128593490 thailand pestle analysis

Country Analysis Report: Thailand Published 12/2011

Datamonitor. This brief is a licensed product and is not to be photocopied Page 1

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal, and environmental (PESTLE) structure of

Thailand. Each of the PESTLE factors is explored in terms of four parameters: current strengths, current challenges, future

prospects, and future risks.

Summary

Key findings

Thailand has followed prudent policies, but high levels of corruption derail developmental initiatives

Over the years, the Thai government has encouraged higher levels of public investment in order to foster rapid economic

growth. In June 2010, former Prime Minister Abhisit Vejjajiva planned to launch the Reconciliation Plan to protect the

nation's main institutions, redress inequalities and injustice, enable constructive communications between the political

parties, and put into motion a political process that is democratic, efficient, and transparent. The current coalition

government headed by Prime Minister Yingluck Shinawatra aims to enhance the competitiveness of Thailand by

broadening market access for businesses as part of its economic policy, promoting trade and investment, engaging in free

trade agreements and co-operation frameworks to expand international economic linkages, providing solutions to the

menace of drugs, preventing and fighting corruption, raising the standard of living of the Thai people through wage

increases and tax relief, and developing the health insurance system. These prudent policies are expected to help the

countrys development.

However, alleged high levels of corruption could counter the governments strong policies. The purportedly widespread

corruption in the countrys political and bureaucratic machinery hinders prospective investment. Transparency

International's Corruption Perceptions Index for 2010 ranked Thailand 78th out of 178 countries. In the World Banks 2010

Worldwide Governance Indicators, the country was ranked in the 46.9 percentile for control of corruption. The series of

corruption scandals facing the country covers procurement scams involving hospital equipment and school supplies,

COUNTRY ANALYSIS REPORT

Thailand

In-depth PESTLE insights

Publication Date: December 2011

Overview



construction tenders, and political appointments, which could derail developmental works undertaken by Thailand. Political

parties squabbling over corruption charges could also lead to political instability.

Thailand has a healthy banking system; however, the increasing fiscal deficit is worrying

Thailand is a major international financial center, with an integrated banking system network. The banking sector plays a

significant role in the economy, with estimated financial sector assets at 200% of GDP. Loans expanded by 13.4% in the

first quarter of 2011 compared to the same period in 2010. Gross non-performing loans of the system declined to

THB300bn ($9.81bn) in the first quarter of 2011, compared to THB371bn ($11.4bn) in the same period in 2010. Net profit

during the quarter increased to THB32.1bn ($1.04bn), compared to THB27bn ($830m) in the first quarter of 2010. The Thai

Asset Management Company, which was founded in 2001 to acquire and dispose of distressed and non-performing assets

from state and private sector financial institutions after the financial crisis, was dissolved in September 2011 after absorb ing

debts totaling THB774bn ($25.3bn) during the last decade.

However, the governments increasing fiscal deficit is a cause for concern. The government has set the national budget for

201112 at THB2.3tn ($77.2bn), an increase from THB2.1tn ($63.5bn) in 201011. In November 2011, the prime minister

submitted a draft budget bill for 2012 that called for expenditure of THB2.38tn ($77.2bn). If implemented, the populist

policies promised by the current government during its election campaign could cost THB2tn ($65.4bn) over five years. The

budget deficit in 2010 was $8.1bn, or 2.7% of GDP. It is expected that the budget deficit will rise to around THB400bn

($13.4bn) in 201112, or 3.9% of GDP. The increasing fiscal deficit will make it difficult for the government to enjoy strong

public finances for both social welfare and economic development programs.

Although Thailand has a strong social security system, increasing income and developmental disparity is a

cause for concern

Thailand included social protection in its 11th National Economic and Social Development Plan. Prime Minister Yingluck

Shinawatra aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of living of the

Thai people through wage increases and tax relief, and develop the health insurance system. The government raised the

daily minimum wage of more than 20,000 public sector workers to THB300 ($10) in October 2011, while the Central Wage

Committee intends to raise the private sector minimum wage by around 40% from April 2012. The government has

embarked upon a strategic plan to make Thailand a welfare society by 2016. According to the deputy permanent secretary

for social development and human society Napa Setthakorn, the second strategic plan scheduled for 201216 will extend

the countrys social security system to cover all groups of people, including those in the non-formal sector. The government

will also seek to develop the quality of and raise funds for social security services.

However, there is income and development disparity in the country. While Bangkok and its suburbs are prospering, the

barren northeast remains poor. The rapid economic growth in and around Bangkok has further marginalized the countrys

less developed regions. In addition, the country faces significant income inequality; for example, the average wage levels of

employees participating in the private and public sectors in the northeast are around three times lower than those in

Bangkok and twice as low as those in the central region. Per capita government expenditure in the northeast particularly

on health and agriculture is also comparatively lower than other regions and below the central region by almost half. The

government needs to tackle the regional disparity in income and development, as it could lead to an increase in crime and

anti-national activities in the country.

Overview



Research and development expenditure in the country is growing, but weak intellectual property rights

protection is an issue

The government has planned a holistic set of measures for promoting research and development (R&D) in the country. In

2009, the Higher Education Commission launched the National Research Universities Project to build capacity and

strengthen human resources in R&D and innovation. The government allocated THB100500m ($2.914.5m) in annual

funding support to each university for three years as part of the project. The countrys annual expenditure on R&D is

expected to reach THB100bn ($2.4bn), or 1% of GDP, by the end of the 11th National Economic and Social Development

Plan in 2016. The government offers many financial incentives to increase private investment in R&D. Although the

countrys R&D agenda is still not under a single body, the government is working to develop collaboration among the

various agencies and ministries under its first 10 year science, technology, and innovation plan. These developments

coupled with an increase in investment would augment Thailands position as an R&D leader.

However, the country has a very weak track record in terms of intellectual property rights (IPR) protection. The country is

recognized as one where IPR protection and enforcement are key issues. In 2010, the Office of the US Trade

Representative retained Thailand on its Priority Watch List due to the high level of copyright piracy in the country, which

placed it among the poor performers. According to the International Intellectual Property Alliance, losses due to software

piracy were estimated at $344m in 2010. The international community has regularly urged the country to improve its

performance in IPR enforcement.

The country has a strong business environment, but lacks robust labor laws

The business environment in Thailand has improved considerably over the years According to the World Bank's Doing

Business 2012 report, which measures the ease of doing business within a country, Thailand was ranked 17th out of 183

economies. The report said the country has made starting a business easier by introducing a one-stop shop. According to

the 2011 Index of Economic Freedom, Thailand was ranked 62nd out of 179 countries and 10th out of 41 Asian countries.

Thailand scores highly in fiscal freedom, government spending, monetary freedom and labor freedom when compared to

the world average. It fared much better than its overall rank on the enforcement of contracts, ease of securing credit for

business and closing a business. Starting a business takes an average of 32 days in the country, compared to the world

average of 34 days, while obtaining a business license takes less than the world average of 209 days. These factors are

important indicators of a positive business climate.

However, the country is in dire need of labor market reform in order to become competitive. Workers are not protected by

law from employer reprisals for union activities prior to the registration of the union, and employers can use loopholes in the

Labour Relations Act to fire union leaders prior to government certification of unions. Under the current labor policies,

migrant workers are exposed to abusive and discriminatory practices in the workplace. The government has proposed a

private insurance scheme for migrant workers instead of access to the Workmens Compensation Fund (WCF). Unlike the

WCF, there is no legal binding on the employer to provide private insurance coverage to migrant workers. This policy is

expected to have a negative impact on the estimated 2 million migrants in the country. The government has to ensure that

labor laws provide equal rights and protection for all workers.

