Stronger trade ties further boost Thailand's suprlus


Benefitting from an export-oriented, industrialised economy and an ideal geographic position with proximity to Japan, China and high-growth ASEAN members, trade and investment in Thailand has expanded steadily in recent years on the strengths of its agricultural, automotive, electronics and textiles exporters. Anders Dong Hasselstrom, managing director of Maersk Line (Thailand), told OBG, “The automotive sector remains the country’s major export and while overall figures have dropped, this is a global trend. Electronics is a very close second export, and has been performing well despite fears of migration to neighbouring markets.”

The country is more economically liberalised than some of its larger ASEAN neighbours, and although foreign direct investment (FDI) inflows have trended downward after hitting an all-time high in 2013, the government has implemented several reforms reducing taxes and incentivising investment in high-priority industries. These efforts fit into the broader Thailand 4.0 and Cluster Policy economic development strategies, which seek to promote manufacturing along the country’s Eastern Economic Corridor (EEC).

Despite these headways, the US remains Thailand’s largest single export market, and Thai trade is highly exposed to China; all of which puts it at risk of a potential global shift towards economic nationalism and trade wars. Global currency market volatility could also see export growth fall below target this year. However, the country’s trade surplus has expanded significantly since 2012, supported by rising demand within ASEAN, and the rapidly expanding Cambodia, Laos, Myanmar and Vietnam (CLMV) market. Indeed, rising commodities prices and CLMV demand saw Thailand’s export revenues rise for the first time in four years in 2016.

At a Glance

As the second-largest ASEAN economy after Indonesia, Thailand holds a significant competitive edge in trade and investment. It shares borders with Cambodia, Laos, Myanmar and Malaysia; is located within 100 km of Vietnam and China; and has developed infrastructure networks and a liberalised economy. An economic reform programme launched in the wake of the 1997-98 Asian financial crisis has seen Thailand liberalise and reform its bankruptcy, land and property ownership laws, with foreign companies free to open and maintain bank accounts in foreign currency. The US Department of Commerce’s International Trade Administration (ITA) reports that despite the May 2014 coup and ongoing military rule under Prime Minister Prayut Chan-o-cha, Thailand has remained an open and market-oriented economy supportive of FDI. The ITA reports that investors are cautiously optimistic about economic growth prospects, as the country has maintained a diverse export market.

Investors Welcome

Thailand rose by eight places in the Heritage Foundation’s 2016 Index of Economic Freedom – a ranking of countries based on the intensity of government regulations in wealth-creating activities – to hit 67th place out of 178 countries. Thailand ranks third in ASEAN and 11th out of 42 Asia-Pacific countries. Notably, Thailand ranked high in “government size”, meaning the Thai government is not causing any unnecessary fiscal burdens, and also ranked above the global average in the taxation, labour freedom and regulatory efficiency categories.

The country placed 46th out of 190 countries in the World Bank’s “Doing Business 2017” report in terms of ease of doing business, unchanged from its 2016 ranking. Singapore was the best-ranked ASEAN member, followed by Malaysia at 23rd. However, Thailand was ranked ahead of Brunei Darussalam (72nd), Vietnam (82nd), Indonesia (91st), the Philippines (99th), Cambodia (131st), Laos (139th) and Myanmar (170th).

Thailand saw the most improvement in the survey’s starting a business category, recording a rise of 15 places to hit 78th. According to the survey, it takes an average of 25.5 days and five procedures to start a business in Thailand, compared to the East Asia and Pacific average of 23.9 days and seven procedures.


The Board of Investment (BOI), Thailand’s central investment promotion agency, reports that labour regulations are flexible and supportive to investors, while the average tariff for imported goods stood at 6.2% in 2017. Together with the Ministry of Commerce (MoC), the BOI oversees business development and foreign investment in Thailand, with the ministry setting policies and approving applications for foreign investment in any restricted sector.

The Foreign Business Act (FBA) of 1999 is the primary legislation for foreign investment in Thailand, setting foreign ownership limits across a range of restricted businesses and industries. Foreign ownership is restricted across three categories: investment is completely prohibited in print, radio and television media; rice and orchard farming, livestock, forestry and timber activities; and antiquities trading and commercial manufacturing of Buddha images. The second and third groups of businesses are restricted in terms of investment, but are still permitted if the investor obtains Cabinet approval and a licence from the MoC.

