CONTENTS December 2014 Volume 24 No. 12 Page BOI’s New Policy Adopted: Up to 8 year CIT exemption 1 News Bites / BOI Net Applications 2 Prime Minister Talks with Foreign Investors 4 Industry Focus: Gems & Jewelry 6 2015 A Year of Growth 8 Thailand: The Business Growth Environment 9 Thailand Makes Significant Advances in ICT 10 BOI’s Missions and Events 11 Thailand Economy-At-A-Glance 12 Continued on P. 3 BOI’s New Policy Adopted: Up to 8 year CIT exemption The Thailand Board of Investment has approved its new investment promotion policy, which will enter into effect beginning on 1 January 2015. Thailand, long a country able to attract investment with its low wage high productivity manufacturing sector, has advanced to become an upper middle income country; a country facing increased wage competition from less developed economies in the region. The strategic shift was therefore adopted for the country to follow the economic evolution taken previously by such economies as Japan, South Korea and Taiwan, with the ultimate goal of economic growth through a knowledge economy that relies more on the production of value-added goods than raw material exports, and on research and development than cheap labor. The new policy is in accordance with the direction set by Thailand’s National Economic and Social Development Plan. It aims to promote both foreign and domestic investment in Thailand to enhance national competitiveness and to overcome the so-called middle income trap; thereby achieving sustainable growth in accordance with the philosophy of sufficiency economy. While investors should consult the official announcement made on 3 December 2014 for a complete view of all changes made, TIR would like to offer the following overview to provide a sense of the new direction being taken and what incentives are on the table. The official document can be found online at http:// www.boi.go.th/upload/content/newpolicy-announcement_63297.pdf. The emphasis of the new policy is to enhance Thailand’s competitiveness. The Board of Investment has set investment promotion policies, as follows: • Promote investment that helps enhance national competitiveness by encouraging R&D, innovation, value creation in the agricultural, industrial and services sectors, SMEs, fair competition and inclusive growth
Transcript
CONTENTS
December 2014 Volume 24 No. 12
PageBOI’s New Policy Adopted: Up to 8 year CIT exemption 1
News Bites / BOI Net Applications 2Prime Minister Talks with Foreign Investors 4
Industry Focus: Gems & Jewelry 62015 A Year of Growth 8Thailand: The Business Growth Environment 9
Thailand Makes Significant Advances in ICT 10
BOI’s Missions and Events 11Thailand Economy-At-A-Glance 12
Continued on P. 3
BOI’s New Policy Adopted: Up to 8 year CIT exemption
The Thailand Board of Investment has approved its new investment promotion policy, which will enter into effect beginning on 1 January 2015. Thailand, long a country able to attract investment with its low wage high productivity manufacturing sector, has advanced to become an upper middle income country; a country facing increased wage competition from less developed economies in the region. The strategic shift was therefore adopted for the country to follow the economic evolution taken previously by such economies as Japan, South Korea and Taiwan, with the ultimate goal of economic growth through a knowledge economy that relies more on the production of value-added goods than raw material exports, and on research and development than cheap labor.
The new policy is in accordance with the direction set by Thailand’s National Economic and Social Development Plan. It aims to promote both foreign and domestic investment in Thailand to enhance national competitiveness and to overcome the so-called middle income trap; thereby achieving sustainable growth in accordance with the philosophy of sufficiency economy.
While investors should consult the official announcement made on 3 December 2014 for a complete view of all changes made, TIR would like to offer the following overview to provide a sense of the new direction being taken and what incentives are on the table. The official document can be found online at http://www.boi.go.th/upload/content/newpolicy-announcement_63297.pdf.
The emphasis of the new policy is to enhance Thailand’s competitiveness. The Board of Investment has set investment promotion policies, as follows:• Promote investment that helps enhance national competitiveness by
encouraging R&D, innovation, value creation in the agricultural, industrial and services sectors, SMEs, fair competition and inclusive growth
NEWS BITES BOI NET APPLICATIONSMass Transit
The construction of four mass rapid transit system routes in Bangkok and its vicinity will be accelerated. They include the Purple Line, from Bang Yai to Bang Sue, 23 kilometers in length; the Blue Line, from Hua Lamphong to Bang Khae, Bang Sue, and Tha Phra, 27 km; the Green Line, from Bearing to Samut Prakan, 12.80 km; and the Red Line, from Bang Sue to Rangsit, 26 km.
Thai-China Railroad
The Ministry of Transport draft MOU on mutual cooperation between Thailand and China on railroad development was submitted to and approved by the cabinet. The draft MOU highlights government to government cooperation on the construction of standard gauge dual-track rail routing Nongkhai- Nakhon Ratchasima- Kaeng Khoi- Map Ta Phut (734 km), and Kaeng Khoi- Bangkok (133 km). Also approved was the establishment of a mobilizing committee to discuss various details, such as surveying, design, construction, etc. The draft MOU will be submitted to National Legislative Assembly for its consideration.