Overview



Although Thailand has strong environmental policies, it is also responsible for high levels of pollution

Thailand has a strong environmental policy framework in place to address its environmental and energy concerns. The

government has initiated several policies and measures with a focus towards ensuring a cleaner environment. The country

has implemented a 20 year plan for the Enhancement and Conservation of National Environment Quality (19972016). In

October 2010, the Thai cabinet agreed to impose a new tax on polluting industries as part of its efforts to conserve the

environment.

However, rapid industrialization has outpaced environmental management, resulting in increased pollution levels in

Thailand. A significant proportion of the countrys forest cover has been lost, while around 50% of its rivers and lakes suffer

from poor water quality. The rampant use of land and water without proper planning has led to climate change that

threatens to impact the low lying central region in a big way; the recent spate of devastating floods are a case in point.

Airborne particulate pollution levels have worsened in the northern province of Chiang Rai, with levels of carbon monoxide,

sulfur dioxide, nitrogen dioxide, and lead that are above internationally recognized levels. CO2 emissions increased from

around 187 million metric tonnes in 2002 to around 268 million metric tonnes in 2010. It is expected that the increasing

pollution levels will cause the environment to deteriorate further in the coming years, and could harm the health of both the

Thai people and the economy.

PESTLE highlights

Political landscape

The improvement in bilateral relations with Cambodia has diminished the risk of conflict. Prime Minister Yingluck

Shinawatra visited Cambodia in September 2011, and both countries have agreed to jointly develop maritime

areas in the Gulf of Thailand.

According to the World Banks 2010 Worldwide Governance Indicators, the country performed poorly in every

single parameter, recording low percentile ranks in terms of voice and accountability, political stability,

government effectiveness, regulatory quality, rule of law, and control of corruption.

Economic landscape

Thailand's diversified manufacturing sector is a significant contributor to the country's growth. In 2010, the

industrial sector contributed 44.7% of GDP, with output increasing from THB2.3tn ($53.1bn) in 2002 to THB4.3tn

($119.5bn) in 2010.

The Thai Chamber of Commerce has estimated that the recent floods have cost the economy $33bn and 1

million jobs due to loss of assets and lower output. The industry ministry has claimed that the countrys high

technology exports could slide by as much as 40% in 2012.

Social landscape

Thailand had a literacy rate of 95.7% for the total population in 2010. The government spent around 4.3% of GDP

on education during 200609. The high literacy rate signifies the presence of a large educated workforce.

Overview



With thousands of homes surrounded by water since July 2011, the nation's medical experts are warning of an

outbreak of disease, with the population facing the threat of cholera, gastrointestinal diseases, and typhoid.

Technology landscape

The number of patents granted to Thailand by the US Patent and Trademark Office increased from 25 in 2005 to

60 in 2010, which shows remarkable progress in terms of the country's innovation scenario.

Thailand faces a shortage of skilled workers, which could limit the countrys technological innovation and

productivity. Its gross enrolment ratio in tertiary education is only 45%, which needs to be improved in order to

increase the skilled workforce.

Legal landscape

Thailand has announced major tax reforms to encourage investment and support the market through increased

domestic consumption. Tax reforms are expected to increase tax revenues, as well as helping increase business

investment in the country.

Thailands Foreign Business Act strictly limits the level of foreign investment, especially in the services sector.

The World Banks Investing Across Borders 2010 report stated that Thailands restrictions on foreign equity

ownership were the most stringent among 87 countries.

Environmental landscape

In October 2010, the Thai cabinet agreed to impose a new tax on polluting industries as part of its effort to

conserve the environment. The tax rates are expected to be set based on the type of pollution, including water,

air, and industrial waste.

According to environmentalists in the country, a record 27 environmental activists have been killed in the past 16

years for fighting to save land from illegal developmental projects and campaigning against the sand mafia and

illegal timber logging.

Overview



Key fundamentals

Table 1: Thailand key fundamentals

2009 2010 2011f 2012f 2013f 2014f 2015f

GDP, constant 2000 prices ($bn) 170.9 184.2 191.0 199.5 208.8 218.4 228.4

GDP growth rate (%) -2.3 7.8 3.7 4.5 4.6 4.6 4.6

GDP, constant 2000 prices, per capita ($) 2,562.2 2,739.9 2,820.3 2,926.3 3,035.5 3,166.5 3,305.9

Inflation (%) -0.8 3.3 4.0 4.1 4.2 4.3 3.7

Exports, total as a percentage of GDP 72.8 76.1 79.0 74.6 70.1 65.8 62.0

Imports, total as a percentage of GDP 68.5 75.6 73.5 70.0 66.5 63.1 60.1

Mid-year population, total (millions) 66.7 67.2 67.7 68.2 68.8 69.0 69.1

Unemployment rate (%) 1.5 1.0 0.9 0.9 0.8 0.8 0.8

Mobile penetration (per 100 people) 170.9 184.2 191.0 199.5 208.8 218.4 228.4

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key Facts and Geographic Location 12

Key facts 12

Geographic location 13

PESTLE Analysis 14

Summary 14

Political analysis 15

Economic analysis 18

Social analysis 22

Technological analysis 25

Legal analysis 28

Environmental analysis 31

Political Landscape 34

Summary 34

Evolution 34

Structure and policies 36

Performance 41

Outlook 42

Economic Landscape 43

Summary 43

Evolution 43


Performance 47

Outlook 60

Social Landscape 61

Summary 61

Evolution 61


Performance 64

Table of Contents



Outlook 66

Technological Landscape 67

Summary 67

Evolution 67


Performance 68

Outlook 71

Legal Landscape 72

Summary 72

Evolution 72


Performance 75

Outlook 75

Environmental Landscape 76

Summary 76

Evolution 76


Performance 77

Outlook 79

Appendix 80

Ask the analyst 80

Datamonitor consulting 80

Disclaimer 80

Table of Contents



TABLE OF FIGURES

Figure 1: Map of Thailand 13

Figure 2: Thailand key political events timeline 36

Figure 3: Thailand key political figures 37

Figure 4: Composition of the House of Representatives, 2011 39

Figure 5: Thailand historical GDP growth, 19912010 44

Figure 6: Market capitalization of the SET, 200310 46

Figure 7: GDP and GDP growth rate in Thailand, 200414 48

Figure 8: GDP composition by sectors, 2010 49

Figure 9: Agricultural output of Thailand, 200510 50

Figure 10: Industrial output of Thailand, 200510 51

Figure 11: Services output of Thailand, 200510 52

Figure 12: Current account balance of Thailand, 200510 53

Figure 13: Balance of trade in Thailand, 200610 54

Figure 14: External trade of Thailand, 200610 55

Figure 15: Total foreign investment in Thailand, 200510 56

Figure 16: Consumer price index and consumer price index-based inflation in Thailand, 200414 57

Figure 17: Employment in Thailand, 200414 59

Figure 18: Unemployment in Thailand, 200414 60

Figure 19: Thailand composition by religion 63

Figure 20: Expenditure on healthcare in Thailand, 200110 65

Figure 21: Government expenditure on education in Thailand, 200213 66

Figure 21: Growth of fixed and mobile phones in Thailand, 200212 69

Figure 22: Internet users in Thailand, 200209 70

Figure 23: Carbon dioxide emissions in Thailand, 200310 78

Table of Contents



Figure 24: Carbon fuel usage in Thailand, 200310 79

Table of Contents



TABLE OF TABLES

Table 1: Thailand key fundamentals 6

Table 2: Thailand key facts 12

Table 3: Analysis of Thailands political landscape 15

Table 4: Analysis of Thailands economy 18

Table 5: Analysis of Thailands social system 22

Table 6: Analysis of Thailands technology landscape 25

Table 7: Analysis of Thailands legal landscape 28

Table 8: Analysis of Thailands environmental landscape 31

Table 9: Mid-year population by age, 2010 62

Table 10: Patents received from the USPTO, 200310 68

Key Facts and Geographic Location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: Thailand key facts

