There has a long track record of the boom of Foreign Direct Investment (FDI) in Thailand. Since 2000, inward FDI has been a major driver of economic growth. By 2017, FDI stocks as a percentage of GDP had risen to 50%, far higher than the ASEAN average (excluding Singapore). FDI flows are projected to decline as a result of the COVID-19 outbreak and the resulting economic turmoil.
Thailand is ASEAN’s third-largest FDI destination, trailing only Indonesia. Thailand’s FDI share in ASEAN has climbed from 9% to 11% in the last ten years. Inward FDI stocks are dominated by Japan, the United States, and Singapore, with FDI inflows from other nations, such as China, becoming increasingly important. Singapore is by far the most important ASEAN investor, accounting for 80% of the region’s total FDI stocks. However, as a percentage of ASEAN, Thai FDI stocks and flows have progressively declined over the last two decades.
Industries dominating Foreign Direct Investment in Thailand
Manufacturing is dominated by Greenfield FDI, whereas cross-border M&A deals are more common in services. Automobiles, electronics, and logistics are among the sectors targeted under the Thailand 4.0 concept that attract significant FDI, particularly greenfield investment, but FDI growth has been modest in most target sectors over the last five years. The Bangkok Metropolitan Area (BMA), the Eastern Economic Corridor (EEC), and the rest of the Centre see the most foreign activity.
FDI helps Thailand achieve its Sustainable Development Goals (SDGs) through contributing to many facets of sustainable development. Foreign enterprises are more productive, invest more in R&D, pay higher wages, and hire more skilled people and women in most manufacturing and service sectors. While these foreign business performance premia underline the importance of foreign firms’ direct contribution to the Thai economy, they may also indicate inadequacies in indigenous firms’ adequate capacities, which are a necessary condition for positive FDI spillovers.
FDI also appears to promote economic changes toward higher-value-added and better-paying activities. FDI is more common in industries that are more productive, spend more on research and development, have higher average earnings, and employ a higher proportion of skilled workers. In Thailand, many domestic enterprises have supply and buy relationships with foreign firms, implying that the positive relationship between FDI and sustainable development outcomes is due in part to positive FDI spillovers on domestic firms. In reality, Thai companies that form partnerships with foreign companies are more productive than those that do not.
Thailand’s economy benefits from FDI. Growth in FDI is there in eco-friendly and more energy-efficient sectors, as it is in most ASEAN Member States (AMS). Foreign companies use less energy on average than Thai companies, notably in high-tech industries.
Impact of the COVID-19 on FDI flows in Thailand
As a result of the COVID-19 pandemic and the ensuing supply disruptions, demand contractions, and uncertainties, global FDI flows are likely to plummet. Even under the most optimistic scenario, OECD predictions imply that global FDI flows will likely fall by at least 30% in 2020 compared to 2019, before rebounding to pre-crisis levels by the end of 2021.
Because sectors with the bad impact from the pandemic account for a bigger share of FDI in poorer nations. The projections in the drop in FDI can be substantially greater. The immediate impact on FDI flows will be due to a decrease in the reinvestment of earnings. However, but equity capital flows will have an impact as corporations postpone some M&As and greenfield projects.
According to the most recent data on cross-border M&As, both Thailand and ASEAN saw a dramatic reduction in final deals in the first quarter of 2020. In Thailand, the value of cross-border mergers and acquisitions fell by 60% in the first quarter of 2019. It was 63% in the first quarter of 2018. This reduction was even more in ASEAN. There was a decline in the value of cross-border M&A agreements by 85% and 93% in 2019 and 2018 respectively.
Greenfield FDI inflows into Thailand fell by 58% in the first quarter of 2020 in comparison to the same period last year. It is a fall of 76% in comparison to the same period last year.
This fall was less than that in ASEAN, where FDI pledges fell by 32% in 2019 and 46% in 2018. Construction, energy, and ICT infrastructure and services saw the greatest declines in both Thailand and ASEAN. Manufacturing project announcements, on the other hand, has a rise in comparison to 2019.
Policy Directions
- Thailand 4.0’s targeted sectors, particularly greenfield investment, attract significant FDI. However, both greenfield FDI and cross-border mergers and acquisitions (M&A) stock growth in target industries. There are moderations in recent years, indicating that FDI in those sectors has room to increase.
- In terms of origin, inward FDI has a high concentration. Japan, the United States, and Singapore account for the majority of total inward FDI stocks. Thailand’s reliance on FDI from a small number of investors has made it more vulnerable to changes in those countries’ economic conditions.
- In several sectors, foreign companies outperform Thai companies. They are more productive and employ a higher percentage of skilled personnel. Additionally, they invest more in research and development. These premia are often explained by higher foreign business technology intensity. In many nations, if they are excessively big, they may indicate a lack of domestic capabilities.
- FDI benefits are not inevitable. Indigenous enterprises must have certain basic skills and expertise to profit from foreign firms’ presence. Improving domestic enterprises’ capacities necessitates governmental efforts. It can be in a variety of sectors, including human capital development, innovation, and ethical business practices.
Your Take!
Now you are knowing about the current scenario of FDI in Thailand. Foreign Direct Investment in Thailand increased by US$3 billion in March 2021. In December 2020, it boosted its Foreign Portfolio Investment by US$1.8 billion. In December 2020, the country’s nominal GDP was reported to be US$130.9 billion.
This clearly indicates that foreign investors are taking interest in starting their business in Thailand. Thailand is one of the nations which is speedily recovering from the harsh effect of COVID-19 on its economy. Therefore, now it is your time to take the initiative. Plan something unique and implement it in the form of business in Thailand. We can help you throughout the process of setting up your business in Thailand. Simply mail us at [email protected].
