Thursday, 24 May 2012
Thailand: Lord Mayor’s Visit: Background Note – May 2012
British Embassy Bangkok
The Lord Mayor’s visit to Thailand offers an excellent opportunity to raise the profile of the City of London and UK’s financial and professional services sectors. The visit will reinforce relationships with Thai Government and business contacts at a time when many Asian economies are looking to London for assertive leadership in responding to the challenges currently facing the Eurozone. The Lord Mayor, who will be accompanied by a business delegation, will follow a programme that includes meetings with the Finance Minister, Governor of the Bank of Thailand and Insurance regulator and an “Unlocking Disputes” seminar promoting English law and arbitration.
PM Yingluck has been in power for ten months, following the Pheu Thai party’s election win in July 2011.
The Thai government is now focused on getting back to business in the wake of the devastating floods which affected central areas of Thailand, including Bangkok, for several months last autumn. This includes implementing a series of policies such as an increased minimum wage and distribution of tablet PCs to all primary school children. But parallel steps towards a new Constitution are also occupying significant parliamentary time.
2012 economic growth is forecast to be 4-5%, as the economy recovers from the impact of the Japanese earthquake and tsunami and Thailand’s worst floods in 60 years which disrupted much of the nation’s core manufacturing activities. Growth is being underpinned by government-led spending on flood rehabilitation and factory output is returning to normal levels, in particular in the automobile and electronic components facilities.
But 2012 and the next few years will see considerable changes to the landscape as the Yingluck Government remains determined to narrow the income gap, raising the wealth of labourers and farmers left out of much of the country’s economic success over the last 2 decades. Most notable are steep hikes to the minimum wage and efforts to push up crop prices for farmers (e.g. rice).
Thailand’s economy presently focuses on sectors where it traditionally has depth and scale: electronics, the automotive industries (11th largest in the world), service industries (hotels, hospitals), petrochemicals, value-added foods (chicken, shrimp), and agricultural exports (world’s largest rice exporter, major pineapple, chicken, and tuna exporter). Structurally, Thailand would like to be less export-dependent – exports currently account for two-thirds of GDP, up from 40% in the early 1990s. More focus is now being paid on boosting the domestic economy through increased public spending on infrastructure and by bolstering the incomes of the broader population. As the second largest economy in the 10 member ASEAN nation, Thailand should fare reasonably well when AEC 2015 kicks in and tariffs fall across the region for manufactured goods and a selected number of professional services.
Trade and Investment
Figures show that UK exports of goods to Thailand increased by 28% during 2011 to £1.368 billion. Thailand’s imports during 2011 to the UK decreased by 1.3% to £2.487 billion. The UK is the leading EU investor in Thailand with combined investments of around £1.5billion at end 2010 (Source: ONS). Major UK investors include Tesco (1,000 stores), Boots (200 stores), Standard Chartered (acquired a local bank in 1997), GlaxoSmithKline and BG Group (who have project commitments of over $1billion and significant equity in the maritime zone between Thailand and Cambodia which is currently subject to a longstanding overlapping claim dispute).
Thai investment into the UK has traditionally centred on the hotel and food sector and sponsorship of football clubs. Investors include Thai Union Frozen Products (acquired John West in for £568million in 2010), CP Group and Thai Beverages. In March 2011 Sahaviriya Steel Industries (SSI) completed the acquisition of the Tata-owned Teesside Cast Products mothballed blast furnace in Redcar in a deal worth c£300m which saved 700 jobs and has created another 1,000. SSI invested a further £300m in preparing the blast furnace and its workforce for the resumption of operation. They restarted the blast furnace on 14th April 2012. Most of the steel slab produced will be exported to Thailand for SSI’s production plants, moving the UK into a positive trade balance with Thailand. The first shipment left Teesside port for Thailand on the 14 May.
UKTI is currently monitoring the potential for UK involvement in infrastructure and post-flood reconstruction projects. In the short term, the Thai government will invest 18billion Baht (£360million) on flood prevention and in the medium term 350billion Baht (£7billion) will be spent on water management projects. It has also set up a 50billion Baht (£1billion) Reinsurance Company.
The Lord Mayor’s programme
The Lord Mayor’s meetings with the Finance Minister and Governor of the Bank of Thailand will provide an opportunity to update the Minister and Governor on UK and Eurozone economic developments at a time of heightened interest. The Lord Mayor will also use these meetings to seek updates on Thailand’s plans to liberalise the financial services sectors, understand interest in using UK expertise in PPP/PFI for future infrastructure developments and explore priorities for closer engagement with the UK financial services sector.
The Lord Mayor will meet with the Secretary General of the Insurance regulator to discuss the priorities for the Thai insurance and reinsurance sector following 2011’s devastating floods and the potential for further liberalisation of the sector. The Lord Mayor will also use this meeting to seek an update on the progress of the proposed amendment to the Insurance Act. The following roundtable with the Secretary General and representatives from the international insurance community will provide a platform to support closer engagement between the regulator and international insurance companies.
The Lord Mayor’s programme also includes opportunities to deliver key messages about the City of London and UK economy to a broad cross section of contacts. A seminar supporting the “Unlocking Disputes” campaign will promote the strengths of English law and highlight the arbitration expertise available in London and across the UK. A British Chamber organised lunch will enable the Lord Mayor to speak to the British and Thai business community. The Lord Mayor’s programme will conclude with a networking reception for guests from the domestic and international financial services sector.
This visit, the first by a Lord Mayor since 2006, will generate renewed interest in the City by Thai corporates.
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