CONTENTS

January 2015 Volume 25 No. 1

Page

New Policies Unveiled to Investors 1

News Bites / BOI Net Applications 2Thailand and World Bank Advance Green Economy 4

Industry Focus: Eco-car Projects 5BOI Supports Government Policy to Promote Overseas Investment 7

BOI Celebrates Success 8Ford Motor Company 9BOI’s Missions and Events 11Thailand Economy-At-A-Glance 12

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New PoliciesUnveiled to Investors

The Board of Investment held a seminar “New Investment Promotion Strategies: Towards Sustainable Growth” on 15 December 2014, in the Grand Diamond Ballroom at Impact, Muang Thong Thani, to provide a dialogue with investors that would explain the recently adopted BOI investment policy and answer any questions that investors might have.

Starting with a video that gave a quick overview of the new policy and the reasons for taking a new path to support the national development strategy, Acting BOI Secretary General Hirunya Suchinai took the stage to give introductory remarks to all of the dignitaries and private sector representatives who were in attendance. She said that the decision to revise the BOI investment policy was driven by both external and internal factors, which created a need to change investment direction to address challenges and ensure sustainable development. She noted that BOI had conducted a study back in 2011 of factors that were impacting investment, in consultation with both public and private sectors, to ensure the adoption of a successful sustainable investment plan for the next 7 years.

Prime Minister Prayut Chan-o-cha told the 2,000 plus audience that the economy was returning to normal and that the government needed to make economic growth sustainable, with GDP growth for the current year forecast at 3.5% to 4.5%. He also noted that the target for BOI investment application had been reached, at over 700 billion baht. Likewise, tourism was almost back to full

NEWS BITES BOI NET APPLICATIONSThai SMEs Improving

The situation of small and medium-sized enterprises (SMEs) in Thailand is picking up, as a result of positive signs from Thai exports.

The SME situation was discussed at a meeting of the National Board of SMEs Promotion, chaired by Prime Minister Prayut Chan-o-cha at Government House on 4 December 2014.

The meeting heard a report that more SMEs were starting operations, indicating that entrepreneurs have become more confident in the country’s economic situation. Apart from the improvement of exports, the world economy is also recovering and domestic consumption is increasing.

The meeting approved a budget of 360 million baht for a project to promote SME networks in 18 provincial clusters. The project is intended to encourage SME operators to group into clusters. Assistance will be provided to various clusters in order to add value to their products, reduce their production costs, expand their markets, and strengthen their networks.

Targets have been set to increase the GDP of SMEs to 38 percent and the number of SME operators by another 50,000. There are currently more than two million SMEs in Thailand.

ADB Recognizes Economic Improvement

Thailand continued to strengthen its economic performance in the latter half of 2014 and the New Year looks even brighter. Recently, President of the Asian Development Bank (ADB) Takehiko Nakao, met with Prime Minister Prayuth Chan-ocha, Finance Minister Sommai Phasee, and Bank of Thailand Governor Prasarn Trairatvorakul for discussions on Thailand’s economy and possible areas of further cooperation with ADB.

The president of ADB noted that Thailand’s broad economic outlook was encouraging heading into 2015. With restored confidence, increased government spending, and expected improvement of major industrial economies, ADB projects growth to be about 4 percent in 2015.

“Due to Thailand’s strategic location in the GMS, broad industrial base and rich natural resources for agribusiness and tourism, it has the potential to reach high-income status through continued reform efforts and appropriate policies,” said Mr. Nakao. “Thailand’s economic performance is also crucial to the prospects of GMS countries.”

Mr. Nakao highlighted challenges that Thailand must overcome for strong and inclusive growth. Continued strong foreign direct investment and improved infrastructure are also essential for

2013(US$ = 31.57 THB)

2013 (Jan - Nov)(US$ = 31.63 THB)

2014 (Jan - Nov)(US$ = 32.78 THB)

Number of projects Value Number of

projects Value Number of projects Value

Total Investment 2,237 35,172 1,627 26,272 1,388 23,374

Total Foreign Investment 1,132 16,622 1,015 12,225 816 13,250

By Sector

Agricultural Products 64 761 59 740 44 482

Minerals / Ceramics 28 1,172 29 1,191 29 647

Light Industries / Textiles 59 335 53 315 36 551

Automotive / Metal Processing 378 7,855 349 5,970 214 5,793

Electrical / Electronics 207 2,852 184 1,132 160 1,555

Chemicals / Paper 124 740 111 680 104 2,484

Services 272 2,908 230 2,197 229 1,738

By Economy

Japan 562 8,959 528 7,098 365 4,518

Europe 132 996 113 827 111 2,647

Taiwan 53 221 43 197 40 429

USA 55 368 52 301 29 1,294

Hong Kong 39 639 35 613 27 343

Singapore 93 722 72 425 67 580

By Zone

Zone 1 366 3,421 327 1,475 251 1,258

Zone 2 586 8,090 529 7,353 420 10,566

Zone 3 180 5,112 159 3,396 145 1,426

Unit: US$ MillionNote: Investment projects with foreign equity participation from more than one country are reported in the figures for both countries.

Thailand to realize its economic potential. Mr. Nakao said ADB is ready to further support Thailand in key areas such as infrastructure development, water resource management, education reform, financial inclusion and literacy, renewable energy, and energy efficiency. ADB’s partnership with Thailand also aims to advance its links with neighboring countries through cross-border investments, trade facilitation, and financial cooperation.

Thailand has been a member of ADB since its inception in 1966. By the end of 2014, ADB has committed $6.4 billion to Thailand in loans, grants, and technical assistance.

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capacity with 25 million arrivals for the current year, 2.2 million in October alone, and 27 million arrivals forecast for next year.

