Structural Reforms in Service Sectorsand Development: Case Study of Thailand Present at the ADB/ESCAP International Seminar on Selected Outstanding Issues in Services, Trade and Development, Manila, The Philippines May 3, 2011 Deunden Nikomborirak Thailand Development Research Institute Presentation Outline 1. Service Sector in Thailand: An overview 2. Data Limitations Deficiency 3. Service Sector SWOT Analysis 4. Service Sector Strategic Plan 5. Sectoral Strategy: Telecommunications 1
Service Sector in Thailand: An overview 1. Service Sector in Thailand: An overview 2. Data Limitations & Deficiency 3. Service Sector SWOT Analysis 4. Service Sector Strategic Plan Service Data Available GDP: 12 sectors (TSIC based on ISIC revision i 3) and 27 sub-sectors from the NESDB Employment: 12 sectors from the NSO Input/Output table year 2000 for (18 sectors) BOP (11 sectors) FDI (3 sectors: finance, construction and others) 2
Service Sector GDP (1980-2008) 100% % GDP(Millions of Baht) 5,000 4,500 80% 4,000 565657565657575756565756565657565655545251 51 51 495050504949 3,500 60% 3,000 2,500 40% 2,000 24242425252425272828293031 323234343636383938394041 41 41 4242 1,500 20% 1,000 500 202020191919181716161413131211 9 9 9 10101010101010 9 9 9 9 0% 0 Source: NESDB 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Agricultural Manufacturing Services GDP (right axis) Declining GDP Share (2000-2008) GDP GDP(%) share (%) 80% 75% 70% 65% 60% 55% 50% Ph AUS KR TWN GER JP UK US Service 45% 40% Th 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP(PPP) per capita (US$) Source: IMD 2001 and 2008 3
On service sector GDP share 1. Demand for service is derived from the manufacturing sector. (intermediate services such as banking, logistics) 2. Demand for service is income elastic. (final consumer services such as health, education and tourism). 3. Most studies could not establish the causal link between service sector GDP share and GDP level. 4. India s case illustrates that On Service Labor Productivity 1. Baumol (1967) established that 1. service sector is more labor intensive than manufacturing. Hence, expansion in service sector share leads to a fall in general labor productivity. 2. Certain service sector grow as a result of state subsidies not higher productivity such as health, education. 4
Service Sector Growth CAGR 9 yr (%) 2000 20.00 YOY (%) 020 0.20 15.00 correlation = 0.8044 0.15 10.00 0.105 0.10 5.00 0.083 0.075 0.060 0.033 0.05 0.041 0.00 0.00 1981-5.00 500 1984 1987 1990 1993 1996 1999 2002 2005 2008-0.05 005-10.00-15.00-0.10-0.15 YOY Manufacture YOY Service CAGR Manufacture CAGR Service Source: NESDB Sectors with high Industrial Linkage intermediateoutout/total outpu Per cent 1.2 1 0.8 0.6 0.4 0.2 0 098 0.98 097 0.97 0.87 0.86 0.81 0.8 0.75 0.74 0.74 Research Air transport Telecom Land transport Electricity Broadcasting Gas pipelines Maritime Transport Business services Other insurance Land transport Finance 0.51 0.47 0.45 0.42 0.38 Trans-related service Repair Source: IO table 2000 5
Increasing Labor Share Labor share (%) (%) Service 80% UK 75% AUS 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% Ph Th Th KR GER TWN JP US 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP(PPP) per capita (US$) Source: IMD 2001 and 2008 Inter-sectoral labour relocation 100% labour force Thousand persons 40,000 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 41.3 41.0 40.9 42.3 42.2 43.3 45.0 45.5 44.9 45.0 45.6 14.2 13.9 14.9 15.3 15.3 15.7 15.8 15.8 15.4 15.5 14.7 44.5 45.0 44.2 42.4 42.5 41.0 39.3 38.6 39.7 39.5 39.7 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Agriculture Manufacture Service Labour force (Right axis) Source: NSO 6
Slow Productivity Growth Baht (at 1988 price) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Agriculture Manufacture Service 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: NESDB Trade in Services Electricity, Billions of Baht 700 600 500 400 300 200 100 Gas and Water Supply Construction ti Wholesale and Retail Trade; Repair of Motor Vehicles, Transport, Storage and Communications Financial Intermediation Public Administration and Defence; Compulsory Social Security Hotels and Restaurants Real Estate, Renting and Business Activities Education Health and Social Work 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p Other Community, Social and Personal Service Activities Private Households with Employed Persons Source: NESDB 7
