However, FDI into Thailand has been on the decline. In 2001, the proportion of Thailand’s FDI inflow against the gross fixed capital formation stood at 14.4 % and later decreased to 3.7, 5.4, 3.4, and 7.2 % from 2002 to 2005 respectively. The current state of Thailand’s FDI suggests that the country’s competitiveness in attracting FDI is on a downward trend.

When the competition regarding investment promotion incentives, both tax-related and non-tax related, is taken into account, it is found that Thailand’s incentive measures have a number of disadvantages to those of rival countries like Singapore and Malaysia in terms of both tax and financial incentives for exports and R&D—making Thailand less attractive as destination for investment than its competitors.

Nonetheless, the Board of Investment (BOI) has recently adjusted its investment promotion strategies, from attracting across-the-board investment through broad-based incentives to focusing on investment that enhances and develops the workforce with special expertise, placing more emphasis on the development and transfer of skills among different levels of the workforce, supporting R&D and technology transfer, and fostering innovation to attract quality investment.

          Therefore, the question is as to what would be the best investment promotion policy for Thailand—between reducing investment obstacles and handing out incentives to all investors on the one hand, and setting up conditions to selectively promote strategic investment on the other, given the present context where FDI is in decline.

          If we consider the short-term needs, setting up investment conditions is likely to aggravate the slowdown of FDI because Thailand still does not have enough advantages to attract quality investment. Setting up conditions that investors must transfer technology or establish R&D facilities in Thailand therefore would not possibly attract many investors.

On the contrary, when long-term sustainability is taken into account, the use of investment promotion policies such as tax incentives or other complimentary giveaways is usually effective in the short-run, but not sustainable in the long term. This is because rival countries can always offer similar tax cuts and investment promotion incentives, to the point that in the end no country may genuinely benefits from this zero-sum game competition.

I am of the view that the present investment promotion strategy should aim to meet both short-term and long-term targets. Thailand may need to use broad-based policies to FDI without posing too many obstacles or restrictions in order to stimulate the decelerating economy. At the same time, more specific measures aimed at attracting quality investment should be applied to meet the nation’s long-term strategic needs. 

However, attracting quality investment requires that Thailand deliver enough satisfactory rewards to make investors agree to transfer technology to Thai businesses and entrepreneurs. Those rewards cannot be generated by giveaways or simple incentives, but from the readiness of economic infrastructure, the quality of manufacturing factors, and the environments that are conducive to quality investment.

Increasing the incentives to attract foreign investment in R&D and technology transfer in Thailand must be accompanied by market development and healthy competition. This can be done by adjusting the economic structure towards the target economic sectors and speeding up trade liberalization with neighboring countries to expand market size and hence increase the payback for R&D investment. Existing laws should also be improved and better enforced to protect the rights and intellectual properties of investors.

In parallel, the government should aim to reduce investment costs in target economic sectors by addressing investment problems and obstacles, which are the tacit costs shouldered by the private sector, by developing human resource and basic infrastructure to accommodate the expansion of those target sectors, and by creating a conducive environment for quality investment. Efforts should also be made to attract pro-active investment by designating target industries and countries, as well as developing and fostering investment networks.