The government must reduce the list of sectors in Annex III of the Foreign Business Act and ease investment regulations in order to attract more foreign investors, otherwise growth in foreign direct investment (FDI) - a key driver of economic growth - will be affected, the Thailand Development Research Institute (TDRI) said yesterday.

At worst, foreign investors might shift to countries with clearer investment regulations, said TDRI research director Deunden Nikomborirak.

"The government should review the FBA [Foreign Business Act] amendment to facilitate foreign business, particularly the service sector in order to create a better investment environment," she said.

Her suggestion is part of a study on "The Role of Multinational Companies in Thailand", which was presented yesterday. It was financed by the Thailand Research Fund.

According to the study, foreign direct investment reached Bt128.79 billion in 2005, compared with only Bt33.09 billion the previous year. Of the firms surveyed, 20-25 per cent were owned by foreign investors.

The study focused on major multinationals operating in Thailand, including those in service industries, law and accountancy and five industries: energy, automobiles and parts, rubber, processed food, and seeds.

Deunden also suggested the government should not allow appointed officials to decide whether to allow foreign companies to establish certain businesses here.

Saowaluk Cheevasittiyanon, a team researcher, said the government's stringent restrictions would encourage foreign investors to have more complex shareholdings or voting-rights structures.

The investment limitations of foreign shareholders have prompted unfair voting-rights structures in some service industries. The report found some Thai shareholders had lower voting rights than foreigners. For instance, three Thai shares had only one vote compared with foreigners with one vote per share.

The study also showed that some services under the FBA's Annex III would benefit a group of Thai millionaires whose businesses are already protected in the annex.

In the manufacturing sector, although foreigners hold more than 50 per cent in some firms - including crude oil, gas and dairy production - they have not managed to dominate the market, thanks to high competition.

Some businesses under government protection, such as seed production, have already been monopolised by Thai enterprises, said another researcher Suneeporn Thaeannakul.

Petchanet Pratruangkrai

The Nation