Thai-Vietnamese Cooperation
Prime Minister Prayut Chan-o-cha, held a bilateral meeting on 27 November 2014 with Vietnamese Prime Minister Nguyễn Tấn Dũng during his visit to the Socialist Republic of Vietnam.
Prime Minister Prayut proposed for investment promotion offices of the two countries to set up a mechanism or a working group to promote and protect investment through existing investment agreements, such as the Agreement for the Protection of Investment and Convention for the Avoidance of Double Taxation. Thailand would also encourage more Thai banks to open branches in Vietnam.
Thailand also proposed an international bus route connecting the Northeastern of Thailand and Central Vietnam. This would not only stimulate trade and investment, but also promote sub-regional tourism. Both parties also expressed support for low-cost airlines to open routes which would enhance connectivity between the two countries. Development of coastline transport in order to promote tourism was also agreed upon.
Vietnam agreed to promote the East-West Economic Corridor (EWEC) and the North-West Economic Corridor (NWEC).
2013(US$ = 31.57 THB)
2013 (Jan - Oct)(US$ = 31.21 THB)
2014 (Jan - Oct)(US$ = 32.44 THB)
Number of projects Value Number of
projects Value Number of projects Value
Total Investment 2,237 35,172 1,490 25,424 1,206 19,892
Total Foreign Investment 1,132 16,622 940 11,711 725 10,181
By Sector
Agricultural Products 64 761 57 637 42 443
Minerals / Ceramics 28 1,172 28 506 24 603
Light Industries / Textiles 59 335 51 318 30 485
Automotive / Metal Processing 378 7,855 321 6,593 185 5,637
Unit: US$ MillionNote: Investment projects with foreign equity participation from more than one country are reported in the figures for both countries.
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• Promote activities that are environment-friendly, save energy or use alternative energy to drive balanced and sustainable growth
• Promote clusters to create investment concentration in accordance with regional potential and strengthen value chains
• Promote investment in border provinces in Southern Thailand to help develop the local economy, which will support efforts to enhance security in the area
• Promote special economic development zones, especially in border areas, both inside and outside industrial estates, to create economic connectivity with neighboring countries and to prepare for entry into the ASEAN Economic Community (AEC)
• Promote Thai overseas investment to enhance the competitiveness of Thai businesses and Thailand’s role in the global economy.
The new policy will also maintain a category of activities that are classified as being of special importance and benefit to the country. These activities will continue to be granted corporate income tax exemption (CIT) without being subject to a cap, and include:Category 1.3: Economic forest plantations (except for Eucalyptus)Category 3.9: Creative product design and development centers.Category 4.11.1: Manufacture of airframes, airframe parts, and major aircraft appliances, e.g. engines, aircraft parts, propellers and avionics.Category 5.6: Electronic design.Category 5.7: SoftwareCategory 7.1.1.1: Production of electricity or steam power from waste or refuse- derived fuel.Category 7.8: Energy Service Companies (ESCO):Category 7.9.2: Industrial zones or technology industrial estates or industrial zones.Category 7.10: Cloud services.Category 7.11: Research and development.Category 7.12: Biotechnology.Category 7.13: Engineering design.Category 7.14: Scientific laboratories.Category 7.15: Calibration services.Category 7.19: Vocational training centers.
As under the previous incentives, there are certain conditions and criteria that need to be met for a variety of the above activities, for example projects with investment capital of 10 million baht or more (excluding cost of land and working capital) must obtain ISO 9000 or ISO 14000 certification or similar international standard certification within 2 years from the full operation start-up date. This is similar to the previous requirement and if this condition is not met the corporate income tax exemption will be reduced by one year. Also, the environmental impact of projects must be considered, with the adoption of efficient guidelines and measures to protect environmental quality and to reduce environmental impact. And, unless it is specified, the minimum capital investment requirement of each project remains at 1 million baht (excluding cost of land and working capital); however, new criteria for knowledge-based services have a minimum capital investment requirement that is based on the minimum annual salary expense specified in the list of activities eligible for investment promotion that is attached to the official announcement, which also contains a complete list of all criteria. Remaining the same is for newly established projects the debt-to-equity ratio must not exceed 3 to 1, with expansion projects continuing to be considered on a case-by-case basis.
One change is that the Board will now consider promoted activities as either being activity-based incentives, Group A or Group B, or merit based activities.
Group A consists of activities that shall receive corporate income tax incentives, machinery and raw materials import duty incentives and other non-tax incentives and is divided into four4 subgroups, as follows:
A1 activities can receive an 8-year corporate income tax exemption without being subject to a corporate income tax exemption cap; exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products, and other non-tax incentives.
