AEC, new SEZs to pull in more FDI this year

However, they would like investment promotion policies to be more clear-cut, especially for service businesses, which have been protected too long under the Foreign Business Act (FBA).

Last year, Thailand was undergoing economic-policy reforms to prepare it for the next phase of growth. As 2016 is the year of investment, the government has cooked up many incentives and privileges. 

The industrial structure will also be shifted from labour-intensive, low-wage production to higher-value-added manufacturing with a focus on 10 “future” industries.

Those industries are next-generation cars, smart electronics, niche tourism, agriculture and biotechnology, food, robotics, biofuels, biochemicals, digital and medical services. The niche tourism markets are affluent, medical and wellness, while robotics will be aimed at industry, logistics and aviation.

For example, the government will promote new investment that will lead to the production of automobiles of the future that use higher technology and are more environmentally friendly, while the electronics industry will focus on smart gadgets and devices.

For the agriculture sector, the focus is on higher-technology processing and greater use of biotechnology, while the tourism industry will be upgraded in terms of quality of services.

Deputy Prime Minister Somkid Jatusripitak said recently that these industries were expected to be the country’s new economic engines, as existing industries face increased competition from other countries that pay lower wages.An SEZ will be created for each of the superclusters of industries targeted by the government, while research and development centres will be promoted to attract multinational investors. 

The 10 provinces to get an SEZ are Tak, Sa Kaew, Mukdahan, Songkhla, Trat, Nong Khai, Narathiwat, Chiang Rai, Nakhon Phanom and Kanchanaburi. 

The targeted industrial clusters are agriculture, fishery and related industries, ceramic production, textiles, garments, leather goods, furniture, jewellery and ornaments, medical equipment, automobiles, machinery and parts, electric appliances and electronics, plastics, pharmaceuticals, logistics, industrial estates and tourism-support businesses.

The Board of Investment has extended corporate-income-tax exemptions by up to two years for investment projects that can begin operations by the end of next year.

Hirunya Suchinai, secretary-general of the BOI, said the board agreed to introduce measures to accelerate investment projects and stimulate the economy by offering additional tax exemptions to investors that submitted projects during a two-year window that began last year. They have to be able to commence production or service provisioning by the end of next year. 

It will also amend the BOI Act to allow the board to increase its corporate income tax exemption to 13 years from eight years. 

Projects located in SEZs will receive two more years of corporate income tax exemptions than they would have been entitled to under the current rates, but not exceeding eight years in total. 

Projects that are already entitled to eight years of tax exemptions will receive half of the corporate tax reduction for the following five years.

In the first nine months of last year, Japan was the largest provider of foreign direct investment (FDI) as measured by BOI-approved projects. It proposed 367 projects worth Bt123 billion, followed by Singapore with 102 projects worth Bt33 billion and the United States with 37 projects worth Bt31 billion. 

Foreign investors applied for incentives for 408 projects worth Bt75.8 billion, while 904 projects were approved from January-September.

Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand, said more foreign direct investment was on its way in 2016 thanks to the clarity in the economic plans and the expected tangible development in the government’s investment in infrastructure.

“There is confidence that there will be more opportunities here in 2016,” he said.

“The government has to liberalise the service sector further to ensure that there will be more innovations to supply the changes in the business model.” 

Thailand’s booming tourism industry will be another calling card for FDI besides investment in infrastructure “as long as the political situation continues to be stable”, Kang said. China and Japan are already eyeing Thailand’s investment in infrastructure.

“The government has clearly been following its road map, but it needs to show efficiency and has to commit to its promised reforms, as it has made many reform commitments, while transparency is also needed to ensure political stability,” he said. 

Outgoing Indian Ambassador Harsh Vardhan Shringla said there was an increase of his country’s FDI to Thailand.

In the last 18 months alone, the Indian Embassy has organised 45 economic events involving Thai small and medium-sized enterprises to explain India’s markets to them. Now 40 Indian companies are manufacturing here and at least 100 maintain offices here.

Thailand’s automobile, petrochemical and information-technology industries are “of great interest to Indian companies”. 

“Thailand is the centre of Asean and Thailand is the most favourable for Indian investors in terms of access to the rest of Asean,” he said.

The country’s investment in infrastructure and its increase in visitors mean private investment will follow, while the inherent strength of Thailand’s economy is still there, Shringla said. “India has already signed a few trade agreements with Asean and we are negotiating a free-trade agreement with RCEP,” the Regional Comprehensive Economic Partnership. 

“When that comes true, then it will be obviously looking at a market of over 3 billion people, which accounts for almost 25 per cent of the world’s economy, which is a huge opportunity,” he said. 

Darren Buckley, president of the American Chamber of Commerce in Thailand, said American investors were interested in the SEZs and were expanding here, but they needed to get more information and hear more about the privileges that the Thai government will offer.

The government has moved in the right direction by promoting super-cluster and high-tech investment. Not only are large US companies interested in dabbling in those businesses, but SMEs as well. However, US firms have called for the Thai government to allow more investment in the service sector, as many service businesses are still protected by the FBA.

Masayasu Hosumi, chairman of the economic research committee of the Japanese Chamber of Commerce in Bangkok, said there were already more than 4,500 Japanese companies operating here, so interest in investing in the newly set-up SEZs might still be low at the moment. 

It could be because of the large number of companies already here. Japanese investors would like to see more incentives issued clearly by the Thai government, he said.