Environmental Technologies Industries
Export.gov logo and link to Export.gov Environmental Technologies Industries

Market Plans

Thailand Environmental Export Market Plan
Part 3
Doing Business in Thailand

Economic Overview

Thailand boasted the fastest growing economy in the world over the period 198696, with nearly 10 percent average annual growth in gross domestic product (GDP). This breakneck pace ended abruptly with a financial crisis that caused GDP to contract -.4 percent in 1997. At the same time, the long-stable baht plunged in value from about 25 baht to the dollar to more than 50 baht to the dollar. Thus, a crisis atmosphere dominates business in Thailand, including environmental business. While this atmosphere may obscure longer term strengths and opportunities, it also provides new opportunities. Unlike major crises elsewhere in the world, Thailand's economic problems were due to overspending and overborrowing in the private sector rather than profligate government spending. Thai governments have generally pursued strong pro-business economic policies. The country has benefited from an abundance of raw materials, a large and highly trainable work force, a central location in Asia, and a varied, well-balanced array of income earning activities. These factors augur well for a strong recovery, although growth rates are unlikely to reach high levels of the past decade.

With a population of 60 million, Thailand provides important markets for a wide range of goods and services. These markets, coupled with stabilization of the baht and a return of liquidity to the banking system, should attract a new round of foreign investment. Overdue financial sector reform, improved customs regulations, new business laws, and a lower baht/dollar exchange rate should also encourage investment. However, for the longer term, Thailand needs better planning, better human resource development, and improved political decision-making in order to evolve to the next economic level. The nation must address these core problems to shift away from a dependence on low-wage labor and begin delivering value-added goods and services.

Growth and Stability
Over the past decade, Thailand's economy has grown an average of more than 9 percent per year. Although that growth has suddenly stopped, most analysts believe growth will resume in two to three years. The Thai economy is the second largest in Southeast Asia and is poised to surpass Indonesia before the end of the century.

At the same time, population growth has slowed from more than 2 percent to 1.3 percent. The combination of rapid economic growth and slowing population growth raised per capita income to more than $3,000 per person (before the baht devaluation), which has encouraged new consumer-goods industries.

The rise in per capita income is not equal across occupations or regions of the country. Most of the additional income has gone to those participating in the manufacturing and services sectors of the modern economy. Farmers and fishermen, who still comprise the majority of the working population, have been left behind. Thus, wealth is concentrated in the capital, its adjacent provinces, and a few key provincial capitals. The impact of rapid increases in wages, land prices, and the availability of needed skills combined to make Thai products less competitive in world markets. That led to both the slowdown in exports and the financial crisis. The devaluation of the baht, however, now gives Thai exports a new cost advantage. This advantage will be temporary unless Thailand can improve productivity faster than costs increase.

Constraints on Growth

The year 1996 saw a sharp drop in export growth and business expansion. According to the Thailand Development Research Institute (TDRI), GDP growth slowed from 8.8 percent in 1995 to 5.5 percent in 1996 to -.4 percent in 1997 (revised figure). The National Economic and Social Development Board (NESDB) projects a contraction of GDP in 1998 of 3 to 3.5 percent, with 1999 GDP growth resuming at only 1.5 percent.

Most of this slowdown is due to multiple factors that affected the Thai economy in 1997, including the collapse of some 56 finance companies, drastic devaluation of the baht, serious debt problems of many companies, crises in other Asian economies, and an overall loss of confidence in the economy. In 1997, the situation was worsened by domestic political uncertainties about the government of Prime Minister Chavalit Yongchaiyudh. The new government of Prime Minister Chuan Leekpai has made progress in restoring economic confidence, but the government does not expect the economy to bottom out until the third quarter of 1998.

Even after a recovery begins, some fundamental issues must be addressed to achieve long-term growth. The most important is the need for well-trained human resources. Thailand has accomplished its extraordinary economic performance despite its uneducated ng to increase the percentage of children attending secondary school.

Contact Us  About ITA  ITA Site Map  Privacy Statement
U.S.Department of Commerce    International Trade Administration