Will foreign investors still be wooed?
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Will foreign investors still be wooed?


This is my last article for 2023. Appropriately, I should write about the 2024 economic outlook but I have decided to postpone that to be the first article of 2024 as the analysis might be too unpleasant to digest right now. However, I will leave a "teaser" for readers to ponder over during the long holidays. As such, I am left with two choices: an article about informal debt -- I estimate outstanding debt to be over 400 billion baht and that it could have strong ties with grey money -- or an article about Thailand's ability to attract foreign investors, as our Prime Minister Srettha Thavisin travels all over the world to attract them. In the end, I opted for the latter.

Mr Srettha is trying hard to lure foreign investors because he correctly believes investment is the only sustainable solution for achieving 5% (or more) of annual GDP growth. According to the government's public relations pitch, 600 billion baht of high-quality investment ranging from Tesla to Amazon Web Services is lining up to enter Thailand. Is this a possible reality or just a PR pitch?

Before I answer that, let me give readers a "teaser" of my first article of 2024: the year's GDP outlook.

The World Bank, on Dec 14, 2023, came out with a press release showing a 3.2% GDP growth projection for 2024 and a 2.5% growth estimation for 2023 for Thailand. Higher growth prospects come from the recovery in tourism and exports. Wait a minute; I am having a déjà vu moment here. On June 28, the World Bank issued a press release saying Thai GDP growth for 2023 was set to increase to 3.9% from 2.6% growth the year before. The reason was rising demand from China and the United States and a recovery in the tourism sector. Hmmm.

The 3.2% growth target for 2023 is exactly the same number given by the Bank of Thailand and the NESDC (the Thai government's economic planning agency). It can be said that traditional economists have a consensual view on the economy. However, one black sheep economist has a different number.

I have done my initial projection for 2024 GDP growth. The answer is: minus 1.5% to plus 1.5%. Thailand's economic growth is at the mercy of foreign creditors. Minus 1.5% growth in case of capital outflow and +1.5% growth in case of capital inflow. The "base case" for my projection is 0.0% growth. Before criticising me, I would beg readers to wait two weeks to read the full article, to which the rejoinder may well be: "This guy's analysis actually makes a lot of sense."

But back to the issue of competitiveness. Before dreaming about 600 billion baht of foreign investment, please take a look at the table of selected Asean FDI in 2021-2023.

Before becoming delusional about future foreign investment, one must explain why Thailand is lagging behind Vietnam and Indonesia. I conclude there are four factors obstructing FDI from coming to Thailand.

First, the Thai population is ageing, as its labour force. The median age here is 40.2 years, compared to 32.8 years in Vietnam and 29.9 years in Indonesia. How about in China? China has a relatively high median age of 39.0 years, mainly due to its former one-child policy.

Second, Thailand has a severe labour shortage. The unemployment rate is ridiculously low at 1.06%, which is below the natural rate of 2.0%. Therefore, Thailand has to rely on the help of 2.3 million registered foreign workers (8.5% of the total labour force in the non-agriculture sector) to fulfil labour demand. The number is said to be around 5 million if illegal foreign workers are included.

Third, Thailand is a relatively high labour cost country. Our per capita income is US$7,298 (250,800 baht) while the numbers are $5,109 for Indonesia and $4,316 for Vietnam. Asking for a big rise in labour costs is therefore counterproductive. Because Malaysia's per capita income is rather high at $13,034, the country shares a similar fate as Thailand. Even with much higher labour costs, Malaysia attracts more FDI than Thailand. Malaysia must be doing something right while Thailand must be doing something wrong.

Fourth, Thailand has high electricity rates, even higher than those of the United States. Modern-day industries rely on automation such as sophisticated machines and industrial robots. Energy is an important cost in the manufacturing process.

If Thailand's electricity cost per kilowatt for industrial users is 100, it would be 90 in the United States, 83 in Malaysia, 75 in South Korea, 74 in India, 72 in Taiwan, 66 in Canada, 56 in China, and 46 in Vietnam and Indonesia. This comparison is based on March 2023 data. For electricity intensive industries, I think Thailand is the first choice to locate one's factories.

In my opinion, unless these four negative factors are fixed, it would be difficult to see a flood of FDI into Thailand. A great salesman needs good products to sell. If not, the prime minister's effort could be summed up as "Nato" (No Action, Talk Only).

Are there solutions to attract FDI inflows? There are two options -- the quick one and the right one. The quick one is effective but dangerous. It was (unintentionally) used after the financial crisis of 1997. That solution is the sharp depreciation of the baht. After the economy stabilised and the baht dropped to 42-45 per dollar, FDI tripled and investment growth jumped to 12.6% and 15.9% in 2004 and 2005, respectively. "Cheap Thailand" would surely attract more FDI.

It's not recommended, however. Quick, effective, but suicidal as a quarter of Thai businesses would go bankrupt and another quarter would be sold to foreign investors.

The right solution is ... shouldn't the NESDC answer this? However, I will give a hint. If you can figure out why Malaysia can attract FDI despite its high labour costs, you may see the development path Thailand should take. What are Malaysia's core industries and what should our (new) ones be?

Thai people love "get rich quick" schemes like the Land Bridge investment project. One trillion baht in and over 200,000 jobs created. A dream project sent from heaven? I have done a simple calculation of the financial feasibility based on the $9.4 billion of actual annual revenue of the Suez Canal. As the Thai Landbridge project would save only 800km of sailing distance compared to the Suez Canal's 6,000km, the former's revenue should be be US$1.25 billion (44 billion baht) a year.

That revenue (not profit) is not even enough to service interest rate costs of 50-60 billion baht.

I do not think investors would be interested in a project with no profit and a high bankruptcy risk.

See you again next year.

Chartchai Parasuk

Freelance economist

Chartchai Parasuk, PhD, is a freelance economist.

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