Why

Services?

Kirida Bhaopichitr

Research Director International Research & Advisory Service

28 June 2016

1. Why services?

2. What roles can the

service sector have?

3. What can Thailand do to enhance its service sector?

Services

2

1. Why services?

2. What roles can the

service sector have?

3. What can Thailand do to enhance its service sector?

Services

3

Thailand needs a new development model to get out of the Middle Income Trap

4 Source: World Bank GNI per Capita per year

GNI per Capita levels per year (World Bank Atlas Method, Current US$ as of 2014)

A higher-value service sector is an integral part of the new development model

Thailand is aging quickly & will demand better services

Source: World Bank, Live Long and Prosper: Aging in East Asia and Pacific (2015) 5

Also, Thailand’s older labor force will be more suited for the less labor-intensive services sector

Enhancing incomes of the labor-rich service sector will help reduce Thailand’s high income inequality

6

0

10

20

30

40

50

60

1985 2009 1984 2005 1992 2008 1981 2007 1994 2008 1993 2008 1990 2010 1984 2010

Philippines Indonesia Lao China Cambodia Vietnam Thailand Malaysia

Increasing inequality Constant inequality Decreasing inequality

Source: World Bank, World Development Indicators

Gini coefficients (Income)

Thailand has one of the highest income inequality in E. Asia

Service sector is environmentally friendly

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

LOS ANGELES

Bangkok

BEIJING

SINGAPORE

LONDON

NEW YORK CITY

HONG KONG

JAKARTA

TOKYO

PARIS

Stockhom

tCO2e / capita

Buildings Power Industry Ground Transportation Aviation and Marine Waste

3.6

4.6

4.7

4.9

6.0

7.8

9.6

9.7

10.1

10.7

13.0

CO2 missions per capita

7

1. Why services?

2. What roles can the

service sector have?

3. What can Thailand do to enhance its service sector?

Services

8

Service sector can enhance future growth & equality

9

Service is largest sector & has largest employment in the Thai economy

Trade of business services can be the next engine of growth

10

Thailand’s Future – 3 Scenarios

11

Moving to services raises growth & reduces income inequality & CO2

12 Source: TDRI

1. Why services?

2. What roles can the

service sector have?

3. What can Thailand do to enhance its service sector?

Services

13

14

Thailand’s needs to raise labor productivity in services

0

20,000

40,000

60,000

80,000

100,000

Singapore Malaysia Thailand Phillpines Indonesia

Manufacturing Service

Source: IMD World Competitiveness Yearbook 2012

Labor productivity (US$ per person per annum)

Services Trade Restrictiveness Index (STRI)

& Per Capita GDP, 2012

Services trade restrictiveness has to be reduced…

15

Source: The World Bank Group, ASEAN Services Integration Monitoring Report, 2013

Argentina

AustraliaAustriaBelgium

Brazil

Cambodia

CanadaChile

China

ColombiaCzech_republic

Denmark

Ecuador

Egypt

Fin land

France

GermanyGhana Greece

Hungary

India

Indonesia

Ireland

Italy

Japan

Jordan

Kenya

Korea_Rep

Lithuania

Malaysia

Mexico

Mongolia

Morocco

Netherlands

New_zealand

Nigeria

Pakistan

Peru

Philippines

Poland

Portugal

Russia

Saudi_Arabia

Senegal

South_Africa

Spain

Sri_Lanka

Sweden

Tanzania

Thailand

Trinidad

Tunisia

Ukraine

United_KingdomUnited_States

Venezuela

10

20

30

40

50

60

Re

str

ictiven

ess o

f S

erv

ices P

olicie

s

0 10 20 30 40Per Capita GDP(thousand)

rest_ind Fitted values

GDP per capita,PPP (constant 2005 international $)

Source: Gootiiz, Mattoo

15

Thailand’s services trade restrictiveness is higher than those of many countries with similar per capita income level

There is a negative correlation between a country’s income & its trade restrictiveness – countries with higher incomes have lower trade restrictiveness

Thailand

East Asia and Pacific

Global

0

20

40

60

80

100

ManufacturingServices

Source: IFC Investing Across Borders 2010

16

… for FDI into the services sector…

16

Ease of Investing by Foreigners

020

40

60

80

10

0S

erv

ices t

rade r

estr

ictiveness in

dex

IDN PHL THA LAO MYS VNM MMR KHM SGP

Note: Sectors are comparable with 2008 sectors

ASEAN Member States: Industry STRI, 2012

Financial Telecom Retailing

Transportation Professional

Source: World Bank, ASEAN Integration Monitoring Report (AIMR), 2013

… and in the movement of professionals

17

17

18

Thailand could start with liberalization under AEC (AFAS)

18

Shareholding of Investment in Service businesses

51% 49% 70%

51% 49% 70%

49% 30% 70% 51%

Foreign Shares

4 Priority Sectors e-ASEAN, Health, Tourism,

Air transportation

Logistics

Others (ICT, professional services, construction, distribution, education, environment, transport, and all others)

?? 2015 2013 2010 2008 2006

Targets under the AEC have not been met; negotiations under the ASEAN Framework Agreement for Services (AFAS) are still on-going

2009 2010 2015

Skilled Labors

& Short Term

Visits

Draft Mutual Recognition Agreements (MRAs)

Sign MRAs for 7 professions (Engineering, Nursing, Architecture, Surveying, Medical Practitioners, Dental Practitioners, Accountancy Services) & Hotel & Travel professionals

• Exempt visas for Short Term Visits issue ASEAN

Business Card • Facilitation of movement of skilled labor • Develop curriculum and standards for skilled labor

AEC

Movement of 7professions & Tourism Professionals are still not free

as MRAs have not been completed + behind the border barriers exists

19

Thailand could start with liberalization under AEC

19

20

THANK YOU