The prime minister recognized that there were still outstanding issues that the government needed to address, that it was aware of them and they may take some time but would be resolved. One such problem is the need to utilize more machinery in the agriculture sector and to make it less labor intensive. It was important for there to be stability in this sector as it would benefit society as a whole. His government is also tackling the difficult issue of corruption. It should be noted here that Thailand’s ranking on the global corruption index has significantly improved this year.

Among the many issues his government was now addressing is the strengthening of the digital system in Thailand, which includes drafting legislation that would assist the sector, including hardware and software, and improving management so that it could meet the challenges of the global economy. Infrastructure was being improved and this included upgrades to the rail system and connecting mass transit in Bangkok, perhaps with a single payer pass. Airport capacity needed to be increased, special economic zones needed to be established across the country, with adequate transportation connectivity, border trade needed to be increased and supported and he noted all of this was integral to the country’s sustainable development.

The prime minister went through a several of activities to improve the Thai economy, including boosting alternative energy and the need to turn waste in energy to ensure a better quality of life. Factories need to adopt better standards and he underlined the importance of supporting small and medium sized enterprises, which make up about 90 percent of companies.

He said there must be a balance achieved among social, economic and political spheres to ensure sustainable development and to attract the innovation necessary for this. All of this can be achieved, but there needs to be cooperation.

Taking the stage after the prime minister concluded his remarks was Deputy Prime Minister M.R. Pridiyathorn Devakula, who went through the various stages of Thailand’s development, which at times reached double-digit GDP growth. He spoke of the development of upstream industries following the discovery of oil and gas and the introduction of ethylene and propylene into the mix. At times, private sector investment had reached as much as 30 percent of GDP.

Following the financial crisis in Asia, growth had picked up but Thailand had begun to experience labor shortages. Later, demonstrations on the environment led to some investments being curtailed. Thailand could not continue moving in this

direction and that is why change was needed and the profile of industry had to be adjusted. Thai companies were now beginning to invest overseas, with several examples being offered, including some SMEs.

Thailand was now in the process of moving from being a production country to a trading country. He spoke in detail of investments in International Headquarters and said that revisions were being made to the tax code that would include lowering the tax to 10 percent for HQs in Bangkok that sell raw materials for overseas production and lowering the income tax to 15 percent in certain instances. This would be done in the near future, as Thailand was committed to generating activity that would enhance Thailand’s position as a trading hub.

Likewise under this category, the current 90 day address reporting requirement would be extended to 2 years, and this could be done by letter, no longer in person.

The BOI would be a starting point for all of this!

The deputy prime minister was followed by Acting BOI Secretary General Hirunya Suchinai, who gave a presentation on “New Investment Promotion Criteria and Policies.

In the afternoon, the seminar then broke into four sessions in order to give investors additional detail on the various sectors being promoted. These included session 1 on agriculture, agro-processing, light industries and medical devices, which was led

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by Deputy Secretary General Duangjai Asawachintachit; session 2 on metal-working, mining, ceramics and automotive products, led by Deputy Secretary General Chokedee Kaewsang; session 3 on electrical appliances and electronic products, led by Senior Executive Investment Advisor Ajarin Pattanapanchai; and session 4 on chemical products, paper, plastics, services and infrastructure led by Acting Secretary General Hirunya Suchinai.

The sessions enabled investors to hear what changes were occurring in their respective sectors, including what activities would not be included in the new policies and those that have been added such as creative product design. For example, there were several activities included under light activities that were no longer going to be on the list of promoted activities, but upon consultations with the private sector, revisions were made

and those industries that filled in “missing-links” in the production process were maintained. It was also made clear that the new policy emphasizes high technology, designs or innovations, which qualify for significant tax exemptions and other non-tax or merit based incentives.

It was pointed out that the BOI does not have an incentive program for companies looking to invest overseas but it can function as a support center for such an endeavor and an interlocutor vis-à-vis other Thai government agencies.

The BOI looks to direct investment and promote economic development in Thailand’s Far South, especially the border provinces of Pattani, Yala, and Narathiwat. Likewise, the BOI will draw the attention of investors to the country’s 5 special economic zones. These areas also have their own investment incentives and privileges.

Presently, only one science and technology park exists in Thailand and the BOI is keen to see other comparable sites established. Moreover, mass transit systems and the transportation of bulk goods were noted by the BOI panel as an activity that is both essential for Thailand’s continued modernization and current, with the Thai government already having approved a 2.4 trillion baht infrastructure plan.

With the new policies now in place, Thailand has entered a new phase of its national development and offers investors significant incentives to invest in the country, which, when considered along with the high rankings and low cost of living marks that the country receives from international sources, make Thailand the place to invest in Asia for the 21st century.

Thailand and World Bank Advance Green EconomyThailand, the second-largest producer of air conditioners and foam in the world, manufactures approximately 12 million air conditioners annually, 90 percent of which are for export. Thailand is also one of the 10 largest importers and consumers of hydro-chloro-fluorocarbon gases (HCFCs), importing more than 18,000 metric tonnes of HCFCs in 2012. One of the central goals of the new government is to introduce environment friendly production into Thailand’s industries and to embrace the concept of green industries.

In the latter part of 2014, Thailand signed a US$23 million grant agreement with the World Bank Group to help make Thai air conditioning and foam products more climate friendly. The funds will help local manufacturers convert their production processes to make air conditioning and foam products that destroy less ozone, in line with international good practice.

The Ozone Projects Trust Fund of the Montreal Protocol will provide the grant and provide Thailand with US$23.9 million or approximately 760 million Thai Baht to reduce HCFCs used in manufacturing processes. Funding will be provided to eligible enterprises in Thailand including 12 air-conditioner manufacturers and more than 120 foam enterprises.

