Rising labor costs, an aging population, and political uncertainties in Thailand have had foreign investors looking into Vietnam.
Over the past few decades, Thailand outpaced other Southeast Asian nations in attracting foreign investments. The country has made major reforms in its business regulations, allowing multinational firms to set up their businesses faster than most countries in the region.
But Thailand’s allure as FDI king is seemingly fading as new countries emerge as attractive destinations for foreign direct investment.
Thai Enquirer, an independent media outlet in Thailand, reported that “Thailand has started to lose its crown of being the top FDI recipient to the likes of the newcomer Vietnam.”
The report highlighted while many ASEAN countries have already seen FDI net inflows almost back to pre-pandemic levels after their economic reopening, Thailand has been experiencing the opposite.
The rising labor cost, the aging population, the political uncertainties, along with growing competition for foreign direct investments has left Thailand licking its wounds in the race to attract investors to invest in Thailand, Thai Enquirer wrote.
Maybank Singapore analyst Lee Ju Ye said that Thailand has historically been successful in attracting FDI, with inward FDI stock rising significantly in the mid-1980s. The government’s export-led growth strategy drove this following the Plaza Accord in 1985, which resulted in a devaluation of the Baht relative to the USD and other Asian currencies, Thai Enquirer wrote.
Lee came out to say that the main issues that are weighing down were a steep decline in the services sector (-90%) but also a fall in the manufacturing industry (-15%), especially chemicals (-75%), electronics (-57%), and light industry & textile (-53%).
World Bank data show Thailand’s FDI peaked in 2013, with over $15.94 billion poured into the country. But it took a deep dive in 2014, with only $4.98 billion in net inflows. Thailand has shown fluctuating FDI since then.
In the first half of 2022, it only recorded $3.8 billion in FDI applications, less than half of the value in the same period last year — considering it was in strict lockdown then. In fact, Thailand’s inward FDI stock was the highest in ASEAN at US$ 279 billion in 2021, according to UNCTAD.
Thailand only recorded $3.8 billion in FDI applications in the first half of 2022. | Thai Enquirer.
The manufacturing sector received the largest FDI, accounting for more than 40% of total FDI. It added that FDI in real estate (19% of total FDI over the past ten years) and finance & insurance (17%) are the next largest target sectors. Japan, Singapore, and the US are its major investors, but US investments have been shrinking in recent years.
Thai Enquirer also revealed that despite plans to promote its automotive and digital sectors, the country saw “very little investments.”
In contrast, Vietnam is seeing a steady rise in FDI applications, particularly in its manufacturing sector. FDI in Vietnam reached 358.3 trillion VND ($15.43 billion) in the first nine months of 2022, a 16.3% increase from the previous year. This is the highest level of realized FDI in 9 months for the past five years. Vietnam recorded 1,355 new projects granted investment registration certificates, an increase of 11.8% over the same period in 2021.
“Thailand was once the top exporter of manufacturers in ASEAN, but today Thailand has been replaced by Vietnam since 2017. Vietnam’s share has risen sharply from just 0.46% in 2010 to 2% in 2020.”
The Thai new outlet also emphasized that Apple suppliers Foxconn and Luxshare Precision Industry’s decision to produce Apple Watch and MacBook in Vietnam for the first time is a big plus point to Vietnam’s FDI attractiveness.
The $1-billion Lego factory currently under construction at the Vietnam-Singapore Industrial Park is another major investment, further affirming foreign investors’ growing confidence in Vietnam.
By Agnes Alpuerto – Vietcetera. Published on October 18, 2022.