A2 activities can receive an 8-year corporate income tax exemption, accounting for 100% of investment (excluding cost of land and working capital); exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products and other non-tax incentives.
A3 activities can receive a 5-year corporate income tax exemption, accounting for 100% of investment (excluding cost of land and working capital) unless it is specified in the list of activities eligible for investment promotion that the activity shall be granted corporate income tax exemption without being subject to a cap; exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products and other non-tax incentives.
A4 activities can receive a 3-year corporate income tax exemption, accounting for 100% of investment (excluding cost of land and working capital); exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products and other non-tax incentives
Group B consists of activities that can only receive machinery and raw materials import duty incentives and other non-tax incentives. This group consists of 2 subgroups, as follows:
B1 activities can receive exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products, and other non-tax incentives.
B2 activities can receive exemption of import duty on raw or essential materials used in manufacturing export products, and non-tax incentives only.
To see which specific activities fall under the above categories, investors should refer to the BOI web site mentioned above.
The merit based category is new to the promotion policy with incentives based on the merits of the project, such as competitive enhancement. This would include projects that have investments or expenditures on:1. research and development in technology and innovation
including in-house R&D, outsourcing research in Thailand or joint R&D with overseas institutes;
2. donations to Technology and Human Resources Development Funds, educational institutes, specialized training centers, research institutes or governmental agencies in the science and technology field in Thailand, as approved by the Board;
3. IP acquisition/licensing fees for commercializing technology developed in Thailand;
4. advanced technology training;
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Prime Minister Talks with Foreign Investors
the goals set forth by the government. Also attending from the government was Deputy Prime Minister M.R. Pridiyathorn Devakula and other cabinet members responsible for Thailand’s economy, as well as Acting BOI Secretary General Hirunya Suchinai and senior BOI officials.
The meeting began with opening remarks by Mr. Stanley Kang, president of the JFCCT, an umbrella body that represents almost 9,000 companies. He began by noting that while some countries in the world are moving towards greater integration others are moving in the opposite direction; that now there was great opportunity for Thailand’s economy. He mentioned that there was agreement in the country that major changes were necessary, and recognized that the prime minister had set up a structure for reform. While foreign business had been asked to
contribute to the change underway he said they are happy to do so, as many, including him, consider Thailand their home. Mr. Kang remarked that protectionism harmed economies and that a competitive environment was a good thing. He also expressed encouragement on the government’s efforts to fight
5. development of local suppliers with at least 51% Thai shareholding in advanced technology training and technical assistance, or
6. product and packaging design, either in-house or outsourced in Thailand, as approved by the Board.
Benefits under the merit based incentives include one additional year of CIT exemption if qualified investments or expenditures are not less than 1% of the project’s total revenue of the first 3 years combined, or not less than 200 million baht, whichever is less, with the total CIT exemption period not exceeding eight years; two additional years of CIT exemption if qualified investments or expenditures are not less than 2% of the project’s total revenue of the first 3 years combined, or not less than 400 million baht, whichever is less, with the total CIT exemption not exceeding 8 years; or three additional years of CIT exemption if qualified investments or expenditures are not less than 3% of the project’s total revenue of the first 3 years combined, or not less than 600 million baht, whichever is less, with the total CIT exemption not exceeding 8 years. It should be noted that for Group B activities only certain activities are eligible for merit-based incentives and to receive these investors need to submit the plan at the same time as the project submission is made. Also, those projects receiving incentives in Group A1 and A2 which already have an 8-year corporate income tax exemption and which also qualify for merit incentives for decentralization, will receive merit incentives in the form of a 50 percent reduction of corporate income tax on net profit derived from the promoted activity for 5 years after the initial exemption expires.
There is a cap on additional CIT exemption set at 200% for investments and expenditures specified in No.1 above, and at 100% for investments and expenditures specified in Nos. 2-6 above.
Another change to the policy includes a revision of the BOI Zoning, which has become only Investment Promotion Zones that now include 20 low income provinces, down from the previous count at 58 provinces: Kalasin, Chaiyaphum, Nakhon Phanom, Nan, Bueng Kan, Buri Ram, Phrae, Maha Sarakham, Mukdahan, Mae Hong Son, Yasothon, Roi Et, Si Sa Ket, Sakhon Nakhon, Sa Kaew, Sukhothai, Surin, Nong Bua Lamphu, Ubon Ratchatani and Amnatcharoen.
Projects located in the above areas are eligible to receive 3 additional years of CIT exemption, but the total period of the exemption cannot exceed 8 years. If a project with activities in Group A1 or A2 already receives an 8-year CIT exemption it will instead receive a 50% reduction of CIT on net profit derived from the promoted activity for 5 years after the CIT exemption period expires. All projects in the above areas are eligible for double deduction for transportation, electricity and water costs for ten years from the first date that revenue is derived from the promoted activity; and a deduction from net profit of 25% of the project’s infrastructure installation or construction costs, in addition to normal depreciation. This deduction can be made from the net profit of one or several years within 10 years from the first date such revenue is derived.