According to the World Bank, the funding will help reduce HCFC consumption in the air-conditioning and foam sectors and significantly contribute to Thailand’s efforts to meet its HCFC consumption phase-out obligations as agreed under the international environmental treaty – The Montreal Protocol on Substances that Deplete the Ozone Layer. Specifically, the new grant will enable Thailand to reduce its consumption of HCFCs by 15 percent; and achieve climate benefits by reducing carbon emissions through the use of lower global warming potential (GWP) refrigerant and foam blowing agents and through improvement in energy efficiency of air-conditioning units.

“Energy efficiency and climate protection are priorities in Thailand. In line with Thailand’s green growth policy, application of new climate-friendly air conditioning and foam technologies will enhance Thai industries’ competitiveness in markets that increasingly demand climate friendly and energy efficient products,” said Ulrich Zachau, Country Director for Thailand, World Bank Group. “Business and technology investment using these funds will protect the earth’s ozone layer and the climate, and they will also promote sustained growth and jobs in one of Thailand’s leading industries.”

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INDUSTRY FOCUS

Eco-car Projects to Spur Demand for Thai Automotive Parts and Components

The future already has arrived to Thailand and it is being built. With an increasing global focus on environmental protection, the vision of lower-emission vehicles has become a reality. In many countries, eco-cars are found on the road and changing how people view their use of automobiles in a world that is more environmentally conscious. The defining feature of eco-cars is that it releases less harmful contaminants into the atmosphere, when compared to a vehicle that runs on a conventional internal combustion engine, or uses certain alternative fuels, such as biodiesel, ethanol, hydrogen, or propane.

Contributing 12% to the country’s GDP, auto manufacturing is one of Thailand’s most vibrant sectors. Thailand’s automotive industry ranks 9th in the world, with annual production capacity of more than 2 million units per year, which makes it the largest automotive manufacturer in Southeast Asia. These figures clearly illustrate the robust nature and competitiveness of the Thai auto industry on a global scale.

In 2007 Thailand was the first country in Southeast Asia to introduce an eco-car scheme, attracting investment of 28.8 billion baht. Five world-class OEMs (Honda, Toyota, Nissan, Mitsubishi and Suzuki) applied for the Eco-Car Program Phase 1 by the end of 2007, with total manufacturing volume anticipated to reach 585,000 units. Production commenced towards the end of 2009 or in 2010, with an output target of more than 100,000 units as the Thai government stipulated that volume capacity needed to arrive at 100,000 units in five years.

These investments naturally presented an opportunity for the Thai automotive industry to integrate itself further with the global production strategies of OEMs concerning mini-car and small car segments, which then were expected to grow much faster than light commercial vehicles or pickups in markets around the world. All automakers planned to export at least 50% of their output, especially Honda and Suzuki, which had been waiting a long time to expand their manufacturing of small cars in Southeast

Asia. They seized the occasion to make their new factory sites in Thailand the export base for the

region and for newly emerging markets.

The Eco-Car Program Phase 1 was regarded widely not only as a value enhancer for the Thai automotive sector, but also a springboard for technological innovation. Vehicles labeled as “Eco” needed to pass

stringent environmental and fuel economy regulations. Eco-car projects, which met all

requirements set by the government, enjoyed special incentives with the excise tax reduced from

30% to 17%.

Following the success of the Eco-Car Program Phase 1, the Thai government announced in 2013 the Eco-Car Program Phase 2, which is expected to lift the country’s automotive production volume to over three million units by the end of 2015.

Ten car manufacturers, including five existing eco-car producers, applied for Phase 2 of the government’s eco-car program, with total expected investment of 139 billion baht to manufacture 1.58 million vehicles. The five manufacturers that took part in Phase 1 have committed 86.8 billion baht for the production of 753,000 eco-cars, while the five newcomers will spend 52 billion to make 828,000 units. The success of the eco-car scheme in Thailand has positioned the country as the eco-car hub for ASEAN.

Apart from the environmental protections, Eco-Car Program Phase 2 is part of the country’s plan to increase annual car production and further strengthen its leading position in Southeast Asia. It will ensure that the eco-cars produced in Thailand match the standards of developed markets such as the United States and Europe.

For the second phase of the Eco-Car Program, the Ministry of Industry mandated even more rigorous criteria. Automakers have to develop eco-cars that satisfy certain requirements: Euro 5 emission standards, average fuel consumption of 4.3 liters/100 kilometers (a reduction from 5.0 liters/100 kilometers), an average CO2 emission of 100 grams per kilometer (a reduction from 120 grams per kilometer), and international crash safety levels. Indeed, the principal aim of the Eco-Car Program Phase 2 is to turn Thailand into a production and export hub not only for pickups but also for passenger cars.

Japan’s Mazda Motor Corporation, the first eco-car maker to apply for the second phase under AutoAlliance (Thailand), commenced its local eco-car production in November 2014 after

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With capacity set at 158,000 units per year at AutoAlliance (Thailand), the manufacture of eco-cars will elevate the technical standards of the Thai automobile industry through collaboration between the Japanese OEM and numerous local parts suppliers. Moreover, since this eco-car is a highly competitive global model, as an export it will make a big contribution to the growth of Thailand’s automotive sector.

However, Nissan was the first OEM to launch eco-car varieties in the Thai market, the March in 2010 and the Almera in 2011. As of October 2014, the Japanese company was responsible for 53.6% of the accumulated production of 712,292 eco-cars in Thailand and 54.1% of accumulated domestic sales of 369,509 vehicles. For Phase 2, Nissan plans to spend another 6.86 billion baht to make 123,000 eco-cars and 2 million auto parts a year at its Bang Na-Trat Road facility. Furthermore, the company will commit 3.11 billion baht on continuing the manufacture of 13,400 Phase 1 vehicles. Meanwhile, Mitsubishi Motors has invested 12.6 billion baht (for new and expanded projects) to make 268,000 eco-cars a year.

The Thai government has stated that all automakers should focus on new eco-car models since there will be a new vehicle excise tax structure in 2016. Under this new tax regime, all eco-cars must have average CO2 emission below 100 grams per kilometer and safety systems including ABS (anti-lock braking system) and ESP (electronic stability program).

