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Thailand Investment Review – Thailand +1: Towards the AEC

Thailand +1: Towards the AEC from BOI’s Thailand Investment Review March 2015, Volume 25 No. 3

In September 2014, Prime Minister Prayuth Chan-ocha delivered a policy statement to the appointed National Legislative Assembly. His speech touched upon eleven key issues of importance but the prime minister paid close attention to the economic development of the country and boosting the competitiveness of Thai business operators and Thailand in Southeast Asia.

“Accelerating our efforts to enhance our readiness, whether in the areas of transport and logistics connectivity, trade facilitation, development of border areas, or human resources development, will help promote Thailand’s role and ability to make best use of opportunities in the ASEAN Community”. As stated by the prime minister, such a course of action “will enable Thailand to raise living standards of the Thai people together with those of the peoples of ASEAN”. Moreover, the Prime Minister Prayuth told the audience that his government’s policies are based on His Majesty the King’s principle of sufficiency economy.

In preparation for the ASEAN Economic Community (AEC) in late 2015, Thailand will usher in a period of drastic change regarding its industrialization strategies. Following a historical trend of accepting direct investment from Japanese companies that set up production hubs in the country, Thailand has succeeded in advancing the formation of industrial clustering. Moreover, numerous business opportunities lie in various sectors of the expanding Thai consumer market, including food services, hospitality, and logistics, which continue to expand over the past few years. Now, eyeing the launch of the AEC in December 2015, repositioning Thailand as a strategic base in the center of Greater Mekong Subregion is a critical challenge for Japanese companies expanding in Asia.

Meanwhile, Cambodia, Laos and Myanmar (CLM) are drawing great attention from the world recently as the “last new frontier in Southeast Asia”. Global companies are taking much notice of these countries as new destinations for shifting their labor-extensive production hubs from China or other ASEAN member states where labor costs continue to rise. Due to these changing circumstances, the transportation infrastructure projects sponsored by the Asian Development Bank (ADB) is creating a possibility for a new business model called “Thailand Plus One”, by linking the benefits of lower labor costs in neighboring CLM and the industrial clusters of Thailand.

Looking to maximize the potential of this prospect, Nikkei BP, together with the Board of Investment of Thailand (BOI), organized a seminar entitled “Thailand +1 – Strategy and Opportunity for Japanese Companies” on 8 July 2014 in Bangkok, with the aim of stimulating further the economic relationship between Thailand and Japan for the immediate future. It was a great success in that the audience turnout was robust and the event achieved its primary goal of informing participants, specifically Japanese firms, about the benefits of adopting a “Thailand + 1” stratagem to deal with the new economic realities associated with the upcoming AEC. The geographical location of the country in Southeast Asia, its proximity to the resources and markets of CLM, and the advanced state of the Thai economy make Thailand the logical springboard for companies to expand their operations across ASEAN.

The concept of “Thailand Plus One” has been received enthusiastically by Prime Minister Prayuth Chan-ocha who views it as the perfect instrument to attract a new-wave of overseas investment to the country. Under the policy, foreign entrepreneurs who invest in Thailand will be offered the chance to gain a business foothold in neighboring countries as well. The government would provide them with investment information and support.

Prime Minister Prayuth provided further details of this novel business model during a meeting with both executives of Thai companies that have invested in China and Thailand’s Asia Pacific Economic Cooperation (APEC) Business Advisory Council in Beijing back in November 2014. Later, government spokesperson Mr. Yongyuth Mayalarp said that the prime minister had informed the attendees that his administration was looking to increase foreign investment with the “Thailand Plus One” policy. As reported by the Bangkok Post, Mr. Yongyuth elaborated by declaring, “We plan to establish five special economic areas along the borders and have seven more in the next phase. As we hold talks with ASEAN members about transport connectivity, we will also help foreign investors expand their investments to our neighbors if they decide to invest here”.

It is no secret that Thailand is the manufacturing base for numerous products exported throughout the world, while its neighboring CLM countries have the potential to meet the supply chain needs of foreign companies in the ASEAN region.

In addition to embracing the “Thailand Plus One” approach, the administration of Prime Minister Prayuth Chan-ocha repeatedly has mentioned that Thai overseas investment is a national priority. Thailand’s Outbound Foreign Direct Investment (OFDI) has increased continuously since 2007, mostly to Singapore, Indonesia, Vietnam and Myanmar. During the last 5 years, more than two thirds of Thailand OFDI derived from the manufacturing and mining sectors, while wholesale, retail, financial and insurance and real estate were among the industries that Thai businessmen have demonstrated keen interest. The principal destination for Thai OFDI was to ASEAN countries, accounting for more than one fourth. The rest comprised of the European Union, Hong Kong, Japan and the United States.

To overcome domestic resource limitations and to seek new business horizons Thai entrepreneurs need to branch out overseas. Indeed, the targets for Thailand OFDI are market expansion and predominantly labor intensive industries, such as textiles and garments, shoes and leather, agriculture, food preparation, metal processing, auto parts and accessories, construction materials and real estate development. By the end of Q3-2014, the amount of Thailand accumulated OFDI was US$6.6 billion. The top destinations for Thai businesses were Indonesia, Vietnam and Myanmar.

When the region becomes one community under the ASEAN Economic Community later this year, the administration of Prime Minister Prayuth Chan-ocha is confident that Thailand can tap fully the benefits of economic integration. The expectation is for the country to turn the proverbial corner and experience once more uninterrupted growth, development, and prosperity. Accordingly, the Thai government views the comprehensive implementation of both the “Thailand Plus One” and Thailand OFDI strategies as the engines that will propel the country forward once the AEC is inaugurated.