CHAPTER 1 Economic Developments and Outlook Economic growth is expected to attain 3.1 percent in both 2016 and 3.2 percent in 2017 accelerating from 2.8 percent last year with private consumption and public investment as key drivers as consumer sentiment recovers, households deleverage and large public infrastructure projects are implemented. The Thai economy decelerated to 3.2 percent in 2016Q3 compared to 3.5 percent in Q2 as public spending, private investment and private consumption slowed. A firm recovery has yet to take hold amid a slowdown in domestic demand in 2016Q3. Major drivers of growth associated with economic recovery such as private consumption and private investment have yet to show a broad-based and sustained expansion. Public spending and private consumption are projected to underpin growth in 2017 with headwinds from more uncertain global economic prospects. Continued commitment to implementing structural reforms is critical to raising the long-term growth path. 3 RECENT ECONOMIC OUTLOOK CHALLENGES DEVELOPMENTS Domestic demand weakened despite a boost in net Fiscal spending continued to expand in support Real GDP growth is projected to be 3.1 percent in 2016 The first risk is a deterioration in global economic exports in 2016Q3. The economy in 2016Q3 grew by 3.2 of economic growth. FY2016 saw total budget and 3.2 percent in 2017, accelerating from 2.8 percent prospects, particularly the euro area which will weigh percent compared to 3.5 percent yoy in 2016Q2 due to disbursement at an impressive 94.3 percent. However, in 2015. Consumption would continue to underpin on Thai export recovery. The Brexit vote reflects a exports as well as manufacturing and services. Public the capital disbursement rate was at 66.8 percent, well growth, although modestly, as consumer confidence significant rise in economic, political, and institutional investment slowed while private investment contracted below the targeted 87 percent set by the Cabinet in improves and households deleverage, whereas private uncertainty, which is expected to adversely affect by 0.5 percent yoy in line with a fall in capacity utilization September 2015. Nevertheless, actual disbursement and foreign direct investment are likely to stay low euro area growth, particularly advanced European and weak business sentiment. Fiscal spending fell by 2.4 was not unexpected given Thailand’s average historical levels due to weak external demand and political economies. In addition, uncertainty about the incoming percent yoy in 2016Q3 while public construction slowed disbursement rate of approximately 70 percent. uncertainty. The current account balance is expected U.S. administration’s trade policy weighs on euro area and highlights the risk of fiscal stimulus fading out in to narrow as domestic demand and imports recover. sentiment, increasing the likelihood that accommodative H2 2016 and Q1 2017 before a firm recovery takes hold. Thailand’s fundamentals remain strong. Inflation Fiscal stimulus, a major driver of growth, is expected monetary policy will continue to be pursued. Euro area Private consumption slowed as expected due to the remained low at 0.89 percent end-October 2016, edging to slow in the remainder of 2016 and beginning of weakness will also impact Japan where growth remains one-time rush to buy new passenger car models in the up due to higher domestic petroleum prices and well 2017 due to long-standing implementation challenges fragile. For Thailand, the euro area accounts for almost previous quarter. Indices of durable and semi-durable as continued fresh food price rises. The policy rate has of large public infrastructure projects. The budget for 10 percent of total experts and 12 percent of FDI. purchases remain low. However, the recovery in farm remained accommodative and on hold at 1.5 percent FY2017 was enacted on October 1, 2016 at the amount Nonetheless, Thai authorities have ample monetary and income in terms of both price and quantity supported since April. The exchange rate showed less volatility of 2.733 trillion baht, increasing by 0.5 percent from fiscal buffers while a flexible exchange rate serves as a private consumption expansion. The Consumer compared to regional currencies while depreciating to FY2016 excluding the supplementary budget. Continued buffer against external shocks. Confidence Index, particularly in the agricultural sector, 35.78 THB/USD mid-December 2016 in anticipation of structural reforms and implementation of public showed initial signs of a recovery. faster pace of Fed rate hiking in line with other currencies infrastructure projects (dual track rail and rail upgrading) A second risk is a rise in Thailand’s political uncertainty as the US dollar strengthened, compared to 35.13 in 2017 would help crowd in private investment and if ongoing political reforms become postponed or fail On the supply side, tourism receipts was a key driver THB/USD end-June 2016. Foreign currency reserves contribute to a more positive outlook. Lastly, stronger- to satisfy broad segments of society. In such a scenario, while agriculture rebounded after recovering from a remained high at US$174.1 billion on 9 December 2016 than-expected US growth will support a recovery in political uncertainty could delay public spending, long and severe drought. Tourist arrivals increased by compared to US$180 billion end-July 2016. The current exports. ongoing economic reforms and