Is Thailand still an attractive business destination?

by Warwick Kneale, Managing Partner of Baker Tilly Corporate Advisory Services and Accounting Services, Thailand and Myanmar. Baker Tilly Australia is represented as Pitcher Partners.

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Beyond the natural beauty and food for which it is justly famous, Thailand's recent economic landscape has been rugged and maybe just a bit too exciting. Political upheaval and natural catastrophes have compounded some sovereign risk concerns which have lingered since Thailand led the region into the Asian financial crisis in 1997.

"For all the upheaval, Thailand's economy has been one of the success stories in South East Asia over the last 30 years."
Warwick Kneale, Managing Partner Baker Tilly Corporate Advisory Services (Thailand)

Since the Thailand-Australia Free Trade Agreement was ratified in 2005, the balance of investment has swung decisively in Thailand's favour. By 2012, Thai investment in Australia totaled $6.14 billion or 0.7 per cent of total foreign investment stock, placing it well within the top 17 countries.

Thailand is a country with a population of 67 million people and an ever increasing middle class. Its domestic market alone suggests it is worth looking at as a market for Australian goods and services. Yet that promise remains largely unfulfilled.

Despite that early role in the Asian crisis, Thailand emerged with only minor damage and resumed a period of moderate growth from 2002 to 2007 - before the global financial crisis hit the economy. But since this time Thailand's growth has been interrupted constantly by internal events.

In 2010 political unrest was the issue. Then in 2011, economic growth was interrupted again due to the flood crisis and once again by more political unrest in 2013 - still ongoing.

Yet despite all these disruptions, in 2014 the economy still managed moderate GDP growth of 1.6 per cent. And after the coup of last year, GDP is expected to grow this year by 4.5 per cent. As you can see in the graph below, the major protests and coups barely had any effect on the GDP growth of the country.

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So why doesn't Australia invest in Thailand?

Our trading relationship may be strong but Australia invests little in Thailand in comparison to what we invest elsewhere in ASEAN, particularly in Malaysia and Indonesia. Only 2.2 per cent of our FDI in ASEAN is in Thailand. Why?

The difficult resources investment environment here may be one reason and our investment in mining in Thailand is certainly less than Australia's global mining investment would imply – although ironically Kingsgate resources, with its Akara mine in Pichit province, is one of Australia's biggest investors in Thailand.

Another reason is that Australia doesn't have a bank here yet and banks catalyse investment. But that might change soon if ANZ exercises its option to establish a branch. Thirdly, investment in major manufacturing is probably not as large as you might expect given the favourable climate in Thailand (even with the current political problems).

And last of all, those old stereotypes of Thailand - a place for holidays not investment, politically unstable (sadly true at the moment), socioeconomically poor, a place of continual natural disasters – all probably contribute to a perception of Thailand not being in the forefront of Australian investors' minds.

What does history tell us?

For all the upheaval, Thailand's economy has been one of the success stories in South East Asia over the last 30 years, managing to continue to grow despite some major setbacks resulting from natural disasters, local politics and global economic events.

In a relatively short period of time, Thailand has managed to move from being a country stricken with poverty to a medium income country. And from the 80s to the 90s, the country was able to sustain an annual growth of roughly 8 per cent - up until the Asian crisis hit in 1997.

However, the crisis, while bringing many Thai companies to near bankruptcy, opened the door to foreign investment in the region, attracting expertise to deal with the problems faced by Thai companies.


So what are the opportunities for Australian – and regional - investment in Thailand? First of all, Thailand is a gateway to Asia. It is strategically located for both Asia and the ASEAN region, one of the largest growing economic markets in the world. Thailand is also one of the founding members of ASEAN, a favourable arrangement for reducing import duties.

Thailand itself has a lot of opportunities. A country of nearly 70 million people with steady growth, strong exports, a vibrant domestic consumer market, wealth of natural resources, as well as a skilled and cost-effective labor market, it has attracted foreign investors for many years.

