30 September 2015
Quick Wins to Improve Thailand Economy
Board of Trade of Thailand Strategy Meeting
Darren Buckley
Vice Chairman, Board of Trade of Thailand
Citi Country Officer, Citi Thailand
Agenda
Quick Win to Improve Thailand Economy
● Looking back: What drove Thai economy in the past?
● Recent performance and growth drivers
● What can we do to improve?
2
Looking back: What drove Thailand here?
● Strong growth in 80s and early 90s led by Eastern Seaboard, FDI influx from Japan after strong JPY in mid-80s
● Capital inflows from BIBF in 1993-1997 led the buildup into excess and Asian Financial Crisis in 1997-98
● Post crisis recovery in 2000s; Internal struggle since mid-2000s amidst waning global tailwind
● Avg. GDP growth 5.5% during 81-86 surged to 9.9% during 1987-95
● Post crisis - 2000-05 avg. dropped to 5% and just 3.4% after 2006….
1989: Booming of Real estate & securities companies
1987-1990: Direct Investment from Japan flew to
Thailand due to strong JPY
1997: Asia Financial Crisis
1982: Eastern Seaboard
developed
2000-2007: Global economic
boom
2003-2010: Rise of China
1992: Map Ta Phut developed
1993: BIBF established
Source: NESDB, CEIC and Citi Research
3
Political Struggle
2006: Coup
2008: PAD protest/shutdown Suvanbhumi airport
2009-2010: Red Shirt protested in downtown Bangkok
2013-2014: Bangkok Shutdown (Nov13-Apr 14) and Coup
(May 14)
Confidential
2009: Global Financial
Crisis
Growth drivers in different periods
Growth drivers: External then internal
 Investment and Consumption boom in early
1990s
 Export-led recovery after 1997
 Consumption recovery in 2000-03
 Initial private investment was muted post 1997
crisis but began to pick up as excess capacity
was utilized. Private investment added growth
in 2004-05 but has been muted since.
 Domestic drivers tapered off since 2006. Initial
weakness was masked by global growth during
2006-07 but weak ‘core’ growth becomes
apparent since 2011
Source: NESDB
4
Confidential
Recent Performance of Thai economy
Thailand GDP growth from 2011 and Citi Forecast
 Average GDP growth since 2011 was merely
3%
 Initial boost to growth in 2012 from post-flood
reinvestment activities
 Consumption (esp first car policy) led growth in
1H13 but domestic politics adversely affect
momentum since 4Q13
 Exports also face new headwind from global
slowdown
 We forecast growth to be around 3% +/- in
2015-16E
Export Growth Turning Sluggish
Muted Investment
“Others” include inventory adjustments; negative means de-stocking
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Source for all charts: NESDB, Citi Research Estimates and MOC
Confidential
Global Context: Moderating GDP and Trade growth
Global GDP growth: ‘new normal’
Global Trade growth: Different global recovery cycle
 Part of the challenges is slowdown in global
trade and GDP after 2009 Global Financial
Crisis
 Avg global growth around 3% in 1990s; rise of
China and Emerging markets drove up avg
growth to 4% during 2000s
 Notable growth moderation of China pushed
growth trend back to 3% level
 Global trade slowdown will make it difficult for
Thailand to hope for export-led recovery
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Source: CEIC
Confidential
Major economies: lackluster recovery
Citi GDP Growth Forecasts (%)
China: Official GDP Growth and LKQ Index*
* Li Keqiang (LKQ) index tracks monthly loan growth data, power consumption
levels and cargo transport growth
● Citi economists forecast global GDP growth to be sub-3% in 2015E and just around 3% in 2016E
● China growth adjustment and subsequent ripple effect to commodities and emerging markets could tip global
economy towards recession level in late-2016
7
Source: Citi Research estimates
7
Source: Haver, Citi Research
What can we do to improve?
Consumption
Household Debt
● High household debt limited debt-financed
durable spending
● Despite oil price windfall since 4Q14,
consumers opted not to spend due to
lackluster confidence
● Quick win: Restore sense of growth and
income security?
● Given that government’s SFIs also granted
Bt3 trillion household loans (29% total),
there might be room to provide interest
relief to add spending power at the lower
end of economy.
Consumer Confidence and Private Consumption
Contribution to Household Debt
Insurance
1%
Broker AMC
1% 0%
Pawnshop
and Others
1%
Card and P-Loan
companies
11%
Comm Bank
42%
Co-op
15%
SFI
29%
8
Source: UTCC, BOT
Confidential
What can we do to improve?
Consumption: boost from bottom
Irrigated area: only 9% total
● Agriculture contribute to just 10% of GDP
but involves 1/3 of workforce
Irrigated
30.22 m rais
9%
● Recent stimulus to help grassroots or lower
end of economy should provide near term
boost
● Longer term impact could be more
meaningful given just 9% of land is current
under irrigation – room for future
improvement?
