Over the last several years Thailand has become a favoured destination for Foreign Investments, out pacing many of its regional neighbors and helping to spur dramatic GDP growth in the vibrant South East Nation. Make no mistake, however, while Thailand does offer plenty of opportunity for growth only smart and well-thought out investments is going to result in substantial profits. So why are so many companies and investors investing in Thailand?
Thailand’s FDI numbers have been growing. In the first half 2012 alone FDI surged 66.5 percent to USD 9.4 billion. From 2010 to 2012 accumulated FDI investments grew from USD 118 billion dollars to USD 159 billion dollars. Compare this with the Philippines which saw its accumulated FDI grow from USD 24.5 billion to USD 28.5 billion. Other countries, such as Indonesia, have seen strong growth in FDI in recent years but even in a nation with more than 250 million people total accumulated FDI stands at only USD 126 billion, far less than Thailand.
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Much of the FDI is focused in the manufacturing sector, which was heavily damaged during the 2011 floods. Ford Motor Company (NYSE:F), Intel Corporation (NASDAQ:INTC), and Seagate Technology PLC (NASDAQ:STX) among many others maintain extensive manufacturing plants in the country. And much of the manufacturing is high end assembly and production, not low-end low-cost manufacturing as dominates China and other regional countries.
Other investments are growing in the fast moving consumer goods market. This sector is heavily dominated by local companies, however, international retailers are finding increasing success in luxury niches. Automobile sales have also been growing rapidly, gaining 81 percent YOY, fueled in part by a “first car” tax rebate program being offered by the government. It should also be noted that these numbers were likely skewed by the 2011 floods which severely impacted automobile manufacturing, resulting in a shortage of cars.
So why are investors giving Thailand so much love? Thailand offers a mix of low labor costs and solid public infrastructure. The World Economic Forum found that Thailand has the world’s 46th best public infrastructure. Compare that to Indonesia (90) and the Philippines (113) and it is clear to see that Thailand offers substantial advantages in infrastructure compared to regional neighbors at similar levels of economic development. While other regional neighbors, such as Singapore (3) and Malaysia (27), may offer better infrastructure and government support, labor costs are also much higher.
Consumer consumption is also rising fast in Thailand. The Economic Intelligence Unit estimates that GDP per capita (PPP) will surpass USD 10,000 per year for the first time in history. The Fung Global Institue found that 65% of Thais now see themselves as middle class. Thailand is quickly moving towards Middle Income status and as it does purchases of consumer goods, ranging from luxury foods to smart phones, should grow dramatically. Many international retail operators and consumer goods companies are now beginning to expand their offerings in the nation in order to tap into this increasing demand.
Interestingly, economic growth has greatly increased the amount of capital held by Thai companies which in turn has resulted in increased FDI outflows from Thailand. Many Thai companies are now looking to diversify their own portfolios and operations and are expanding throughout South East Asia and beyond. Thai investors have now invested some USD 46 billion dollars abroad as of 2012.
While Thailand does offer great opportunities for investment it should be cautioned that numbers may have been skewed by the 2011 floods. Many foreign companies delayed investments until after the floods subsided. This likely caused a bump in 2012. Either way with a solid public infrastructure, growing consumer base, and low labor costs Thailand is likely to post some of the strongest economic and FDI growth in the coming years. Investors who are prudent with their investments and invest for the long-haul are likely to gain substantial returns.