Thailand also has excellent health care services, superb infrastructure (seven international airports, six deep sea ports and two international river ports). In 2014, Thailand was ranked 5th by Bloomberg as one of the most promising emerging markets in the world and placed 18th by the World Bank in their easiest countries in the world to do business.

To promote foreigners to invest in the future, the Thai Board of Investment (BOI) approved in November 2014 a very comprehensive “seven year investment strategy” which will, among other advantages, strengthen SMEs' capability.

The new investment strategy has been implemented since January 2015 and its main goal is to promote inbound value-added investments and overseas Thai investments in order to improve the country's competitiveness and overcome the Thai middle-income trap.

The main industries targeted include agriculture including economic forest plantations, light industries such as creative product design and development centres and public utilities such as biotechnology companies, software parks and energy service companies (ESCOS's). The incentives of the BOI Investment Plan can be as strong as receiving eight years of corporate income tax exemption (without cap), exemptions from import duties on machinery, exemptions form import duties on raw or essential materials used in manufacturing export products, as well as other non-tax incentives such as 100 per cent company ownership, land ownership and no work permit restrictions.

ASEAN competition

Besides Thailand, other countries within ASEAN have been attracting foreign investment in recent years. Cambodia was seen as the next Thailand and foreign investments started to flow in when Cambodia shifted to a free market economy in 1989. It has received more than $US25 billion in FDI since. The next opportunity to arise in my opinion will be Myanmar where the USA lifted most sanctions on Myanmar in 2012 and overseas companies started to enter.

What then does Thailand offer over other ASEAN countries? First of all, Thailand doesn't have an underdeveloped economy. In 2013, Thailand had, after Indonesia, the largest GDP in the ASEAN region and the 21st largest economy in the world (Australia was place 19th).

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Come and see the infrastructure of roads, tolways, industrial parks, container and deep water harbours and then compare them with neighboring countries and you will see what I mean. They are world class and in many ways better than what Australia has to offer. Come and see a city such as Bangkok with more than 30 international schools, overhead rail (BTS), underground rail (MRT), the best shopping centres in the region, many world class hospitals catering to many overseas patients from Europe and the Middle east and a domestic population available for your products and services of well over 12 million people in inner and outer Bangkok.

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A lot has been said in the press about the political unrest in Thailand but as far as the economy is concerned, the issue is more perception than reality.

Thailand has a young, vibrant and well educated workforce, with the result there is a growing middle class, attracting more purchasing power of consumer goods and services. Household spending is therefore relatively higher than its surrounding neighbors.

After Singapore, Thailand received the highest Corporate Governance score of all the ASEAN countries in 2014, number 4 in all of Asia, together with Malaysia.

In my opinion, Thailand is one of the easiest ASEAN countries in which to do business, with government departments such as the board of Investment spending vast sums of money and time promoting and encouraging FDI into Thailand.

Yet while the outlook is positive for Thailand, the political situation is still unresolved and will continue to hurt tourism and foreign investment in the near future. There are also fears of an impending credit crisis due to excessive consumer spending from credit cards and bank loans. Although a problem, this may provide its own opportunities for foreign investors.

So Thailand, as always, is a little perplexing. For all that though, its economic and demographic fundamentals, the history of resilience and relatively stable policy agenda all suggest Thailand is an under-valued investment destination.


Warwick Kneale is the Managing Partner of Baker Tilly Corporate Advisory Services and Accounting Services, Thailand and Myanmar. Baker Tilly Australia is represented as Pitcher Partners.

Kneale is a veteran Thai hand, joining Ferrier Hodgson Thailand in 1999 after three decades in banking. He has acted as a director of a number of Thai companies including a large, well known department store group and one of Thailand's largest IT manufacturers which he helped work through all stages of rehabilitation to finally re-listing on the SET and ultimately negotiating a take-out by a large strategic investor.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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