Thailand must improve productivity through innovation in order to escape the "middle-income trap", according to the World Bank.

This goal could be achieved through increasing funding for small and medium-sized enterprises (SMEs) to adopt technology, improve labour skills, create more startups and facilitate their access to financial resources, said the global lender.

Cristian Quijada Torres, a senior private sector development specialist at the World Bank, said Thailand is at a crossroads in its decades-long battle to exit the middle-income trap.

To achieve high-income status, the nation must address declining productivity, said Mr Torres at a recent World Bank seminar titled "Thailand Economic Monitor Unleashing Growth: Innovation, SMEs and Startups".

He said innovation is a solution to the productivity slowdown. Innovation does not always mean groundbreaking technologies, but can be as simple as adopting new technologies, said Mr Torres.

"Innovation is not just about creating new products or technologies, it's also about adopting new practices, like using digital technologies to improve efficiency. For SMEs, this could be as simple as implementing a digital payment system, but it has the potential to drastically improve productivity and create more opportunities for growth," he said.

SMEs can be a major asset in reigniting economic growth in Thailand. They account for 99.5% of firms in Thailand, 69.5% of national employment, and 35.3% of overall GDP.

However, their low innovation and limited participation in global value chains highlight untapped potential, said Mr Torres.

He said SMEs and entrepreneurs in Thailand face four main challenges: limited access to finance, lack of support in early-stage infrastructure (incubators and accelerators), inadequate skills for the future, and regulatory barriers, especially related to fair competition and trade and investment.

Productivity could be increased by SMEs developing new products, services or management practices, or adopting new technologies and building more startups that offer new solutions, said Mr Torres.

There are also gaps in Thailand's innovation ecosystem that need to be addressed. These include financing, as SMEs and startups often struggle to obtain the necessary capital, as well as market competition, which needs to be improved to encourage more innovation.

Using South Korea as an example, Mr Torres said the country was able to transition over the course of 50 years from heavy industry to technology adoption and absorption, then to innovation.

"Governments cannot stick with the same policies forever because things change and you need constant evaluation. This is an important lesson South Korea has learned," he said.

Thailand could benefit from a similar shift in focus, evolving from technology adoption to homegrown innovation. The country needs to increase technology adoption by increasing funding for SMEs for this purpose, he said.

The country has a strong linkage to the global value chain and use of foreign direct investment (FDI), but it needs to connect science, technology and innovation with FDI to enhance productivity, said Mr Torres.

Thailand should also work to increase the number of startups and entrepreneurs through incubators, accelerators, and more favourable conditions for new businesses to emerge, he said.

To develop digital and creative skills, the country could partner with the private sector to deliver training programmes, said Mr Torres.

In addition, a better funding ecosystem for startups is needed, with more venture capital available throughout the life cycle of startups, from ideation to scaling.

"There's not enough venture capital in the country," Mr Torres said.

He said Thailand needs to review regulations that restrict market entry to stimulate competition and innovation.

In the long term, Thailand needs to make these changes part of its culture, with all stakeholders working together to enhance the ecosystem for startups, SMEs and entrepreneurs.

Sirirurg Songsivilai, chairman of Thailand Science Research and Innovation, said that to overcome current barriers to growth, the country must accelerate productivity in both the industrial and service sectors by embracing technology.

According to the Thailand Science Research Innovation Index 2024, Thailand's overall score is 7.8 out of 10, indicating a relatively healthy system, but there are gaps, especially in linking knowledge deliverable with utilisation and commercialisation. This weak connection hampers the expected societal and economic impact.

The National Commission on Science and Innovation addressed this issue by launching programmes to promote technology adoption among SMEs and providing startups with access to national science and technology funds.