Manufacturers are shifting their production facilities to Southeast Asia as a result of disruptions in the global supply chain caused by the COVID-19 pandemic, as the region has been able to suppress local outbreaks better than other regions. This has prompted Thailand to implement policies aimed at making it one of the most attractive destinations for foreign investors. Thailad is witnessing a boost in the intent of foreigners to invest in Thailand as well.
Furthermore, China’s labour costs have risen in recent years, making it less competitive. Government support for foreign direct investment is likewise becoming more sophisticated and appealing in Southeast Asia. Most importantly, investors can benefit from the various regional and bilateral free trade agreements that Thailand has signed with its partner countries, notably in Thailand. All of these criteria are critical when it comes to reducing the risk of supply-chain disruptions for investors.
Because of its well-established and operating supply chains, developed infrastructure, investment privileges and incentives, and availability of a trained and affordable workforce, Thailand’s Eastern Economic Corridor (EEC) provides a great competitive advantage for investors. Furthermore, the EEC Policy Committee is redefining target industries and tactics in order to increase foreign investment potential.
The group focuses on areas where the EEC has a particular competitive advantage, with a special emphasis on S-Curve and New S-Curve businesses.
There is no such thing as a one-size-fits-all solution. Before commencing any planned relocation process, foreign investors must conduct extensive research. As a result, each industry requires a unique solution based on its needs. And this is where Thailand may set itself apart because the Board of Investment (BOI) can give tailored service to its clients.
Upgrades in Thailand Business Environment
The government is now considering steps to improve Thailand’s business environment for international investors. To do so, essential legislation will be modified or abolished to remove roadblocks, such as capping personal income tax for foreigners at no more than 17%, making Thailand more appealing to foreigners than other countries in the area.
Over the next five years, the government hopes to place Thailand among the top 10 countries for ease of doing business, according to the World Bank. Thailand just climbed six places in the World Bank’s 2020 index, number 21 out of 190 nations.
In addition, in the post-COVID era, the Regional Comprehensive Economic Partnership (RCEP) Agreement signed by leaders of ASEAN countries, as well as Australia, China, Japan, Republic of Korea, and New Zealand in November 2020, will benefit the region tremendously.
The RCEP accord, which is set to take effect in January 2022, is Asean’s largest free-trade agreement to date. It encompasses a market of 2.2 billion people with a value of USD26.2 trillion, or 30% of global GDP.
Lower trade barriers on industrial and agricultural items, tariff reductions, expanded market access in RCEP member states, supply chain connectivity, and RCEP’s favourable rules of origin will all benefit Thailand, according to Thailand’s Department of Trade Negotiations.
The accord will allow for significant trade expansion among RCEP members. Thailand’s entire trade flow between RCEP members accounted for 56.9% of Thailand’s imports and exports in 2019.
Thailand will become a preferred manufacturing site in Asia as a result of the agreement. The RCEP encourages enterprises to establish production facilities for their supply chains in multiple countries to diversify risk and become more competitive.
Invest in Thailand for Incentives
Thailand has robust supply chains in various industries, including food, automotive, electronics/electrical appliances, and medical supplies. Furthermore, improved investment incentives are a key component in attracting investors to the Kingdom.
The BOI authorised a range of steps in December 2020 to promote firms to use digital technology and to accelerate investment in target areas. The post-COVID-19 package encouraging large-scale projects were aimed to encourage investment.
Projects with investments of minimum THB100 billion (USD3.3 billion) within 12 months of the promotion certificate issuance will be eligible for a 50 per cent additional corporate income tax (CIT) deduction over a five-year period. Projects that qualify must submit their applications between January 4 and the last business day of 2021.
The electronics industry, in particular, is thriving as a result of increased IT infrastructure investments to enable the further adoption of new technology, such as Big Data and 5G. Thailand is Southeast Asia’s first country to commercialise 5G technology.
BOI received 170 foreign direct investment applications between July 2018 and September 2020. It is totalling approximately THB1 billion in investment (USD3.3 million). The majority of the investors were from China, Taiwan, and Hong Kong. Additionally, they intend to relocate their smart electronics, auto parts, and metal goods manufacturing facilities to Thailand.
Meetings with investors from Japan, the United States, and Europe early this year reveals that many companies are planning to shift out of China. This is to reduce future risks, according to Kriangkrai Thianukul, vice president of the Federation of Thai Industries (FTI).
Chinese investment is growing rapidly in Thailand for the last two years. According to Jitti Tangsithpakdi, Head of the Thai-Chinese Chamber of Commerce, investors are looking to dodge increased U.S. tariffs. This is making them accept Thailand’s policy to welcome Chinese enterprises to invest in Thailand.
Industry Giants are Switching Bases to Thailand
Japan is the largest foreign investor in Thailand for decades. The Japanese government continues to encourage its citizens to build manufacturing bases in Southeast Asian countries. Several Japanese corporations have financial backing from their country’s Ministry of Economy, Trade and Industry (METI). This is to relocate production facilities to Thailand, according to the Japan External Trade Organisation (JETRO). The COVID-19 epidemic has negative effects on supply lines. Due to this, Japan set aside a USD 2.2 billion economic stimulus programme in April 2020. This is to assist its manufacturing in moving out of China. Amtech, San Alloy, Nadaka, Nikkiso, NikkiFrom, and Riki are among them.
However, a report of Mitsui & Co Global Strategic Studies Institute has some data related to Chinese Investment. It states that Chinese direct investment is steadily increasing since 2018, particularly in the industrial sector.
Apple, Google, and Microsoft are among the American technology companies aiming to relocate. They intend to relocate part of their hardware manufacturing operations from China to Thailand and Vietnam. According to Nikkei, Google is seeking a Thai manufacturing partner to set up production lines for smart-home devices. It also includes voice assistant-enabled speakers. Casio Computers, Daikin Industries, Sony, Sharp, and Delta Electronics are among the other major corporations that are operating from Thailand. From this the intentions of manufacturing giants to invest in Thailand is very much visible.
Taking Benefits of Opportunities to Invest in Thailand
Developers of industrial properties are also moving to meet the rising demand. The Industrial Estate Authority of Thailand (IEAT) intends to invest THB800 million (USD26.7 million). It will be in the first phase of the Smart Park Industrial Estate in 2021, with a completion date of 2024. This can be a nice avenue for you to invest in Thailand.
The authority would also hasten the deployment of 5G technology across all of its five industrial estates. It includes Map Ta Phut, Laem Chabang, Bang Pu, Lat Krabang, and Lamphun’s Northern Region Industrial Estate. 5G will dramatically alter the industrial process into a digital platform. These will be controlled primarily by robotics and automation during the next three years.
In addition, the IEAT board of directors gave approval to a proposal from private companies. It is to build three new industrial parks in the EEC region, totalling about THB80 billion in investment (USD2.7 billion). The 2,000-rai (790-acre) Rojana Industrial Estate and 2,600-rai (1,028-acre) Asia Clean Industrial Estate. Both are in Chon Buri, and the 650-rai (258-acre) Egco Industrial Estate, all in Rayong, are among these developments.
WHA Group is one of Thailand’s leading providers of integrated logistics and industrial facilities. It will open its first e-commerce park in mid-October 2020 to improve logistics in the EEC region. You can also decrease the risk in investment by starting your business in Thailand.
Due to the trade wars and a pandemic of unprecedented dimensions, it is difficult for any nation seeking to attract foreign direct investment. Thailand, on the other hand, has planned ahead of time and ready to answer any disruption arising. Any serious investor considering a move to Southeast Asia should consider this option. Simply write to us at [email protected] for additional information and assistance in the process.