Increasing FDI in services Millions of Baht 180000 160000 140000 120000 100000 80000 60000 40000 20000 0-20000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Bank of Thailand Millions of Baht 450000-40000 0 Industry Finanacial Institutions Construction Real estate Services Total (right axis) 400000 350000 300000 250000 200000 150000 100000 50000 Growth Concentrated in lowproductivity consumer services YOY 7 years (2001-2007) 20 17.26 18 16 14 12.24 12 9.38 10 8.31 7.34 7.80 8.70 8.40 6.74 7.21 7.05 8 6.64 5.55 5.47 6 4.43 4.16 4.46 3.74 3.03 3.21 3.904.00 3.69 4 3.03 1.74 1.32 2 0.66 0 Production, Manufacture of Collection, Private Construction Public Construction Wholesale and Repair of Motor Hotels Restaurants Land Transport; Water Transport Air Transport Supporting and Post and Financial Insurance and Activities Auxiliary Real Estate Ownership of Other Busness Public Education Health and Social Private Households Non Profit Recreational, Other Service Source: NESDB 8
Sectoral Productivity Change 160 300 150 280 260 140 240 130 220 120 200 110 180 100 160 140 90 120 80 100 70 80 60 60 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: NESDB and NSO Electricity, Gas and Water Supply Construction Wholesale and Retail Trade; Repair of Motor Vehicles, Transport, Storage and Communications Financial Intermediation Public Administration and Def ence; Compulsory Social Security Hotels and Restaurants 140 Real Estate, Renting and Business Activities Education Health and Social Work Other Community, Social and Personal Service Activities Priv ate Households with Employ ed Persons Conclude Thai Service sector can be described by Highly correlated with manufacturing (derived demand) Labor intensive absorption of labor from shrinking agricultural sector Low growth in (high productivity) supporting services, high growth in (low productivity) final services. Declining labor productivity in some sectors Gi en that the se ice secto is a majo so ce of Given that the service sector is a major source of employment and that services are important inputs into manufacturing production, improving service sector productivity can help boost labor income and industrial sector s competitiveness. 9
2. Data Limitations and Deficiency 1. Service Sector in Thailand: An overview 2. Data Limitations and Deficiency 3. Service Sector SWOT Analysis 4. Service Sector Strategic Plan Service GDP data limitations 1. Service GDP figures are likely to be underestimated t d because VA of (intangible) ibl services is often embedded in that of (tangible) goods. 2. Actual price may be distorted because of the use of inappropriate deflator 3. Labor productivity may be underestimated if labor input is not counted in terms of heads rather than hours worked. 10
Thailand s Service Data Deficiency Inconvertibility of one set of data and another such as IO table and GDP data High level of Aggregation due to limited sample size (GDP) Outdated data * With highly hl aggregate data, policy-making in specific service business is impossibleใ 3. Service Sector SWOT Analysis 1. Service Sector in Thailand: An overview 2. Data Limitations and Deficiency 3. Service Sector SWOT Analysis 4. Service Sector Strategic Plan 11
Strength (IMD Ranking out of 55) Ranking(IMD) 20 14 15 7 10 5 0 16 6 1 12 Workingh hours Remunerat eratioin of Management Remunerat eration of service profession Mobile telephone cost Fixed Braodband Tariffs Mobile telephone subscribers Source: IMD World Competitiveness Yearbook 2009 Weakness (IMD ranking out of 55) 60 50 40 30 20 10 0 42 40 52 52 45 48 50 Service productivity FDI restrictions IT human resource Internet Penetration Broadband penetration TelecomTechnology TelecomInvestment Source: IMD World Competitiveness Yearbook 2009 12
Opportunity 1. Rising demand for health and personal care 2. Geographical Advantage 3. Economic expansion in neighboring countries 4. Technological advancement allowing Outsourcing Threat 1. Catching up by neighboring g countries 2. Increasing IT advantage in many services (retail, banking, logistics) 3. Volatile energy prices impose risks on small players 13
