Local options key to FDI

Local options key to FDI

Thailand is moving ahead with plans to overhaul its infrastructure to build up transport networks and improve logistic efficiency across the country.

Many projects have been developed, while several others are in the pipeline as the bidding process continues for contracts related to the Eastern Economic Corridor (EEC) scheme.

It is normal practice for investment in such megaprojects to come in the form of consortiums or joint ventures as a variety of business expertise is required. Thus, some domestic investors secure foreign business partners to gain an advantage in their bids for government contracts.

Having foreign partners could benefit domestic investors as they can rope in a strong supply chain in such a way that it matches the required criteria to execute the project. In many of these cases, foreign partners are suppliers for the project themselves.

Some consortiums also use foreign financial institutions as partners and a source of funding.

Such types of arrangements surely increase chances to win projects at an auction. However, when one takes into account the benefit such projects bring to the country, the case might be different.

First of all, in such projects, large sums of money will flow out of the country to those foreign partners based on project value and the proportion of the partners' shares. The capital outflow can be done in various forms, such as revenue sharing, good and technological supply, hiring of experts and personnel, or consulting.

Of course, Thailand still has to rely on foreign supply of sophisticated products and technology to accommodate mega-infrastructure projects. However, a local content ratio should be set as a criteria for the bidding process to ensure that these projects do not procure material solely from their overseas suppliers which could be acquired locally. Otherwise, such procurements will add unnecessary cost to state projects.

For instance, it would not make sense if operators of rail projects purchase spare parts from overseas suppliers if there are cheaper local alternatives.

More importantly, investors or consortiums with foreign partners should be required to commit to technology transfer. Otherwise, the country will have to endlessly rely on those foreign suppliers.

China provides an interesting example. The country seems to be only one in the world which has acquired high-speed rail technology from Japanese, French, Canadian and German companies, which invested in its rail and train systems and were required to transfer the technology to China. Today, China is exporting those same technologies to other countries including Thailand.

Although China was forced by the United States and Europe to amend its law that forces foreign investors to transfer their technologies, the country has stood at the forefront as the world's biggest technology providers by leaps and bounds.

Given that Thailand is not a powerful country and it needs foreign investment to drive the economy, it should not follow the Chinese model exactly by enacting a law to force across the board foreign investors to transfer their technologies.

Still, the country should set technology transfer as a key criteria for foreign investors of those major infrastructure projects, whether they are individual investors or parts of Thai-foreign consortiums.

Such conditions can be set exclusively for investment in certain designated areas, particularly the EEC, instead of a blanket requirement for all projects.


Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

Email : anchaleek@bangkokpost.co.th

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