New sites for industrial parks advised to lure FDI

Dr Pimonwan Mahujchariya­wong, assistant managing director of KResearch, noted that even before the flood disaster, Thailand’s share of FDI in Asean had been declining. Last year, the proportion dropped to 8 per cent from 16 per cent between 2005 and 2009, while FDI to Indonesia has surged rapidly, rising to 17 per cent in 2011 from 13 per cent in the 2005-09 period.

Japanese investment in Asean has also flowed increasingly to Indonesia and Vietnam. The proportion of Japanese FDI in Thailand dropped to 21 per cent in the first 10 months of 2011 from 30 per cent between 2005 and 2010.
Before the flood, Thailand appeared to be regaining its status as a favoured destination for foreign investors, especially from Japan. For the first time in six years, the Kingdom returned to the top three choices of Japanese firms looking for overseas business operations.

However, Pimonwan said the flood had shaken investor confidence, so whether it remains an FDI destination will depend on the quality of flood-protection measures the government puts in place. The research house predicts that the government will come up with a clear plan in this quarter to restore confidence quickly and prepare for the upcoming rainy season. Meanwhile, the government should rapidly develop new industrial parks to prepare for future investment.
KResearch points out that Thailand cannot avoid the impact of the European debt crisis, so the outlook for exports this year will not be bright, expecting 5-per-cent growth compared with 16.7 per cent in 2011. Therefore, it is essential that the Thai economy rely on domestic consumption and investment by both the private and state sectors.

She said economic stimulus measures would boost gross domestic product by no less than 1 per cent, while the value of investments by the private and government sectors was expected to surge to between Bt400 billion and Bt550 billion.
The increase in daily wages, higher oil prices and rising household expenses after the flood are keys factors pressuring inflation this year, which KResearch forecasts at 3.9 per cent, similar to the 3.8 per cent in 2011, while GDP growth will be 3.5-4.8 per cent.
Pimonwan said Thai businesses should seek opportunities in emerging markets, which will be the key drivers of the global economy, such as BRICS (Brazil, Russia, India, China and South Africa) and MIST (Mexico, Indonesia, South Korea and Turkey). Thai businesses should also apply information and communication technology and auto­mation to reduce operating costs.

Policy rate
Thanyalak Vacharachaisurapol, head of money and banking at KResearch, said the Bank of Thailand’s policy rate would not go down because the inflation rate would still be high as the increased daily wage pushed up goods prices. Liquidity is likely to be tighter because of demand for loans. Yet the country can handle this, as BOT bonds valued at Bt800 billion are due to be redeemed in the first half of the year.
Moreover, financial institutions are more cautious on lending to balance their liquidity, and as a result, loan growth is expected to slowly |to 9-12 per cent from 13-15 per cent in 2011.

In addition, KResearch noted that management of the Financial Institutions Development Fund was an issue that should be followed closely, especially legal amendments regarding how the massive FIDF debt is to be serviced. Banks now pay 0.4 per cent of the value of their deposits to the Deposit Protection Agency, which represents Bt280 billion a year. If banks were required to pay a surcharge of up to 1 per cent as a measure to tackle the FIDF debt overhang, that would entail a total contribution of Bt70 billion to Bt80 billion per annum to the DPA.
In that case, banks are likely to pass the cost on to account holders, which is part of market mechanism.