Country and capital

Full name Kingdom of Thailand

Capital city Bangkok

Government

Government type Constitutional monarchy

Head of state King Bhumibol Adulyadej

Head of government Yingluck Shinawatra

Population 67.2 million

Currency Baht (THB)

GDP per capita $8,700

Internet domain .th

Demographic details

Life expectancy 73.6 years (total population)

71.24 years (male)

76.08 years (female)

Ethnic composition (2001 data) Thai (75%), Chinese (14%), various ethnic groups (11%)

Major religions (2000 census) Buddhism (94.6%), Islam (4.6%), Christianity (0.7%), other religions (0.1%)

Country area 513,120 sq km

Languages Thai, English, ethnic and regional dialects

Exports Textiles, footwear, fishery products, rice, rubber, jewelry, automobiles, computers and electrical appliances

Imports Capital goods, intermediate goods, raw materials, consumer goods, fuels

Source: Central Intelligence Agency (CIA), The World Factbook

Key Facts and Geographic Location



Geographic location

Thailand is situated in the center of Mainland Southeast Asia, and is surrounded by the Andaman Sea to the west,

Myanmar to the west and northwest, Laos to the east and northeast, Cambodia to the east, and Malaysia and the Gulf of

Thailand to the south.

Figure 1: Map of Thailand

Source: CIA, The World Factbook

D A T A M O N I T O R

PESTLE Analysis



PESTLE ANALYSIS

Summary

The coalition government headed by Prime Minister Yingluck Shinawatra aims to enhance the competitiveness of Thailand

by broadening market access for businesses and promoting trade and investment. Meanwhile, bilateral relations with

Cambodia are improving. However, the country faces widespread corruption in its political and bureaucratic machinery.

Prime Minister Yingluck Shinawatras amnesty plan for politicians which may enable her elder brother and former Prime

Minister Thaksin Shinawatra to return to the country could lead to further political turmoil.

The government has also announced plans to spend THB600800bn ($19.626.2bn) on rebuilding the country, which

could help counter the negative impact of the recent floods. However, the increasing fiscal deficit will make it difficult for the

government to enjoy strong public finances for both social welfare and economic development programs.

Thailand included social protection in the 11th National Economic and Social Development Plan. Prime Minister Yingluck

Shinawatra aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of living of the

Thai people through wage increases and tax relief, and develop the health insurance system. However, the country suffers

from income and development disparity. In addition, the nation's medical experts are warning of an outbreak of disease due

to the receding floodwaters.

The number of patents granted to Thailand by the US Patent and Trademark Office (USPTO) increased from 25 in 2005 to

60 in 2010, which shows remarkable progress in terms of the country's innovation scenario. It also indicates that the

country has consistently encouraged innovation, and that the research and development (R&D) scenario is improving.

However, weak intellectual property rights (IPR) enforcement is an issue, and Thailand also faces a shortage of engineers

and skilled technical personnel.

Thailand has an independent judicial system, which is responsible for the maintenance of the countrys law and order.

According to the World Bank's Doing Business 2012 report, which measures the ease of doing business within a country,

Thailand ranked 17th out of 183 economies. Thailand has announced major tax reforms to encourage investment and

support the market through increased domestic consumption. However, the country suffers from weak labor laws, which do

not ensure equal rights and protection for all workers. Furthermore, the governments investment regulations are not fully

market-friendly.

Thailand has a strong environmental policy framework in place to address its environmental and energy concerns. In

October 2010 the Thai cabinet agreed to impose a new tax on polluting industries as part of its efforts to conserve the

environment. However, economic development, urbanization, and industrial expansion have severely impacted the

countrys ecosystems. Air pollution is also very high, and CO2 emissions increased from around 187 million metric tonnes

in 2002 to around 268 million metric tonnes in 2010.

PESTLE Analysis



Political analysis

Overview

Thailand has been encouraging higher levels of public investment in fostering rapid economic growth. The coalition

government headed by Prime Minister Yingluck Shinawatra aims to enhance the competitiveness of Thailand by

broadening market access for businesses and promoting trade and investment through improved laws, regulations, and

investment promotion activities. The country currently enjoys strong relations with its neighbors and other key world

players, and bilateral relations with Cambodia are improving. However, the country faces widespread corruption in its

political and bureaucratic machinery, which is a big hurdle to investment. Thailand also fares poorly in terms of governance

indicators. Added to the increasing violence and insurgency in the south is the threat of political instability. Yingluck

Shinawatra is working on an amnesty for politicians that could enable former Prime Minister Thaksin Shinawatra's return to

the country. The hasty and suspicious manner in which the pardon decree has been introduced has raised doubts about

the governments intentions. Thaksins return could lead the country into further political turmoil, as the opposition

Democrat Party and the anti-Thaksin defense establishment could come together to topple the government.

Table 3: Analysis of Thailands political landscape

Current strengths Current challenges

Prudent macroeconomic policies Political corruption

Poor governance indicators

Future prospects Future risks

Improving relations with Cambodia

Increasing insurgency in the south

Political instability


Current strengths

Prudent macroeconomic policies

Over the years, the Thai government has encouraged higher levels of public investment in order to foster rapid economic

growth. In June 2010, former Prime Minister Abhisit Vejjajiva planned to launch the Reconciliation Plan to protect the

nation's main institutions, redress inequalities and injustice, enable constructive communications between the political

parties, and put into motion a political process that is democratic, efficient, and transparent. The coalition government

headed by Prime Minister Yingluck Shinawatra aims to enhance the competitiveness of Thailand by broadening market

access for businesses as part of its economic policy. The government plans to promote trade and investment through

improved laws, regulations, and investment promotion activities. Additionally, it plans to engage in free trade agreements

and co-operation frameworks in order to expand international economic linkages in trade and investment. The government

PESTLE Analysis



aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of living of the Thai

people through wage increases and tax relief, and develop the health insurance system. The prudent policies of the

government are expected to help the countrys social and economic development.

Current challenges

Political corruption

Thailand is plagued with high levels of corruption; indeed, allegedly widespread corruption in the countrys political and

bureaucratic machinery has been a serious problem for many years, and at the institutional level has traditionally hindered

prospective investment. Transparency International's 2010 Corruption Perceptions Index, which measures perceived levels

of public sector corruption, ranked Thailand 78th out of 178 countries. In the World Banks 2010 Worldwide Governance

Indicators, the country was ranked in the 46.9 percentile for control of corruption. The country has faced a series of

scandals. In August 2008, the Supreme Court's Criminal Division for Holders of Political Positions accepted the case of

alleged corruption against 44 people involved in the THB1.4bn ($42m) rubber saplings procurement scam during Thaksin

Shinawatras administration.

During 2009, out of all government agencies the Customs Department ranked highest in terms of the number of complaints

filed regarding corruption. Former Prime Minister Abhisit Vejjajivas administration faced its own corruption scandals in

200910. The governments $42bn stimulus package to tackle recession was riddled with procurement scams and corrupt

deals due to patronage politics, which led to the resignation of two ministers. Irregularities were found in the procurement of

hospital equipment and school supplies and the award of construction tenders. The leader of the Bhumjaithai Party

Chavarat Chanvirakul was accused of auctioning provincial governor posts to the highest bidders, as well as indulging in

real estate deals. The Thai military, the budget of which has doubled since the 2006 coup, is also alleged to be a fertile

ground for corruption and inflated costs. Political parties squabbling over corruption charges could lead to political

instability.