Restricted Sectors

Foreign investment in most service sectors has historically been restricted to a maximum of 49%, although the government has recently moved to reduce restrictions in the financial services sector, removing commercial banking, representative offices of foreign banks and insurance activities from the list of restricted businesses, effective February 2016. Restricted business areas under the second and third FBA annexes include any businesses related to national security, such as defence manufacturing, and activities affecting arts and culture, local artisans or natural resources. A Thai national must hold a minimum 40% stake in any company operating in these areas.

Other restricted industries include brokerage, rice milling, plywood and lime manufacturing, accounting, engineering, retail businesses with less than BT100m ($2.8m) of paid-up capital, hotel ownership, tourism, and food and beverage sales. Investors in these sectors need a license from the MoC and approval from its Foreign Business Committee. Exceptions are granted for nationals of countries with which Thailand has a bilateral trade treaty, including the US, Japan, Australia and members of the ASEAN Economic Community (AEC).

Investment Growth

Widely regarded as an attractive investment destination and springboard into the ASEAN market, Thailand has capitalised on its geography over the years, benefitting from significant FDI inflows in the years to 2014. However, the World Bank reports that FDI has been volatile over the past decade, with net inflows at current prices surging from $6.41bn in 2009 to $14.74bn in 2010, before falling to $2.74bn in 2011, when the manufacturing sector was severely impacted by flooding, and then recovering to $12.9bn in 2012 to reach an all-time high of $15.94bn in 2013. A military coup weakened investor confidence in 2014, and net FDI inflows dropped to $4.98bn that year, although they bounced back in 2015 to reach $9bn.

The UN Conference on Trade and Development ( UNCTAD) reports that the country’s total FDI stock rose from $179.29bn in 2013 to hit $192.22bn in 2014, falling to $175.44bn in 2015. FDI stock as a percentage of GDP is still higher than the 42.7% recorded in 2013, reaching 47.5% in 2014 and moderating to 44.4% in 2015.

Approved Vs Realised

Thailand’s macroeconomic growth improved in 2016, with the BOI reporting that FDI surged over the year, although the Bank of Thailand (BOT), which uses different methods to record FDI inflows, reported a steep drop-off during the first six months. The BOI, which measures FDI inflows on the basis of approved investment applications, reported that the total number of projects approved in the country jumped by 34.6% to hit 2237 in 2015, up from 1662 in 2014, while a total of 1688 new projects received BOI approval in 2016. The total value of foreign investment projects launched in Thailand has risen consistently since 2014, jumping from BT724.74bn ($20.4bn) in 2014 to BT809.38bn ($22.8bn) in 2015 and BT861.34bn ($24.3bn) in 2016. FDI created 139,137 new jobs in 2016, compared to 183,129 in 2015 and 128,606 in 2014.

However, in August 2016 the BOT reported that actual FDI inflows had tumbled by more than 90% yearon-year (y-o-y) during the first six months of the year to hit $347m at the end of June, compared to $4.2bn in the first half of 2015. This was the lowest level of half-year growth recorded since 2005. The bank attributed the contraction to lagging Thai industry, arguing that wage growth had outpaced increases in productivity. The BOT later recorded $24bn in capital outflows from Thailand in 2016, a sharp rise over $5.4bn in 2015.

Pro-Growth Policies

As it moves to address the challenges of the middle-income trap, Thailand has increasingly sought to attract new investment in high-priority industries, with the BOI and the government rolling out a host of new strategies in recent years, which should see FDI inflows accelerate.

The BOI’s seven-year investment promotion strategy, which runs through to 2021, targets growth in 10 categories: digital economy, trading nation, logistics development, science, technology, innovation, human resources, agriculture, tourism and eco-friendly industries. In September 2015 the BOI officially adopted the Cluster-based Special Economic Zones Development Policy, or the Cluster Policy, which seeks to revitalise manufacturing along the EEC, a 13,285-sq-km area encompassing the Rayong, Chonburi and Chachoengsao provinces (see Economy chapter).

Thailand 4.0

This government strategy envisions a shift to a service-based economy, focusing on technology uptake, creativity and innovation to develop critical next-generation industries. Transforming Thailand into a value-based economy requires a shift from export production to complex manufacturing, with 10 such industries identified. The first group of priority sectors already exist in Thailand: automotive manufacturing, smart electronics, biotechnology, agricultural processing, food innovation, and luxury and medical tourism.

