Is Thailand ready for the digital economy?

Over the past decade, Thailand has made remarkable progress in its transformation into a digital economy. Several indicators of digital infrastructure and accessibility have shown some improvement for a large segment of the population.

Thailand’s e-commerce market is one of the fastest growing in Southeast Asia

The Thai e-commerce market is one of the fastest growing in Southeast Asia, with total online merchandise prices rising 68 percent in 2021 and expected to expand 14 percent between 2021 and 2025.

Like other countries, Thailand has emphasized the digital economy through its Industrial Transformation Policy (Thailand 4.0) and the construction of a digital park in the Eastern Economic Corridor (EEC). The government announced new investment incentives in 2017 to attract investors to technology-based activities and introduced a national digital blueprint – the 20-year-old National Master Plan for Digital Development (2018-2037). A number of laws have been introduced in the last few years to facilitate, protect and create a secure digital ecosystem for both consumers and digital providers.

Slowing down in digital infrastructure

Although Thailand has made significant progress in digital development, short and highly centralized private investment, lack of advanced information and communication technology (ICT) skills, slow progress in digital infrastructure and budget constraints hinder its progress.

In 2019, private investment in Thailand’s digital economy was only 4 percent of GDP.

Digital technology has been widely applied in the services sector, including online wholesale and retail trade, mobile phone and internet services, and financial services. Its use in production and agriculture is relatively limited.

Private investment in the EEC has become more prominent – the share of investment has doubled from about 30 percent of total investment to 60 percent between 2017 and 2020. Various infrastructure projects, including linking the EEC with other parts of Thailand, have been delayed. . A clear roadmap for 5G adoption has not yet been announced.

Limited budget allocation

Limited budget allocations across a number of government agencies are also a problem, especially as funds allocated to the Ministry of Digital Economy and Social Affairs and the Ministry of Education and the Ministry of Higher Education, Science, Research and Technology are relatively small and declining.

Policy overlap and lack of coordination among government agencies in digital policy formulation raises concerns about the digital future. Government agencies, for example, are pursuing policies to improve labor efficiency but without proper coordination.

Lack of human capital and poor ICT skills

Thailand’s progress towards a digital future is questionable, especially the lack of human capital, as well as inadequate and unevenly distributed digital infrastructure.

By 2020, only 1 percent of the population had advanced ICT skills and about 20 percent had basic ICT skills. In rural areas only 69 per cent households had internet access whereas in urban areas it was 61 per cent.

The cost of fixed broadband, mobile broadband and mobile cellular services in Thailand has dropped significantly over the past decade. But compared to China, Malaysia and Vietnam, ICT costs in Thailand, measured by purchasing power parity, are still much higher.

To support investment and transform Thailand’s digital economy, technology-based incentives are a better strategy than location-based incentives to facilitate activities involving technology and innovation, regardless of location.

Excessive emphasis is placed on a specific position, such as the EEC, while less attention is paid to other areas, which reduces the country’s productivity growth and worsens income inequality. The country needs to accelerate infrastructure development to ensure efficient logistical systems as well as affordable and reliable digital technology.

Digital transformation plans need to be strengthened

In addition to streamlining policy frameworks, digital transformation plans need to be strengthened for policy coordination among government agencies. The Ministry of Digital Economy and Social Affairs can play an active role in coordinating digital transformation plans across organizations to avoid policy overlap and to avoid policy coordination and implementation failures.

Adequate budget allocation needs to be prioritized for promoting hard and soft digital infrastructure. In the rapid pace of digitalisation in the economy, established rules and regulations to address public concerns should be closely monitored and modernized. It is important to deepen regional cooperation in terms of regulatory compliance to facilitate business in the region as well as protect consumers from privacy and security concerns.

To reduce the adverse effects of digital transformation, especially potential job losses, the government needs to act as a facilitator to reduce labor market friction and smooth out workers from one place to another, as well as support upskilling and recycling. Collaboration with the private sector is needed to create employment and disseminate information on redundancies in firms and industries.

Author: Juthathip Jongwanich, Thammasat University

Juthathip Jangwanich is an associate professor in the Faculty of Economics at Thammasat University and in the International Competitive Research Cluster.

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