With the new policy in place, the Thailand Board of Investment will continue to work with investors, especially during the transition phase, to ensure clarity and transparency. Of course, there are certain activities that will no longer be promoted, mostly as a consequence of their low value added production, use of low technology, uncomplicated production process, low industrial linkage, and those that are labor-intensive. Also among the activities no longer being granted BOI promotion are those that have a high environmental impact, as Thailand seeks to build an advanced, high-tech low environmental impact economy in which investors and Thailand can benefit over the long-term.
Prime Minister General Prayut Chan-o-cha met with the Joint Foreign Chambers of Commerce in Thailand (JFCCT) at the Plaza Athenee Hotel’s Royal Meridian Crystal Hall on 3 December 2014 to discuss the current economic environment in Thailand and how the country is moving forward to achieve
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against corruption. It should be noted here that Thailand has just improved 17 places in Transparency International’s Corruption Perception Index rankings.
Prime Minister Prayut picked up on the tone set by the JFCCT and in beginning his remarks on “Supporting a Competitive Economy in Thailand” told the audience that they are also his family and he recognized that for many Thailand is their second home.
Probably the most important announcement for investors, both at the event and within Thailand, was the announcement by the prime minister that for now there would be no effort to amend the Foreign Business Act (FBA).
The global economic slowdown was the main problem faced by all countries at the present time, and he needed the cooperation of all to enhance the country’s long-term stability. The government’s 2015 budget would certainly concentrate on investment that would be made for the benefit of the country.
The prime minister was encouraged that data from the 3rd quarter of 2014 showed the economy had begun to improve, and although GDP growth for the year would still be low and the country still needed to be aware of global headwinds, indicators were improving. Investment from the private sector was up in the 3rd quarter, a new Board had been appointed at the Board of Investment and year over year there was significant improvement. In fact, he believes that the number of applications submitted to the BOI would double in 2015. BOI also had adopted its new investment policy, with revised incentives that would enter into effect as of 1 January 2015.
The prime minister noted his expectation for 3.5% to 4% growth for 2015, which could be higher if there was general cooperation to improve the situation. Specifically, he noted that tourism had increased by over 6% for October 2014 and that the NESDB forecasted acceleration in the economy during the 4th quarter.
Prime Minister Prayut stated that whatever his government could not complete would be taken up by the succeeding government, but in the meantime there was much to do. He singled out information technology and communications development as a priority, as well as infrastructure investment.
Thailand would also be taking measures to make the country an investment location for international headquarters and that he was going to have the laws enacted to ensure it. Likewise, investors should expect to see some action on improving work permits by the end of the year. Later in the event, Deputy Prime Minister Pridiyathorn added to this saying that by using international headquarters and international trading center programs, work permits will be automatically extended for two years, and there wouldn’t be a need to report every 90 days. Others could do this by mail, rather than a personal appearance.
Also noted in the prime minister’s remarks were special economic development zones and the need to increase trade with Thailand’s neighbors. Already 5 special economic development zones were in the works and there were 7 more planned for next year. It was important that Thailand had improved trade and investment with neighboring countries and he was working with them to ensure a peaceful environment for investment. Companies wishing to invest outside of Thailand could still use Thailand as a hub. Mention was also made about strengthening SMEs and their
value to the supply chain. He also referred to the building of a fifth bridge across the Mekong River that would facilitate trade with Vietnam. Next year, he said, he would try and reach an agreement with Vietnam to improve tourism between the two countries and perhaps even educational exchanges.
In this regard, Thailand placed great importance in improving connectivity with its neighbors and for that purpose it was building more roads and improving the rail service that would eventually run from Thailand through Laos and into China. It was important for Thailand to invest in building up the double track rail system and to increase rail lines in the country that would eventually run for a length of 5,000 kilometers.
In the near future, building would begin on Bangkok’s electric tram line and 5 of its mass transit systems would be expanded. This will not only alleviate traffic, but extend the mass transit system into the suburbs surrounding Bangkok.
The airports needed to be expanded, he remarked, with additional runways built and increased capacity for locations such as Phuket, with one solution to address capacity issues at the national airport being to use U-Tapao airport. Waterway use needed to be better managed, and Laem Chabang’s capacity improved within the next five years to ensure transportation of goods and improved logistics.
Overall, the current infrastructure development plan would be done on a step by step basis and be implemented over an 8-year period.
Thailand’s economy would transition into becoming a digital economy he also remarked. This would include strengthening e-commerce and data centers, for example, as well as making better use of the internet in both public and private sectors.
