Japanese Investment in Thailand
7th-9th, 16th Floor, Bubhajit Building, 20 North Sathorn Road, Bangkok 10500, Thailand Tel: +662 266 6485 Fax: +662 266 6483/4
December 2016
Japanese Investment in Thailand by, Panupan Udomsuvannakul, Associate, Chandler MHM Limited, and Gillian Paulson, Chandler MHM Limited, Intern; University of Victoria, Vancouver, Canada
Introduction Foreign direct investment (“FDI”) in Thailand has grown rapidly since the 1990s, reaching a peak in 2013 with net inflows of USD 16 billion. Investors from Japan (ranked as Thailand’s leading source of FDI since 2013) have increasingly turned to investment in-country to enhance profitability as Thailand’s economic and institutional configurations have rendered it exceptionally attractive. Despite recent fluctuations in FDI, Thailand still warrants the confidence of Japanese investors. The Thai FDI regime continues to provide rewarding incentives, and is evolving and liberalising to further accommodate Japanese investment. Japanese FDI in Thailand A simple cost-benefit analysis informs the decision of an enterprise to invest abroad. The locational advantage of the foreign host economy must offer the opportunity for significant profitability relative to the local economy to motivate foreign investment. Factors such as adequate infrastructure, human capital, macroeconomic stability, degree of openness, exchange rate stability, low production costs, market conditions, and investment incentives of a host economy influence its attractiveness to foreign investors, as compared to domestic investment, as well as FDI in other potential target economies. Thailand faced a decrease in FDI following the mid-2014 change in government, and FDI from Japan did not prove immune to the impact of this event. The number of Japanese projects dropped seventy-five per cent between 2014 and 2015, with the aggregate value of investment shrinking by ninety per cent. However, Japanese FDI appears more resilient than that from other major foreign investors, and Japanese FDI in the first eight months of 2016 slightly surpassed total Japanese FDI in 2015. Japanese FDI should continue to rise as investors take advantage of Thailand’s reinvigorated regulatory regime and economic policies generating unique and rewarding investment opportunities. Opportunities for Japanese FDI Thailand’s Board of Investment (“BOI”) has identified key opportunities for future investment in Thailand. Japanese investors will likely find Thailand’s investment promotion schemes and the integration of the ASEAN economic community particularly attractive. 070217-2228751_1
E-mail: [email protected]
Website: www.chandlermhm.com
2 Since the early 1970s, Thailand’s BOI has offered economic incentives to encourage foreign investment. These incentives increase the relative profitability of investment in Thailand. Indeed, Japanese investment in projects entitled to BOI incentives far exceeds investment in ineligible projects. 1 Originally diversified across various industries, the BOI now entitles a number of specific industries to financial incentives. One particularly attractive, pending, BOI Bill under consideration is “BOI Plus’. This new initiative, if approved, would provide corporate income tax waivers for up to 15 years, plus financial support from the THB 10 billion Competitiveness Fund. Japan is one of the targeted country investors under the Bill. Another BOI scheme of interest to Japanese investors is the expanded super cluster policy, which introduces an aerospace and a robotics industrial cluster. Subject to certain geographic restrictions, the aerospace cluster covers the manufacture and repair of aircraft and aerospace devices and equipment. Promoted activities in the robotics cluster include the manufacture of automation machinery and the assembly of robots and automation equipment. The BOI further extended eligibility for super cluster incentives to certain activities in Food Innovation Industrial Zones, including plant and animal breeding, creative product design, and research and development. Japanese investors will also benefit from tax privileges and infrastructure assistance for investment projects in the Eastern Economy Corridor (“EEC”). With this initiative, the Thai government has undertaken to provide all necessary support to investors, treating them as “economic partners” in the EEC region. Of special interest, the ten targeted sectors proposed for the EEC include automotive, electronics, and food-processing. With the integration of the ASEAN economic community (“AEC”), Japanese investors’ utilisation of Thailand as a springboard into the entire ASEAN region can become increasingly advantageous and profitable. Japanese investors are actively seeking to enter the markets of Cambodia, Laos, Myanmar, and Vietnam (“CLMV”), specifically. However, regulatory complexities and lack of openness in these emerging economies can present obstacles to FDI. The ease of doing business, economic openness, and strategic geographical advantage of Thailand provide investors an efficient and reliable entryway to the CLMV markets. Further, as the Dawei SEZ deep sea port project progresses, strategic investment in Thailand as a gateway to the Myanmar market will become especially valuable. Future of Japanese FDI In 2016, Thailand and Japan celebrated 130 years of diplomatic relations. This long history and continuing growth of collaboration and cooperation in the political and economic spheres is strongly supported by both countries. With newly-introduced investment promotion schemes, Thailand remains a profitable and accommodating host economy for Japanese FDI. At the same time, there are certain factors which may impede investment in Thailand. The Japanese Chamber of Commerce, Bangkok (“JCC”) administers a biannual survey assessing the sentiment of Japanese business operators in Thailand. While the data only presents a subjective appraisal of the business climate in Thailand − based on data from those already investing in-country, the survey does provide good insight into the aspirations and concerns which potential Japanese investors likely share. 1
Chris Milnera, Geoff Reeda, and Pawin Talerngsrib, “Foreign direct investment and vertical integration of production by Japanese multinationals in Thailand” Journal of Comparative Economics 32, no. 4 (2004): 805–821.
