This is a key question to answer if one is contemplating a business start-up in S E Asia.
Let Bangkok Base take you through the fundamentals:
1. Thailand has a large well-educated population compared with most of its neighbours, with largely untapped pools of labour resident in the North-East.
Around 63 million people, of whom 92% are literate, make Thailand the 19th most populous country in the world. GDP per head of $8677 provides Thailand with a healthy domestic economy. (source: UNDP report)
2. Substantial incentives are on offer from the Board of Investment for the right sort of project.
The Board of Investment offers support to companies wishing to invest in a wide range of activities including, but not limited to, research and development, scientific laboratories, industrial zones for environmental preservation, waste water treatment, disposal services of refuse, industrial waste or toxic chemicals, and manufacture of specified industrial machinery, such as parts and equipment for high precision machining processes. The BOI web-site (http://www.boi.go.th/english/about/eligible_activities.asp) has full details.
Along with tax-breaks, BOI sponsorship also makes it possible to avoid some of the more restrictive elements of the Foreign Business Act, 1999.
3. Growth and stability
Notwithstanding the temporary return to military government (19 Sept 2006 – December 2007) and a subsequent hiatus in spending on large infrastructure projects, Thailand’s economy grew at the fastest pace in seven quarters towards the end of last year as exports of rice, automobiles and computer chips all steadily rose. Southeast Asia’s second-biggest economy expanded 5.7 percent in the fourth quarter, accelerating from a revised 4.8 percent in the third quarter (source: Thailand economy watch).
Those of us resident during this period saw few changes, little public disorder, and mostly rational uncensored debate. Veterans of earlier coups (e.g. 1992) can report the same, attributable in part to the religious beliefs of the population (more than 90% are Buddhist) and in large measure to the excellent leadership provided by His Majesty King Bhumibol.
4. Democracy has returned.
Elections were held on December 23rd 2007 (largely peaceful) and resulted in the return of many veteran politicians, mostly running under the People’s Power Party (PPP) banner. The PPP along with five smaller parties command all but 166 out of 400 seats in the House of Representatives. The Democratic Party constitutes the opposition. Changes to the constitution introduced during the period of military rule make it much easier than hitherto to challenge the Government in debate.
Election of 74 Senators took place on March 4th and they have joined 75 appointed Senators from all sectors of the community. A truly independent Speaker has been chosen and there is real hope that any excesses proposed by the House of Representatives will be curtailed by the Senate.
5. Recognition from the current government that foreign investment is good for the country.
Companies in Thailand are governed by the Foreign Business Act of 1999. Due to perceived abuse of loopholes in the Act which enabled Shin Corporation to be acquired by Temasek of Singapore in early 2006, the interim military government proposed changes to the law which would have closed the loopholes and made it more difficult for foreign shareholders to manage their investments here. The outcry from the business community was sufficiently loud to stall the enactment of the changes until a democratically elected body was in place to oversee these. So far, little has been said by the new Government about the FBA but, in an interview given shortly after appointment, the Deputy Prime Minister and Finance Minister Surapong Suebwonglee said “We must send a clear signal that nothing is retroactive and we are not shutting our door to foreign investment”.
In the same interview when asked “What are your views on the capital reserve requirement?” he said “Symbolically, the measure has been continually relaxed. I need to talk with the Bank of Thailand and analyse what strengthens the baht - irregular inflows or our own economic flaws. Our trade surplus is huge due to low investment. Without investment, the baht is strong. This abnormal condition allows speculation. To solve the problem, we need monetary and fiscal measures, taking into account the entire picture.” Since then the 30% reserve requirement has been dropped without an apparent upsurge in speculation.
6. Foreign reserves in excellent shape
Thailand’s net international reserves, which jumped by US$5.1 billion within a week before Feb 29, have soared to a new high of US$123.8 billion (Bt3.91 trillion), including forward positions.
On Feb 29, the Bank of Thailand (BOT) lifted its 14-month-old capital controls. Gross international reserves, which are currently less than the net international reserves, amounted to $100.5 billion as of Feb 29 due to the central bank’s intervention in the market to rein in the baht. The net reserves have risen sharply because of the BOT’s unwinding position of swap agreements to manage liquidity. It bought back the US dollar and sold the baht to counter upward pressures, causing the net forward position to drop to $23.3 billion, from $24.1 billion in the previous quarter. The rising reserves also resulted from valuation change as the euro, a main component of currencies in the BOT’s portfolio, has appreciated against the dollar.
7. Cautious optimism
As other Asian economies raced past their pre-1997 financial crisis stock exchange peaks, Thailand is still just a few notches up at half of its 1400-point high in the mid-90s, said Frederic Neumann, HSBC’s economist for Asia-Pacific. This means there is plenty of room in the upside for equity to climb, as stocks are still relatively cheap in terms of price to earnings, he added.
Bangkok Base shares HSBC’s cautious optimism, especially in the light of the massive increases in spending on infra-structure planned for the next three years. Prices of land around the new routes of the mass-transit rail network have risen by 10 per cent to 100 per cent this year since the government confirmed an investment of up to Bt500 billion in such schemes. The nine routes announced by Prime Minister Samak Sundaravej cover a total of 311km. Property developers are vying to secure additional land along the routes and many jobs will be created by such development in addition to the jobs created by construction of the routes themselves
