Wednesday, February 26, 2020

Services as a new driver of growth for Thailand

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There’s a good chance you work in the service sector. Services account for 17 million jobs in Thailand, or approximately 40 percent of the Thai labor force. It encompasses diverse industries such as tourism, retail, health, communications, transportation and many sought-after professions such as architects, engineers, lawyers and doctors. Many Thai parents aspire for their children to join the service sector, and the sector carries many of Thailand’s economic hopes and ambitions.

Industries that are likely to be important in the future such as medical and wellness tourism as well as logistics and aviation are in the service sector. Other key industries like robotics, food for the future and smart electronics will depend on services for critical inputs. Education services will also provide the training and skills necessary for any modern and innovative economy.

Why do services matter for the Thai economy? A dynamic and growing service sector can become a critical engine of growth for Thailand. Advanced economies like the United States and the euro area tend to be dominated by the service sector, which makes up over 70-80 percent of GDP. Much of the value even of manufactured goods is derived from support services rather than manufacture itself. For example, approximately two-thirds of the value-added of smartphones, such as the Apple iPhone or Nokia N95, stem from internal support services, licenses, retailing, distribution and operating profit. Assembly accounted for less than 10 percent.

Even the value-added of a typical jacket made in China and sold in the United States is accounted for largely by invisible assets such as services, intellectual property and profits. While developing Asia accounts for most of the manufacturing and assembly, most of the benefits go elsewhere, to service providers based in advanced economies.

How does Thailand’s service sector fare? Thailand’s service sector share has remained stuck at approximately 50 percent over the last two decades, is dominated by lower-productivity industries employing lower-skilled workers, and boasts a low share of service exports which tend to be in “traditional” sectors. Thailand has not shown the sustained increase in the share of the service sector observed in ASEAN and non-ASEAN peers as well as advanced economies. For example, China’s service sector as a share of GDP is growing rapidly and is close to catching up with Thailand.

How can the potential of the service sector be unleashed? A number of examples from close to home in ASEAN highlight how a combination of private sector initiative and government support to enable businesses and monitor quality standards can increase service output and exports. For example, financial services in Singapore, higher education in Malaysia, health services in Thailand, telecommunications-based services in Philippines.

For Thailand, a supportive regulatory environment for doing business, reduced policy restrictiveness both at the border and behind the border, greater competition and deeper trade integration through, for example, implementation…

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