Thailand Emphasizes Increased Investment

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Thailand emphasizes increased investment

HUA HIN, Thailand - The Thai government has set a target of attracting 270 billion baht (US$6.9 billion) in domestic and foreign investment this year, said the secretary general of the Thailand Board of Investment (BOI), Somphong Wanapha.

Somphong, in an interview with Asia Times Online, said the target figure is lower than the total investment capital attracted last year of $7.87 billion, but 15 percent higher than the annual average growth rate in the 1999-2003 period.

Domestic direct investment will make up about 40 percent of the estimated figure for 2004 and foreign direct investment (FDI) will comprise the remaining 60 percent. In addition, said Somphong, the BOI will emphasize support for domestic investors to expand investment abroad for closer market links as well as expanding outlets for local producers.

As part of an ambitious reorientation of the BOI, Somphong said Thailand aims to become one of the five leading investment destinations in the Asia-Pacific region by 2006. In 2001, the country was ranked 11th, registering only $3.8 billion out of a total $651 billion in investment for the region.

The BOI, which falls under the Industry Ministry, has traditionally set relatively modest goals for itself. This is true of the current target, given Thailand's continued economic recovery under the "dual track" policy of Prime Minister Thaksin Shinawatra in the years following the Asian economic crisis that began in 1997. This policy is aimed on the one hand at increasing domestic demand and consumer spending, while also promoting export-led growth.

The Thai economy is estimated to have grown by 6.4 percent in 2003, outpacing its Southeast Asian neighbors. By the end of 2003, Thailand's exports were poised to reach $79 billion, a 15 percent rise from the $68.81 billion it registered in 2002.

Moody's international rating agency in December raised Thailand's sovereign rating by two notches to Baa1, putting it on a par with Malaysia. The agency cited resilient exports, a strengthened external liquidity profile, sustained political stability and positive prospects for continued economic growth as factors in the decision.

These figures and sentiments have undoubtedly reinforced the confidence of foreign investors in Thailand, which continues to make FDI an integral part of its economic development.

"The climate is right," said Somphong. "We are on target to meet our goals."

Investment environment

In 2003, Japan remained Thailand's largest investor country, with 316 investment project applications. It was followed by the European Union with 74 projects, Taiwan with 67 projects and the United States with 43 projects.

Joint ventures between Thai and foreign investors became the main mode of investment in 2003 as their share in the value of applications for promotion increased substantially from 29.8 percent in 2002 to 46.5 percent in 2003. At the same time, the share of wholly foreign-owned companies and wholly Thai-owned companies decreased from 35.7 percent and 34.5 percent to 33.3 percent and 20.2 percent, respectively.

Applications for investment in 2003 were concentrated in the following three sectors: electronics and electrical appliances, 66 billion baht; automotive and machinery, 64 billion baht; and chemical, plastic and paper at 60 billion baht. There was also substantial interest to invest in services and the agro-industry, with applications for as much as 55 billion and 37 billion baht respectively.

BOI roadmap

The BOI's quest for high-value-added investment will be intensified in 2004, with five specific industries as targets: agro-industry, automotive, fashion, electronics, and information and communications technology (ICT), and high value-added services.

Somphong points out that a new skills, technology and innovation (STI) package was approved by the BOI in November. In terms of this package, the BOI will place extra emphasis on skill development, technology transfer and innovation and cluster development of key industries. In terms of country focus for attracting investment, the BOI will concentrate particularly on countries in North America and Europe along with Japan and Korea, China, the Association of Southeast Asian Nations (ASEAN) and India. In addition to its existing offices in New York, Paris, Frankfurt, Tokyo and Shanghai, the BOI will open new overseas offices in San Francisco and Osaka in the coming year.

In North America, the BOI will target high-tech companies covering automotive, ICT and services industries in various states. For example, the BOI will try to attract Delphi, General Motors and Ford from Michigan, said Somphong.

For Japan and Korea, three areas in Japan - Kansai, Chubu and Kanto - have been identified. Moreover, the BOI will target the automotive sector, ICT and agro-industry, with companies such as Toyota, Honda, Ajinomoto and Sony earmarked.

With regard to China, Somphong said Thailand cannot afford to see it as a threat. Rather, a policy of "two-way investment" has been initiated, first to attract FDI, especially in the agro-industry and information and communications technology, and second to promote Thai overseas investment in various potential fields, such as agro-industry, light industry and services.

For ASEAN and India, similar to the strategy for attracting FDI from China, the BOI will focus on two-way investment. For ASEAN, the BOI will place emphasis on Malaysia (automotive and services) and Singapore (software and services). For India, the BOI will target FDI from the automotive, ICT and agro-industry sectors.

CEO clusters

Prime Minister Thaksin, himself a multi-billionaire businessman, has adopted what he calls a chief executive officer (CEO) approach to governing the country, under which more hard-nosed business practices are adopted, rather than a traditional bureaucratic method.

This system has now been introduced to Thailand's 76 provincial governors. In the past, these governors were told to govern, not to manage their provinces. But by becoming CEO governors, they have been told to change their role into that of an executive - they have to be leaders in promoting the economic and social development of the local communities in their designated provinces.

In theory this seems sound, but such a dramatic change is likely to cause headaches, and scores of governors coming up with their own ideas to attract investment may conflict with national goals and confuse foreign investors.

"Our [bOI] role will be to try and make the governors understand our priorities, and to give them support, help them coordinate with government agencies and provide them with industrial linkages. More important, they will have to learn to take risks, just like a businessman," said Somphong.

To smooth this process, based on economic and geographical conditions, 75 provinces (Bangkok is not included) have been divided into 19 clusters. The governors will then formulate integrated strategic plans for the development of their particular cluster. Although the goals and the focus of the strategic plans of each provincial cluster are different - the overall plan covers general issues such as trade, investment, tourism, agriculture, industry and infrastructure development.

Somphong added that BOI executives have already begun discussions with CEO governors and leaders from related private associations, such as chambers of commerce, industry associations and other concerned parties to formulate specific action plans that will be suitable for integration with the strategic plans of each provincial cluster.

The BOI is aware that it, too, has to change to meet new challenges and to utilize its budget to the fullest. "We need to be more focused," said Somphong. "We need a matrix type of organization with cross-functional teams with clear mandates that can move us forward. This will involve better training and understanding. We need to be more proactive."

--Asia Times 2004-02-02