The “Thailand Elite” programme aims to advance the luxury tourism market by enticing wealthy foreigners to live and work in Thailand. Pruet Boobphakam, president of Thailand Elite, told OBG, “Thailand is experiencing increased demand from high-net-worth individuals for elite programmes, which facilitate easier access to real estate investment, work permits and much more. This is one very specific market segment in which collaboration by various industries can immediately result in boosts to investment and consumption.”

Legal Reforms

Legal reforms are advancing the 4.0 agenda, and in January 2016 Prayut signed an executive order simplifying the approval process for development of special economic zones across 10 provinces. In February 2017 the Cabinet approved a bill removing the 49% foreign ownership cap in the aviation industry, granting discretionary authority for ownership limits to the Civil Aviation Board instead.

The Investment Promotion Act of 1977 (BOI Act) was also amended in January 2017, introducing new investor incentives such as import duty exemptions for research and development-related businesses; a corporate income tax exemption of up to 13 years for projects undertaking advanced technology or innovation-focused activities, which is up from the previous maximum of eight years; and an investment tax allowance of up to 70% of the project’s investment value.

Competitive Incentives

Perhaps most significantly, the government codified another series of investor incentives with the National Competitive Enhancement Act for Targeted Industries (NCEA), which came into effect on February 14, 2017. The NCEA seeks to bolster competitiveness by offering a new set of incentives for investors in targeted industries, including those that are new to the country, or use new technology or advanced production. Eligible companies include those investing in biotechnology, advanced manufacturing, creative and digital industries, nanotechnology, advanced materials manufacturing and digital technology. There are three categories of incentives under the NCEA: corporate income tax exemptions, non-tax benefits already in existence under the BOI Act and new subsidies to be rolled out under the Fund for Enhancement of Competitiveness for Targeted Industries, a BT10bn ($281.7m) seed fund newly created by the act.

Corporations are now eligible for income tax holidays of up to 15 years, compared to the previous maximum of eight. Meanwhile, investors continue to benefit from BOI Act exemptions and benefits, which include access to 99-year land leases, permission to hold a stake in a company beyond the limit prescribed in the FBA, import duty exemptions or reductions, and work visas. The new competitiveness fund targets investment projects involving research, development or innovation, offering grants to investors engaged in these activities.


In addition to boosting FDI and competitiveness, Thailand 4.0 initiatives support trade growth, which is in the midst of an ongoing recovery after years of trade deficits and contracting export revenues.

The BOT reports that Thailand’s top exports by category in 2016 were machinery, with BT3.41trn ($96bn) of exports; food, at BT940.7bn ($26.5bn); and manufactured goods, at BT928.1bn ($26.1bn). Its top imports in 2016 were machinery, with BT2.69trn ($75.7bn), manufactured goods at BT1.21trn ($34bn); and fuel, at BT868.2bn ($24.4bn). Thailand ended five years of trade deficits in 2015, when the country recorded a $11.72bn surplus, although this was partially attributable to a global oil price collapse, with fuel imports falling from BT1.56trn ($43.9bn) in 2014 to BT1.03trn ($29bn).

In 2015 export values contracted for the third consecutive year, falling to $214.4bn from $228.5bn and $227.5bn in 2013 and 2014, respectively. However, export values edged slightly upward in 2016, ending the year with a total export value of $215.3bn. The MoC attributed falling export revenues to contractions in the country’s strongest export segments – rubber, rice and frozen seafood, which contracted by 16%, 15.2% and 14.5%, respectively, in 2015.

Thailand’s trade surplus rose again in 2016 to hit $35.8bn, with exports playing a more significant role as gains in commodities prices and regional trade exports outperform expectations late in the year. Export revenues rose by 10.2% y-o-y in November 2016, and 6.23% y-o-y in December 2016 to finish the year up 0.45% at $215.3bn. Thailand is expected to record a $32.2bn trade surplus in 2017, according to the MoC.

Potential Headwinds

Geopolitical shocks present perhaps the most significant challenge to trade and export growth in 2017. The BOT reports that Thailand is the 11th-largest contributor to the US trade deficit, which could be of concern following the election of US President Donald Trump, who campaigned on a platform of economic protectionism. Trump’s first act in office was to withdraw US participation in the Trans-Pacific Partnership (TPP), which was slated to be the world’s largest free trade agreement (FTA).