Poor governance indicators

Thailand performs poorly on most of the World Bank's Worldwide Governance Indicators. In 2010, in terms of voice and

accountability the country was given a percentile rank of 30.3, much lower than its 2000 rank of 63.9. In terms of political

stability it ranked in the 12.7 percentile, a low score that reflects the frequent military coups and government changes. In

the government effectiveness parameter, it was ranked in the 58.4 percentile, reflecting the lower level of independence of

public agencies from political pressures, as well as the poor quality of policy formulation and implementation. The country

was ranked in the 56.5 percentile in terms of regulatory quality; not only does it suffer from restrictive regulations on

business, labor, and rights to property, but its inefficient bureaucracy imposes various unofficial restrictions, which further

hampers investment. In rule of law and control of corruption, the country was ranked in the 49.8 and the 46.9 percentiles

respectively. In each indicator, the country ranked below both Malaysia and Singapore. The country must improve its

governance indicators in order to meet the standards set by other nations.

PESTLE Analysis



Future prospects

Improving relations with Cambodia

The victory of the Puea Thai Party in the July elections is expected to help improve economic ties with Cambodia,

especially in the western provinces of the nation, where ethnic-Thai Cambodians hold sway. In a move that further helped

improve relations between the two, Prime Minister Yingluck Shinawatra visited Cambodia in September 2011, and claimed

that the visit marked the beginning of a new chapter for the Thailand-Cambodia relationship. Both countries have agreed to

jointly develop maritime areas in the Gulf of Thailand. In mid-July 2011, the International Court of Justice in The Hague

called on both nations to pull back soldiers from a new demilitarized zone between the two countries. The improvement in

bilateral relations has diminished the risk of conflict.

Future risks

Increasing insurgency in the south

Insurgency in Southern Thailand is on the increase. Separatists in the jungle-covered provinces of Southern Thailand,

which borders Malaysia, have killed more than 4,000 people since the conflict began in 2004. These separatists have been

responsible for an increasing number of car bombs, with attacks of this nature rising from three in 2010 to six between

January and August 2011. There are an estimated 40,000 Thai soldiers fighting insurgency in Southern Thailand. Prior to

the July elections, Yingluck Shinawatra promised the region greater autonomy by clubbing the three southern provinces of

Yala, Pattani, and Naratiwat into a special administrative zone with a single elected governor. However, there is opposition

from the interior ministry and the Thai Army to the autonomy proposal. Prime Minister Yingluck Shinawatra has also

nominated a retired general, who was responsible for shelling Southern Thailand's holiest mosque in 2004, for a top

national security job. This suggests that the government could stand to take a harder line against the insurgents. While the

government dithers over a stable policy for Southern Thailand, the insurgency is only increasing and claiming more lives.

Political instability

Thailands political system once again faces instability. Street demonstrations that were allegedly inspired and instigated by

former Prime Minister Thaksin Shinawatra managed to bring the opposition Pheu Thai Party (led by Thaksins sister

Yingluck Shinawatra) to victory in the July 2011 elections. The government of Yingluck Shinawatra is reportedly working on

amending the Defence Administration Act to enable the government to wield greater influence over the defense

establishment. The prime minister is also said to be working out an amnesty for politicians that could enable Thaksins

return to the country. While approving new eligibility conditions to the amnesty decree, the cabinet deleted certain clauses

enforced in 2010 that excluded those convicted for drug trafficking and corruption from being granted amnesty. The hasty

and suspicious manner in which the pardon decree was introduced has raised doubts about the governments intentions.

The opposition is demanding that Thaksin should not be granted pardon, having shown contempt for the Thai justice

system by refusing to serve his jail term. His return would be extremely unwelcome in certain quarters; for example, the

anti-Thaksin defense establishment is supportive of the opposition Democrat Party, which could see its political fortunes

improve if the military were to exercise another coup to topple the ruling government. All of these factors could lead to

political instability.

PESTLE Analysis



Economic analysis

Overview

Thailand is a major international financial center, and has an integrated banking system network. The countrys economy

has benefited significantly from prudent fiscal and monetary policies. The diversified manufacturing sector is a significant

contributor to growth, and the industrial sector contributed 44.7% of Thailands total GDP in 2010. The government has

announced plans to spend THB600800bn ($19.626.2bn) on rebuilding the country, which could help counter the negative

impact of the recent floods. The country's growing capital market is contributing significantly towards the development of

the economy, acting as a source of funds for all business sectors and providing an alternative destination for domestic and

international investment. However, the increasing fiscal deficit will make it difficult for the government to enjoy strong public

finances for both social welfare and economic development programs. It is expected that the budget deficit will rise to

around THB400bn ($13.4bn) in 201112, or 3.9% of GDP. Added to this, high levels of inflation and debt will not help the

country tackle its weak public finances anytime soon. The floods that have ravaged the country since July 2011 have had a

major impact, with the Thai Chamber of Commerce estimating that they have cost the economy $33bn and 1 million jobs;

meanwhile, high technology exports may slide by as much as 40% in 2012.

Table 4: Analysis of Thailands economy


Well-developed banking system

Strong manufacturing sector

High inflation and debt

Increasing fiscal deficit


Flood reconstruction expenditure

Decreasing level of inflation

Decline in loan growth

Flood impact on industry


Current strengths

Well-developed banking system

Thailand is a major international financial center, with an integrated banking system network. The banking sector plays a

significant role in the economy, with estimated financial sector assets at 200% of GDP. The banking system of Thailand

has historically been strong and stable. In 2010, the country had 15 foreign commercial banks, 18 Thai commercial banks,

and six specialized financial institutions, with a cumulative total of 7,978 branches. The country's 1,281 post office branches

also provide financial services. In 2010, commercial banks added 170 branches, specialized financial institutions added

149 branches, and post offices added 27 branches. In 2010, the number of Internet banking transactions increased by

23.1% to 60.8 million, compared to 49.4 million in 2009, while the total value of transactions increased by 38.6% to

PESTLE Analysis



THB7.9tn ($247.3bn), up from THB5.7tn ($164.7bn) in 2009. Loans expanded by 13.4% in the first quarter of 2011

compared to the same period in 2010. Gross non-performing loans of the system declined to THB300bn ($9.81bn) in the

first quarter of 2011, compared to THB371bn ($11.4bn) in the same period in 2010. Net profit during the quarter increased

to THB32.1bn ($1.04bn), compared to THB27bn ($830m) in the first quarter of 2010. The Thai Asset Management

Company (TAMC), which was founded in 2001 to acquire and dispose of distressed and non-performing assets from state

and private sector financial institutions after the financial crisis, was dissolved in September 2011 after absorbing debts

totaling THB774bn ($25.3bn) during the last decade. TAMC returned a profit of THB10bn ($327m) before its closure. As of

May 31, 2011 TAMC had cumulative debt collection of THB177.5bn ($5.8bn) and cumulative non-performing asset sales of

THB92.4bn ($3bn) to ease the pressure on the banking system.

Strong manufacturing sector

Thailand's diversified manufacturing sector is a significant contributor to growth. Industries producing computers,

electronics, furniture, canned food, toys, plastic products, gems, and jewelry have all experienced strong growth. The

countrys exports have been driven by high technology products such as integrated circuits, hard disc drives, electrical

appliances, vehicles, and vehicle spares. In 2010, the industrial sector contributed 44.7% of Thailands total GDP. Industrial

output increased from THB2.3tn ($53.1bn) in 2002 to THB4.3tn ($119.5bn) in 2010, at an average annual growth rate of

8.2%.

Current challenges

High inflation and debt

Thailand has traditionally witnessed high inflation. The countrys inflation increased from 0.7% in 2002 to 4.7% in 2006 and

touched 5.5% in 2008. The rising inflation recorded during early 2008 was due to a significant increase in energy and food

prices. Although there was deflation of 0.8% in 2009, the economic revival in 2010 pushed inflation up to 3.3%. High

commodity prices are expected to push inflation in the country upwards in 2011. With floods devastating the country, the

prices of essentials are expected to rise, thus increasing inflation further. According to Datamonitor estimates, inflation will

increase to 4% in 2011. Added to this, the countrys gross external debt increased from $75.3bn in 2009 to $100.6bn in

2010, representing an increase of around 34% according to Bank of Thailand statistics. Gross external debt as a

percentage of GDP increased from 28.8% in 2009 to 35.2% in 2010. The high inflation and debt in the country will not help

Thailand tackle its weak public finances anytime in the near future.