120117-2197934_1
3 Survey respondents highlighted obstacles perceived as hindering business operations in Thailand, however, seventy per cent of those surveyed deemed the business environment in Thailand to be “improving”, with the expansion of BOI investment schemes as a significant factor driving this optimism. Total FDI Projects to Apply to BOI Year
No.
Invest.
Change
2013
2,237
n/a
1,110,366
n/a
2014
1,573
-30%
1,022,996
-8%
2015
559
-64%
106,540
-90%
2016 (Jan. – Aug.)
592
6%
145,705
+37%
FDI Projects to Apply to BOI Ranking by Investment 2014
2
Rank
2013 Country No.
Change
Invest.
Country
1
Japan
562
282,848 Japan
2
China
45
42,530 U.S.
3
Malaysia
35
29,190 Luxembourg
4
Singapore
93
22,781 Singapore
5
Hong Kong
39
20,181 Netherlands
6
U.S
55
7
Netherlands
8
Luxemburg
9
Taiwan
10
India
No.
Invest.
Country
672 293,334 Japan 74 130,921 Singapore 8
2016 (Jan. – Aug.) Invest.
Country
No.
Invest.
168
30,462
Japan
172
30,494
82
18,122
Singapore
73
26,034
2
15,737
China
66
22,069
43,980 China
53
12,457
22
14,984
47
39,796 U.S.
20
6,978
27
12,788
11,621 China
74
33,707 HK
29
4,287
HK Netherlan ds S. Korea
22
5,194
23
11,157 Malaysia
43
33,116 Taiwan
24
2,559
Taiwan
27
4,947
5
7,548 Taiwan
75
25,977 S. Korea
23
1,801
Malaysia
20
1,728
53
6,994 Hong Kong
45
24,502 Netherlands
14
1,269
Germany
19
1,387
17
5,296 U.K.
60
21,951 Malaysia
14
969
Denmark
13
1,361
127
60,532 Indonesia
2015 No.
General confidence in the Thai market continues, and although worldwide FDI levels have fallen, it appears that Japanese investment in Thailand will go forward steadily.
2
Siriporn Narkjeau, Summary on 2013 FDI in Thailand, April 2014 (http://www.boi.go.th/upload/content/FDI%202013_76189.pdf) 120117-2197934_1
December 2016
Japanese Investment in Thailand by, Panupan Udomsuvannakul, Associate, Chandler MHM Limited, and Gillian Paulson, Chandler MHM Limited, Intern; University of Victoria, Vancouver, Canada
Introduction Foreign direct investment (“FDI”) in Thailand has grown rapidly since the 1990s, reaching a peak in 2013 with net inflows of USD 16 billion. Investors from Japan (ranked as Thailand’s leading source of FDI since 2013) have increasingly turned to investment in-country to enhance profitability as Thailand’s economic and institutional configurations have rendered it exceptionally attractive. Despite recent fluctuations in FDI, Thailand still warrants the confidence of Japanese investors. The Thai FDI regime continues to provide rewarding incentives, and is evolving and liberalising to further accommodate Japanese investment. Japanese FDI in Thailand A simple cost-benefit analysis informs the decision of an enterprise to invest abroad. The locational advantage of the foreign host economy must offer the opportunity for significant profitability relative to the local economy to motivate foreign investment. Factors such as adequate infrastructure, human capital, macroeconomic stability, degree of openness, exchange rate stability, low production costs, market conditions, and investment incentives of a host economy influence its attractiveness to foreign investors, as compared to domestic investment, as well as FDI in other potential target economies. Thailand faced a decrease in FDI following the mid-2014 change in government, and FDI from Japan did not prove immune to the impact of this event. The number of Japanese projects dropped seventy-five per cent between 2014 and 2015, with the aggregate value of investment shrinking by ninety per cent. However, Japanese FDI appears more resilient than that from other major foreign investors, and Japanese FDI in the first eight months of 2016 slightly surpassed total Japanese FDI in 2015. Japanese FDI should continue to rise as investors take advantage of Thailand’s reinvigorated regulatory regime and economic policies generating unique and rewarding investment opportunities. Opportunities for Japanese FDI Thailand’s Board of Investment (“BOI”) has identified key opportunities for future investment in Thailand. Japanese investors will likely find Thailand’s investment promotion schemes and the integration of the ASEAN economic community particularly attractive. 070217-2228751_1
E-mail: [email protected]
Website: www.chandlermhm.com
