” for service liberalization

2.2.2.2.The Foreign Business Act 1999 needs to be amendedThe Foreign Business Act 1999 needs to be amendedThe Foreign Business Act 1999 needs to be amendedThe Foreign Business Act 1999 needs to be amended bybybyby(1) (1) (1) (1) changing the list 3 from positive changing the list 3 from positive changing the list 3 from positive changing the list 3 from positive list list list list totototo negative list negative list negative list negative list (2) (2) (2) (2) identify sectors that warrants protection based on identify sectors that warrants protection based on identify sectors that warrants protection based on identify sectors that warrants protection based on benefits to the economy and not to the specific industrybenefits to the economy and not to the specific industrybenefits to the economy and not to the specific industrybenefits to the economy and not to the specific industry

3.3.3.3.Take steps to liberalize the following sectors:Take steps to liberalize the following sectors:Take steps to liberalize the following sectors:Take steps to liberalize the following sectors:• Services supporting the manufacturing Services supporting the manufacturing Services supporting the manufacturing Services supporting the manufacturing ((((finance and finance and finance and finance and

banking, insurance, transport, telecommunication and banking, insurance, transport, telecommunication and banking, insurance, transport, telecommunication and banking, insurance, transport, telecommunication and energy)energy)energy)energy)

• ServicesServicesServicesServices that are monopolistic or oligopolisticthat are monopolistic or oligopolisticthat are monopolistic or oligopolisticthat are monopolistic or oligopolistic20

Liberalization Goals under AEC (mode 3)

Sectors Targets

Priority Sectors:

e-ASEAN,

Healthcare and

tourism services

51% - 2008

70% - 2010

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 sub-

sectors outside the agreed sub-sectors; and

– Liberalisation through the ASEAN Minus X formula.

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AFAS 7th Package (2009) - 1

SubsectorsSubsectorsSubsectorsSubsectors AECAECAECAEC AFAS7AFAS7AFAS7AFAS7TargetTargetTargetTarget YearYearYearYear ThailandThailandThailandThailand MalaysiaMalaysiaMalaysiaMalaysia SingaporSingaporSingaporSingapor

eeeePhilippinesPhilippinesPhilippinesPhilippines IndonesiaIndonesiaIndonesiaIndonesia BruneiBruneiBruneiBrunei

EEEE----ASEANASEANASEANASEAN Mobile telephone Mobile telephone Mobile telephone Mobile telephone 51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 73.9973.9973.9973.99%%%% 40%40%40%40% 49%49%49%49% Domestic Domestic Domestic Domestic regulationregulationregulationregulation

Online Online Online Online information information information information 51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 100%100%100%100% 40%40%40%40% 51%51%51%51% NoNoNoNocommitmentcommitmentcommitmentcommitment

ConsultancyConsultancyConsultancyConsultancy 51%51%51%51%70707070%%%%

20082008200820082010201020102010

100%100%100%100% 100%100%100%100% 100%100%100%100% 40%40%40%40% Joint Joint Joint Joint operationoperationoperationoperation

Domestic Domestic Domestic Domestic regulationregulationregulationregulation

HealthcareHealthcareHealthcareHealthcare Hospital servicesHospital servicesHospital servicesHospital services 51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 51%51%51%51% 40404040%%%% 49%49%49%49% Domestic Domestic Domestic Domestic regulationregulationregulationregulation

Medical and dental Medical and dental Medical and dental Medical and dental servicesservicesservicesservices

51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 100%100%100%100% NoNoNoNocommitmcommitmcommitmcommitm

entententent

49%49%49%49% NoNoNoNocommitmentcommitmentcommitmentcommitment

22

AFAS 7th Package (2009) - 2

SubsectorsSubsectorsSubsectorsSubsectors AECAECAECAEC AFAS7AFAS7AFAS7AFAS7TargetTargetTargetTarget YearYearYearYear ThailandThailandThailandThailand MalaysiaMalaysiaMalaysiaMalaysia SingaporeSingaporeSingaporeSingapore PhilippinesPhilippinesPhilippinesPhilippines IndonesiaIndonesiaIndonesiaIndonesia BruneiBruneiBruneiBrunei

TourismTourismTourismTourism Hotel lodging Hotel lodging Hotel lodging Hotel lodging 51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 100%100%100%100% 40404040%%%% 100100100100% % % % JointJointJointJoint venture venture venture venture with local co. with local co. with local co. with local co.

onlyonlyonlyonly

Meal Meal Meal Meal servingservingservingserving 51%51%51%51%70707070%%%%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 100%100%100%100% 40%40%40%40% 51515151%%%% NoNoNoNocommitmentcommitmentcommitmentcommitment

Travel Travel Travel Travel agency/ tour agency/ tour agency/ tour agency/ tour operatoroperatoroperatoroperator

51515151%%%%70%70%70%70%

20082008200820082010201020102010

49%49%49%49% 51%51%51%51% 100%100%100%100% 60%60%60%60% 49%49%49%49% NoNoNoNocommitmentcommitmentcommitmentcommitment

LogisticsLogisticsLogisticsLogistics Storage and Storage and Storage and Storage and warehouse warehouse warehouse warehouse

51%51%51%51% 2010201020102010 49%49%49%49% 49%49%49%49% 100%100%100%100% 100%100%100%100% 49%49%49%49% 49%49%49%49%

Maritime cargo Maritime cargo Maritime cargo Maritime cargo handlinghandlinghandlinghandling

51%51%51%51% 2010201020102010 49%49%49%49% 49%49%49%49% 100%100%100%100% 100%100%100%100% 60%60%60%60% 49%49%49%49%

Freight Freight Freight Freight transportationtransportationtransportationtransportation