By the end of 2014, the Board of Investment (BOI) had approved investment applications from ten automobile manufacturers under Phase 2 of the eco-car program.

The investments from the ten assemblers whose projects have been approved to date include investments for both the eco-car 2 project and expansion of eco-car 1 projects. To give some examples of approved eco-car phase 2 projects, Ford Thailand (see company interview on page 9) is making an investment of 18.18 billion baht with annual production capacity of 180,000 vehicles and 2,000 engines. Likewise, General Motors will invest 13.1 billion baht to make 158,000 vehicles annually. Toyota also will commit 10.4 billion baht to make 100,000 vehicles a year under Phase 2, and another 1.0 billion baht to produce a further 60,000 Phase 1 eco-cars.

Furthermore, the BOI has put together a set of incentives regarding the manufacture of automobile parts for eco-cars that meet international standards. For instance, on offer is an exemption from import duty on machinery regardless of zone, a corporate income tax exemption regardless of zone for the first eight years of operation, and an exemption from import duty on the import of raw materials and ready-made auto-parts for up to 90%.

To qualify for tax breaks under the Eco-Car Program Phase 2, automakers were required to invest a minimum of 6.5 billion

baht (US$199.5 million) on a new plant with annual production capacity of 100,000 units within four years of operation and meet the rigorous environmental standards mandated by the Ministry of Industry. In return, participating automakers will pay an excise tax as low as 14% and eco-cars that can run on E85-compatible fuel will be taxed at just 12%.

Phase 2 of the government’s Eco-Car Program calls for participating automakers to build an all-new vehicle that is fuel-efficient, environmentally friendly, safe, and low cost, for sale throughout the ASEAN region by 2020. Currently, four Japanese carmakers construct seven eco-car models, namely Nissan (March and Almera), Honda (Brio and Brio Amaze), Mitsubishi (Mirage and Attrage), and Suzuki (Swift).

In addition, Ford introduced its newly-developed EcoBoost, the 1.0-liter, three-cylinder turbocharged engine, at the 34th Bangkok International Motor Show (25 March – 7 April 2013). The Mini SUV Ford EcoSport, which was launched towards the end of 2013, and the 2014 Ford Fiesta, which was made available to the US market last year, both use the state-of-the-art EcoBoost technology.

The Ministry of Industry expects the second phase to boost annual eco-car production in Thailand almost 60% to 935,000 units within five years. Launched in 2007, the first phase attracted combined investment of 28.8 billion baht (US$884 million) by Mitsubishi, Honda, Toyota, Nissan and Suzuki. The five automakers built 712,292 eco-cars between 2010 and 2013. Nonetheless, according to the Thailand Automotive Institute, the country’s car production is estimated to rise by 500,000 vehicles in 2015, propelled by the second phase of the eco-car scheme. Overall output is thus likely to hit 3.35 million units in 2015.

The Thai automobile sector, thus, is ready for a banner year in 2015. After its good run in the production of pickup trucks, Thailand is now focused on becoming a major nexus for economical, eco-friendly cars through its two phases of the Eco-Car Program. Indeed, OEMs consider Thailand’s better infrastructure and extensive supplier network as key advantages for establishing themselves in the country. More importantly, despite the changing political landscape, Thai investment guidelines have been largely unaffected. Subsequent governments have realized that policy consistency is a winning formula and changing it would be bad for business.

Plus, as BOI deputy secretary-general Chokedee Kaewsang mentioned in a recent Bangkok Post article, “The Thai automotive production trend needs to change in line with the new strategy”. He further elaborated the point by stating, “Fuel efficiency, safety and environmental friendliness with electric vehicles and plug-in hybrids will be the next milestones for Thailand’s automotive industry”.

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BOI Supports Government Policy to Promote Overseas Investment

Shortly after taking office in August 2014, Prime Minister Prayuth Chan-ocha announced that Thai overseas investment was one of his government’s national priorities. The government recognizes that to overcome domestic resource limitations and to seek new business horizons Thai entrepreneurs need to branch out overseas.

Indeed, the target industries for Thailand’s Outbound Foreign Direct Investment (OFDI) are predominantly labor intensive, such as textiles and garments, shoes and leather, agriculture, food preparation, metal processing, auto parts and accessories, construction materials and real estate development.

Thailand’s OFDI has steadily increased since 2007, reaching US$15 billion in 2013, with the largest shares going to the manufacturing sector of ASEAN member states.

With overseas investment now regarded as a national priority, the BOI has been tasked with stepping up its efforts to assist Thai entrepreneurs who want to invest abroad. The BOI originally approved the establishment of its Thai Overseas Investment (TOI) Plan in August 2012. ASEAN member states, mainly Indonesia,

Vietnam and Myanmar, were the original target destinations, while India and China too came to be identified as markets of opportunity for Thai investors. Worth highlighting is that the TOI also includes support measures, like tax and financial incentives.

Functioning as a faci l i tator, the BOI has implemented and at this time provides support to Thai companies seeking opportunities with business potential overseas. One successful mechanism utilized by the BOI is its incubation program, administered by the Thai Overseas Investment Services Center (TOISC). Over the last two years (2012-2014), TOISC has organized seven classes for training Thai businessmen before going abroad. Some 192 executives have enrolled and completed TOISC modules. A number of them already have invested overseas, whereas others are preparing or planning to head abroad within 1 to 2 years.

