From Inward to Outward: An Assessment of FDI Performance in Thailand

Foreign direct investment (FDI) has long been a crux catalyst of impressive economic and industrial development in Thailand. It not only brings in capital resources and job creation but also offers new technology, knowhow, and managerial and organizational expertise, among others, to domestic industries vis-à-vis backward and forward linkages. Due to this reason, Thailand's economic development strategies have zeroed in on ushering in FDI since the 1980s. Even though the strategy that positioned Thailand as a regional host of FDI with low production costs and a rich source of relatively skilled workers has proven to be successful as it fuelled remarkable economic growth, the rapidly evolving business environment in the world highlights the erosion of Thailand's competitiveness. This was particularly evident in the aftermath of the global economic downturn in 2008-9, thanks to escalating labour costs, the rise of China and India, and chronic political unrest, in addition to the recent floods caused by poor infrastructure and flawed water management. These recent developments suggest that the conven-tional FDI strategy Thailand has adopted will soon reach its limits in providing the pace of economic growth and industrialization the country once experienced.

Against this backdrop, this chapter attempts to take stock of FDI, both inward and outward, in Thailand and assesses its potential and performance. Although the global economic crisis in 2008-9 negatively impacted the prospect of foreign investment in Thailand and spurred a sharp reversal, the recent developments witnessed a resurgence of inward FDI which has by and large set the stage for Thailand's robust economic recovery. Concurrently, firms headquartered in Thailand have also emerged as global investors. The recent trend of outward FDI flows from Thailand highlights that Thai firms have increasingly started to depart from their comfort zones, explore new business opportunities, and thrive on synergies and complementarities with new partners by venturing overseas. Nevertheless, several drawbacks and challenges remain and critically hamper the country from fully exploiting its massive potential. These include its passive strategy towards FDI that trapped itself in low-skill-intensive low-end production; inadequate infrastructure and institutional quality that prevents the country from fully exploiting its large potential; and unsatisfactory capacity of local entrepreneurs to venture overseas where new business opportunities and complementarities with foreign partners lie.

The remainder of this chapter is organized as follows. The second section reviews the current macroeconomic outlook in Thailand. The following section examines a primer of inward and outward FDI. The next section assesses the performance of inward and outward FDI. The final section offers some policy recommendations.

Current Macroeconomic Outlook

Notwithstanding a series of political unrest and the global economic crisis in 2008-9, the recent economic developments witnessed a rather sanguine picture of a robust recovery with a real gross domestic product (GDP) growth rate of 7.8 per cent in 2010; economic growth is projected to continue, albeit at a slower pace, towards the end of 2011. The economic resilience that has allowed the country to bounce back strongly and swiftly from the global economic meltdown resulted in the persistent increases in gross national product (GNP) per capita, thereby substantiating poverty reduction. The catalyst of Thailand's impressive economic performance has largely been the growing FDI inflows into non-agricultural sectors (e.g., manufacturing and service sectors) which account for more than 90 per cent of GDP on average, in addition to rising export demand from emerging countries like China and India. Looking beyond the current rosy outlook, recent macroeconomic variables, however, caution that several risks remain, and a weakening of economic fundamentals may emerge. This may ultimately reverse the upbeat trend of economic development in Thailand.

Firstly, an influx of capital inflows has undermined Thailand's competi-tiveness through rapid currency appreciation and escalating inflation. The net capital movement in 2010 reached US$23.9 billion — in contrast to a reversal of US$2.6 billion in 2009 and an average net inflow of US$1.45 billion during 2001-6 (see Table 1). The surge in capital inflows into Thailand has translated