2 Since the early 1970s, Thailand’s BOI has offered economic incentives to encourage foreign investment. These incentives increase the relative profitability of investment in Thailand. Indeed, Japanese investment in projects entitled to BOI incentives far exceeds investment in ineligible projects. 1 Originally diversified across various industries, the BOI now entitles a number of specific industries to financial incentives. One particularly attractive, pending, BOI Bill under consideration is “BOI Plus’. This new initiative, if approved, would provide corporate income tax waivers for up to 15 years, plus financial support from the THB 10 billion Competitiveness Fund. Japan is one of the targeted country investors under the Bill. Another BOI scheme of interest to Japanese investors is the expanded super cluster policy, which introduces an aerospace and a robotics industrial cluster. Subject to certain geographic restrictions, the aerospace cluster covers the manufacture and repair of aircraft and aerospace devices and equipment. Promoted activities in the robotics cluster include the manufacture of automation machinery and the assembly of robots and automation equipment. The BOI further extended eligibility for super cluster incentives to certain activities in Food Innovation Industrial Zones, including plant and animal breeding, creative product design, and research and development. Japanese investors will also benefit from tax privileges and infrastructure assistance for investment projects in the Eastern Economy Corridor (“EEC”). With this initiative, the Thai government has undertaken to provide all necessary support to investors, treating them as “economic partners” in the EEC region. Of special interest, the ten targeted sectors proposed for the EEC include automotive, electronics, and food-processing. With the integration of the ASEAN economic community (“AEC”), Japanese investors’ utilisation of Thailand as a springboard into the entire ASEAN region can become increasingly advantageous and profitable. Japanese investors are actively seeking to enter the markets of Cambodia, Laos, Myanmar, and Vietnam (“CLMV”), specifically. However, regulatory complexities and lack of openness in these emerging economies can present obstacles to FDI. The ease of doing business, economic openness, and strategic geographical advantage of Thailand provide investors an efficient and reliable entryway to the CLMV markets. Further, as the Dawei SEZ deep sea port project progresses, strategic investment in Thailand as a gateway to the Myanmar market will become especially valuable. Future of Japanese FDI In 2016, Thailand and Japan celebrated 130 years of diplomatic relations. This long history and continuing growth of collaboration and cooperation in the political and economic spheres is strongly supported by both countries. With newly-introduced investment promotion schemes, Thailand remains a profitable and accommodating host economy for Japanese FDI. At the same time, there are certain factors which may impede investment in Thailand. The Japanese Chamber of Commerce, Bangkok (“JCC”) administers a biannual survey assessing the sentiment of Japanese business operators in Thailand. While the data only presents a subjective appraisal of the business climate in Thailand − based on data from those already investing in-country, the survey does provide good insight into the aspirations and concerns which potential Japanese investors likely share. 1
Chris Milnera, Geoff Reeda, and Pawin Talerngsrib, “Foreign direct investment and vertical integration of production by Japanese multinationals in Thailand” Journal of Comparative Economics 32, no. 4 (2004): 805–821.
120117-2197934_1
3 Survey respondents highlighted obstacles perceived as hindering business operations in Thailand, however, seventy per cent of those surveyed deemed the business environment in Thailand to be “improving”, with the expansion of BOI investment schemes as a significant factor driving this optimism. Total FDI Projects to Apply to BOI Year
No.
Invest.
Change
2013
2,237
n/a
1,110,366
n/a
2014
1,573
-30%
1,022,996
-8%
2015
559
-64%
106,540
-90%
2016 (Jan. – Aug.)
592
6%
145,705
+37%
FDI Projects to Apply to BOI Ranking by Investment 2014
2
Rank
2013 Country No.
Change
Invest.
Country
1
Japan
562
282,848 Japan
2
China
45
42,530 U.S.
3
Malaysia
35
29,190 Luxembourg
4
Singapore
93
22,781 Singapore
5
Hong Kong
39
20,181 Netherlands
6
U.S
55
7
Netherlands
8
Luxemburg
9
Taiwan
10
India
No.
Invest.
Country
672 293,334 Japan 74 130,921 Singapore 8
2016 (Jan. – Aug.) Invest.
Country
No.
Invest.
168
30,462
Japan
172
30,494
82
18,122
Singapore
73
26,034
2
15,737
China
66
22,069
43,980 China
53
12,457
22
14,984
47
39,796 U.S.
20
6,978
27
12,788
11,621 China
74
33,707 HK
29
4,287
HK Netherlan ds S. Korea
22
5,194
23
11,157 Malaysia
43
33,116 Taiwan
24
2,559
Taiwan
27
4,947
5
7,548 Taiwan
75
25,977 S. Korea
23
1,801
Malaysia
20
1,728
53
6,994 Hong Kong
45
24,502 Netherlands
14
1,269
Germany
19
1,387
17
5,296 U.K.
60
21,951 Malaysia
14
969
Denmark
13
1,361
127
60,532 Indonesia
2015 No.
General confidence in the Thai market continues, and although worldwide FDI levels have fallen, it appears that Japanese investment in Thailand will go forward steadily.
2
Siriporn Narkjeau, Summary on 2013 FDI in Thailand, April 2014 (http://www.boi.go.th/upload/content/FDI%202013_76189.pdf) 120117-2197934_1
