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“Believe in Thailand”

Interview - April 19, 2012
M R Pongsvas Svasti, the Thai Minister of Industry, talks to us about a variety of subjects ranging from Thailand’s recent floods and the reconstruction efforts, to the upcoming ASEAN Economic Community and international trade relations
To begin with, could you tell me what your priorities are right now at the Ministry of Industry in Thailand?

The first priority is to make sure that our industrial estates do not become flooded once a season. That is the top priority. More than 50 per cent of my efforts right now are dedicated to flood prevention.

As it stands, around 25 per cent of industrial capacity in the flooded area is back in operation, but there is still a lot to do in terms of rebuilding.

I checked last Friday, and up to 40 per cent is operational right now and by the end of the first quarter this year it should be reach 60 per cent.

Could you tell me exactly what the Ministry of Industry’s role is in the recovery and redevelopment of infrastructure in Thailand?

We try to make the firms that have been affected operational as soon as possible. The factories and industrial estates are the top priority and we coordinate the clean-up on those estates. We find local Thai engineers to work with foreign engineers to clean up the machinery, repair machinery and bring it back to normal as quickly as possible. By December 15th last year, all industrial estates were dry and they started to connect with the power grid. Now 40 per cent is in operation, as I said. We have to try to get back on track.
Secondly, we try to provide them with more incentives, such as tax incentives or funding for investment in machinery, buildings or new production lines. If the manufacturers plan to stay in their current location, they will have a 150 per cent income tax holiday. But if they move to other industrial estates in Thailand, they will get 100 per cent tax free.

The Board of Investment is the best place to talk about tax incentives. Is the Ministry directly involved with the tendering process for shared use infrastructure with building contractors?

No. The Ministry of Transportation handles all of the major infrastructure. But the Ministry of Industry deals with the area around the industrial estates.

International investor confidence has been hit slightly by the floods. What steps is the Ministry taking to rebuild that confidence?

Firstly the Embassy in Thailand has to contact various embassies throughout the world to inform them of the Government’s measures for prevent flooding. I hold discussions with foreign chambers of commerce in Thailand and I meet major investors such as the Japanese. We talk with the Japanese Chamber of Commerce, for example, and I try to explain the government prevention programs that are in place and when these will be implemented. I keep them informed periodically.

Moving on from the flooding, I would like to know more about the introduction to the minimum wage. To what extent do you think this is going to have an impact on Thailand’s competitiveness as an export-led manufacturer?

Major manufacturing firms currently pay higher than the minimum wage. For example, auto manufacturers in Thailand pay 200 Baht per day. I think the major issue would be small and medium-sized firms (SMEs) that have to improve their productivity in order to make savings to pay for additional wages. Also the Government has implemented a policy to reduce corporate income tax from 30 to 23 per cent and the 7 per cent reduction can go back to employees. Next year corporate income tax will be reduced to 20 per cent to ensure that small firms can use this extra income to pay for extra wages.

On Friday we were at an AEC (ASEAN Economic Community) conference. How do you think increasing wages will affect competitiveness?

I think Thailand has excellent infrastructure compared to neighbouring countries. Secondly, we have better skilled workers compared to neighbouring countries that border Thailand. I am quite sure that Thai workers are second to none in this region. We have a very strong supply chain and very good automotive and electronic clusters as well as agro clusters. Those are the country’s strengths. If you think a cheap labour force in neighbouring countries will attract some investors, of course it will, but it will only attract the basic manufacturing sector. But I think it is time for Thailand to move forward towards a high-skilled workforce and high technology.

What strategy do you have for that?

The first one is an innovation policy regarding research and development. Currently the Government has placed an emphasis on research for the incumbent industries that Thailand has, especially in terms of agro business. So we research a lot in that area and we try to use that research to spin off to another industry. Once we focus on agro industry, the benefits will go to the farmers and the rural areas and there will be significant spin offs.

Developed countries have a very strong focus on bringing universities very close to the private sector. Is that an initiative that Thailand is looking at?

That is also part of it. Right now the Ministry of Industry cooperates with the Higher Education office. Right now we have a contract with King Mongkut’s Institute of Technology to develop an engineering programme, which will be supervised by major manufacturers. A car manufacturer will sponsor one engineering programme, and that programme will reflect the needs of those manufacturers.

How important do you think bilateral trading relationships are with Japan, the UK and other developed economies in pushing the industrial base up the value chain?

Trading is important, because once we have a good trading partner, we can be an investment partner later on. One key component of foreign direct investment is having a very good trading partner. If you do, you will become good investors together. That is key. Trading is very important.

Coming back to the floods, last week the Supreme Court in Thailand gave a final seal of approval to the Prime Minister’s emergency package. How will this affect reconstruction and preventative works on the ground?

That provided the Thai Government with room to borrow money for future investment. I think that is the key thing. We will see more investment in infrastructure.

Is that in the immediate term, or will that be an on-going process from the floods of last year?

I think that will be in the immediate term – from four to five years’ time.

In this environment of construction and redevelopment, Thailand’s construction industry will see a significant boom over the course of the next 12 months. What other industry sectors do you think will drive Thailand’s rebound?

The transportation sector would be one key mechanism for Thailand, because we plan to use Thailand as the hub for the AEC. As Thailand is in the centre of ASEAN, logistics would be a very key issue for Thailand to develop the logistics system and use it as a transportation hub for ASEAN.

Where would the transportation hubs be in Thailand?

We have the north-south corridor and the east-west corridor. The east-west corridor links India and Burma, Thailand, Lao and Vietnam. The north-south corridor links China to Lao, to Thailand, to Malaysia and Singapore. It could have distribution centres and special economic zones. That would be the key strategy. But in order to do that, we have to have good partnerships with neighbouring countries. For example, in Myanmar we plan to have a deep-sea port and Thailand plans to have an industrial estate near the border of Myanmar. We plan to use that industrial estate to link with the deep-sea port and use it as a hub to send out exports to the western front.

What are the free trade agreements that you have in the pipeline that we can expect to see?

Right now we have FTAs with ASEAN and China, and then Thailand-Australia, Thailand-New Zealand, Thailand and Japan. I am sure that there will be more to come.

As the 2015 inauguration of the AEC rolls forward ever more rapidly, what would you define as the key reasons for investors to choose Thailand as the fixed point of investment and business activity in the region, as opposed to regional counterparts?

I think that Thailand has better infrastructure compared to other ASEAN countries. We have a very good logistics system and an excellent airport. We have a very good workforce.

Could you give me your opinion on the importance of the trading relationship between Thailand and the UK?

Thailand and the UK have a long relationship. Even my grandparents went to university in England. The trading relationship goes back more than 100 years. We have a very strong investment relationship – for example, major British manufacturers are in Thailand. England is a very good trading partner, and we expect to have more investment from the UK. But again I know that England has a policy to keep local investment in England, so that is one key concern I think.

Are there any plans to strengthen these ties between the UK and Thailand?

If the UK is thinking about having an investment centre in Asia, I think Thailand is a good choice.

We have already seen leading universities investing in Thailand, so there is a great deal of activity in that area. Can you give me a final word of reassurance to investors and readers of this report with regard to Thailand’s industrial infrastructure?

Believe in Thailand.