Yet the work of the TOISC is a part of something much larger in scope and purpose. Together with the TOISC, the Thai Overseas Investment Information Center (TOIIC) was established by the BOI under the TOI scheme. The TOIIC not only provides market data for investors but also guides Thai businessmen on how best to invest abroad through the use of consulting teams. In fact, the TOIIC conducts in-depth studies on investment prospects in ASEAN and arranges seminars on many investment-related issues, like laws and regulations on doing business overseas

and identifying opportunities in growth industries. Similarly, the TOIIC disseminates information collected by BOI’s local experts and consultants (mobile units) in target countries, such as Myanmar, Vietnam, Cambodia, Laos and Indonesia. Additionally, the TOIIC can act as an intermediary with foreign government agencies, can coordinate with other Thai departments to facilitate investment overseas, and can negotiate G2G contracts in key market destinations to enhance business prospects.

It is due to the TOI Plan that the BOI today offers investment matchmaking assistance to both Thai and foreign companies seeking cooperation in the areas of technology, management and marketing to facilitate entry into ASEAN markets.

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BOI Celebrates Success

The year 2014 ended on a positive note for the Board of Investment (BOI). By mid-December, the number of projects that had applied for BOI privileges reached Bt1 trillion in value, surpassing its target of Bt800 billion for the entire year. In fact, the BOI expected the value of total applications to hit the Bt1.3 trillion mark. Such a robust figure is a clear demonstration of Thailand’s economic rebound from a crisis and its continuing appeal to investors.

At its meeting on 25 December, which was chaired by Prime Minister Prayuth Chan-ocha, the BOI approved 13 projects worth Bt21.15 billion, mostly alternative energy enterprises, electricity generation from waste, biomass energy firms, and Mazda’s increased investment in Phase 2 of the eco-car scheme. Ms. Hirunya Suchinai, acting secretary general of the BOI, was reported to have declared, “The number of approved BOI projects is quite high and is enough to support economic expansion”. Keep in mind that Thailand is engaged in a transition and industries that utilize new technology are a major draw.

Japanese firms remained at the top of the list among foreign investors applying for tax breaks, followed by those from the United States and the European Union. Even so, the amount of US and EU approved projects has continued to grow in recent times. This trend relates to the realization by both American and European companies that Thailand can function perfectly as a springboard for further business expansion in the Asia-Pacific.

When examining individually some of the investment projects endorsed by the BOI, it is interesting to see that eco-friendly activit ies dominated. For instance, Mazda Powertrain Manufacturing (Thailand) Co., Ltd. is set to produce engines for its Eco-car Phase 2 model in Chonburi (approximate capacity of 75,000 units per year) worth a total of Bt2.91 billion. This project will employ modern machinery and will involve human resource development, the utilization of locally procured raw materials (with a value of Bt260 million per year), and the manufacture of automotive parts by Thai businesses in order to upgrade production methods and the use of advanced technology.

Likewise, four ethanol manufactures were given the green light by the BOI. These enterprises not only will support the generation and the utilization of alternative energy from agricultural raw materials, such as home-produced molasses, but also will reduce fuel imports from abroad. Moreover, Earth Tech Environment Co., Ltd. in Saraburi and Mitr Phol Bio-Power Co., Ltd. in Chaiyaphum will stimulate the consumption of alternative energy, as it relates to Thailand’s development plan, which specifies the use of 25% of renewable energy and alternative energy sources over a 10-year period (2012-2022).

Equally significant, the BOI is aiming for at least 30% of approved projects in 2015 to be businesses applying under its new seven-year investment policy with activities that are considered to be beneficial to the Thai industrial sector and the country’s overall economic development. The strategy promotes high-tech, creative and service industries that support the advancement of Thailand’s “digital economy”, and industries that use local resources.

Also, the BOI is promoting the creation of distribution centers in special economic development zones

to position Thailand as an inland container depot for products from neighboring countries. “That would encourage other trade and economic activities in the areas but the remaining issues to discuss right now are how to make these SEZs into a truly free zones in terms of taxes”, according to the BOI’s acting secretary general. Indeed, Prime Minister Prayuth Chan-ocha has said that at least one of the new special economic development zones will commence operations in 2015. Tak’s Mae Sot district appears to be the logical candidate, since it is well-suited for such an activity and already hosts a booming cross-border market that links Thailand and Myanmar.

There are several incentives available for setting up shop in a SEZ, such as tax privileges and the relative ease of doing business that entails financial transactions, warehousing, logistics and facilities. Also worth highlighting is that the BOI will offer a further three-year exemption of corporate income tax, starting this year (2015), to projects located in five SEZs - Tak, Trat, Sa Kaew, Songkhla and Mukdahan. In fact, the prime minister has stated that his administration was looking to increase foreign investment through a variety of stratagems. The establishment of five special economic areas along key border areas, and the creation of seven more in the next phase, are meant to promote transport connectivity with Thailand’s ASEAN neighbors and to assist foreign investors expand their investments across the region.

Another important point to note is that the new BOI investment promotion scheme has shifted away from the previous zone-based approach towards investment promotion areas to attract investment into less developed provinces, as seen in the attached chart.

It does appear that 2015 will be a promising year for both the Board of Investment and Thailand. The economy has strengthened and the push to become an upper income country is underway. Even more, the country now is preparing itself for the inauguration of the ASEAN Economic Community and increasing prosperity.

Investment Promotion Areas

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COMPANY INTERVIEW

Ford Motor Company

The Ford Motor Company is an American multinational automaker headquartered in Dearborn, Michigan. Founded in 1903 by Henry Ford, the company has become one of the largest producers of trucks and cars in the world. Today Ford has operations in more than 30 countries, and employs more than 180,000 employees around the globe. Additionally, thousands of enterprises worldwide supply Ford Motor Company with goods and services. Indeed, the company’s annual sales figures exceed the GDP of many countries.

Ford’s presence in Thailand dates to 1960 when the Thai Motor Industry Company, a joint venture between Anglo-Thai Motors and Ford U.K., began assembly operations. In 1973, the joint venture was incorporated as a wholly owned subsidiary, Ford Thailand, but closed in 1976. Almost two decades later, Ford re-entered the Thai market in 1995 with the formation of AutoAlliance Co. Ltd. Located in Rayong province, AutoAlliance is a 50-50 joint venture between Ford and Mazda. The facility produces Ford Ranger pickup trucks and Mazda Fighter B-series, and represents a total investment of $1.85 billion. .

