FROM NEXT YEAR onwards, Malaysia may overtake Thailand in terms of foreign direct investment (FDI) inflow thanks to its participation in the Trans-Pacific Partnership (TPP) , said Benjarong Suwankiri, chief economist of TMB Bank.
He also expected Vietnam to see an increase in FDI for the same reason. Among the 12 countries participating in the TPP, Vietnam is the most attractive due to its low-cost and labour-intensive production base, its energetic young labour force, low labour cost, which is 50 per cent lower than Thailand, and its dynamic economy.
“Malaysia stands to benefit from foreign investors seeking to establish production base for shipping to the US and other TPP members, particularly in electronics and automotive parts industries. We do expect Vietnam to also draw more investment from joining TPP than it previously did, particularly in garments, textile and electronics,” he said.
According to TMB Analytics, although Thailand remains ahead in attracting investment, from better infrastructure and government processes, its winning margin is growing thinner by the year.
In 2005, FDI coming into Thailand was over four times those going into Vietnam. That ratio was narrowed to 1.3 times in 2014 and may overtake Thailand in two to three years. Against Malaysia, FDI inflow to Thailand was almost twice as much in 2005, and it now barely surpasses that of Malaysian. Among four Asean nations that participate in TPP, which includes Singapore and Brunei, Malaysia and Vietnam are the countries that pose the greatest risks to Thailand. Brunei has never attracted over US$1 billion in a year, while Singapore has been the champion in terms of FDI for years.
According to Asean Secretariat, Singapore in 2014 attracted $72 billion in net-inflows, more than six times the $11.5 billion attracted by Thailand. Meanwhile, Malaysia drew $10.7 billion and Vietnam $9.2 billion in the year. Notably, political instability has somewhat eroded Thailand's attractiveness in the past few years. Net-inflows to Thailand were $13 billion in 2013, an increase from $10.7 billion in 2012.
Benjarong is not alone in believing that TPP would introduce a shift in FDI. Duanden Nikomboriraks, research director at the Thailand Development Research Institute, noted that Thailand was not as attractive as in the past in terms of long-term investment.
During 2005-2007, FDI inflow to Thailand accounted for 0.89 per cent of global flows. This declined to 0.87 per cent during 2012-2014, against Malaysia’s 0.78 per cent, Vietnam’s 0.65 per cent, Indonesia’s 1.48 per cent and the Philippines’ 0.29 per cent.
By sector, net inflows to the manufacturing sector – which is directly linked to job creation and export competitiveness – also showed a sharp drop.
The TDRI research also showed that investment from three TPP member countries – the United States, Canada and Mexico, which have no free trade agreements with Thailand – has been below 10 per cent of total. This implies a potential that it would grow if Thailand is part of the trade pact.
“TPP should significantly affect Thailand’s trade and investment,” she said.
According to Benjarong, TPP forces Thailand to vie for foreign investments on two fronts: one on the supply chains or more sophisticated industries against Malaysia and the other on the low-cost and labour-intensive industries against Vietnam.
Nonetheless, he expects “investment diversion” to shift more from China to Malaysia and Vietnam, rather than from Thailand, as China is the main exporter and production base for imports to the US with a 20-per-cent share in US imports annually.
As Thailand’s export and investment outlook is constrained, this will slow down the pace of confidence and economic recovery, he noted.
“Unless we build a strong case for investment in Thailand, foreign investors may now consider access to TPP markets under the new rules of origin and hence investment may be diverted away from Thailand and to Malaysia and Vietnam, starting from 2016,” he noted.