weigh on consumer and 13.1 percent, mostly from China, slowing somewhat from account posted a surplus due to improved exports and investor conference. However, the passing of the draft the surge observed in 2016Q1 amid the government high tourism receipts while imports remained low and is Some temporary slowdown in private spending in Q4 is constitution in the public referendum held in August clamp-down on zero-baht tours for Chinese tourists. estimated to be at 5.6 percent end-2016. expected as Thais undergo a period of mourning after 2016 and the recent accession of Crown Prince Maha Tourism receipts increased 17.1 percent. Hotels and the passing of His Majesty King Bhumibol Adulyadej Vajiralongkorn mitigate this risk. restaurants grew by 15.9 percent, accelerating from the While poverty has declined over the last two decades, in October. The mourning phase was set at 30 days but previous quarter. Agricultural production turned positive both poverty and inequality still pose significant many companies have postponed major events for 100 at 0.9 percent after seven quarters of contraction due challenges. As of 2013, 7.3 million Thais were still living days until the end of January, resulting in postponement to a severe drought. Manufacturing growth remained in poverty (based on the current national poverty line, or of some economic activity. However, holiday tax anemic at 0.9 percent due to weak domestic demand. about USD 6.20 in 2011 PPP). Moreover, an additional breaks on shopping and domestic tourism may offset 6.7 million were living within 20 percent above the some of the slowdown at the end of the year. Also, The positive trade balance continued to expand in national poverty line and remained vulnerable to falling the government’s rice price support scheme, primarily 2016Q3 as exports of goods and service expanded and back into poverty. Inequality has declined over the through soft loans and equivalent to almost 0.7 per of imports decreased slightly. Merchandise and service past three decades, but remains high compared with GDP, will support farm income. Tourism is expected to exports grew due to manufacturing products, fishery many countries in East Asia. Significant disparities in decelerate, at least temporarily, from the government’s products and travel receipts due to tourism (3.4 percent). household income and consumption can be seen across clamp-down on the illegal “zero-dollar” tours which Exports benefited from expanded demand in Europe, and within regions of Thailand. Pockets of poverty involves mainly Chinese tourists – the largest group of US and CLMV. Imports showed recovery from the remain concentrated in lagging regions such as the any country. The Tourism Authority of Thailand estimates previous quarter as imports of raw materials expanded Northeast, North, and Deep South. Slowing growth, low that the number Chinese visitors could fall to about 9.6 (1.3 percent). In Q3 2016, foreign direct investment and commodity prices, and a severe drought in recent years million from an estimated 10 million in 2016 as a result. portfolio flows into Thai assets continued as Thai direct would have likely adversely affect vulnerable groups such investment abroad expanded. as the rural poor or the elderly and constrained further Following the passing of King Bhumibol Adulyadej, poverty reduction. Crown Prince Maha Vajiralongkorn acceded to the throne on November 30, 2016 at the invitation of the National Legislative Assembly in accordance with the Palace law of 1924. One of King Maha Vajiralongkorn’s first acts as monarch will be to endorse the new constitution drafted by the current government and approved by the public in the national referendum held last August. 4 5 CHAPTER 2 Services as a New Driver Table. Thailand / Selected Economic and Social Indicators of Growth 2011 2012 2013 2014 2015 2016f 2017f Real gross domestic product 0.8 7.3 2.8 0.9 2.8 3.1 3.2 Private consumption 1.8 6.3 0.8 0.6 2.1 2.3 2.4 The service sector can serve as a new driver of growth to help Government consumption 3.4 7.5 4.7 1.7 2.2 3.6 3.2 Thailand achieve high income and new job opportunities to serve both domestic and global markets. Services is becoming Gross fixed capital investment 4.9 10.2 -0.8 -2.6 4.7 3.3 2.7 increasingly important to growth due to its complementarity Exports, goods and services 9.2 5.1 2.8 0.1 0.2 0.4 1.0 with manufacturing, criticality in the global value chain and rising Imports, goods and services 12.4 6.0 1.4 -5.3 -0.4 -0.5 -0.4 tradability given technological advances. However, in Thailand, GDP, at market prices 0.8 7.3 2.8 0.9 2.8 2.8 3.1 services accounts for approximately half of output, utilizes a substantial 40 percent of the labor force and lags behind Agriculture 6.3 3.4 0.4 0.3 1.5 5.3 2.7 manufacturing productivity by 30 percent. Unlike many peers, Industry -4.1 7.4 1.3 -0.6 4.0 2.7 2.8 Thailand’s service sector share has not grown, is dominated by Services 5.4 8.0 4.8 2.4 1.9 2.5 3.4 lower-productivity industries employing lower-skilled workers Output gap -1.3 2.5 2.1 0.1 0.2 -0.5 -0.4 and boasts a low share of services exports which tend to be in “traditional” sectors. Consumer price index, av. 3.8 3.0 2.2 1.9 -0.9 0.5 2.0 Current account balance, % of GDP 2.4 -0.4 -0.9 3.3 8.9 5.6 4.4 Thailand has on average a more restricted service market Fiscal balance, % of GDP -0.6 -1.8 -0.2 -1.8 -2.1 -2.9 -2.1 particularly in professional