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Political instability - key economic constraint: World Bank



Thailand needs to restore political stability, to pave way for the resumption of private investment, the World Bank recommended in its latest report.

  

  "Thailand Investment Climate Assessment Update" also recommended more public investments in infrastructure, as well as the education reform to foster learning and analytical/creative skills and linkage between universities and corporations.

 The report found that political and policy uncertainty was perceived by businesses to be the main constraint of investment climate during 2007. Lack of improvement in infrastructure and shortages of skilled workers (related to quality of education) also constrain investments.    

 Other findings are lack of investments in R&D and innovation hinders the private sector and firms themselves are not doing anything creative to increase productivity.

 Based mainly on the results of the second round of the Thailand Productivity and Investment Climate Surveys (PICS) carried out in 2007 and on a comparison with results from the first round (conducted between March 2004 and February 2005), the report surveyed some 1043 establishments from nine manufacturing sectors (food processing, textiles, garments, automobile parts, electronic parts, electrical appliances, rubber/plastics, furniture/wood, and machinery) in six regions (North, Central, metropolitan Bangkok, East, Northeast, and South). This report aims to present policymakers with detailed information on key business climate indicators and their relationship to Thai economic performance.

 The report found that Thailand's investment climate seems to have worsened between 2004 and 2007 judging by the opinions of firm managers which have deteriorated significantly. However, judging by the changes in objective investment climate indicators, which were generally small in magnitude, the investment climate in Thailand is reasonably stable though a few areas require the attention of policymakers.

 "This worsening of subjective perceptions is probably related to the political uncertainty and the changes in global macroeconomic environment. "Political instability" was ranked second among the top constraints to doing business in 2007 while in 2004 it was not even among the top 10 concerns of enterprises. Moreover, while each one of the 18 investment climate indicators was ranked as a 'major' or 'severe' obstacle by a higher percentage of firms in 2007 than 2004, but political instability more so than any other indicator," the report said.

 Aside from political instability, other constraints related to the macroeconomic environment and policy are the shortage of skilled labour, taxes and the regulatory framework, and the quality, price and reliability of infrastructure.

 "Thailand has much to build on, but decisive action is required as the country moves forward. Improving the investment climate by removing key constraints would help enterprises reduce costly inefficiencies and would give a boost to productivity and growth in Thailand," the report said.

 The report showed that Thailand has spent lowly on human capital. Out of the six percent annual growth rate in 1985-2005, only one-sixth of that was attributable to total factor productivity and less than one-tenth to human capital improvements. High growth rate may not be sustainable in the long run if it depends solely quantity growth.



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