Foreign Direct Investment

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

Foreign direct investment is an important element of Thailand's economic development, and the country is one of the major FDI destinations in its region. However, the global economic crisis triggered by the Covid-19 pandemic has affected the country's attractiveness. According to UNCTAD's World Investment Report 2022, FDI stood at USD -4.8 billion in 2020, down from USD +4.79 billion in 2019, partly driven by the sale of Tesco (UK) to a group of Thai investors for USD 10 billion. It came back to 11.42 billion in 2021.The stock of FDI stood at USD 289.39 billion in 2020 and 279.14 billion in 2021. Japan and Singapore are by far the largest investors in the country, accounting for just over half of FDI inflows. Hong Kong, the US, the Netherlands, China and Mauritius are also among the top investors. Manufacturing and financial and insurance activities attract almost 70% of all FDI inflows. Investments in real estate, trade and information and communication are also substantial. On the other hand, outward FDI from Thailand has more than doubled to USD 17 billion in 2020 from USD 8 billion in 2019, mainly in financial services and manufacturing in neighbouring countries. Thai companies have actively pursued cross-border M&A purchases (for example, Bangkok Bank acquired Bank Permata in Indonesia for USD for USD 2.3 billion).

Thailand has been a consistent recipient of Chinese investment for some time, and its geostrategic position as the heart of the ASEAN free trade bloc, with free trade access also to China and India, has made it a hub for many Chinese investors. This has manifested itself primarily in the drive to digital economies and is building Thailand up both as a connectivity hub, and as a key node for Asia in new tech. Plenty of money is being both raised and made via Chinese investments into various Thai based initiatives in crypto, fintech, blockchain, and AI, as well as health care, including medical tourism.This, coupled with extensive infrastructure connectivity plans uniting Thailand to ASEAN, other export markets, and the development of numerous free trade zones on outlying islands is seeing the country take on a highly competitive global role for foreign investment into the South Asian region (ASEAN Briefing, 2023).

Thailand is among the countries with the most reforms in business regulation over the past few years, which have facilitated the setting-up processes and reduced the time to start a business from 29 days to 6 days. The rights of borrowers and creditors have been strengthened as well as the system of land administration. The country has taken steps to clarify corporate governance, ownership and control structures by enacting legislation requiring companies to appoint independent members of the board of directors and to establish an audit committee. Thailand continues to offer more incentives to invest in advanced technologies, innovative activities and research and development through the Investment Promotion Act, and the Eastern Economic Corridor (EEC) Act, which offers benefits to investors in this zone (tax subsidies, right to land ownership, issuing of visas), should provide further support to FDI flows in the upcoming years. The junta's continuing grip on power has reassured many foreign investors previously deterred by potential instability. Growing regional competition risks, however, risk to diminish Thailand's attractiveness as an investment destination.

The latest United NationAsia-Pacific Trade and Investment Trends Reportprovides additional information on FDI in Thailand and Asia-Pacific in 2022 and 2023.