Thailand faces investment challenge post-1997 financial crisis

Thailand faces investment challenges post-1997 financial crisis despite natural gas discovered in the Gulf of Thailand around 40 years ago sparked nationwide excitement, marking the beginning of a golden era.

This period saw the launch of the Eastern Seaboard Development Project aimed at developing the eastern coastal region. Foreign investment surged, propelling the economy to expand at double-digit rates, and raising hopes that Thailand would become Asia’s fifth tiger.

However, internal political instability and poor economic policy management led to the 1997 financial crisis, known as the Tom Yum Kung crisis. This crisis was triggered by excessive lending by financial institutions and the liberalisation of the financial market, enabling commercial banks to borrow from foreign entities to provide loans domestically.

Reviving domestic investment remains a significant challenge for Thailand’s government as it seeks to lift the economy out of its prolonged low-growth phase.

The director-general of the Fiscal Policy Office under the Finance Ministry, Pornchai Thiraveja, highlighted that since the 1997-98 financial crisis, the total investment ratio of both public and private sectors has fallen below 25% of GDP. In 2023, total investment reached 2.6 trillion baht, nearly the same as 25 years ago, which was 2.7 trillion baht. Pre-crisis, in 1996, Thailand’s total investment to GDP ratio was as high as 51%.

Private investment against GDP, peaking at 41% in 1995, dropped to 18% in 2023. Public investment in GDP, which peaked at 13% in 1997, has steadily declined to 6% in 2023, said Pornchai.

“It is necessary to shift our investment towards new engines of growth, which include 10 sectors such as agriculture, food and biotechnology, healthcare, and automotive and machinery.”

According to the Board of Investment, estimated investments in these 10 sectors are projected to reach 465 billion baht in 2023, 579 billion baht in 2024, and 638 billion baht in 2025.

Infrastructure investments

Thailand has a history of significant infrastructure investments, including Suvarnabhumi International Airport, which began construction in 1960 and opened in 2005, and the Eastern Seaboard Development Programme launched in 1982.

Other projects include the electric train projects in Bangkok and surrounding provinces starting in 1990 and the ongoing Mass Rapid Transit project initiated in 1997. More recent initiatives such as the Eastern Economic Corridor (EEC) beginning in 2018 with 650 billion baht in infrastructure investment, and the integrated entertainment complex project with about 100 billion baht investment, underscore the country’s commitment to large-scale development.

Moreover, future investment projects under the Ignite Thailand initiative include eight visions:

1. A tourism hub, focusing on enhancing secondary cities, upgrading SMEs, and promoting soft power through tax measures.
2. A wellness and medical hub, integrating healthcare with tourism to generate national income and support SMEs.
3. An agriculture and food hub, aiming to elevate agricultural and food production.
4. An aviation hub, enhancing infrastructure to boost SMEs’ capabilities.
5. A logistics hub, investing in Land Bridge infrastructure to connect coastlines and boost business opportunities.
6. A future mobility hub, supporting electric vehicle production and the automotive industry.
7. A digital economy hub, attracting digital industry investment and supporting startups.
8. A financial hub, enhancing the financial system and capital market, promoting digital assets, and developing carbon credit trading.

Plans are also in place to enhance transportation systems nationwide. The Transport Ministry aims to expand primary and secondary roads by 2050, increasing the length of the country’s motorway tenfold from 250 kilometres to nearly 2,500 km and expanding national highways to four lanes from the current 20,000 km to 23,000 km.

By 2030, the nationwide rail system will expand, increasing double-track rail by 2,000 km to 5,500 km, connecting Thailand with China and Malaysia. Bangkok and regional electric train routes will increase to cover almost 700 km, and high-speed trains will connect three airports and the border with Laos at Nong Khai. Deep-sea ports like Laem Chabang will also be expanded.

Finance Minister Pichai Chunhavajira stated that the economy should not grow below 3.5%, but due to the impact of the Covid-19 pandemic, the economy grew by an average of only 0.4% over the past five years. The National Economic and Social Development Council projects growth of around 2.4-2.5% for this year, with potential acceleration to 3% following the 2024 budget.

Kasikorn Research Center (K-Research) highlighted structural economic issues, noting that the industrial sector lags behind global market demands. The manufacturing production index (MPI) is expected to contract by 2% this year, following a 3.8% decline last year, primarily due to poor performance in sectors like electronic equipment, automobiles, and construction materials.

K-Research emphasised the need for a significant overhaul of Thailand’s industrial sector, pointing out the lack of investment in enhancing national competitiveness over the past decades, especially in comparison to Vietnam, reported Bangkok Post.