Increasing fiscal deficit

The government has set the national budget for 201112 at THB2.3tn ($77.2bn) an increase from the THB2.1tn

($63.5bn) set for 201011 and has placed emphasis on reducing social disparity, a problem that has long persisted in

Thai society. In November 2011, the prime minister submitted a draft budget bill for 2012 that called for expenditure of

THB2.38tn ($77.2bn), including substantial investment on flood recovery and rehabilitation. If implemented, the populist

policies promised by the current government during its election campaign could cost THB2tn ($65.4bn) over five years. The

budget deficit in 2010 was $8.1bn, or 2.7% of GDP. It is expected that the budget deficit will rise to around THB400bn

($13.4bn) in 201112, or 3.9% of GDP. The increasing fiscal deficit will make it difficult for the government to enjoy strong

public finances for both social welfare and economic development programs.

PESTLE Analysis



Future prospects

Flood reconstruction expenditure

The government has announced plans to spend THB600800bn ($19.626.2bn) on rebuilding the country, with a focus on

water management. The government will invest more than THB100bn ($2.4bn) on getting industrial estates back in action.

In November 2011, the cabinet approved a 10% reduction in current year expenditure, amounting to THB80bn ($2.6bn), in

order to help with reconstruction expenditure in the coming year. It has also approved an increase in the 2012 budget

deficit to THB400bn ($13.4bn), up from THB350bn ($11.4bn), as part of its flood reconstruction expenditure. Additionally,

the cabinet approved a THB325bn ($10.6bn) package to provide soft loan to firms, small vendors, and individuals, while

also considering tax breaks for affected companies. The government has relaxed tariffs and regulations on imports to bring

in essential food, water, and consumer products, which are in high demand. These initiatives are expected to help counter

the negative impacts of the floods on the countrys economy.

Growing capital market

The capital market of Thailand has contributed significantly towards the development of the economy by being a source of

funds for all business sectors and providing an alternative destination for domestic and international investment. The

market capitalization of the Stock Exchange of Thailand (SET) grew from $103bn in 2008 to $177bn in 2009 and around

$278bn in 2010. The total number of listed companies on the SET increased from 535 in 2009 to 541 in 2010. The value of

the mutual fund and asset management markets in Thailand declined in 2008 by 3.1% to THB2.16tn ($65bn), compared to

THB2.23tn ($68.7bn) in 2007. However, the market rebounded to record net asset values of $72.2bn in 2009 and $91bn in

2010. The net asset value of mutual funds increased from THB1.01tn ($30.4bn) in 2008 to $50.5bn in 2009 and $62.6bn in

2010. At the end of May 2011, the net value of the asset management industry stood at $87.7bn, with massive growth in

the mutual sector, which recorded a net value of $58.5bn. The growing capital market is expected to bring in additional

financial resources into the market and aid economic growth.

Future risks

Decline in loan growth

Many of the countrys top banks have reported that loan growth will slow down up to the second quarter of 2012 due to the

devastating impact of the floods on industrial provinces. Many of the largest banks, including Bangkok Bank (the country's

biggest lender), Kasikornbank, and Siam Commercial Bank, have stated that lending has declined in the fourth quarter,

which is generally the peak quarter for lending. In October 2011, the central bank cut its growth forecast for 2011 from 4.1%

to 2.6%, mainly due to the floods. The growth in bank lending is also influenced by economic growth, and the lower GDP

growth forecast in 201112 is expected to impact bank lending growth.

Flood impact on industry

Many manufacturing companies in Thailand, dependent on imports of components and parts from Japan, have been

impacted by the earthquake and tsunami in Japan in March 2011. Companies, particularly those operating in the

electronics and automotive sectors, have been unable to receive shipments of Japanese components. Added to this, the

devastating floods that have ravaged the country since July 2011 have impacted upon Thai industry in a big way. The

PESTLE Analysis



floods have shut down seven industrial estates north of Bangkok, affecting nearly 10,000 factories and around 660,000

jobs, seriously affecting the electronics and automotive sectors. The shutting down of transport infrastructure due to the

floods has proven to be an impediment to the manufacturing sector, as such moves have seriously disrupted the supply

chain. The floods have also had a negative effect on the tourism sector. According to the tourism ministry the number of

tourists arriving in the country is expected to decline by up to 1 million against the government target of 19 million in 2011.

The Thai Chamber of Commerce has estimated the floods have cost the economy $33bn and 1 million jobs due to loss of

assets and lower output. The industry ministry has stated that the countrys high technology exports could slide by as much

as 40% in 2012.

PESTLE Analysis



Social analysis

Overview

Thailand has included social protection in its 11th National Economic and Social Development Plan. Prime Minister

Yingluck Shinawatra aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of

living of the Thai people through wage increases and tax relief, and develop the health insurance system. The country had

a literacy rate of 95.7% for the total population in 2010, which signifies the presence of a large educated workforce in the

country. However, both income and development disparity are prevalent, and while Bangkok and its suburbs are prospering

the barren northeast remains poor. Furthermore, the nation's medical experts are warning of an outbreak of disease due to

the receding floodwaters; with thousands of homes surrounded by water since July 2011, this has become a pressing

issue. The governments move to raise the minimum daily wage to a flat rate of THB300 ($10) has attracted opposition from

businesses, and its populist measures may result in market distortions that will impact the business friendliness of the

country.

Table 5: Analysis of Thailands social system


Strong social policies

Highly educated population

Regional disparity

Outbreak of disease


Expansion of traditional Thai medicine

Market distortions due to wage hikes

Rising unemployment


Current strengths

Strong social policies

Thailand has included social protection in its 11th National Economic and Social Development Plan. Prime Minister

Yingluck Shinawatra aims to provide solutions to the menace of drugs, prevent and fight corruption, raise the standard of

living of the Thai people through wage increases and tax relief, and develop the health insurance system. The government

raised the daily minimum wage of more than 20,000 public sector workers to THB300 ($10) in October 2011. The Central

Wage Committee plans to raise the private sector minimum wage by around 40% from April 2012. The government has

embarked upon a strategic plan to make Thailand a welfare society by 2016, and has revived a scheme to pay farmers a

guaranteed price of THB15,000 ($491) per tonne of unmilled rice. According to the deputy permanent secretary for social

development and human society Napa Setthakorn, the second strategic plan scheduled for 201216 will extend the

countrys social security system to cover all groups of people, including those in the non-formal sector. The government

PESTLE Analysis



also plans to develop the quality of and raise funds for social security services. These initiatives are expected to strengthen

social progress in the country. The strong social system will contribute to the development of the nation.

Highly educated population

Thailand had a literacy rate of 95.7% for the total population in 2010. While the male literacy rate was 98.3%, the female

literacy rate was slightly lower at 93.1%. Although the adult literacy rate is one of the highest in the region, nearly 80% of

the current labor force has received only primary education. According to the 2011 Human Development Report published

by the United Nations Development Programme, during 200110 the gross enrolment ratio for primary education was

91.1%, for secondary education it was 77%, and for tertiary education it was 45%. The government spent around 4.3% of

GDP on education during 200609. The high literacy rate signifies the presence of a large educated workforce.

Current challenges

Regional disparity

Income and development disparity is still prevalent in Thailand. While Bangkok and its suburbs are prospering, the barren

northeast remains poor. The rapid economic growth in and around Bangkok has further marginalized the countrys less

developed regions. Successive Thai governments have tried to tackle this regional disparity through provincial programs

such as the Eastern Seaboard project and other populist policies. However, the disparity persists, and remains a challenge

for the countrys social and economic development. In addition, income inequality remains a significant problem; for

example, the average wage levels of employees participating in the private and public sectors in the northeast are around

three times lower than those in Bangkok and twice as low as those in the central region. Per capita government

expenditure in the northeast particularly on health and agriculture is also comparatively lower than other regions, and

below the central region by almost half. The government needs to tackle regional disparities in income and development,

as the current situation could lead to increased crime and anti-national activities in the country.

