Thailand’s automotive industry has been a key factor in its FDI message, but the sector suffered a close-down during the Covid-19 crisis. (Photo by Christophe Archambault/AFP via Getty Images)

Thailand is a major foreign direct investment (FDI) destination within South East Asia, but the country saw its inflows drop significantly, by $6bn, in 2019 to $4bn, according to the UN Conference on Trade and Development’s (UNCTAD) 2020 World Investment Report. This formed part of a growing trend of investors diversifying out of Association of South East Asian Nations member states.

Key sectors for Thailand include manufacturing and financial services, with the two sectors contributing nearly 70% of all FDI inflows for the country. The top investors in Thailand in 2019 were from Hong Kong, the US, the Netherlands, China and Mauritius.

Thailand becoming better for business

Thailand has seen major reforms in business regulation and as a result the average set-up time for businesses in the country has gone from 29 days to just six. These efforts, among other reforms, were noted in the World Bank’s 2020 Doing Business Report with Thailand rising six positions to 21st.

Although this is positive for the general economy of Thailand, the country has been severely impacted by Covid-19. Lockdowns saw some of the major factories and supply chains in Thailand break down, causing a ripple effect across many industries. The Thai auto industry was hit particularly hard, with Mazda, Mitsubishi, Nissan, Ford and Toyota suspending production in early 2020.

Furthermore, the pandemic highlighted Thailand’s reliance on China when it comes to its supply chains. When combining Thailand’s demand with Vietnam, between 40% and 60% of electronic parts and components are sourced from China, according to UNCTAD.

Despite the pandemic blows and a drop in FDI inflows, Thailand has been successful in diversifying its economy. It has highly developed agriculture, manufacturing, services and tourism sectors and its workforce is inexpensive and skilled. Furthermore, Thailand is located in the heart of Asia and its government is particularly supportive of investment and free trade.

There is room for improvement to the country’s infrastructure and approach to innovation – something that the government will need to facilitate sooner rather than later to maintain its manufacturing industry.