Thailand steps up to attract FDI

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Ben D. Kritz

Ben D. Kritz

ACCORDING to a brief report published by the Oxford Business Group this week, our Asean partner Thailand appears to be putting together a potent package of incentives to attract more foreign direct investment (FDI), particularly to areas of the country that have been largely overlooked. With a new administration in the Philippines likewise vowing to focus on historically short-changed regions of this country, what Thailand is planning is probably worth a closer look.

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Like the Philippines, Thailand has a public-private partnership program, called the Pracha Rath scheme, and between now and the anticipated elections in mid-2017, the military-led government will roll out a host of tax and other incentives to maximize the program. The majority of the effort will be directed at what is dubbed the Eastern Economic Corridor, which comprises the provinces of Chonburi, Rayong, and Chachoengsao, which lie east of Bangkok.

There are almost certainly significant political considerations behind the government’s initiative given the importance of the elections next year, which, if they are permitted to go ahead as scheduled, will return the country to democratic rule. From a purely economic standpoint, the effort to increase FDI in Thailand seems to be driven by two factors.

First, FDI inflows have been exceedingly erratic over the past few years. In 2010, FDI was a respectable $14.72 billion, but in 2011 had dropped to a net of $2.47 billion. FDI recovered over the next two years to reach a high of $15.82 billion in 2013, but tanked in 2014, the year the military ousted the former prime minister, Yingluck Shinawatra, reaching only $3.72 billion. Last year was a bit more promising, more than doubling from the year before to just over $8 billion.

By comparison, the Philippines’ FDI has been steadier, but has lagged far behind Thailand’s, climbing from just over $1 billion in 2010 to about $5.72 billion last year.

The second factor pushing Thailand to broaden its investment incentives, although not clearly stated, is the potential for competition from the ever-deepening Asean integration. Thailand in the last couple of years has suffered some setbacks in its long-held position as a preferred destination for manufacturers looking for an alternative to China, and there is a sense that will only become an even greater problem as time goes on.

In addition, the Asean integration and China’s own geopolitical aims are bringing more interest and potential investment from China into the region, with the nations on its land border likely to benefit the most, if the conditions are right. The Thai government, it seems, would like to have the best of both worlds—robust investment from China, but an attractive investment environment for other Asians as well as Westerners to balance things out, and prevent Thailand from becoming another Laos, Cambodia, or Myanmar with respect to Chinese influence.

Some of the key initiatives Thailand has already announced, even before the presentation of the full package (expected later this year) include tax exemptions for certain foreign experts for periods of 10 to 15 years, beginning in 2017; other tax breaks for foreign technicians and researchers working in selected fields; and a doubling of existing tax breaks in the investment code for investors who break ground on new projects this year, a proposal that was approved by the government in May.

Thailand seems to have fully taken on board the notion that “it takes gold to breed gold,” and traded short-term tax revenue for longer-term and more diffuse economic benefits.
That is an idea the famously short-sighted Filipinos have traditionally had a hard time accepting, which is part of the reason that—despite presenting an attractive investment environment in other ways—investment growth in the Philippines has proceeded at a comparative snail’s pace. If the present government is actually committed to developing the provinces and staying competitive with the rest of region, some bold steps like those Thailand is taking should be part of the plan.

ben.kritz@manilatimes.net

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