Outbreak of disease

The nation's medical experts are warning of an outbreak of disease due to the receding floodwaters. As of November 2011,

half of Bangkok was still covered by the floodwaters. Several areas of Bangkok are in the path of water flows from the north

to the Gulf of Thailand, and the city faces a net inflow of 100 million cubic meters of water every day. With thousands of

homes surrounded by water since July 2011, the outbreak of disease has become a real issue. Doctors have already

warned of the risk (especially to women) of infection from water contaminated by animal urine. The population also faces

the threat of cholera, gastrointestinal diseases, and typhoid, while millions of displaced people are faced with unclean food,

water, and an unhygienic environment. The situation poses a major challenge that the country must overcome.

Future prospects

Expansion of traditional Thai medicine

According to World Health Organization, the number of physicians in the country averaged three per 10,000 people during

200010, while the number of nurses and midwives per 10,000 people was 15.2. In September 2008 the government

announced a plan to invest about $3bn on public health facilities. The country is also accelerating the availability of

traditional Thai medical services in hospitals, boosting the use of Thai herbs along with modern medicine. According to the

PESTLE Analysis



permanent secretary for public health Dr Paijit Warachit, traditional Thai medical services are currently available in 4,400

hospitals and health centers, accounting for 42% of all hospitals and health centers in the country. This number is expected

to go up once the government begins implementation of its program to expand the availability of traditional Thai medicine.

Future risks

Market distortions due to wage hikes

The governments move to raise the minimum daily wage to a flat rate of THB300 ($10) has attracted opposition from

businesses. Prior to the governments announcement, the minimum daily wage varied across the provinces, from a high of

THB221 ($7.20) in Phuket to a low of THB159 ($5.20) in the northern province of Phayao. Businesses have complained

that a sudden sharp rise in wage bills without a matching increase in productivity is not financially feasible. The government

plans to increase the minimum monthly salary for new university graduates from THB10,640 ($348) to THB15,000 ($491).

These populist measures are expected to result in market distortions that will impact the business friendliness of the

country.

Rising unemployment

The March 2011 earthquake and resulting tsunami in Japan, which wiped out entire towns and industrial zones supplying

critical electronics and automotive components, has impacted the Thai manufacturing sector, as Japan is the countrys

biggest import partner. The floods that have been occurring in Thailand since July 2011 have also had a serious impact on

the manufacturing and tourism sectors, and have resulted in the loss of jobs. During 200110, employment grew at an

average rate of 1.4%; however, according to Datamonitor estimates employment growth is expected to fall to an average of

0.6% during 201116. The impact of the floods on industry is expected to push up the country's unemployment rate.

PESTLE Analysis



Technological analysis

Overview

The number of patents granted to Thailand by the USPTO increased from 25 in 2005 to 60 in 2010, which shows good

progress in the country's innovation scenario. It also indicates that Thailand has consistently encouraged innovation, and

that the R&D scenario is improving. The countrys annual expenditure on R&D could reach THB100bn ($2.4bn), or 1% of

GDP, by the end of the 11th National Economic and Social Development Plan in 2016. The government offers many

financial incentives to increase private investment in R&D. The number of Internet users in the country increased from 4.8

million in 2002 to 18.3 million in 2009, and the growing ICT sector opens new opportunities in terms of employment

generation and delivery of public services online. However, weak IPR enforcement is an issue, and in 2010 the Office of the

US Trade Representative retained Thailand on its Priority Watch List due to high levels of copyright piracy. The country

also faces a shortage of engineers and skilled technical personnel, which could limit its technological innovation and

productivity. Thailands gross enrolment ratio in tertiary education is only 45%, which needs to be improved to tackle its

skills shortage.

Table 6: Analysis of Thailands technology landscape


Strong patent growth

Growing ICT sector

Weak IPR enforcement


Growing R&D expenditure

Lack of skilled workers and technicians


Current strengths

Strong patent growth

The number of patents granted to Thailand by the USPTO increased from 25 in 2005 to 60 in 2010, which shows good

progress in the country's innovation scenario. It also indicates that the country has consistently encouraged innovation, and

that the R&D scenario is improving. The growth in the number of patents awarded to Thailand reflects the expansion of its

R&D environment and the governments support for companies undertaking R&D activities. These initiatives will help the

country gain a technological advantage in the global marketplace.

Growing ICT sector

Thailands Internet users increased from 4.8 million in 2002 to 18.3 million in 2009. According to the National Statistical

Office, computer and Internet usage increased during 200409 due to the expansion of the country's ICT infrastructure.

PESTLE Analysis



During this period, computer usage increased from 21.4% to 29.3%, while Internet usage increased from 11.9% to 20.1%.

Additionally, there is huge disparity in ICT usage between Bangkok and other areas, with northeastern and southern

provinces having the lowest computer and Internet usage ratios. Increasing access to the Internet will encourage

companies to invest in e-commerce. According to the National Statistical Office, the proportion of individuals using

computers and Internet was the highest in Bangkok at 46% and 38% respectively. The growing ICT sector opens new

opportunities in terms of employment generation and the delivery of public services online.

Current challenges

Weak IPR enforcement

Thailand has a very weak track record in terms of IPR protection, although intellectual property development in Thailand

has, over a period of time, evolved from being imitative to innovative. The country is recognized as one where IPR

protection and enforcement are key issues. In 2010, the Office of the US Trade Representative retained Thailand on its

Priority Watch List due to the high levels of copyright piracy in the country, which placed it among the poor performers.

According to the International Intellectual Property Alliance, losses due to software piracy were estimated at $344m in

2010. Other sections of the international community have also regularly urged the country to improve its performance in

IPR enforcement. Although the government of Thailand has assured critics of its intention of boosting IPR protection, the

country has yet to deliver on its promises.

Future prospects

Growing R&D expenditure

The government has planned a holistic set of measures for promoting R&D in the country. In 2009, the Higher Education

Commission launched the National Research Universities Project to build capacity and strengthen human resources in

R&D and innovation. The government allocated THB100500m ($2.914.5m) of annual funding support to each university

for three years as part of the project. In March 2010, the government stated that the countrys annual expenditure on R&D

could reach THB100bn ($2.4bn), or 1% of GDP, by the end of the 11th National Economic and Social Development Plan in

2016. The National Science and Technology Development Agency's budget in 2010 was $156m. The government offers

many financial incentives to increase private investment in R&D. For instance, the Ministry of Finance provides a 200%

corporate income tax deduction for R&D spending. Although the countrys R&D agenda is still not under a single body, the

government is working to develop collaboration among the various agencies and ministries under its first 10 year science,

technology, and innovation plan. These developments coupled with increased investment would help augment Thailands

position as an R&D leader.

Future risks

Lack of skilled workers and technicians

Thailand faces an acute shortage of skilled workers. The shortage of engineers and skilled technical personnel could limit

the countrys technological innovation and productivity. According to the World Banks 2009 Knowledge Economy Index

(KEI), an aggregate index that represents the overall preparedness of a country to transform into a knowledge-based

economy, Thailands KEI ranking fell from 48th in 1995 to 63rd (out of 145 countries) in 2009. Moreover, the electrical and

PESTLE Analysis



electronics industry, one of the biggest industries in terms of both investment and exports (with medium and large

companies employing more than 1 million workers each), also faces a shortage of skilled labor. The countrys gross

enrolment ratio in tertiary education is only 45%, which needs to be improved in order to increase the number of skilled

workers and technicians in the country. A continued shortage of skilled engineers would hamper the competitive position of

Thailand.