Un-Irrigated
290.47 m rais
91%
Source: Royal Irrigation Dept
Agri to GDP
Education
4%
Others
11%
Workforce
Agriculture
10%
Public Admin
6%
Mining
4%
Construction
2%
RealEstate
7%
Electricity,Gas&
WaterSupply
3%
Hotel&
Restaurant
4%
Manufacturing
28%
Transport&
Communication
7%
Source: NESDB
9
Public Admin&
Defence
4%
Education
3%
Others
14%
Agriculture
33%
Construction
6%
Hotel&
Restaurants
7%
Wholesale&
Retail Trade
14%
Source: BOT
Confidential
Manufacturing
17%
Trade
16%
What can we do to improve?
Tourism
Spending per visitor
● Tourism has been key growth contributor in
Thai economy (10% of overall GDP, >20%
growth pace)
● Volume has been key drivers. Next step
might be to improve revenue per capita and
improve Thailand positioning to attract
upper end tourists while maintaining the
mass as well.
Source: Citi Research and TAT
Tourism: Resilient across past hiccups
Source: TAT
10
Confidential
What can we do to improve?
Trade
Export growth: sluggish for three years
Export growth: China and ASEAN
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
7M15
-15.0%
Export growth: Manufacturing drag
ASEAN 9
China and Hong Kong
EU
Japan
US
Africa
India
● China and ASEAN: once growth drivers have
now tapering off
● Along with slowdown in manufacturing export
● Shift in competitiveness to add new products /
innovation and new target markets for existing
products needed?
● Structuring ‘Super Cluster’ to attract top tier
global players to create new industries?
Source: BOT
11
Confidential
Others
What can we do to improve?
Trade
Growth by country: key drag from ASEAN / China
ASEAN
26%
Others
27%
US
10%
● Weakness in key markets transpired into
manufacturing output and job market
● New product / New market seems to be potential
solution?
China+HK
17%
Japan
10%
Manufacturing – Early sign of recovery fading…
EU
10%
6%
MPI (Seasonally Adj)
210
4%
-2%
-4%
-6%
80%
170
60%
FY12
150
40%
FY13
130
20%
FY14
110
0%
6M15
-8%
-10%
-12%
World
ASEAN
China+HK
EU
Japan
US
90
-20%
70
-40%
50
-60%
Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15
MPI s.a.
Source: BOT
Source: BOT
12
100%
190
2%
0%
YoY (%)
%YoY
What can we do to improve?
Productivity and Underemployment
Thailand Labour Productivity
● Thailand is no longer ‘cheapest’ location
● This implies the need to move up value chain
● Productivity hurts in recent downturn as ‘slack’
capacity has been developing in various
industries
● We already began to see lower average hours
worked. Despite low reported unemployment,
‘underemployment’ indicates inefficiency and
income drag.
● Need to improve productivity to sustain cost
growth? New products / skill sets / industry
champions?
Source: CEIC, Citi estimates
Threat of ‘under-employment’: more people
Δ in 000
work less hours
Min Wage: No longer cheap
$
250
Persons
1,500
200
1,000
500
150
0
-500
100
-1,000
50
-1,500
-2,000
0
Thai
Indonesia
China
Vietnam
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15
Cambodia
< 40-49hr workweek
> 40-49hr workweek
Source: Citi research; Wage Indicator
13
Confidential
Source: NSO
Jul-15
40-49 hr workweek
What can we do to improve?
Investment
● From the peak of investment to GDP over 50%
pre-1997, private and government investments
have receded.
Investment to GDP: A step down post - 1997
● Private sector investment has been consistent
and adjustments seem to take out ‘excess’ in
properties during the boom. We see stabilizing
trend on private investments since 2003-04
● Government seems to underspend post Asian
financial crisis (1997)
● A relook at Foreign Business Act to introduce
competitiveness and creative destruction?
Source: NESDB
Synopsis: Foreign Business Act
• Completely restricted from foreign majority owned. Including national broadcast, newspaper, advertising media, farming, agriculture, forestry, fisheries
in Thai Territory, properties, etc.
• Industries related to national security, Thai culture and national resources. Foreign majority owned under this category need to be permitted by
Cabinet. It includes weapon, hotel & tourism, restaurants, etc.
• Industries that Thai companies remain uncompetitive - allowed for more than 50% foreign owned by getting approval from Foreign Business
Committee. Mostly are service related industries e.g. media, hotel and tourism, restaurant, retail, etc.
• Bank and Insurance companies : have been removed from restricted list of foreign business act in 2014 but still under control and monitor by Bank of
Thailand and Office of Insurance Commission. Mainly require approval from BOT and OIC for significant shareholding.
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Confidential
What can we do to improve?
