Small and Medium Enterprises (SME) constitute the backbone of the Thai economy as around 90% of total enterprises registered in the country are SME. They represent the key to the success of the ASEAN Economic Community integration as well as other policy initiatives put forward by the Thai government.
Among such initiatives, Thailand Board of Investment (BOI) “Seven Year Investment Strategy” is the most important one. Starting from January 1, 2015, BOI is pushing SME manufacturers to acquire information on the coming business forces and to improve production and transportation efficiency. It provides tax and non-tax incentives to upgrade technology for energy conservation and encourage investment in R&D.
In addition, the process of creating a single economic market under the ASEAN Economic Community (AEC) will be completed this year which presents new opportunities for SME by increasing market scale, allowing for free trade with neighboring countries and free movement of labor and capital. Indeed, supporting SME is one of the major components of the economic integration process. In August 2012, the first Joint Consultation between the ASEAN Economic Ministers and ASEAN SME Advisory Board was held. The ministers assured that their support for the SME development, in the region, would be one of the top priorities towards 2015 and beyond.
These days, better access to capital sources and information are ranked as top two challenges facing Thai SMEs. Limited access to capital is mainly driven by banks not willing to provide loans (or charging high interest rates) to SME which do not have long enough history of operating on the market and/or sufficient collateral. As for the access to the information and bureaucratic procedures associated with doing business – these dimensions are improving as a part of the BOI agenda.
With the rising GDP growth rates (forecasted 3.9% for 2015 compared to last year’s 0.7%) and increased government expenditures in the manufacturing sector business climate should become more favorable for SMEs. On the other hand, it is a well-known lesson from economic science that increased government expenditure may have a crowding out effect on private investment meaning that because of upward pressure on interest rates caused by the increase in government expenditures, private sector will reduce investment. For this to not happen, relevant fiscal and monetary policy should be accompanying the government’s expansionary policy in order to maintain interest rates at reasonably low rates.
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