Ford Motor Company established its ASEAN regional headquarters in Bangkok in 2003, from where it manages the production, distribution, sales and servicing of Ford brand vehicles for all ASEAN markets. In 2010, with its Thailand operations leading the way, Ford began a product-led transformation of its business across the ASEAN region with the launch of the all-new Ford Fiesta subcompact. Soon thereafter, a newer Ford Ranger pickup model was launched in 2011, followed by the third generation Ford Focus compact in 2012.

Since 2011, Ford has been one of the fastest growing automotive brands in Thailand, and has outpacing overall industry sales and gaining market share. The company is supporting its extraordinary growth in Thailand with an aggressive expansion of its nationwide Ford dealer network, which had totaled 140 locations by the start of 2014. Moreover, in January 2014 Ford Motor Company celebrated the official start of production for the all-new Ford EcoSport urban SUV at its advanced Ford Thailand

Manufacturing (FTM) plant in Rayong.

FTM became the fourth plant globally to build the EcoSport, joining Ford facilities in Chennai, India, Chonqing, China and Camcari, Brazil, thereby reinforcing the strategic role of Thailand as a volume production and export hub in the region. Initially, the Thai-built models will be for domestic sale and export to ASEAN markets; later, the EcoSport will be sold worldwide. Similarly, in March 2014, Ford revealed the Ford Everest Concept at the Bangkok motor show, and the manufacturer confirmed it will build the production variant in Thailand for global export.

Recently, the Thailand Investment Review team had the opportunity to meet and speak with Mr. Matt Bradley, president of Ford ASEAN, a position he assumed in August 2012. Mr. Bradley is responsible for managing and growing Ford’s integrated operations across the ASEAN region – including Thailand, the Philippines, Indonesia, Malaysia and Vietnam – as well as the company’s Asia Pacific Emerging Markets unit. He also oversees Ford’s ASEAN manufacturing operations, which includes two plants in Thailand – the new, US$450 million state-of-the-art Ford Thailand Manufacturing, and AutoAlliance Thailand joint-venture facility – as well as a plant in Vietnam.

A number of questions were posed to Mr. Bradley in order to put together a comprehensive picture of Ford’s business operations in Thailand.

From the onset of the interview, Mr. Bradley accentuated that Thailand is Ford’s ASEAN hub and will continue to serve in this capacity. During the mid-1990s Ford undertook its first large-scale investment in Thailand regarding sales and service and was involved intimately with the creation of AutoAlliance Thailand. These were momentous chapters for Ford, but Mr. Bradley highlighted 2010 as being a “turning point”, where there occurred additional investment in Thailand as there was a recognition of the various opportunities offered by ASEAN. Then in 2012 Ford Thailand Manufacturing was established, close to its joint venture facility in the Eastern Seaboard.

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Continued from P. 9

Presently, Ford has 10,000 employees between its wholly-owned and joint-venture facilities in Thailand, of which 9,600 fall under the category of manufacturing staff in Rayong and another 400 staff in the Bangkok office that serve the Thailand/ASEAN markets. Most of the company’s employees are Thai nationals, with expatriates comprising a single digit percentage, predominantly at the executive level. However, Mr. Bradley did stress that the aim of Ford is knowledge transfer to Thai employees. Indeed, Ford invests substantially in improving the skills set of its local staff. For instance, overseas training is provided and such a program of “continuing education” enhances Ford’s ability to attract talent and to retain employees. Equally important, the company’s workforce reflects well the Thai consumer base that Ford is targeting with its marketing campaigns.

Ford (Thailand) is a BOI-promoted company. Affiliated companies of Ford Motor Company in Thailand include Ford Sales and Service (Thailand), as well as Ford Motor Company (Thailand), and its AutoAlliance (Thailand) joint venture.

Since 1995, Ford has invested approximately US$2 billion in Thailand. Mr. Bradley reiterated that regulations implemented by successive Thai governments have been very supportive towards the expansion of Ford’s operations. To be precise, Thailand is a country where “consumers can purchase and manufacturers can produce”. An illustration of this positive trajectory is that Ford’s retail sales growth tripled in volume from 13,636 units in 2010 to 51,223 units in 2013, and more than doubled in market share from 1.7% in 2010 to 4.4% this year. It is difficult to find or to beat such a business-friendly environment.

Regarding the Board of Investment, Mr. Bradley was quick to declare that it is open and transparent as well as being stable and consistent in its approach to dealing with foreign enterprises. These qualities engender business confidence not only in Thailand but also in the BOI. He expanded by saying that there are regular meetings between Ford and BOI and that the channels of communication between the two are good. For Mr. Bradley and Ford, the BOI is a reliable partner and a strong advocate of proposals involving Ford Thailand Manufacturing.

Essentially, Thailand functions as a volume center and a regional operating headquarters for Ford. It also is the manufacturing hub of the Ranger pickup, Everest, Fiesta, Focus, and EcoSport. Mr. Bradley pointed out that ASEAN as a consumer market is attractive. The region possesses a rising middle class, higher disposable personal income levels, lifestyle changes, greater mobility, more reliance on vehicular transportation, and relatively healthy economies. As such, Ford has a long-term commitment to ASEAN with investment in manufacturing, retail, human

capacity. One of the primary appeals of the region is that ASEAN has one of the lowest vehicle densities in the world. However, this feature has triggered increased competition in the ASEAN market, which, in turn, has spurred innovation and efficiency within the auto industry.