The government was also working on a vast range of issues that will help to create a better investment environment in the country and help support Thailand’s economic ambitions, including among these, he noted, is worker’s rights, worker’s benefits and social welfare.
It is clear from the Prime Minister Prayut’s remarks to the Joint Foreign Chambers of Commerce that his government has a broad and far reaching plan to revitalize and reform the Thai economy and to address issues that affect the country’s image. Investors should take comfort in the proactive and pragmatic nature of the government to improve investment in Thailand and to ensure a safe and healthy quality of life.
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INDUSTRY FOCUS
Gems & JewelryHistorically, Thailand has been a gemstones sourcing country. Although today most of the raw materials are imported, the country continues to maintain its reputation as a major colored gemstone manufacturing center and sourcing hub. For decades, Thailand has been famed for its gemstones, notably deep red rubies mined in Chanthaburi and blue sapphires from Kanchanaburi. This activity gave rise to a cutting and polishing industry to turn rough stones into beautiful gems. In fact, the core strength of Thailand’s gem and jewelry industry always has been the expert skills of Thai gem cutters and jewelry craftsmen. Transforming rough stones into world-class gems using heat treatment, cutting and polishing is a traditional Thai strong point.
China and India now buy the most from Thailand with the European Union, the United States and Japan still significant markets, while South America and Russia are steadily emerging. Indeed, the Thai gems and jewelry industry has surfaced as a key international player in production, processing and trading. Even while undergoing rapid growth, this manufacturing sector of Thailand still has plenty of room for development.
Presently, the industry consists of three segments:• Gemstone heating, cutting and polishing• Jewe l ry des ign , cas t ing (mode l ing
smoothing and plating), setting, polishing, quality control, and packaging
• Sales and marketing in domestic and international markets. Most of the operators in this segment are small- and medium-sized enterprises (SMEs).
The Thai gems and jewelry sector is labor-intensive and relies on skilled craftsmanship, beautiful designs and modern technology to produce jewelry that is competitive in international markets. Investors can leverage Thailand’s unique advantages, including high-quality Thai artisanship in the areas of cutting and polishing colored stones and diamonds, sufficient supply of skilled workers at low cost, natural resources and government promotion.
Moreover, there is an opportunity for foreign firms to utilize the country’s expertise by investing in facilities and equipment with the excellent support of the Board of Investment (BOI). The BOI offers many attractive non-tax and tax incentives to investors.
Other organizations supporting the continued development of the gems and jewelry industry in Thailand include: Gems and Jewelry Industries Center, under the Department of Industrial Promotion of the Ministry of Industry; Department of Export Promotion, under the Ministry of Commerce; Gem & Jewelry Institute of Thailand; Thai Gem & Jewelry Traders Association; Thai Diamond Manufacturers Association; Thai Gem & Jewelry Manufacturers Association; and the Gemopolis Industrial Estate.
Thailand’s overall gem and jewelry export value reached US$8.5
billion by the end of October 2014, while the import value dropped from US$18.5 billion in 2013 to US$7.7 billion. Fine jewelry was the most important export product (accounting for 36.94% of Thailand’s gem and jewelry export value), while unwrought or semi-manufactured gold (accounting for the second highest export value with a 32.45% share of the overall gem and jewelry export) maintained the top position regarding imports. However, if unwrought or semi-manufactured gold is excluded, Thailand’s gem and jewelry export value grew by 4.64% from the previous year (US$6,812.25 million in 2013). As for 2014, the export value growth is expected to be positive due to supportive factors from steady economic recovery of Thailand’s trading partners, as well as depreciation of the baht currency.
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It deserves to be highlighted that diamond polishing has an important role in the Thai economy in terms of employment and income generation. In 2013, diamonds were Thailand’s third most important export product in the gem and jewelry category, accounting for 16.61% and gaining a 12.24% increase in terms of value. Polished diamonds were the main product in this category with 14.75% growth in 2013 from the previous year. Thailand’s major markets for diamond export included Hong Kong, Belgium, India and the United States, which grew by 17.90%, 0.38%, 97.14% and 10.63% respectively. The export value of polished diamonds in 2013 reached US$1,675.37 million, increasing by 12.24% from 2012. During the same period, its import value stood at US$1,296.11 million.
Although in 2013, the global gem and jewelry market showed slow growth due to economic uncertainty in many countries, Thailand still managed to keep its export of upstream products, like diamonds, in positive territory. This is because Thailand is one of the world’s leading manufacturing centers of high quality polished diamonds after a number of large international corporations have based their operations in Thailand, such as I. Hennig & Company, Pandora and Su-Raj Diamonds.