services such as accounting, legal, architecture, engineering, and management consulting compared Poverty rate (national poverty line) 13.22 12.64 10.9 to ASEAN peers and other regions in the world. Examples of Poverty rate (US$3.10 a day, PPP 1.17 1.23 0.92 0.89 0.75 0.64 0.54 terms) successful services liberalization in ASEAN highlight how the combination of private sector initiative and government support Sources: Central Bank of Thailand and World Bank staff estimates. Historical fiscal balance based in IMF Article IV. Note: Figures for 2015 are tentative, and may present variations respect to official estimates. can increase service output and exports (e.g. Singapore: financial Data in annual percentage change, unless otherwise indicated. e = estimate, f = forecast. services; Malaysia: higher education; Thailand: health services; Philippines: telecommunications-based services). 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 of AEC commitments will be critical for fostering productivity growth and innovation particularly in services. In addition, addressing skill gaps and ensuring quality education for all are also important for ensuring worker readiness. 6 7 EXECUTIVE Table 1. Average annual total productivity growth for selected countries (and average contribution to GDP growth using growth accounting) SUMMARY 1985–2014* 1985–1997* 1999–2007 2010–2014 Cambodia 2.6 (34) 2.8 (42) 3.9 (41) 2.5 (34) Thailand’s journey to upper middle-income has been of emerging markets that transition into advanced accompanied by spectacular structural transformation. economies. As investment is unlikely to return to pre- China 4.1 (43) 4.5 (45) 4.8 (45) 3.0 (37) In the 1980s, Thailand embarked on a high growth path 1997 levels, productivity growth will become increasingly on the back of economic liberalization which promoted important for sustaining higher potential growth and Lao PDR 1.5 (20) 2.3 (40) 0.6 (10) 2.0 (30) labor to reallocate from agriculture to more productive attaining high income. The labor force is projected to sectors—manufacturing and services. At the same time, shrink beginning in 2017 and by 2040, elderly people will Malaysia 1.6 (27) 2.3 (28) 2.3 (42) 1.7 (32) Thailand transformed into an exporting powerhouse account for more than one-quarter of Thailand’s total Thailand 2.1 (40) 2.4 (31) 3.6 (69) 1.3 (43) and benefited from foreign direct investment. The population, the highest share of elderly of any developing manufacturing sector’s share of total output rose country in East Asia and the Pacific. In addition, new Vietnam 2.1 (31) 4.8 (53) 1.9 (10) 2.2 (38) rapidly in the 1980s-1990s in hand with a rising share of sources of productivity growth from innovation and exports and imports in total output. Manufacturing, as within-industry must be fostered as productivity gains Note: *Observations for Cambodia, Lao PDR and Vietnam begin in 1993, 1991 and 1994, respectively. Asian and global financial crises years are omitted. well as services, proved to be key growth drivers while from structural transformation are diminishing. Firms, Source: WB staff estimates. agriculture stagnated. Growth averaged 9 percent in the particularly SMEs, will need to shift from a cost based to boom years of 1986-96. a value or knowledge based competitive advantage. However, the Thai economy has lost its dynamism in The Thai government’s economic reform program seeks the past decade and is approaching the limits of an old to harness new engines of growth such as technology, growth model based on exports, manufacturing and innovation and also encompasses many service abundant labor. The past decade has seen a secular industries. The ongoing reform program encompasses decline in economic growth from an average annual areas such as competitiveness (10 targeted industries rate of more than 9 percent in the boom years of 1986- include 5 S-curve innovative industries, SME promotion, 96 to less than 2 percent a year in the last two years. ease of doing business, skills and education, special Chart 1. Thailand’s Service Sector has Remained Stunted (%GDP) Structural change has stalled. Service sector still remains economic zones), tax (personal, property, inheritance tax; focused on “traditional services” such as tourism and FDI and SME tax incentives), state-owned enterprises has declined as a share of GDP unlike other emerging (state-owned enterprises and specialized financial markets. The manufacturing sector has stopped growing institutions), infrastructure (rail, road, and air links; and faces competition from China and other emerging integrated water management) and digital economy markets. Comparing Thailand’s Global Competitiveness (broadband access, e-payments for SMEs and online Score (compiled by the World Economic Forum) in commerce, start-ups). The 10 industries targeted as 2006/07 and 2015/16 is telling. Ten years ago, Thailand Thailand’s new economic growth engines include looked strong and healthy on all the dimensions tracked next-generation cars, smart electronics, medical and by the World Economic Forum. It stood out relative to wellness tourism, agriculture and biotechnology, food for ASEAN, upper-middle-income countries, as well as its the future, robotics for industry, logistics and aviation, structural peers, and it even looked impressive relative biofuels and biochemical, digital and medical sectors. to high-income countries. Today, however, Thailand It is