Ford’s Thai operations are export-oriented, primarily serving the ASEAN region, as well as Australia and New Zealand. Mr. Bradley stated that the reasons for Thailand to be Ford’s manufacturing hub revolved around some key elements. For example, the auto output of the country and its robust supply chain, particularly its logistics network. The port facilities of Laem Chabang are an excellent case in point. Furthermore, the Government’s investment policies have been consistent and supportive not only of the industry in general but also of individual companies engaged in auto manufacturing. Additionally, the available workforce is skilled and educated, which is a benefit for Ford. Likewise, Thailand has had healthy GDP growth since 2000, has in place ample infrastructure, and its geographical location is superb.

When looking at future trends for the industry, Mr. Bradley explained that there are different ways to analyze the issue. From a consumer-related perspective, the auto sector in Thailand is very diverse, productive and constantly evolving. It is dominated by the manufacture of pickups but it is now on the cusp of launching eco-cars onto the global market. With a low carbon footprint, these “Green” vehicles are practical, comfortable, safe, cost effective and have high fuel efficiency. Indeed, the eco-car project has been possible because of Thailand’s appropriate tax structure and investment incentives.

Still, there are challenges. At the moment, there exist a number of competing eco-car schemes in Southeast Asia. According to Mr. Bradley, there is no uniform ASEAN model, no harmonization of ASEAN auto and emission standards, and no ASEAN policy support for expanding consumer demand across the region. However, in Thailand, there is access to goods and services as well as large-scale operations that drive efficiency and output. As such, consumers, especially Thais, will benefit from the wide range of vehicles that are produced by Ford.

Overall, Ford is one of the largest automotive investors in Thailand, with cumulative investments totaling more than US$2 billion since 1995. This includes US$450 million for the state-of-the-art passenger car facility in Rayong. With initial annual capacity of 160,000 units, manufacturing at the plant commenced in 2012 for the Focus, and has since added the EcoSport and Fiesta – all for sale in the domestic market and export across ASEAN. Ford investments also include an additional US$377 million to upgrade and expand output of its pickup truck line at AutoAlliance Thailand for the all-new Ranger. AAT, which produces the Ford Everest SUV, has an annual capacity of 295,000 units. Along with the Focus, EcoSport and Fiesta, both vehicles are built for sale in the Thai market and export throughout ASEAN.

Today, Ford has become a major force in the automotive industry in Thailand and Ford intends to boost production further to augment its business operations and to achieve maximum customer satisfaction. Mr. Bradley observed that it is because of the maturity of the Thai auto sector that Ford finds itself firmly placed in this country. Thailand has so much to offer to OEMs. But Ford has invested long-term in Thailand with the expectation of a return and the decision to be in Thailand has been the right one for Ford.

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H.E. M.R. Pridiyathorn Devakula, deputy prime minister of Thailand, welcomed a delegation from the People’s Republic of China, led by H.E. Mr. Gao Hucheng, minister of Commerce, to the “China – Thailand Business Forum and Luncheon”. The event was held on 19 December 2014 at The Peninsula Bangkok Hotel.

H.E. M.R. Pridiyathorn Devakula, deputy prime minister of Thailand, together with BOI executives, presided over the “New Investment Promotion Strategies: Towards Sustainable Growth” on January 12, 2015 at The Heritage, Chonburi, to announce the new BOI investment promotion strategies to investors in the Eastern Region.

Ms.Hirunya Suchinai, acting secretary general of BOI, accompanied by BOI executives, Mr. Masayasu Hosumi, president of JETRO (Bangkok), and Mr.Tomoyoshi Harada, Thai-Japan investment adviser, presided over the seminar “New Investment Promotion Strategies: Towards Sustainable Growth”. The event was organized by BOI, JETRO (Bangkok), The Shoko Chukin Bank, Ltd., and JCC (Bangkok). It took place on 22 December 2014 at the Plaza Athénée hotel, Bangkok.

Ms. Ajarin Pattanapanchai, BOI senior executive investment advisor, was invited to speak at the Pacific Rim Summit on Industrial Biotechnology and Bioenergy regarding the topic of Feed Stocks: A Global Comparison. She joined the BOI marketing team during its trip to both Los Angeles and San Diego, USA, from 4 to 13 December 2014.

BOI’S MISSIONS AND EVENTS

Dr. Ratchanee Wattanawisitporn, director of the BOI Frankfurt Office, together with Dr. Nattapol Rangsitpol, director of the Bureau of Sectoral Industrial Policy 1, Office of Industrial Economics, spoke at a seminar on the Thai automotive industry in Stuttgart, Germany, on 3 December 2014. The event was organized by the Chamber of Commerce and Industry, Stuttgart Region, and the LBBW-Landesbank Baden-Wurttemberg.

Mr. Werapong Siriwon, director of the Regional Investment and Economic Center 2, gave a presentation entitled “Thailand’s Electrical and Electronics Investment Opportunities” at BOI seminar for Chinese investors on 16 December 2014. Representatives of local companies in the electronics sector attended his talk. The BOI organized a series of “door knocking” sessions in Shenzhen, Guangzhou, China from 15 to 18 December 2014.