FDI
● Net FDI has trended lower since the flood
Gross and Net FDI trend
Btbn
● Partly global slowdown, higher wage, and need to
diversify after flood disruption
400
● A change in BOI in early 2015 also add more
difficulties to attract interests given push by some
neighboring countries (Samsung recent move to
Vietnam)
200
● Time to rethink about incentives for investments
to promote innovation? Also the need to add
Intellectual Property Rights protection.
-100
● While SEZ (Special Economic Zone) initiatives
should be positive, getting the right players / focus
industries at the right depth of supply chain is key
to propel growth.
300
100
0
-200
Source: CEIC
FDI to GDP trend
7%
Btbn
Net FDI % to GDP
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
Net FDI % to GDP
Source: CEIC
15
Confidential
What can we do to improve?
Government
● Thailand public debt to GDP around 40% is very
manageable and arguably the best sector to boost
leverage to create near term growth
Public debt to GDP
Bt tn
6.0
54 55 55
5.0
● Productive investment is key – a right investment
to help improve private sector productivity will be
easiest ‘quick win’
FIDF Bond 1.0 trn, 8% GDP
SOE debt 1.1 trn, 8% GDP
SFI guarantee 0.6 trn, 4% GDP
51
46 45
44
40
43
38
4.0
%
43
43
42
32
41
39
50
39
40
35 35
3.0
30
● Another room to improve is also the tendency of
rising short term expenses and muted CapEx
budget
2.0
1.0
10
● Productivity can take place at both private and
public sectors…
0.0
0
20
Public Debt (Bt tn)
% of GDP (RHS)
Billions
Gov’t spending: room to shift?
1,600
1,400
1,200
1,000
800
600
400
200
0
Current Expenditure (salary and subisidies)
Source: MoF
Confidential
Capital Expenditure
Jun-15
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
12
Source: MoF
16
60
What can we do to improve?
Monetary Policy and Financial Stability
● Bank of Thailand prudential policy and build up of
country balance sheet helped to ensure relative
stability in light of external volatility
● FX reserves stood at comfortable level and
adequate to withstand risk from portfolio flows
● Prudent supervision of banking sector also
ensures stability of the system with Tier I capital
of key banks in double digits
240
210
180
US$ bn
FX Reserves: Ample cushion
Jun-2015:
International Reserves + Net Forward Positon US$179bn
(Peak $215bn in 2011)
150
120
90
60
30
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dec-10
May-11
Oct-11
Mar-12
Aug-12
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
0
International Reserves plus Net Forward Positon (US$ bn) (RHS)
Source: BOT
Bank Capitalization
Credit growth moderation
30
18
% YoY
16
25
2.2
3.2
14
20
15
12
10
10
5
8
0
6
-5
4
-10
2
3.7
4.4
5.8
5.7
1.7
15.6
13.8
13.1
13.1
3.4
12.1
11.4
11.3
11.0
BAY
TCAP
TMB
KTB
0
Business Loans (%YoY)
Source: BOT
17
BBL
Consumer Loans (% YoY)
SCB KBANK TISCO
Tier 1 (%)
Source: Company Data
Confidential
Tier 2 (%)
What can we do to improve?
Fiscal Policy and Infrastructure spending
● Stimulus packages Bt136bn to add Village Fund
size (Bt60bn) and small scale local projects at
local authorities level will provide much needed
near term lift to economy
● SME financing (soft loans and loss sharing
scheme for banks to lend to struggling SMEs)
should also help curbing the risk on asset quality
and spillover into spending
● However, to have a meaningful long term effect,
large scale ‘game changing’ infrastructure projects
are still required.
Budget deficit to GDP
1.0
0.6
0.3 0.2
0.1
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
-0.3
-1.0
-1.1
-1.4
-2.1
-2.0
-2.4
-1.6
-2.0
-2.2
-2.4
-2.5
-3.0
-3.5
-4.0
-4.7
-5.0
● Bt1.9 trillion over 7 years could add meaningful
GDP growth momentum, especially once
confidence improves creating ‘crowding in’
private investments
500
Infrastructure project: Disbursements
400
Source: BOT, Citi estimates
Infrastructure project: Disbursements
Bt bn
3%
5%
Dual track and Intercity
rail*
26%
27%
300
Mass transit - Bangkok
and Vinicities
200
Road expansion
100
Seaport expansion
39%
18
Airport expansion /
upgrading**
0
2015
Source: MoF
Confidential
2016
2017
2018
2019
2020
2021
2022
Conclusion
● Thailand has enjoyed great growth since 1980s supported by both domestic policies and favorable global
trends (trade boom, rise of China, strong JPY to force re-location)
● Early ‘quick wins’ from FDI and manufacturing…
● However, with economy graduating into middle level of per capita income, different drivers may be
needed
● Global growth and China slowdown will remain a drag in coming years
● Internally, consumption and investment will be key near term drivers
● Productivity and new market will be key on external side. This may involve continued push for FDI to
build new industry capabilities
19
Confidential
Thank you
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