both striking and propitious that many of these no longer stands out—the pack of other countries has targeted industries are in services or if not depend on caught up with it on virtually all dimensions. Over the services as a crucial input. In addition, 81 percent of past decade, mega projects that could have relieved SMEs operate in the service sector, particularly retail and infrastructure constraints and made Thailand the hub of wholesale. ASEAN did not get off the ground. Thailand also did not seize its “head start” to invest in its institutions and in Analysis shows that Thailand has considerable innovation to make its universities the envy of the region potential to increase productivity in the future. Not and its businesses world-class. only is Thai labor productivity lower than in other upper- middle income countries, its dispersion is also higher. Going forward, potential growth is projected to remain Comparative data for 2013 shows Thailand to be at the low and, with aging population and sluggish private same level as ASEAN-5 average but considerably lower investment, to become increasingly dependent on than Malaysia, Turkey and South Korea. The differences productivity growth. The World Bank projects Thailand’s in labor productivity across the three sectors as well as average growth to be approximately 3.2 percent in across subsectors in manufacturing and services (Klyuev 2016-2018 which is below the potential growth typical 2015; Dheera-aumpon, 2014) are higher than for many 8 9 Figure 1. The differences between labor Figure 2. Thai labor productivity is comparable Table 2. Definitions of the Service Sector productivity in agricultural, manufacturing and to ASEAN-5 countries but only half of the level in service sectors are much bigger in Thailand than Malaysia and Turkey (USD ’000/worker) SERVICE SECTOR: NESDB CONCEPT SCOPE OF SERVICES: GATS CONCEPT elsewhere 1 Electricity, gas, and water supply Business services 2 Construction Communication service 3 Wholesale and retail trade; repair of motor vehicles, Construction and related engineering services motorcycles, and personal and household goods 4 Hotels and restaurants Distribution services 5 Transport, storage and communications Educational services 6 Financial intermediation Environmental services 7 Real estate, renting and business activities Financial services 8 Public administration and defense; Health-related and social services compulsory social security 9 Education Tourism and travel-related services 10 Healthcare and social work Recreational, cultural, and sporting services 11 Other community, social, and personal service Transport services activities 12 Private households with employed persons Other services not included elsewhere Note: GDP at constant basic prices per worker, using 2011 PPP, reference year 2013. Note: NESDB=National Economic and Social Development Board, GATS=General Agreement on Trade and Services 1/ Calculated using total number of workers 2/ Calculated using World Bank calculations of full-time equivalent workers Source: APO Productivity Database 2015 and Labor Force Note: GDP at constant basic prices per worker, using 2011 PPP, reference Survey (for calculation of “Thailand 2/”). year 2013. Source: APO Productivity Database 2015. Figure. Advanced Economies have Prominent Service Sectors (Share of GDP) countries in the region, indicating significant potential for the share of the service sector observed in peers and increasing aggregate productivity.. advanced economies, suggesting that it has yet to tap the full potential of services as an engine of growth. Services constitutes a major sector and accounts for approximately half of output but utilizes a Thailand has on average a more restricted service substantial 40 percent of employment and lags behind market than ASEAN peers and other regions in the in productivity. Manufacturing, on the other hand, world. The services trade restrictiveness index is based accounts for roughly 35 percent of output while utilizing on a 2012 ASEAN survey on policies that affect trade only 15 percent of the almost-39 million strong labor in services defined, as is now customary, to include force. Agriculture accounts for 15 percent of output but the supply of a service through cross-border delivery, utilizes a sizeable 35 percent of the labor force. Many consumption abroad, establishing a commercial services industries show low levels of healthy “churning” presence, or the presence of a natural person. The survey or creative destruction in which new productive firms focuses on policies and regulations that restrict trade, enter, nonproductive firms exit and capital flows from either explicitly or implicitly such as (1) quantitative less productive to more productive firms (Amarase restrictions, (2) qualification or licensing requirements et al, 2013). There are therefore still large productivity that can impose a disproportionate burden on foreign gains to be made from fostering continued structural provers such as professionals that have already met change, raising services sector productivity. Increased these requirements in their home countries and (3) the productivity would also imply a larger service sector. absence of regulations, such as those that ensure all Thailand has not shown the sustained increase in (domestic and foreign) entrants have access to essential 10 11 facilities such as ports and telecommunications The rise