Thailand 鈥� a gateway to South East Asia

While there have been mixed reactions to Prime Minister Kevin Rudd's desire to create an Asia Pacific Community, creating regional blocs, it seems, is the way of the future.

“While the American and European markets are important to Australian exporters and our country’s relations, it makes sense, considering Australia’s proximity to Asia, to increase trade relations with our Asian neighbours,” said the head of Australian Business International Trade, Ms Christine Gibbs Stewart.

“While the world’s exporters plunge headlong into the now overheated Chinese and Indian economies, they should not lose sight of those smaller, robust economies that are keen to grow and require our resources, knowledge and expertise.

“The challenge is that Asia is a massive region that is diverse in its political and economic structures, its levels of development, religious beliefs, languages and cultures.”

Board of Investment acts as a bridge to development

To assist with the growth of their economies, many countries such as Thailand are seeking foreign investment with the support of government and the private sector.

Thailand is fast becoming the logistics hub of South East Asia with a population of 65 million and the region’s second largest economy. 

To kickstart it investment program the private sector, with the support of the Thai government, has initiated ‘Thailand Investment Year 2008-2009’. Through the Thailand Board of Investment (BOI), which recently visited Australia, it is looking at ways to enhance the investment environment in Thailand. 

It is achieving this by reducing the application and approval process. 

According to the June 2008 Thailand Business Review processing times for approval will be reduced from 40 to 15 days for companies meeting the following criteria:

• Investment does not exceed 40 million Baht exclusive of working capital and cost of land

• The debt to equity ratio must not exceed 3:1

• Only new machinery will be used under the investment project

• There is no environmental impact issue and no environmental impact assessment required

• Value added is not less than 20% of sales revenue (except for project in agriculture and processing of agriculture projects, electronics and electrical parts, and services

According to BOI’s Director of Marketing Bureau, Duangjai Asawachintachit,  2008/2009 represents a major push by the Thai government to inject investment into the Thai economy which has improved its global competitiveness ranking from 33rd in 2007 to 27th in 2008 (IMD World Competitiveness Yearbook). 

“Our exports grew by 22% over the first quarter of 2008 with an anticipated growth of 13% for the remainder of the year. GDP has also increased from 4.5% to 5.5% from last year.”

A significant factor in this growth is the government’s commitment to infrastructure. Thailand maintains a modern road, rail, sea, air and communications infrastructure with the construction of sky trains representing an investment opportunity in the future. It also has state-of-the-art industrial estates.

To encourage industrial decentralization the BOI is offering investment incentives to existing businesses relocating to an industrial estate. These include:

• A corporate income tax exemption for eight years for investments greater than 10 million bath

• A 50% reduction in corporate income tax for five years after the exemption period. Further tax exemptions are available.

Australian automotive experience needed

While investment is sought in the alternative energies, agriculture, food processing, information and technology, marine construction and transport industries, the automotive industry is set to grow exponentially in Thailand.

The automotive sector is the largest in South East Asia with 1.3 million cars manufactured in 2007.

“This sector has undergone a drastic makeover,” said Asawachintachit, “Thirty years ago the industry produced cars purely for the local market. Hit by a financial crisis local car manufacturers began exporting and today 50% of the market is overseas.”

The Thai Government supported the automotive manufacturers by allowing them to expand the range of models manufactured.

It has also lead to the establishment of an Eco Car Policy aiming to produce 700,000 Eco Cars by 2010.

“These cars will comply with strict ecological and economic requirements and have an efficiency of 20 kilometers per liter.”

Currently, Australian car manufacturers are supplying expertise to the Thais and there are further opportunities for the supply of high tech parts and automotive electronics.

“Those manufacturers setting up operations in Thailand can also access the Free Trade Agreements that Thailand has with other countries.”

Thailand has FTAs with Australia, New Zealand, India, Japan, China and AFTA.  Trade with Australia has doubled since the FTA was effected in 2005.

Indian auto giant Tata Motors, manufacturers of one-ton pick up trucks, joined the eco-car program. It has set up regional operations based on the strong supply base, the qualified personnel, attractive government incentives, access to ASEAN and a number of other Free Trade Agreements.

“Working with the Board of Investment was a pleasant experience because they are so proactive,” said Tata Motors CEO Ajit Venkataraman. “The BOI, the Ministry of Industry and all the agencies we worked with have all been very supportive.”

According to Asawachintachit, there are even more attractive incentives for manufacturers setting up headquarters in regional areas of Thailand.

“Decentralisation has become a major thrust of the BOI’s investment scheme to accelerate development in disadvantaged areas,”

Thailand is divided into three zones that each have different, and more attractive, incentive packages. The Thai Government is also focusing on upskilling its workers to supply the labour hire needs of foreign companies setting up in Thailand.

“Bangkok is also becoming a mega hub of distribution with many companies choosing to set up their headquarters as Hong Kong and Singapore become more expensive.”

Thailand needs more service-related industries 

While the automotive industry in Thailand is offering opportunities for Australian manufacturers including 100% foreign ownership, it is the service-related industries (accounting for 50% of Thailand’s Gross Domestic Product), that need foreign investment.

To encourage these investments, aside from streamlining administrative processes, the BOI offers a range of fiscal, tax and non-tax incentives, support services and import duty concessions.

Tax incentives include:

• Exemption or reduction of import duties on imported machinery

• Exemption or reduction of import duty on imported materials and components

• A corporate income tax holiday of up to eight years

BOI can also find joint ventures, promote industrial subcontracting, offer business facilitation services to help resolve issues involving other government agencies. It also operates a one-stop service center for visas and work permits.

Thailand’s investment policies are geared towards liberalization and free trade. The Thais are seeking foreign investment that promotes skills enhancement, technology and innovation.

The attraction for investors is the government support, the incentives, the work ethic, and a resource pool of skilled people who are friendly and dedicated.