Colored stone was the fourth most important export product with a 7.51% share and 23.81% growth compared to the previous year. Meanwhile, costume jewelry stayed in fifth place with a 3.59% share and with Liechtenstein, Germany and France as its major markets. Nonetheless, the top destination for Thailand’s gem
and jewelry export in 2014 was Hong Kong, which accounted for 28%. On the other hand, the United States was the second most important market, accounting for 13.09% of the overall export and achieving 3.37% growth. Switzerland was the third most important export market with a share of 12%. Overall, regarding the export value of Thai gem and jewelry (excluding gold) to various markets/regions in 2010-2013, it is found that the export value to many major markets was on the increase in 2013.
ASEAN is another export market with outstanding potential, as seen from strong growth in export value and steadily increasing share in Thailand’s overall exports. This is mainly due to exports to Singapore, which grew strongly by 53.03% from the main
products, including costume jewelry, gold jewelry and silver jewelry. The second most important market in this region was Malaysia, where gold jewelry orders predominate. At third place was Indonesia, having 17.62% growth in terms of value, with synthetic stone as the main product on the increase.
It is worth repeating that the global market has seen a steady increase in colored stone export over the last several years, and in 2013, global exports achieved an exceedingly high growth of 42.69% compared to the previous year. Thailand, as one of the world’s leading colored stone manufacturers and exporters, exported precious stones in the corundum family (ruby and sapphire) at the value of US$470.65 million, increasing from the previous year by 29.78%, while its export value of semi-precious stones was US$240.35 million, an increase of around 11%.
The unveiling of the “Colored Stone Quality Standard” by the Gem and Jewelry Institute of Thailand (GIT), a tool used to promote Thai colored stone trading, caused a global sensation. It was initiated in 1997 by GIT in collaboration with entrepreneurs and gemological experts, and has continuously been developed as a framework for corundum quality assessment, which helps in suitable pricing. The evaluation is based on three quality and aesthetic criteria, including color, clarity and cut. This color standard also can be linked to commercially recognized color names, such as Pigeon’s Blood ruby, Royal Blue sapphire and Cornflower Blue sapphire. As a result, it has benefited the business of colored stone exporters and has received a positive
response from the industry.
It is widely known that around 95% of rough stones in the global market require treatment for better color, higher clarity, or more distinctive shaping. Over 80% of these gemstones are handled in Thailand, most notably through the heat treatment method, of which Thailand has developed its own local technique. This knowledge has been passed on from generation to generation and has become an important competitive edge for the Thai colored stone sector.
Gemstone heat treatment is done by processing colored stones through very high temperature (around 1,000-1,800 degrees Celsius) under suitable conditions in a closed furnace where temperature and other factors can be controlled. The heat allows physical transformation of gemstones, resulting in increased or decreased color saturation, color changing as well as reduced blemishes, which in turn, raises the value of the stones. In the past, generally used furnaces included
charcoal furnace, oil furnace and gas furnace, before electric furnace recently gained popularity.
GIT, in cooperation with a research team from Kasetsart University, financially supported by the National Metal and Materials Technology Center under the Ministry of Science and Technology, has developed a unique prototype electric furnace. The heat treatment process can be monitored through information technology channels since the furnace is connected online via remote control. GIT introduced this electric furnace to the Thai gem and jewelry sector in a press conference on 8 August 2014, at the Thailand Research Expo 2014. It attracted much attention
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2015 A Year of GrowthIn its recent Economic Outlook, the National Economic and Social Development Board (NESDB) expects to see the world economy to grow by 3.6 percent in 2015 as a result of a stronger than expected recovery among some economies.
NESDB has forecast economic growth for Thailand in 2015 by 3.5 – 4.5 percent. The factors going into this growth include a 4.0 percent growth in export value, a 2.6 percent expansion in private consumption expenditure, a 5.8 percent expansion in investment and likely headline inflation in the range of 1.4 – 2.4 percent. The current account surplus will in the area of 2.2 percent to GDP.
“The Thai economy in 2015 is likely to accelerate from 2014, contributed mainly to (1) an improvement in export sector in line with further recovery of the global economy, (2) a recovery of tourism sector and investment, (3) an increase in government expenditure, (4) a drop in crude oil prices, and (5) less base effect caused by unusual high volume of car sales and production.”
By all measurements, 2015 is set to be a productive year for Thailand, with NESDB forecasting private consumption expanding by 2.6 percent, with an expansion in car sales. Likewise, recovery of the export and tourism sectors will lead to increased household income. Public expenditure is seen to grow by 5.6 percent with efficiency enhancement of the budget expenditure.
NESDB also writes that total investment will expand next year by 5.8 percent, with private investment growing by 4.8 percent. This is all due to improved business and investor confidence, among other things, and “…several BOI investment approval projects which are expected to start operations in 2015.”
Export are likely to be up 4 percent says NESDB, with imports growing at 5 percent. Overall, there is expected to be a trade surplus of US$19.6 billion.
from a large number of colored gemstone entrepreneurs, who inquired about the possibility of commercial manufacturing and distribution of this furnace.