PESTLE Analysis



Legal analysis

Overview

Thailand has an independent judicial system, which is responsible for the maintenance of the countrys law and order. The

constitution formed a tribunal to pass judgment regarding disputes that arise in court. Meanwhile, Thailand's business

environment has improved considerably over the years; according to the World Bank's 2012 Doing Business report, which

measures the ease of doing business within a country, Thailand ranked 17th out of 183 economies. The country has

announced major tax reforms to encourage investment and support the market through increased domestic consumption.

Tax reforms are expected to increase the governments tax revenues , as well as helping to increase business investment in

the country.

However, the country suffers from weak labor laws, which do not ensure equal rights and protection for all workers. Under

the current labor policies, migrant workers are exposed to abusive and discriminatory practices in the workplace.

Furthermore, the governments investment regulations are not fully market-friendly. The Foreign Business Act strictly limits

the level of foreign investment, especially in the services sector. The World Banks 2010 Investing Across Borders report

stated that Thailands restrictions on foreign equity ownership were the most stringent among 87 countries. The countrys

planned tax restructuring threatens to burden the automotive sector with higher production costs, and the stringent tax and

legal environment could deter foreign investors.

Table 7: Analysis of Thailands legal landscape


Strong judicial system

Improvement in legal indicators

Weak labor laws

investment regulations


Tax reforms

Impact of tax reforms on the automotive sector


Current strengths

Strong judicial system

Thailand has a strong judicial system, with more than 3,000 educated and qualified judges sitting on courts of first instance

(excluding the constitutional court, the administrative court, and military courts), courts of appeal, and the Supreme Court.

The appointment of judges in Thailand is decided by the king, and requires initial approval by a judicial commission. The

constitution formed a tribunal to pass judgment regarding disputes that arise in court. Based on the level and type of court,

different judges with various levels of specialized expertise are hired. The comprehensive judicial system is capable of

PESTLE Analysis



addressing various bottlenecks and structural issues in the system, and gives foundational strength to the investment

climate of the country.

Improvement in legal indicators

The business environment in Thailand has improved considerably over the years According to the World Bank's Doing

Business 2012 report, which measures the ease of doing business within a country, Thailand was ranked 17th out of 183

economies. The report stated that the country has made starting a business easier by introducing a one-stop shop.

According to the 2011 Index of Economic Freedom, Thailand was ranked 62nd out of 179 countries and 10th out of 41

Asian countries. Thailand scored highly in terms of fiscal freedom, government spending, monetary freedom, and labor

freedom compared to the global averages. It fared much better than its overall rank on the enforcement of contracts and

the ease of securing credit for a business and closing a business. Starting a business takes an average of 32 days in the

country, compared to the world average of 34 days, while obtaining a business license takes less than the world average of

209 days. These factors are important indicators of a positive business climate.

Current challenges

Weak labor laws

Thailand is in dire need of labor market reforms in order to become competitive. Workers are not protected by law from

employer reprisals for union activities prior to the registration of the union, and employers can use loopholes in the Labour

Relations Act to fire union leaders prior to government certification of unions. Furthermore, Thailand is one of only 18

countries that have not ratified International Labor Organization (ILO) Conventions 87 and 98, instruments forged in 1948

and 1949 respectively that protect workers rights to set up labor unions and engage in collective bargaining. Despite

continuing pressure from labor unions, the government has still not ratified these conventions. Under the current labor

policies, migrant workers are exposed to abusive and discriminatory practices in the workplace. In September 2011, the

State Enterprise Workers Relations Confederation submitted a petition to the ILO, stating that the government was

discriminatory towards migrant workers who did not have access to the Workmens Compensation Fund (WCF). The

government has proposed a private insurance scheme for migrant workers instead of access to WCF. Unlike WCF,

however, there is no legal binding on the employer to provide private insurance coverage to migrant workers, and the

government has no legal authority to enforce such a requirement against employers. This policy is likely to have a negative

impact on the estimated 2 million migrants in the country. The government must ensure that labor laws ensure equal rights

and protection for all workers.

Investment regulations

Although Thailand welcomes foreign investment, its Foreign Business Act strictly limits the level of foreign investment,

especially in the services sector. The World Banks Investing Across Borders 2010 report stated that Thailands restrictions

on foreign equity ownership were among the most stringent among 87 countries. The government has to follow a stable

and uniform policy to attract investments. According to the World Economic Forums Global Competitiveness Report 2010

11, the country was ranked 38th out of 139 countries. The reports survey results showed that the countrys four main

problematic areas when it comes to doing business were government instability, policy instability, inefficient government

bureaucracy, and corruption. Investment regulations with anti-business preconditions could have a negative impact on the

business climate in Thailand.

PESTLE Analysis



Future prospects

Tax reforms

Thailand has announced major tax reforms to encourage investment and support the market through increased domestic

consumption. The government plans to reduce corporate tax rates, provide tax breaks for first time home and car buyers,

and review the countrys tax code including personal income tax, corporate income tax, and consumption taxes. To

compensate for the increase in minimum wages, by 2013 the corporate tax will be cut from the current rate of 30% to 20%.

The corporate tax reform is also aimed at improving competition among Thai companies and increasing foreign business

investments in the country. Furthermore, the government plans to bring changes to personal income tax deductions in

order to increase its revenues, and is reviewing the tax incentives provided to companies. Other changes could include

taxation of capital gains on equity investments and excise duty on cars. These reforms are expected to increase both the

governments tax revenues and business investment in the country.

Future risks

Impact of tax reforms on the automotive sector

The countrys planned tax restructuring in the automotive sector has been criticized by major carmakers, as the changes

could push up car production costs and hurt the local automotive industry. Indeed, the increase in production costs could

ultimately cripple the automotive sector and reduce car exports. The countrys current excise tax rates for automobiles are

based on the engine size compatibility of vehicles with alternative fuels. The governments new automotive excise tax

structure focuses on high fuel efficiency, lower carbon dioxide emissions, and safety. Increased production costs could

impact the competitiveness of the automotive sector, thus negatively impacting the countrys exports.

Political Landscape



Environmental analysis

Overview

Thailand has a strong environmental policy framework in place to address its environmental and energy concerns. The

country benefits from rich biodiversity, including a variety of fauna (spanning from large wildlife such as elephants to tiny

bats) and flora (including giant forest trees and rare orchids). The government has initiated several policies and measures

with a focus towards ensuring a cleaner environment, including the implementation of a 20 year plan for the Enhancement

and Conservation of National Environment Quality (19972016). In October 2010, the Thai cabinet agreed to impose a new

tax on polluting industries as part of its efforts to conserve the environment.

However, economic development, urbanization, and industrial expansion have severely impacted the countrys

ecosystems. A significant proportion of Thailand's forest cover has been lost, while around 50% of its rivers and lakes have

been polluted. Air pollution is also very high, and CO2 emissions increased from around 187 million metric tonnes in 2002

to around 268 million metric tonnes in 2010. In addition, in the past 16 years around 27 environmental activists have

reportedly been killed in the country. The increasing level of pollution harms the health of the country's people, its

environment, and its economy. With tourism, fisheries, and agriculture contributing significantly to the economy, the

protection of ecosystems and the sound management of natural resources are crucial to avoid extreme weather conditions

such as the recent spate of devastating floods.

Table 8: Analysis of Thailands environmental landscape


Strong environmental policy framework

Rich biodiversity

High pollution levels

Opposition to environmental activism


Government measures for a clean environment

Green tax

Natural disasters

Heavy reliance on coal for power generation


Current strengths

Strong environmental policy framework

Thailand has a strong environment policy and legislative framework. The country has well-established environmental

institutions, and the government focuses on implementing environmental policies so as to address its environmental and

energy concerns at both the national and provincial levels. The Ministry of Science, Technology, and Environment is

responsible for the protection of the environment. Several departments and regional offices also exist, which administer

environmental and conservation policies. These offices include the Office of Environmental Policy and Planning, the

Political Landscape



Pollution Control Department, and the Department of Environmental Quality Promotion. These measures are indicative of

the efforts made by the relevant authorities to conserve the environment of Thailand.