of global value chains (GVC) provides another Figure 3. Services Trade Restrictiveness Indices by Industry for ASEAN networks, can be seen as a “sin of omission” because opportunity for Thailand to reap the benefits of services without clear access, entry may not be feasible. growth in the context of globalization. Thailand Major sub-sectors covered include financial services and ASEAN have already gained significantly from (banking and insurance), telecommunications, retail, participating in global value chains in manufacturing. transportation and professional services (accounting, Increasing competitiveness in services will provide these legal, architecture, engineering, and management economies the scope to climb up the value chains in consulting). both upstream and downstream activities where services predominate. A major component of the trading tasks A bifurcated Thai economy reflects uneven involved in the GVCs involve services, from the mundane liberalization in which many subsectors, particularly such as cargo handling to the more skill-based ones the service sector, are more protected from import such as financial advisory. and domestic competition. While Thailand has reaped the benefits of past liberalization in manufacturing, Efficiency-seeking investment is integral for integration merchandise trade and imports of capital, liberalization with global value chains and exports, Thailand’s failed to encompass the whole economy. Services, many business environment will play an important role state enterprises and domestically oriented industries in driving the competitiveness of Thai SMEs that remained relatively sheltered. The service sector is dominate the business sector. Compared to most requirement of THB 100 million for foreign subsidiaries to move part of business operations to the informal protected in two ways: (i) foreign entry/investment middle-income countries, Thailand’s Ease of Doing to operate in the retail sector, lifting the limits on foreign economy. These barriers can inhibit access to credit, into many of the service sectors is restricted, and Business is relatively good (46th in 2016). However, it ownership in a “local bank”, and introducing clear and innovation, and productivity growth. It can thus be (ii) delivery of some services by foreign firms is also has dropped from a ranking of 18 in 2013 indicating that objective criteria for the granting of licenses to foreigners hypothesized that high barriers to business operations restricted. In terms of trade policy, average applied Thailand’s competitors made more improvements to in automobile and life insurance. hamper productivity growth and discourage private tariff rates have come down from around 40 percent in improve their business environment. The 2016 enterprise investment. the 1980s to 9 percent in 2005-6, but the average may survey for Thailand shows that the top five business Lack of adequate competitive pressures may obscure high rates for certain products. In addition, environment constraints include political stability, tax be slowing or preventing intra-sector resource Government can improve the business climate and the gap in productivity between small and large firms rates, transportation, labor regulations and electricity. reallocation. Dynamism in firm entry when markets intra-sectoral dynamism by implementing a series is significant. Small firms face high turnover rates and Perception always varies by firm size as larger firms are open usually contributes to innovation, increases of regulatory reforms to improve the ease of doing are concentrated in retail trade, a services industry. As may have more options in managing obstacles but at productivity, and crowds out inefficient firms. When firms business. Two important issues raised by the private a result, there exists two Thailands: one in which large the same time are more exposed to the failures of the with different levels of productivity survive and/or there is sector include the time taken to secure construction successful firms including multinationals that can invest business environment. high dispersion of productivity across subsectors, within permits (Thailand 103 days compared with 26 days and raise capital abroad while, in another, firms and manufacturing or within services, competitive pressures in Singapore), enforcing contracts (Thailand 440 days SMEs in protected industries and services show poor Successful services liberalization in ASEAN highlight are obviously not high. The regulatory and institutional compared with 150 days in Singapore). Thailand could performance. the complementarity of private sector initiative and framework that governs domestic market competition benefit from reviewing and rationalizing multiple rules government support for success in services exports. and market entry affect the ability of firms to reallocate and regulations that have gradually built up. Currently Service sector reforms can increase productivity For example, the strong trade performance of higher resources to more productive uses, and the efficiency of the Government is considering a “Guillotine Approach” to and support a new growth model based on higher education in Malaysia, medical tourism in Thailand, and their investments may depend on that ability. deregulation whereby it is working with the private sector productivity. Eichengreen and Gupta (2009) find that back-office processing in the Philippines