Doing business in Thailand / Foreign Investment
Investment Boom
There is no doubt that since the end of 1986, Thailand became a favorite location for foreign firms escaping from appreciating currencies and escalating labor costs. The large inflow of foreign firms has been matched by local investors who, stimulated by lower interest rates and a booming economy, have also increased investment activities.
As evidenced by the Bank of Thailand’s Private Investment Index (which is constructed from a number of critical investment indicators), the investment recovery which started in late 1986 resulted in a 25.5 percent growth of private investment in 1987, a 33.6 percent growth in 1988, and an 18.5 percent growth in 1989. The continued growth of private investment activities reflected the private sector’s confidence in the state of the economy and the government’s constructive policy towards investment.
1989 saw particularly strong growth in imports of capital goods and the number of permits granted to construction projects for residential, commercial and industrial use. Domestic private investments were further encouraged by the large number of investment projects receiving promotional privileges from the Board of Investment during the previous 18 months. This factor, combined with the significant investment opportunities in the infrastructure area, should continue to fuel private investment into the 1990’s.
Net foreign direct investment inflows increased dramatically in 1988 and continued to shoot up in 1989. The bulk of foreign investments in the first six months of 1989 (52 percent) went into the industrial sector, with more than one third accounted for by electronics alone. Supporting industries such as in the field of metal products and chemicals increased their share over the 1988 levels, reflecting the government’s aim of strengthening and deepening the industrial base.
Indications from the Board of Investment suggest that the investment growth is likely to continue for several years, as projects that have received promotional privileges come on stream. While the number of projects receiving promotion status in 1989 fell below the 1988 levels, the investments proposed actually increased. Most proposed investments are for export oriented light industry projects but a number of major chemical and heavy industry projects are included in the total. Some 60 percent of the new project approvals had foreign capital involvement.
An increasing number of the new entrants to the Thai market are companies from other East Asian countries using Thailand as a base for small light industry export oriented activities. Indeed, Taiwan and Hong Kong accounted for 24 percent of total Board of Investment project approvals in 1989. However, in terms of investment stocks, Japan and the United States remain the major investors in the Thai economy, each accounting for about 30 percent of the total.
On the government side, investment expenditures in 1989 grew by 15.5 percent over the levels in 1988 reflecting the attempts of the various state enterprises in the areas of electricity, water supply, telephones, and ports to expand their activities in line with the growth of the economy. These activities are expected to grow even faster in the early 1990’s as the public sector makes serious efforts to address the infrastructure bottlenecks in the economy.
Investment Regulations
Equity participation of foreigners in business activities in Thailand is strongly encouraged by the government to further the industrialization of the country. To augment foreign investment, the government adopted an open door policy in almost every economic sector.
But in spite of the fact that Thailand very much welcomes foreign investment, potential foreign investors may find that a number of regulations restrict their choices. Laws prevent them from having more than a certain fixed limit of the shares in many enterprises (such as in banking, commercial transportation, fishing etc). The Alien Business Law of 1972 defines the areas in which foreigners can operate.
To start with, an alien is defined as a natural person without Thai nationality or as a legal entity (principally a corporation) in which half or more of the capital is owned by aliens, or half or more of the shareholders, regardless of the amount of their investment therein, are aliens. An alien business is one either fully or primarily owned by a foreign natural person or legal entity, or in the case of a limited or registered ordinary partnership, where the managing partner or manager is an alien.
The law places business activities into three categories, A, B, and C. Those in A are closed to aliens, as are those in category B, unless they are promoted by the BOI. While those in category C are open, aliens are in principle only granted permits if the authorities are convinced that such a business could not be competently carried out by a majority Thai-owned company.
If the business activity is governed by the Alien Business Law, foreigners must apply to the Ministry of Commerce for an Alien Business Licence which may be valid for a fixed period or for an unlimited time but subject to certain conditions.
Category A Businesses
Agriculture: rice farming, salt farming including salt making except rock salt
Commerce: internal trade in local agricultural products and land trade
Services: accounting, law, advertising, architecture, brokerage or agency, auctioning, barbering, hair dressing, and beautification
Other businesses: building construction
Category B Businesses
Agriculture: cultivation, orchard farming, animal husbandry, silkworm raising, timber, fishing
Industry and handicrafts: rice and sugar milling, flour making, manufacturing of drinks and beverages, ice making, manufacturing of pharmaceuticals, cold storage, timber processing, manufacturing of gold, silver, nickel ware and stone inlays, manufacture of Buddha images and bowls, wood carving, lacquer ware making, match manufacturing, manufacturing of cement, dynamiting or quarrying of rocks, manufacturing of plywood, veneer wood, chip board or hardboard, manufacturing of garments and footwear for local markets, printing, newspaper publishing, silk spinning, weaving or silk fabric printing, manufacturing of products from silk fabric, silk yarn or silk cocoons
Commerce: retailing except of products under category C, oil trading except for items under category C, selling of food and drinks, trading of antiques, heirloom or fine arts objects
Services: tour agency, hotel business, photography, photographic processing and printing, laundering, dress making
Other business: domestic, land, water and air transport
Category C Businesses
Commerce: wholesale trade except items included in category A, all exporting, retailing of machinery, equipment and tools, selling of food and beverages for the promotion of tourism
Industry and handicrafts: manufacturing animal feeds, vegetable oil refining, textile manufacturing, including yarn spinning, dyeing and fabric painting, manufacturing of glassware including glass bulbs, manufacturing of food bowls and plates, manufacturing of stationery and printing paper, rock salt mining, mining
Services: all those not included in categories A and B
Other business: other construction not included in category A
Continued
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