Moreover, Thailand has a number of supporting organizations in almost every area of this industry. The BOI is a government agency that plays an important role in its promotion of investment opportunities for the Thai gems and jewelry sector. For instance, the following incentives and benefits for the manufacture of gems and jewelry or parts, including raw materials and prototypes, shall be granted:• 3-year corporate income tax exemption, accounting for 100%
of investment (excluding cost of land and working capital)• Exemption of import duty on machinery • Exemption of import duty on raw or essential materials used
in manufacturing export products for one year, which can be extended as deemed appropriate by the Board for 1 year which can be extended as deemed it appropriate by the Board
• Other non-tax incentives
Likewise, establishing a gems and jewelry industrial zone also qualifies for investment incentives but there are requirements. First of all, it is essential that the total area is not less than 100
rai. Secondly, that it has an area for operations related to the gems and jewelry sector and that it is not less than 40% of the total area. Thirdly, that the proposed industrial zone has a sales area exclusively for gems and jewelry. And lastly, that appropriate security systems as well as meeting rooms, exhibition halls and business centers are provided.
Thailand’s gems and jewelry industry is a major employer and important contributor to the national economy, with gems and jewelry being among the country’s top exports. Combining its renowned production and design skills with cutting-edge technology and internationally recognized testing facilities, Thailand has evolved into a renowned regional center for gems and jewelry. Furthermore, apart from tax benefits, investment facilitation, and infrastructure provided by the Thai government, foreign enterprises can access other benefits according to bilateral and multilateral free trade agreements. They also have opportunities to expand their trading and investment into the Asia region, as a result of Thailand’s status as a member of the ASEAN Economic Community (AEC). Additionally, Thailand’s location also is perfect for investors seeking to establish a manufacturing or distribution center in Southeast Asia.
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Thailand: The Business Growth EnvironmentGrant Thornton has released its new International Business Report 2014 entitled “Thailand: the business growth environment”, which “considers the outlook for the economy, including the expectations of 200 business leaders interviewed in Thailand and more than 12,500 globally, over the past 12 months.”
Thailand is currently in transition, making the evolution from a labor based economy that was attractive for its low cost wages and productive work force. But the country has made the decision to move forward to the next level and go beyond its current status as an upper middle-income country, as ranked by the World Bank. This policy decision seems to be in sync with the observation made in the IBR 2014, which states that “For Thailand, the key to achieving sustainable growth and moving out of the middle-income trap will be to produce higher value-added products and services.” This is what Thailand is currently attempting to do through its support of such businesses as alternative and renewable energy, international headquarters and regional operating headquarters, electronics and research and development, among others.
Business confidence in Thailand, notes the report, climbed to an all-time high in the third quarter of this year, while 71 percent of Thai businesses are optimistic in the economic outlook; Southeast Asia’s average was 56 percent. This is a vast improvement over the same period last year which showed -28 percent, or even from the second quarter of this year at only 13 percent.
Percentage of business planning to introduce in initiative over next 12 months
Source: Grant Thornton IBR 2014
6
12
17
26
33
35
38
32
45
2
14
19
19
37
42
42
44
52
0 10 20 30 40 50 60
Merge with or acquire another business
Access new sources of funding
Recruit specialist talent
Expand business overseas
Incentivise productivity improvements
Develop and/or launch a new product or service
Increase investment in marketing
Expand business domestically
Improve salesforce effectiveness
Thailand
Southeast Asia
A further sign of improving conditions is that 42 percent of the businesses in Thailand are planning to develop or launch a new product or a new service within the next 12 months. This will be done to broaden the company revenue stream. The average for Southeast Asia is reported to be 35 percent and the global average is 30 percent.
The report also notes that cost management ranks highly for Thai businesses, who appreciate the long term benefits that can be derived, such as in the area of energy efficiency which requires an initial investment and yields longer term benefits. About 58 percent of Thai businesses report donating their products or services to charities, compared to 40 percent across Southeast Asia and a regional average of 54 percent.
In terms of leadership, 98 percent of Thai businesses cite good leadership as important; having a positive attitude and creativity also rank high at 96 percent each, with passion and ability to inspire at 94 percent.
Thailand also ranks well in the category of women in business, where they hold 38 percent of senior management positions. “The roles held by women in Thailand is also interesting. In
2014, our survey showed that 53% of businesses had a female CEO or Managing Director.” The report notes that Thailand ranks 7th in the world for senior female business leaaders.
December 2014
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Thailand Makes Significant Advances in ICTThe report issued by the International Telecommunication Union (ITU), Measuring the Information Society REPORT 2014, now in its sixth year, provides a global view of the developments being made in information and communication technology, the cost and affordability of these services, and provides the ICT Development Index ranking performance on ICT infrastructure, use and skills.
