FDI drives ASEAN and Thailand's economic growth, experts argue

Mom Rajawongse Pridiyathorn Devakula, former governor of the Bank of Thailand, underscored the crucial role of foreign direct investment (FDI) in driving the country's economic growth.

In his speech on 'Foreign Direct Investment and Thailand's Economic Growth' on Wednesday, he highlighted that Thailand's decision to open up to FDI in the 1960s was aimed at boosting export competitiveness.

To support this strategy, Thailand introduced a range of investment incentives and established the Board of Investment (BOI), providing assistance to both Thai and foreign investors.

As a result, Thai GDP grew seven times faster than Myanmar's, he explained. He also mentioned that the approval process for investment support has become faster, with no need for Cabinet approval, which enhances investors’ profits, builds supply chains, and creates more jobs.

He emphasized that open FDI is vital for developing Thailand's industries. After 1966, the BOI began promoting the production of import-substitute goods, such as electrical appliances and car components. 

This era evolved into one focused on exports, with 65 categories of export items now available, including processed agriculture products, ceramics, paper, textiles, hotels, and more. Meanwhile, the production of import substitutes grew significantly, driven by the low wages of 60-80 baht at the time.

He added that Thailand's discovery of natural gas and the 2015 announcement of modern industries enabled the country to export more products while upskilling and reskilling the workforce in fields such as nanomaterials, aviation components, software, polymers, bioproducts, and technical fibres.

From 2015 to 2024, the BOI issued promotional certificates for a total of 14,068 projects valued at 4.41 trillion baht, with 12,060 of these projects commencing, worth 3.91 trillion baht.

BOI’s future plans to boost Thailand’s economy

To address the impact of the COVID-19 pandemic and geopolitical tensions on Thailand’s exports, Pridiyathorn further explained that the BOI has developed plans for future industries, including BCG (Bio-Circular-Green), electric vehicle (EV), semiconductors, and advanced electronics, and digital technologies.

The BOI also encourages foreign companies to establish their international business centres in Thailand to further boost the economy. "I hope businesses will grow by 10% within one to two years once the conflict ends," he said.

Between 2022 and the first half of 2024, there were 517 semiconductor projects valued at 710 billion baht, 808 EV-related projects worth 320 billion baht, 57 digital projects valued at 810 billion baht, and 2,949 BCG projects worth 620 billion baht.

Pridiyathorn noted that 460 international companies from regions like Japan, Singapore, the US, Hong Kong, and Germany, operating in sectors such as automotive, electronics, machinery, and digital industries, have already benefited from these initiatives.

Labour shortages pose a challenge for Thailand’s future industries

However, Pridiyathorn noted that Thailand still faces challenges due to a lack of skilled labour. To address this, the Ministry of Higher Education, Science, Research and Innovation (MHESI) has developed a five-year plan to train 80,000 workers for the semiconductor sector, 150,000 for electric vehicles (EVs), and 50,000 for AI, with the initiative set to begin next year.

Pridiyathorn added that the first phase of personnel development will require foreign workers and may take several years to fully realise. To attract foreign direct investment (FDI), he advised Thailand to focus on developing a skilled workforce.

He also recommended opening visas for skilled workers to facilitate their entry into Thailand, and emphasised that access to reliable water and electricity are crucial factors for attracting foreign investors, as these resources are essential for operating businesses in the country.

ASEAN investment grows as digital economy drives FDI

During a session on “Global and Regional Investment in ASEAN and Thailand,” Dr Richard Bolwijn, Director of Investment Research at UN Trade and Development (UNCTAD), highlighted that while ASEAN’s manufacturing sector remains significant, high-value services, particularly in digital economies, are expanding rapidly.

Digital FDI, especially in sectors like ICT, data centres, and semiconductors, experienced substantial growth last year, with investment in semiconductors increasing by 140%. Despite these gains, investment in ASEAN remains concentrated in a few countries.

Thailand, in particular, has seen FDI growth in construction and digital infrastructure. However, the country still lags in attracting services-related investments.

While Thailand, along with its neighbouring countries, maintains investor-friendly policies, there is a noticeable difference in approach. While other ASEAN nations focus more on liberalisation measures, Thailand’s strategy remains relatively skewed towards offering incentives.

Bolwijn warned that fiscal incentives, particularly those aimed at large investors, may become less effective in the future. When considering incentives, we must be cautious about the future, as these measures may lose their impact over time, he cautioned.

He also emphasised that governance remains the most important factor for investors when selecting a location. "Transparency in rules and regulations, as well as low corruption, are critical factors that investors consider when making their decisions," he added.