51%51%51%51% 2010201020102010 49%49%49%49% 49%49%49%49% 100%100%100%100% 40%40%40%40% 49%49%49%49% 49%49%49%49%

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TelecomTelecomTelecomTelecom ---- Telex Telegraph and Telex Telegraph and Telex Telegraph and Telex Telegraph and

FacsimileFacsimileFacsimileFacsimile ---- Telecom Management Telecom Management Telecom Management Telecom Management consultantconsultantconsultantconsultant

TourismTourismTourismTourism ---- บริบริบริบริ ---- 6 6 6 6 star hotelstar hotelstar hotelstar hotel ---- Tourist Information Tourist Information Tourist Information Tourist Information ((((excluding excluding excluding excluding

accommodation and flight accommodation and flight accommodation and flight accommodation and flight reservation)reservation)reservation)reservation)

HealthHealthHealthHealthPrivate hospitalPrivate hospitalPrivate hospitalPrivate hospital---- Veterinary serviceVeterinary serviceVeterinary serviceVeterinary service---- RehabilitationRehabilitationRehabilitationRehabilitation

LogisticsLogisticsLogisticsLogistics---- Transportation of frozen goods, gas and Transportation of frozen goods, gas and Transportation of frozen goods, gas and Transportation of frozen goods, gas and containerscontainerscontainerscontainers---- Customs serviceCustoms serviceCustoms serviceCustoms service---- Freight shippingFreight shippingFreight shippingFreight shipping ---- Storage and warehousing for sea transportStorage and warehousing for sea transportStorage and warehousing for sea transportStorage and warehousing for sea transport----freight reloadingfreight reloadingfreight reloadingfreight reloading

70% equity 70% equity 70% equity 70% equity shareshareshareshare

Thailand’s 8th Package (August 2012) -

examples

24

Services targeted to be liberalized

service Number of

operators

Name of operator Market share

Energy

Purchasing and sales of gas 1 PTT. 100

Import of LPG 1 PTT. 100

Gas transportation 1 PTT. 100

Gas distribution 3 PTT. 100 (including

subsidiaries)

Energy

Electricity Generation 5 EGAT 82 (including

subsidiaries)

Purchasing and sales of

electricity

1 EGAT 100

High voltage electricity

transmission

1 EGAT 100

Telecom

Satellite 1 บมจ. ไทยคม 100 25

3.2 Reform at the sectoral level

• Abolish the Foreign Abolish the Foreign Abolish the Foreign Abolish the Foreign Dominance regulation Dominance regulation Dominance regulation Dominance regulation announced by the NBTC in announced by the NBTC in announced by the NBTC in announced by the NBTC in 2012201220122012

• Establish rules to promote Establish rules to promote Establish rules to promote Establish rules to promote fair use of telecom network fair use of telecom network fair use of telecom network fair use of telecom network such as fair IC charges, such as fair IC charges, such as fair IC charges, such as fair IC charges, roaming and infrastructure roaming and infrastructure roaming and infrastructure roaming and infrastructure sharing rulessharing rulessharing rulessharing rules

TelecomTelecomTelecomTelecom

Third party access to gas pipeline and Third party access to gas pipeline and Third party access to gas pipeline and Third party access to gas pipeline and electricity grid networkselectricity grid networkselectricity grid networkselectricity grid networks

EnergyEnergyEnergyEnergy26

3.2 Reform at the sectoral level (2)

• Abolish “ceilings” for all Abolish “ceilings” for all Abolish “ceilings” for all Abolish “ceilings” for all banking service fess banking service fess banking service fess banking service fess established by the Bank established by the Bank established by the Bank established by the Bank of Thailandof Thailandof Thailandof Thailand

• Lift restriction on the Lift restriction on the Lift restriction on the Lift restriction on the number of branches number of branches number of branches number of branches imposed on foreign imposed on foreign imposed on foreign imposed on foreign banks.banks.banks.banks.

BankingBankingBankingBanking

27

3.3 Revise rules that discourage FDI

• Lift the Lift the Lift the Lift the 4 4 4 4 totototo 1 1 1 1 rule governing the hiring of rule governing the hiring of rule governing the hiring of rule governing the hiring of foreign nationalsforeign nationalsforeign nationalsforeign nationals

• Relax restrictions on certain Relax restrictions on certain Relax restrictions on certain Relax restrictions on certain professionals such as lawyersprofessionals such as lawyersprofessionals such as lawyersprofessionals such as lawyers or or or or engineersengineersengineersengineers

• Shift investment incentive rules from LShift investment incentive rules from LShift investment incentive rules from LShift investment incentive rules from L----intensive manufacturingintensive manufacturingintensive manufacturingintensive manufacturing----based to skillbased to skillbased to skillbased to skill----intensive serviceintensive serviceintensive serviceintensive service----based industries.based industries.based industries.based industries.

28

4444. Conclusion & . Conclusion & . Conclusion & . Conclusion & RecommendationsRecommendationsRecommendationsRecommendations

29

99,379

43,373

16,832 11,021 8,819

86,417

43,622

35,025

21,900 23,057

-

20,000

40,000

60,000

80,000

100,000

120,000

Singapore Malaysia Thailand the

Phillpines

Indonesia

Service Manufacturing

The Thai

economic

structure mimics

that of relatively

less developed

countries

Source: IMD World Competitiveness Yearbook 2012

Labour productivity in manufacturing and services

($ per person per annum)

30

Service sector reform will help Thailand escape

middle income trap …

Attract foreign K &

technology + dissolve

monopolies and oligopolies

Capital & Technology

help boost labour

productivity

Wage of roughly 20

million workers improve

Services become more

efficient

Manufacturing sector

regains

competitiveness31

Thank you very much !!!

32