Thai policymakers are not short of ideas when it comes to catchy phrases to sell their country: “the Detroit of Asia”, “Bangkok as Asia’s fashion hub” and “kitchen to the world”, to mention just a few. But dig deeper and it soon becomes clear that Thailand’s FDI proposition is based on something more profound than mere slogans.
Thailand is one of the mid-development-level Asian countries that is responding best to the challenges thrown up by the latest trends in multinational production and the perceived economic threat from China.
Multinational corporations (MNCs) are beginning to slice and dice their activities around the world in an increasingly complex way that prohibits investment promotion agencies from responding with off-the-shelf incentive programmes. They must work out where they have a comparative advantage and exploit it. With MNCs tending to outsource more activities rather than operate subsidiaries, it is important to develop local entrepreneurs that can meet these demands. Countries that get it right will be able to take advantage of China’s rapid growth by supplying inputs to Chinese production as well as consumer goods for the domestic market.
“Our policy is to promote target sectors,” says Satit Sirirangkamanont, the newly-appointed secretary general of Thailand’s Board of Investment (BoI). “For example, in the agro and food processing sector, which is the backbone of our economy, we aim to become the kitchen to the world in ready-to-eat food.”
Other target sectors are garments, leather products and jewellery; electronics and ICT; the high-value-added service sector; and automobiles. Thailand’s annual car production is about one million vehicles (about two-thirds are sold domestically and one-third is exported) and Mr Satit’s aim to have a plant from every major world automaker located in Thailand is not fanciful.
In addition to these sectors, the BoI is encouraging investment in key infrastructure and strategic sectors, such as petrochemicals, steel, renewable energy, use of natural gas in vehicles, logistics, and research and development (R&D). Thailand retains good financial and non-financial incentives – tax holidays of up to eight years, duty exemptions on imports of raw materials and equipment, property ownership and freedom to employ foreign nationals in key positions. But in recognition of the demands of the contemporary investor, the BoI has abandoned the old one-size-fits-all approach to incentives. A key element of this was granting maximum incentives to projects that are located away from Bangkok in underdeveloped areas.
“If the investment is in a priority sector, we may grant the maximum incentives even if the investment is located in Bangkok,” says Mr Satit.
So far the numbers are looking good. In 2004, Thailand received 749 FDI projects with a value of Bt7.6bn ($193.6m), up from 668 projects worth Bt6.2bn in 2003. Japan is the largest investor followed by the EU, the US, Singapore and Malaysia. In the first two months of 2005, FDI applications were up four times on the equivalent period in 2004 due to a strong showing in the auto sector.
Red tape reforms
Thailand is ranked number 20 among 145 countries for ease of doing business in the World Bank report Doing Business in 2005: Removing Obstacles to Growth, which is a fairly high score for a developing country. But the government is still trying to make investment less prone to bureaucracy.
“Every government agency is being reformed and has to submit a plan about how they intend to reduce bureaucracy,” says Atchaka Brimble, senior executive adviser to the BoI.
In addition to promoting inward investment, the BoI has taken on responsibility for encouraging foreign investment by Thai companies. This chimes well with the latest thinking in FDI promotion, dubbed “fourth-generation investment policy”. Experts and academics discussed these ideas at a recent investment conference in Bangkok, organised by the United Nations Industrial Development Organization (Unido).
Three quarters of world trade is now conducted internally between MNCs and the challenge for investment promotion agencies is to slot themselves into this global factory. Frank Bartels, senior industrial development officer at Unido, states: “Thailand’s BoI is sensitive to the changes in the world investment environment and is reacting to them.”