Over recent years, Thailand has emerged as a highly attractive investment destination. In 2015 alone, according to figures from the United Nations, the flow of investment into Thailand increased by more than 200%. This has been facilitated by the country’s consistent and well-defined investment policies, increased regional connections and its government’s determination to improve transportation infrastructure. There has also been a widespread expectation of a long-term stability in its political and economic environment.
Well-defined Investment Policies
As part of the strategy to attract foreign investment, the 2013 reduction of its corporate income tax level to 20% saw the country’s corporate tax rate become the second lowest in the ASEAN bloc, behind only Singapore.
Two years later, in 2015, Thailand’s Board of Investment (BOI) announced a seven-year investment promotion strategy. This had a specific focus on investments intended to enhance national competitiveness, as well as activities that were environmentally friendly, energy saving or using alternative energy. It also looked to boost clusters that created an investment concentration based on regional potential, while strengthening the value chain. In particular, it aimed to nurture investments in the border provinces of southern Thailand, which could develop the local economy, as well as special economic zones capable of fostering economic connectivity with nearby countries. Additionally, it outlined plans to attract overseas investment in order to enhance the competitiveness of Thai businesses, while boosting the country’s role within the wider global economy.
Among the incentives on offer to help realise these strategic goals are a number of tax concessions, land ownership deals, and streamlined investment procedures, as well as import duty exemptions/reductions relating to activities that meet national development objectives. Additionally, any manufacturing company in receipt of investment promotion privileges is exempt from both foreign equity restrictions and local content and export requirements.
According to the BOI, the total value of approved foreign investments in Thailand in 2016 was 358.11 billion baht (US$10.1 billion). Overall, Japan was the largest investor, accounting for 22% of the total. However, funding from Australia, Cayman Islands, China and South Korea recorded substantial increases. In 2016, China became the second largest investor in Thailand, accounting for 15% of the overall total.
In terms of individual sectors, services and public utilities accounted for the largest share of investments during 2016 (87%), followed by chemicals, plastics and papers, agriculture and agricultural products, and metal products, machinery and transport equipment. Significant growth was seen in investment into agriculture and agricultural products, and chemicals, plastics and paper.
he Logistics Sector: Set to Benefit from Increased Regional Connections
Within Southeast Asia, Thailand is situated at the strategic centre of the Indochinese peninsula. It borders Myanmar to the west and north, Laos to the northeast, Cambodia to the east and Malaysia to the south. Unsurprisingly Thailand’s border trade is growing steadily, driven by the development of its neighbouring countries and the establishment of the ASEAN Economic Community (AEC), a body dedicated to fostering regional integration. According to the country’s Foreign Trade Department, Thailand’s border trade value was estimated to be worth 1.47 trillion baht in 2016, an increase of 2.8% year-on-year. In 2017, it is expected to grow by a further 3%.
Against this backdrop, one of Thailand’s key development strategies is to establish 10 Special Economic Zones (SEZs) over the short-term. These zones will be contiguous to Myanmar at Tak and Kanchanaburi; Laos at Mukadahan, Chiang Rai, Nong Khai and Nakhon Phanom; Cambodia at Sa Kaeo and Trat, and Malaysia at Songkhla and Narathiwat.
Developments such as these as seen as demonstrating the considerable potential of Thailand’s logistics and services sectors. The country already has in place extensive and well-equipped transportation networks, capable of serving as the region’s logistics and services hub and meeting the growing demand from neighbouring countries. This demand includes an enhanced requirement for consumer and business services, including finance, logistics, regional training centres, health care and several other lifestyle-related sectors.
Historically, inadequate infrastructure has impeded Thailand’s economic development. In order to tackle this particular problem, the Thai government has drawn up plans for a radical expansion of the county’s railways, highways and other core infrastructure sites over the next few years. Ultimately, this should lower logistics costs and make the country still more appealing to investors.
Major Infrastructure Projects
In 2016, the Thai government approved 20 infrastructure projects, all intended to bolster the country’s long-term competitiveness. At the same time, these projects should create enormous investment opportunities in the country’s construction and engineering sector.
In an additional move, at the end of 2016, Thailand’s cabinet approved an infrastructure action plan for 2017, said to be worth some 896 billion baht. Under the terms of the plan, 35 infrastructure projects, relating to rail, road, air transport and ports throughout Thailand, are to receive funding. The projects will be financed by borrowing 576 billion baht (64%) and through public-private partnerships (197 billion baht – 22%). Further funding will come from the government budget (74 billion baht – 8%) and the Thailand Future Fund (45 billion baht – 5%) with the remainder coming from the private companies behind the projects.
In Thailand, domestic transport is heavily reliant on the road network, which meets some 90% of the country’s transportation requirements and, as a result, is constantly congested. In a bid to relieve this problem, work has been green-lit on the re-development of the Greater Bangkok electric train network. This would allow the national capital to extend its reach and enhance its connectivity with nearby provinces. The Thai government also plans to promote railway transportation as a means of reducing logistics costs and improving efficiency. Currently, most of Thailand’s railway network is single-track, though a dual-track system is currently under construction. A second phase – consisting of seven double-track rail projects spanning 1,439 kilometres and worth 292 billion baht – is now being considered by the cabinet.
Another current priority is a major redevelopment of the country’s airports. Billed as the Airports of Thailand initiative, this envisages 194 billion baht being spent over the next 15 years on expanding six of the country’s airports – Suvarnabhumi and Don Muang in Bangkok, as well as the existing sites in Hat Yai, Chiang Mai, Chiang Rai and Phuket. Collectively, these six airports handle about 90% of Thailand’s air traffic. By 2030, these principal airports will be capable of serving 150 million passengers every year, more than twice the current capacity.
Sino-Thai Relations Under the Belt and Road Initiative
The Belt and Road Initiative – also known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road – is a wide-ranging development strategy launched by the Chinese government. Its stated intention is to promote economic co-operation between countries along the proposed Belt and Road trading routes.
To date, this initiative is seen as having strengthened Sino-Thai relations, especially with regards to infrastructure development. Perhaps the primary example of this is the Sino-Thai Railway project, part of the Pan-Asia Railway Network‘s central route, which will connect China, Laos, Thailand, Malaysia and Singapore. For many, this is the most potent symbol of co-operation between China and Thailand for a considerable number of years.
In the most recent development, the Thai government announced plans to fund this project itself, although the trains and signalling systems will be bought from China. According to Arkhom Termpittayapaisith, the Thai Transport Minister, construction could begin as early as March this year, with bidding for the work to be concluded in February . Upon completion, the train service is expected to be able to reach speeds of 250km an hour. It is expected that this high-speed connection will take Sino-Thai relations to a whole new level, particularly with regard to economic and trade co-operation.