Brahima Sanou, Director of the Telecommunication Development Bureau (BDT), International Telecommunication Union, informs among other things that by end 2014, almost 3 billion people will be using the Internet and that while growth in mobile-cellular subscriptions is slowing as market saturation point is being approached, “mobile broadband remains the fastest growing market segment, with continuous double-digit growth rates in 2014 and an estimated global penetration rate of 32 percent – four times the penetration rate recorded just five years earlier.”
The Report points out that by end of this year,” there will be almost as many mobile-cellular subscriptions (6.9 billion) as people on Earth, more than three quarters of them (5.4 billion) in the developing world and more than half (3.6 billion) in the Asia-Pacific region.” Although, this fact does not imply that everyone owns a phone, as multiple cellular subscriptions occur.
Despite all of the progress made in communications technology over the past several decades, we are also informed that today there are 4.3 billion people who are still not online; 90 percent of whom live in developing countries, where fixed broadband penetration is only at 6 percent.
Not surprisingly, ICT performance is better in those countries that have a higher population percentage living in cities, where access is more favourable. Director Sanou also writes that “An enabling
telecommunication regulatory environment can significantly influence the affordability of services. The report finds that the price of ICT services falls with better market regulation and increased competition.”
The Report notes that providing internet access to schools is now considered to be a basic infrastructure requirement and that in Asia “Thailand stands out with almost 100 percent school connectivity.” In this regard, government policies are seen to have a strong impact on connectivity. “Finally, Thailand’s SchoolNet programme, which was implemented from 1996 to 2003 and was followed by the EdNet programme, contributed significantly to increasing Internet access in schools nationwide, and the country’s more recent One Tablet per Child (OTPC) initiative has helped increase the learner-to-computer ratio in schools.”
Thailand ICT Development Index rank improved considerably, being ranked in 2013 at 81st of 166 countries, from 91st in 2012; its regional rank is 10th. More remarkable improvement was registered in the usage ranking, where Thailand now stands at 71st, up from its previous rank at 105th. In the skills sub-index Thailand is at 61st. “In particular, the country’s wireless
market proved to be extremely vibrant during the period 2012-2013: more than 7 million new mobile-cellular subscriptions and c l ose t o 28 m i l l i on new w i re less -b roadband subscript ions were added within one year. Penetration rates stand at 138 percent for mobile-cellular and 52 percent for wireless-broadband services by end 2013. This is one of the highest wireless broadband penetration rates in Asia and the Pacific, only surpassed by the region’s high income economies.”
The Report also notes the p r o g r e s s t h a t T h a i l a n d has made in connec t ing households with ICT. In 2013, the country had a penetration rate of 23 percent and 29 percent of households owned a computer, which since 2008 have replaced telephones as
the most commonly available ICT device in Thai households, the majority of which have access a fixed-broadband connection.
As Thailand prepares to shift over to develop a digital economy it is clear from this report that the country is proceeding on a solid foundation, with an internet ICT savvy population. Also clear is the number of investment opportunities that remain in this BOI promoted sector.
December 2014
Page 10
Deputy Prime Minister MR Pridiyathorn Devakula, together with Minister of Industry Chakramon Phasukavanich and BOI Deputy Secretary General Duangjai Asawachintachit, led a delegation to the Federal Republic of Germany from 16-19 November 2014 where they met with representatives from the private sector.
BOI Senior Investment Advisor Ajarin Pattanapanchai spoke with Chinese businessmen from the rubber industry on 29 November 2014 at the Shangri-la hotel, Qingdao, China.
BOI Deputy Secretary General Duangjai Asawachintachit welcomed a delegation on 24 November 2014 from The Turkish Confederation of Businessmen and Industrialists (TUSKON) and the Thai-Turkish Business Association (TTBA) for discussions on business opportunities in Thailand.
BOI Deputy Secretary General Duangjai Asawachintachit attended a business networking dinner at the Dusit Thani Hotel on 1 December 2014 on the occasion of the CIECA delegation’s visit to Thailand.
BOI’S MISSIONS AND EVENTS
BOI Executive Director of the Investment Marketing Bureau Dr. Bonggot Anuroj, accompanied by BOI Mumbai Director Kanokporn Chotipal, led an investment mission to New Delhi and Jaipur, Republic of India, from 17-22 November 2014. The delegation met with businessmen in the IT and Software sector, and with the Chamber of Commerce in Bhiwadi. Dr. Bonggot spoke at a seminar on investment opportunities in Thailand’s IT sector at Federation House, Tansen Marg, New Delhi.
BOI Executive Director of the Investment Services Center Chutima Phumsrisawat, and BOI Director of the Guangzhou Office Mrs. Suwaree Phatanavitayakul, engaged in door knocking from 30 October -3 November 2014 with potential investors in the medical equipment industry.
December 2014
Page 11
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: [email protected] 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: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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