These days I believe I am not the only one who thinks the Thai economy is slowing down. Many agencies, both public and private, have all revised down their growth forecasts for the country. Following disappointing first-quarter gross domestic product (GDP) performance, most forecasts now call for full-year growth of just over 4% compared with 5% predicted earlier. Second-quarter official GDP figures scheduled to be released next month will also likely be lower than expected.
In fact, we probably are already feeling the effects of an economic slowdown. I have not been going out much recently, but wherever I do go I see that many commercial places are less crowded despite a lot of sales promotions. Many shops on the streets seem closed, and I'm not sure if they've moved to malls or simply gone out of business.
But let's face it: Thailand has not been growing a lot for a long time. Since the recovery in 2000 from the Asian financial crisis, Thailand's economic growth has been among the lowest in Southeast Asia, averaging only 4.2% per year.
With increased globalisation and weaker prospects at home, it is probably not surprising to see more Thai companies pursuing growth abroad, and hence there has been a surge in outward foreign direct investment (FDI). Although last year was not a particularly good year for global FDI, which fell by 17% to US$1.39 trillion, total outward FDI from Asean members increased by 3%. Within this, the star performers have been Thailand and Malaysia, with gains of 47% and 12%, respectively.
If we look closely at figures for Thailand's FDI, we can see an interesting trend emerging _ from 2005-12, Thailand's outward FDI rose by 24 times, from just $500 million to $12 billion. Inward FDI, on the other hand, fell by 10%, from $8 billion in 2005 to $7.2 billion in 2012. And since 2011, Thailand has become a net exporter of capital. This means that outward FDI is outpacing inward FDI, via both greenfield investment (creating a whole new enterprise) and mergers and acquisitions (changing the ownership of existing enterprises).
In general, companies can reap many benefits from their foreign ventures. Going abroad can open access to foreign markets and raw materials, reduce operating costs and allow better integration into the global supply chain. Investing in foreign countries is also seen as a way to avoid tariff barriers and promote trade by generating new export and import opportunities. Capital-exporting countries receive other benefits such as repatriated profits and other payments.
Despite the seeming benefits of outward FDI, economic theory also tells us that while we are poor, we need to import capital from the rest of the world. To put it another way, capital should generally flow from rich to poor countries.
Thailand, as a developing country, remains relatively poor, with GDP of $5,500 per capita. Japan became a big investor nation in the 1980s with GDP of $12,000 per capita, while South Korea followed suit later in the 1990s with GDP of $10,000 per capita. So isn't it too early for Thailand to be a net provider of capital to the rest of the world?
As a developing nation whose growth is slowing down, Thailand needs as much capital coming in as it sees going out.
Foreign capital has been an important driver of our economic development. We used to be a fast-growing economy, and the investment component was a major growth contributor. However, the contribution of investment to GDP growth has declined significantly from its peak of more than 8% in 1990 to an average of 1.2% over the past decade.
In normal times, the entry of foreign affiliates has positive effects on investment, employment, technology transfer and spillover to local companies. In times of economic hardship, FDI can be the only source of external financing for the country. This has been the case for Thailand. During the 1997 financial crisis, FDI was the only steady source of inflows when other capital dried up.
Unfortunately, Thailand seems to have done worse in attracting foreign capital over the years. In 2005, the country ranked 27th in the world for inward FDI. Last year, it fell to 35th, overtaken by South Korea and Malaysia and far behind Indonesia.
The prospect of fast-growing Greater Mekong countries and massive infrastructure plans to strengthen regional connectivity should provide a conducive environment for Thailand as an investment destination. And given our location right at the centre of the region, there should at least be some positive spillover from Asean integration.
However, the recent decrease in inward FDI should not be taken lightly, as it raises an important question of why multinational companies are not coming to Thailand the way they did before and how we can improve our attractiveness in the eyes of foreign investors. So along with the current initiatives to encourage outward FDI, we urgently need good policies and incentives to ensure Thailand remains visible as an interesting investment destination globally.
Dr Tientip Subhanij holds a PhD in economics from the University of Cambridge and currently has a dual career in banking and academia. She can be reached at tien201@yahoo.com