4. Service Sector Strategic Plan 1. Service Sector in Thailand: An overview 2. Data Limitations and Deficiency 3. Service Sector SWOT Analysis 4. Service Sector Strategic Plan Service Sector Development Strategy 1. To promote competitiveness of the manufacturing sector 2. To promote long-run competitiveness of Thai industries 3. To attract FDI 4. To elevate the quality of life of 14
Strategic Goal 1: Increase productivity of supporting services 1.1 Boost productivity in key infrastructure service by Review anti-competitive clauses embedded in long term concessions (telecom, transport) Seek to abolish procurement privileges granted to state operators Pass sectoral laws governing the establishment of a comprehensive sector-specific regulatory body (transport, water, (joint) telecom & broadcasting) Pass regulatory rules that would help to promote free and fair competition in the market. Promote consolidation of service operators 1.2 Promote the use of IT in key supporting services such as banking and logistics. Strategic Goal 2: Laying the foundation for long-term competitiveness Strategy 2.1: Encourage expansion in telecom network infrastructure Strategy 2.2: Draw up strategic plan to expand service market into neighboring countries. (the use of NEDA, EXIM Bank) St t 2 3 D h Strategy 2.3: Draw up human resource development plan and devise government schemes to support such plan 15
Strategic Goal 2: Laying the foundation for long-term competitiveness Strategy 2.4: Promote IT services by implementation of e- government Strategy 2.5: Set up certification programs for skilled professions in order to promote skills development. Strategy 2.6: Improve service sector database NSO should establish standard classification of service sectors to allow convertibility of data from different sources Budget allocated for the collection of services data such as service sector GDP, employment and IO table, should be increased to accommodate greater level of sectoral disaggregation. Strategic Goal 3: Attracting FDI Strategy 3.1: Revise rules that pose obstacles to foreign investment in services Revise list 3 of the Foreign Business Act 1999 Revise rules and regulations governing foreign employment and the issuance of foreign work permits Strategy 3.2: Target investment promotion policy at services with high forward and backward linkages. 16
Strategic Goal 4: Improvement in the Quality of Life of Citizens Strategy 4.1:Implement concrete universal service goals in basic services (telecom, electricity and water) Strategy 4.2: Pass and implement essential rules required to protect consumers i.e., service reliability and quality standard and affordability. 5. Liberalization in the Telecom Market 17
Thailand s Telecom Development Milestones Before 1992: State Monopolies 1992: Private Concessions with Revenue Sharing Schemes 2001: Telecom Act which ends state monopoly and established licensing 2002: Establishment of the National Telecommunications Commission (NTC) & Entry of major third mobile player into the market (joint venture between Orange and TRUE) The dynamic mobile market following market liberalization Telecom Act and Entry Telecom of Third Act & entry Carrier of 3 rd mobile player Establishment NTC of the NTC Nikomborirak, Deunden and Ruenthip, Kittipong (2011), Telecommunications Regulation in Thailand 200 7 18
Competition in cellular intensified Fixed Line Mobile Nikomborirak, Deunden and Ruenthip, Kittipong (2011), Telecommunications Regulation in Thailand Competition in Broadband: Fragile Nikomborirak, Deunden and Ruenthip, Kittipong (2011), Telecommunications Regulation in Thailand 19
Regulatory regime pose major obstacle to competititon Nikomborirak, Deunden and Ruenthip, Kittipong (2011), Telecommunications Regulation in Thailand Remaining Barriers to Competition Foreign Investment Restriction Unfair licensing Ineffective interconnection regulation resale regulation/law Concessions Unequal access to frequencies 20
Conclusion Private participation and market liberalization can go a long way in promoting growth in the service industry. But appropriate regulatory rules are required to ensure free and fair competition in the market. THANK YOU 21