have been to eliminate 5,000 outdated rules and regulations that economies transitioning into high income experienced based on private investment that were accompanied According to the 2016 Doing Business report, serve no purpose but to create inefficiencies, avenues for and benefited from two waves of services growth, first in by enabling business and regulatory environment and Thailand ranked 46 out of 189 economies on ease corruption, and bureaucratic red-tape. low value-added and then in high value-added. Thailand, an active role of the government in establishing and of doing business. Businesses encounter barriers to however, has yet to make the transition into a high value- monitoring quality standards. their operations for many reasons: for example, due Deeper trade integration, implementation of AEC added service economy. Improvement of service sector to cumbersome procedures for obtaining licenses commitments and preparing for future FTAs will regulations could be one of the key areas for leveraging There is a series of opportunities for increasing or construction permits or due to lengthy, costly, and be critical for fostering competition and facilitating growth, incomes, and jobs in the long term. In addition, competition in services. In telecommunications, unreliable procedures involved in enforcing contracts innovation and technology spillovers. New mega services is a critical part to any modern economy with for example, foreign-owned companies may only or resolving commercial disputes. These can be seen trade agreements such as the AEC or the new mega linkages to other sectors. Services, such as finance, provide services on a re-sale basis. Education and as “generic” barriers to business operations, in addition agreements currently being introduced in Asia (such accounting, transportation, communications, education, health facilities must be held by nationals. Thailand to those mentioned above related to accessing credit, as EU-FTAs, Trans Pacific Partnership, Regional legal services, and other commercial services are key could consider progressively lifting the restrictions trading across borders, or entering a new market. Comprehensive Economic Partnership (RCEP), and the drivers in advanced economies and provide critical of foreigners to perform professional services. Other Barriers to business operations usually result in a less- Free Trade Area of the Asia Pacific) come with deeper inputs to other sectors, especially manufacturing. measures could include lifting the minimum capital friendly environment, which may even encourage firms commitments and open up new opportunities. These 12 13 1 Figure 2. Ease of Doing Business (score, 100=best) Source: World Bank Doing Business Report 2015 deeper commitments include areas such as competition services, can increase productivity more than other policy, government procurement, investment policies sectors by adopting digital technology. Technology and investors’ protection, intellectual property rights, changes the way service users interact with service and labor and environmental standards. Thailand can providers and can enable professional services to be also improve competitiveness by implementing Mutual embedded in products and services on a commoditized Recognition Agreements agreed under the ASEAN basis. Economic Community 2015 on free flow of skilled professionals. Digital and analogue reforms need to go hand in hand. However, greater digital adoption will not be enough. Integration in services can be deepened considerably To get the most out of the digital revolution, countries by implementing the commitments laid with the also need to work on the “analog complements”—by AEC framework on services. The regional economic strengthening regulations that ensure competition integration of AEC, large potential market of 620 million among businesses, by adapting workers’ skills to the people offers opportunities for using services and demands of the new economy, and by ensuring that services trade to generate growth in productivity and institutions are accountable. International experience income. While services contribute between 40 and 70 shows that higher product market regulation in services percent of the GNI of ASEAN, ASEAN’s trade in services is associated with less ICT usage and lower firm growth represents only 5 percent of world trade in commercial (see World Development Report 2016: Digital Dividends). services. Thailand is a signatory to AFAS commitment to liberalize services but has not resulted in significant additional liberalization on the ground. ASEAN has a roadmap to pursue implementation of service sector reforms. Digital technologies could increase the productivity of service firms and create opportunities for reform in line 1 Figure shows “distance to frontier”: This measure shows the distance of with the digital economy plan. As services become more each economy to the “frontier.” The frontier represents the highest perfor- reliant on data and digital-intense, traditionally protected mance observed on each of the indicators across all economies measured in Doing Business since the inclusion of the indicator. An economy’s dis- sectors like retail and wholesale trade, finance, transport, tance to frontier is reflected on a scale from 0 to 100, where 0 represents telecommunications, public utilities or professional the lowest performance and 100 represents the frontier. 14 15