Although Thailand is not a TPP signatory, it could nonetheless be impacted by protectionist policies in the US. The US was Thailand’s largest single export market in 2016, with exports rising by 5.8% to BT858.22bn ($24.2bn). Thailand has maintained a steadily growing trade surplus with the US for over 20 years, rising from BT38.74bn ($1.1bn) in 1995 to BT251.04bn ($7bn) in 1998, BT313.27bn ($8.8bn) in 2002 and BT373.63bn ($10.5bn) in 2006. Although the Thai-US trade surplus moderated to BT246.85 ($6.9bn) in 2013, it recovered to BT339.32bn ($9.5bn) in 2015 before surging by 26.8% to reach a 21-year high of BT430.27bn ($12.1bn) in 2016, according to MoC data. Thai exports are at risk of any potential US clampdown on imports, although it is worth noting that Thai goods have not been specifically or publicly targeted by the Trump administration.

Currency Volatility

Currency volatility also poses a potential trade headwind in 2017. In February 2017 Veerathai Santiprabhob, governor of the BOT, reported that Thailand is currently negotiating with Indonesia to begin settlement for trade and investment between the two countries in Thai baht and Indonesian rupiah. This is part of a strategy to expand settlement services in Thailand across a wider array of foreign currencies, including the Chinese renminbi and the Malaysian ringgit, thereby reducing US dollar exposure.

Regional media reports that a significant amount of cross-border transactions in Asia are quoted in US dollars. In 2015, for example, 85% of trade between Indonesia and Thailand was settled in dollars. Local currency settlement would reduce volatility, lowering spreads on currency conversions. On announcing planned new rupiah settlement services, the BOT urged businesses to brace for volatility by improving foreign exchange hedging, lowering their dependence on foreign currencies and financing, and establishing exchange rate management plans.

Asian Exposure

Analysts have also raised concerns over a potential trade war between the US and China, which could have negative knock-on effects for Thailand. China was Thailand’s second-largest single export market in 2016 after the US, with BT833.85bn ($23.5bn) of exports, a 4.1% increase over 2015. Exports to China rose by 87% between 2006 and 2016, according to MoC data, and the IMF reported in June 2016 that Thailand’s trade exposure to China has increased nearly five-fold since the mid-1990s, forecasting that a 1% decline in China’s GDP growth could in turn reduce Thailand’s growth by a quarter percentage point.

At the same time, AEC integration has benefitted Thailand, particularly within the CLMV market where Thailand’s trade surplus hit a record high in 2016. Over the longer term, Thailand’s membership in the Regional Economic Comprehensive Partnership – a massive FTA between China, India, Japan, Australia and ASEAN – will likely see the country further diversify its export base.

2017 Forecast

Export growth continued in 2017, increasing by 8.5% y-o-y in January. In February Somkid Jatusripitak, the deputy prime minister, told media that the MoC had raised its export growth target for 2017 from 3% to 5%. According to Somkid, strong demand for consumer products in emerging markets while oil prices remain low should bolster exports.

The MoC’s export target is one of the highest among trade and export stakeholders and the National Economic and Social Development Board projected export growth of 2.9% in 2017. In the same month the Federation of Thai Industries (FTI) told media that reaching 5% export growth would be a challenge given industry projections, the Thai National Shippers’ Council forecasts export growth will hit 2% in 2017, the FTI expects growth will reach 2.5% and the Joint Standing Committee on Commerce, Industry and Banking predicts exports will grow between 1% and 3% in 2017.


Despite facing an array of unpredictable challenges in an era of increased geopolitical volatility, Thailand’s political stability, steady macroeconomic recovery and investor-friendly business climate should keep both trade and investment on an upward trajectory in 2017. Although the country remains highly exposed to the US and Chinese export markets, it has witnessed surging trade volumes and a widening trade surplus in the ASEAN and CLMV markets. As AEC integration continues, Thailand remains well positioned to capitalise on rising consumption in the region, while government reforms aimed at promoting, incentivising and subsidising high-tech industries offer long-term support for the economy’s ongoing development.


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The Report: Thailand 2017

Trade & Investment chapter from The Report: Thailand 2017

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