Rich biodiversity

Thailand is acclaimed for its rich natural resource base, and its biodiversity has significant economic value. The country has

forestlands that stretch over 2,000km from north to south, and has varied climatic conditions and a coastline with clear and

muddy waters lapping productive mudflats. The country is also famed for its diverse wildlife and plant life. As a party to the

Convention on Biological Diversity, Thailand has executed several measures to safeguard biodiversity, and has

implemented initiatives to raise awareness on the conservation of biodiversity. The abundant biodiversity of Thailand and

its commitment towards integrating conservation into economic planning greatly enriches the country's natural heritage.

Current challenges

High pollution levels

Rapid industrialization has outpaced environmental management, resulting in increased pollution levels in Thailand.

Economic development, urbanization, and industrial expansion have had a severe impact on the countrys ecosystems. A

significant proportion of the countrys forest cover has been lost, while around 50% of rivers and lakes suffer from poor

water quality. The rampant use of land and water without proper planning has led to climate change that threatens to

impact the low-lying central region in a big way. The country has also been faced with high pollution levels over the years

due to motor vehicle emissions in Bangkok, Hat Yai, and Chiang Mai. The release of smoke caused by incomplete

combustion from poor quality engines is a major contributor to air pollution. Furthermore, airborne particulate pollution

levels have worsened in the northern province of Chiang Rai, with levels of carbon monoxide, sulfur dioxide, nitrogen

dioxide, and lead that are above internationally recognized levels. CO2 emissions increased from around 187 million metric

tonnes in 2002 to around 268 million metric tonnes in 2010. It is expected that the increasing pollution levels will cause the

environment to deteriorate further in the near future, and could harm the health of both the Thai people and the economy.

Opposition to environmental activism

In July 2011, environmental activist Thongnak Sawekchinda was killed in the Samut Sakhon province outside Bangkok for

his activism against the transportation of coal used by a range of industries in the province. Seven men were reportedly

paid a total of $10,000 for the contract killing. The activists friends allege that the crime was committed by powerful people

with connections to local businesses and politics. According to the nation's environmentalists, a record 27 environmental

activists have been killed in the past 16 years, and not one of the individuals behind these murders has been held to

account. This alleged impunity for criminals is a cause for concern, as recent victims have included activists trying to save

land from developmental projects, campaign against sand transportation, and protest against illegal timber logging.

Future prospects

Government measures for a clean environment

The government has initiated several policies and measures with a focus towards ensuring a cleaner environment. The

country implemented a 20 year policy and prospective plan for the Enhancement and Conservation of National

Environment Quality (19972016). The policy is aimed at recognizing the responsibilities that local government authorities

Political Landscape



and non-governmental organizations have towards improving and safeguarding the quality of water by increasing

awareness. The plan also aims to reduce water pollution caused by industrial and agricultural activities, by encouraging

greater investment in the private sector. These measures are expected to enhance the country's environmental quality in

the long term.

Green tax

In October 2010, the Thai cabinet agreed to impose a new tax on polluting industries as part of its efforts to conserve the

environment. The tax rates are expected to be set based on the type of pollution, including water, air, and industrial waste.

As part of the green tax initiative, the government plans to impose a 15% tax on airline tickets from 2012. In the automotive

sector, the government will introduce green tax rates based on CO2 emissions, fuel efficiency, and safety, rather than

engine size. This is expected to generate additional tax revenues for the government, which it can plough back into

environmental and wildlife conservation programs.

Future risks

Natural disasters

Thailand has suffered from a number of natural disasters over the years. The 2004 tsunami seriously affected the nation's

tourism, fisheries, and agriculture sectors. The high rainfall and massive flooding that Thailand has been experiencing since

July 2011 is a case in point, impacting almost 85% of the country, killing more than 500 people, displacing more than 8

million, destroying 700,000 homes, and swamping thousands of factories. The devastating floods have had an adverse

effect on economy. In a country where tourism, fisheries, and agriculture contribute significantly to the economy, the

protection of ecosystems and the sound management of natural resources are crucial to avoiding extreme weather

conditions .

Heavy reliance on coal for power generation

Thailand is heavily reliant on coal for power generation, and plans to further increase its reliance in the future. At present, of

the 22,684MW of power generated per year in Thailand, 15% is generated though coal. Furthermore, the government plans

to increase its reliance on coal over the next 15 years. Due to inefficient power generation planning and the lack of a

diversified supply of power, carbon emission levels have risen to three times higher than the 1990 level. Increased coal

usage is expected to leader to even higher CO2 emissions.

Political Landscape



POLITICAL LANDSCAPE

Summary

Thailands political system has traditionally suffered from widespread instability, as highlighted by the frequent collapse of

civilian administrations and recurrent military incursions into political life. The 199798 financial crises ushered in a

renewed period of political instability. However, the elections in 2001 brought a new political force Thais Love Thais (Thai

Rak Thai [TRT]) to power. The TRT campaigned on a populist platform, promising financial assistance for beleaguered

farmers and improvements to the healthcare system in response to the financial cris is. However, the 2001 and 2005

elections were tarnished by persistent allegations of vote-rigging and bribery, which led to the party being banned in 2007.

The military took over in September 2006 in a bloodless coup, and former army chief General Surayud Chulanont was

installed as prime minister. In the December 2007 general elections, the People's Power Party (Phak Palang Prachachon

[PPP]), a reincarnation of the TRT party, won the majority vote. However, persistent street protests led by the People's

Alliance for Democracy (PAD) contributed to the resignation of two pro-Thaksin prime ministers in 2008. On December 15,

2008, the parliament elected Abhisit Vejjajiva as prime minister of the country. However, pro-Thaksin protests continued

through to May 2011, leading to the announcement of general elections. In July 2011, Yingluck Shinawatra, the sister of

former Prime Minister Thaksin Shinawatra, led the opposition Pheu Thai Party (PTP) to victory, and was elected prime

minister. The government is reportedly working on plans to amend the Defence Administration Act to allow it to influence

military appointments. Prime Minister Yingluck Shinawatra is also looking into ways to allow her brother to return to the

country from his self-imposed exile, by fighting for amnesty for politicians; however, Thaksins return could lead the country

into further political turmoil.

Evolution

Since 1782, the Chakri dynasty has ruled the country. The country was then known as Siam, and was ruled by King Rama

I. King Chulalongkorn reigned between 1868 and 1910. He employed Western advisers to modernize administration and

commerce and develop a railway network. In 1917, Siam became an ally of Great Britain in World War I. In 1932, a

bloodless coup against absolute monarch King Prajadhipok led to the introduction of a constitutional monarchy with a

parliamentary government. In 1939, Siam's name was changed to Thailand. In 1942, Thailand declared war on Great

Britain and the US. After the end of World War II in 1945, Thailand was forced to return the territories it had seized from

Laos, Cambodia, and Malaya. In 1947, pro-Japanese leader Phibun Songkhram led a military coup against the

government. The military remained in control until 1973.

Student riots in Bangkok in 1973 led to the fall of the military government and the holding of free elections. However, the

resultant government lacked stability, which led to military rule once again in 1976. A new constitution was promulgated in

1978, and General Prem Tinsulanonda assumed power in 1980. He gave up his military rank in 1983 and led a civilian

government. He was re-elected in 1986. General Chatichai Choonhaven replaced Prem after the elections in 1988, before

the countrys 17th military coup in 1991 led to the appointment of Anand Panyarachun as prime minister. After the elections

held

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