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THAILAND ECONOMY-AT-A-GLANCE

Source: Stock Exchange of Thailand

Source: Bank of ThailandSET Monthly Closing Values

International Reserves / Short-term Debt (%)

Exchange Rate Trends

Industrial Capacity Utilization (%)

Head Office, Office of the Board of Investment 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok 10900, ThailandTel: +66 (0) 2553 8111 Fax: +66 (0) 2553 8316 Website: www.boi.go.th E-mail: head@boi.go.thBEIJINGThailand Board of Investment, Beijing Office Royal Thai Embassy No.40 Guang Hua Road, Beijing, 100600, P.R.China Tel: (86-10) 6532-4510 Fax: (86-10) 6532-1620 E-mail: beijing@boi.go.th

FRANKFURTThailand Board of Investment, Frankfurt OfficeBethmannstr. 58, 5.OG60311 Frankfurt am Main Federal Republic of Germany Tel: (49 69) 92 91 230Fax: (49 69) 92 91 2320E-mail: fra@boi.go.th

GUANGZHOUThailand Board of Investment, Guangzhou OfficeRoyal Thai Consulate-General GuangzhouNo.36 Youhe Road, Haizhu District, Guangzhou, P.R.C 510310 Tel: +8620 8385 8988 Ext. 220-225 +8620 8387 7770 (Direct Line)

Fax: +8620 8387 2700 E-mail: guangzhou@boi.go.th

LOS ANGELES Thailand Board of Investment, Los Angeles Office Royal Thai Consulate-General 611 North Larchmont Boulevard, 3rd Floor, Los Angeles, CA 90004 USA Tel: (1-323) 960 1199Fax: (1-323) 960 1190E-mail: boila@boi.go.th

MUMBAIThailand Board of Investment, Mumbai OfficeRoyal Thai Consulate-General, 1st Floor, Dalalmal House, Jamnalal Bajaj Marg, Nariman Point, Mumbai400 021 Republic of India Tel: (9122) 2204 1589-90 Fax: (9122) 2282 1525E-mail: mumbai@boi.go.th

NEW YORKThailand Board of Investment, New York Office 7 World Trade Center, 34th Floor, Suite F, 250 Greenwich Street, New York, NY 10007Tel: (1-212) 422 9009Fax: (1-212) 422 9119E-mail: nyc@boi.go.th

OSAKAThailand Board of Investment, Osaka Office Royal Thai Consulate-General, Osaka, Bangkok Bank Bldg. 7th Floor , 1-9-16 Kyutaro-Machi, Chuo-Ku, Osaka 541-0056 Japan Tel: (81-6) 6271-1395 Fax: (81-6) 6271-1394E-mail: osaka@boi.go.th

PARISThailand Board of Investment, Paris Office Ambassade Royale de Thailande, 8, Rue Greuze75116 Paris, FranceTel: (33 1) 5690 2600 (33 1) 5690 2601Fax: (33 1) 5690 2602E-mail: par@boi.go.th

SEOULThailand Board of Investment, Seoul Office#1804, 18th Floor, Koryo Daeyeongak Center,97 Toegye-ro, Jung-gu, Seoul, 100-706, Korea Tel: (822) 319-9998 Fax: (822) 319-9997E-mail: seoul@boi.go.th

SHANGHAIThailand Board of Investment, Shanghai OfficeRoyal Thai Consulate-General15 F., Crystal Century Tower, 567 Weihai Road, Shanghai, 200041, P.R.China Tel: (86-21) 6288-9728, (86-21) 6288-9729 Fax: (86-21) 6288-9730E-mail: shanghai@boi.go.th

STOCKHOLMThailand Board of Investment, Stockholm OfficeStureplan 4C 4th Floor 114 35 Stockholm, Sweden Tel: +46 (0)8 463 1158 +46 (0)8 463 1172 +46 (0)8 463 1174 to 75 Fax: +46 (0)8 463 1160 E-mail: stockholm@boi.go.th

SYDNEYThailand Board of Investment, Sydney Office Suite 101, Level 1, 234 George Street, NSW 2000, Australia Tel: (+61) 2 9252 4884 Fax: (+61) 2 9252 2883 E-mail: sydney@boi.go.th

TAIPEIThailand Board of Investment, Taipei Office Taipei World Trade Center 3rd Floor, Room 3E39-40, No.5, Xin-Yi Road, Sec.5Taipei 110, Taiwan, R.O.C. Tel: (886) 2-23456663Fax: (886) 2-23459223 E-mail: taipei@boi.go.th

TOKYOThailand Board of Investment, Tokyo Office Royal Thai Embassy8th Fl., Fukuda Building West,2-11-3 Akasaka, Minato-ku, Tokyo 107-0052 JapanTel: (81 3) 3582 1806Fax: (81 3) 3589 5176E-mail: tyo@boi.go.th

Facts about ThailandPopulation (2010) 66 millionASEAN Population 625 millionLiteracy Rate 96%Minimum Wage 300 Baht/day

GDP (2013) US$ 387 billionGDP per Capita (2013) US$5,673GDP Growth (2013) 2.9%GDP Growth (2014, projected) 1.0%Export Growth (2013) -0.2%Export Growth (2014, projected) 0.0%

Trade Balance (2013) US$ 6.7 billionCurrent Account Balance (2013) US$ -2.5 billionInternational Reserves (2013) US$ 167.23 billionCapacity Utilization (2013) 64.36%Manufacturing Production Index (2013) 175.80Core Inflation (2014, projected) 1.9-2.9Headline Inflation (2014, projected) 1.9-2.9Consumer Price Index (Nov 2014) 107.19 (2011=100)

Corporate Income Tax 10-20%Withholding Tax 0-15%Value Added Tax 7%

Nov Average Exchange RatesUS$1 = 32.78 baht€1 = 40.89 baht£1 = 51.47 baht100 ¥ = 28.25 bahtCNY1 = 5.36 baht

Top 10 Exports 2014 (Jan-Oct)

Product Share Value (US$ bn)

1 Motor cars, parts and accessories 10.81 20.61 2 Automatic data processing machines

and parts thereof7.93 15.12

3 Refine fuels 5.01 9.55 4 Precious stones and jewellery 4.45 8.48 5 Polymers of ethylene, propylene, etc

in primary forms4.29 8.17

6 Chemical products 3.84 7.33 7 Rubber products 3.55 6.77 8 Electronic integrated circuits 3.25 6.19 9 Machinery and parts thereof 3.16 6.02

10 Rubber 2.67 5.10 Total 190.62

Source: Ministry of Commerce

Source: Bank of Thailand

Source: Bank of Thailand BOI

January 2015

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