Thailand's cost edge eroding

Thailand's cost edge eroding

Regional rivals and foreign investors ready to act if higher minimum wages make Thailand less competitive. 

PHNOM PENH : The potential return of Thaksinomics has business and political commentators chattering about the effect the ambitious policies of the new Pheu Thai government may have on Thailand and its neighbours.

While Yingluck Shinawatra grabbed attention on campaign trail with promises of price guarantees for farmers and free tablet computers for students, perhaps no proposal has been as contentious as her pledge to raise the minimum wage to 300 baht per day.

Beyond the domestic chatter, the policy has piqued the interest of regional competitors keen to see how it will affect key Thai industries.

With income inequality in Thailand among the world's highest, there is little debate that something must be done to close the rich-poor gap; Thailand's richest 20% earn roughly 58% of the country's income, versus 4% for the bottom 20%. Meanwhile, with unemployment low and factories short as many as 100,000 manufacturing jobs last year, according to the World Bank, upward pressure on wages is inevitable.

The Abhisit Vejjajiva administration recognised this, proposing a minimum wage increase to 250 baht per day, but Pheu Thai's proposal is more dramatic, representing a 40% increase on the current average minimum of around 165 baht, which now varies by province.

The Thai Chamber of Commerce has estimated that the 300-baht daily wage would equate to a monthly wage of US$260, which would put pressure on the country's garment industry. It comprised 4,300 firms employing just over one million people as of 2010, according to data from the Asean Federation of Textile Industries.

Thai Chamber of Commerce chairman Dusit Nontanakorn has warned of major drop in foreign direct investment and says Thailand risks losing its competitive edge to other nations in Asean if the new government goes ahead with its plans to raise the minimum wage.

He notes that Malaysia's minimum wage is only 10% higher than that of Thailand while wages in Indonesia are 10-20% lower than in Thailand.

A daily wage of 300 baht nationwide would make Thailand more expensive than other production bases in Southeast Asia and in the long term, foreign investors may consider relocating to other countries such as Vietnam, he said.