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Topic: Summary on Thailand as an investment opportunity

Description

Write a summary using the attached report as a financial analyst for a major brokerage firm. The audience will be the firm’s portfolio managers and financial advisors, who will use the report and the summary to make decisions for the firm and its clients.

Guidelines for the summary:
Why are the three selected indicators – exchange rates, major industries, government spending, debt, and deficit/surplus discussed in the report the strongest for decision-making in your judgement?
Connect the data/information with economic and finance theory.
Keep in mind that the managers and advisors will use the summary for decisions.
How and why the managers should use the information given in the report for decision making.
Include the corporate tax rate in Thailand and compare it to the other countries in the ASEAN region. Does it make it more or less attractive for investment?
The summary should also include the reasons for investing in Thailand, but also note the cautions and make a recommendation. However, if it is not recommended as an investment, state the reasons.

Introduction
Thailand has a large economic system with a high dependence on foreign trade. The country boasts of well-developed infrastructure, pro-investment policies, and a free-enterprise economy. Poverty reduction is tremendous in Thailand with a booming export sector, great employment opportunities, low external debts, significant government initiatives including tax reduction, and government spending. The low poverty level attributes to the increase in baht income monthly. Thailand is a center of attention for domestic and foreign investors because of the growing GDP annually, reasonable policies, natural and human resources. This financial analysis will discuss the main reasons for investing in Thailand by analyzing such economic indicators as the exchange rate, major industries, and government spending.

Exchange Rate

Thailand’s monetary currency is the Thai baht (TBH). Proper knowledge of the current currency exchange rate of baht is crucial for foreigners. Thailand natives only accept local currency, but tourists staying in hotels and lodgings have exceptions. For business people, an up-to-date exchange rate is essential for decision making regarding investment plans.
The exchange rate of foreign currencies to TBH in 2019 includes:
• 1 United States dollar = of 30.28 THB
• 1 Euro = to 33.78 THB
• 100 rubles (RUB) = 47, 06 THB
The Investment Promotion Act authorized the Board of Investment (BOI) to give local traders and foreigners tax and non-tax incentives to promote business activities (Chaisse, 2017). The tax incentives include exemption of import duties on machinery and materials of research and development purposes, 50% reduction of corporate income tax on dividends and net profit, and 25% deduction of the cost of construction facilities. Conversely, the non-tax incentives involve authorization for foreigners to enter the country and study investment opportunities, bring expertise into the Thailand skilled workforce, and to own land. Both the Ministerial Regulation No. 13 B.E. 2497 (1954) and The Exchange Control act B.E. 2485 (1942) governs the monetary control in the country. Additionally, the Ministry of Finance permits the administration of foreign exchange transactions through the Bank of Thailand (BOT). The currency regulations for foreign currency do not restrict the amount of foreign money brought to the country. The foreigner has to exchange the money to local Thai baht or deposit it in a Thai bank in 360 days. Foreigners, staying in Thailand for less than three months, do not fall under this regulation. According to the latter one, a person traveling to the countries that border Thailand can take a maximum of TBH 2 million. The Thai customs personnel keep an additional amount before the person departs from Thailand. Additionally, the Thailand resident traveling to a country that does not border Thailand is expected to depart with a maximum of THB 50, 000.
Cumperayot (2019) reports that investors seeking investment opportunities in Thailand would benefit from the tremendous growth of Thai baht. Since 2008, the currency has been growing in emerging Asia. Emerging Asia includes such countries as China, Southeast Asia, and India. Surprisingly, it has maintained annual growth and competes against the U.S. dollar by 8% six consecutive years. The currency’s growth is attributed to the country’s robust economic elements, including account surplus, high foreign reserves, and hawkish central bank. The merits of the currency involve the improvement of Thai importation and the reduction of foreign currency debts. Low competition and a reduction in tourism, as well as the export of goods, accompany the stable currency. The export sector declined from 3.8% (2018) to 3.3% (2019) following the appreciation of the currency. The BOT has taken measures to depreciate the value of the Thai. First, the bank reduced the cap of non-residents’ outstanding balance by a third. Second, the BOT cut its supply of bands for 3 to 6 months at auctions in July and August, in 2019. Third, the BOT announced its plans of extending relax restrictions on external portfolio investment. The actions of BOT have been criticized for frequently distracting the foreign exchange market. The country is highly dependent on foreign investments. Regular intervening efforts aimed at imposing capital controls on speculative inflows, as well as a policy rate cut, will affect the foreign investment sector leading to a reduction in tourism, export, and import. Consequently, Thailand’s economy will have high liquidity, which will increase costs for the central bank.
Capital controls can be used to regulate the enormous amounts of foreign capital inflows to Thailand on a short and medium-term basis. Long-term capital controls can affect the country’s financial market and credibility. The private sector recommends the policy of rate cut because of the idea that it would decrease the attractiveness and the appreciation of the Thai baht to foreigners. The downside of this policy is that it will exacerbate the already increasing domestic debt of 78.6%, thus affecting the country’s financial stability drastically. Despite the strong argument over the appreciating Thai baht, the currency is attractive for foreigners. Furthermore, the exchange rate fluctuations are normal financial matters. They should not pressure the BOT to authorize a cheap export sales strategy at the expense of enhancing economic stability. In essence, the economic theory correlates with the appreciation of baht. The theory implies that higher wages will affect economic growth (Ekelund & Hébert, 2013).

Major Industries
Automotive

Thailand’s automotive industry aims to contribute to domestic and international growth. The country held the 9th position globally as a major manufacturer of vehicles in 2012 (2.457 million units) and 2013 (2.457 million units). However, Thailand dropped to position 12 in 2017 with a total production of 1.989 million units. Regionally, Thailand is the leading carmaker in Southeast Asia with 386 tier-one auto parts manufacturers, 23 car assembly plants, and 1700 tier-two and tier-three auto parts manufacturers. The Federal Thai Industries (FTI) expects total production of 2.15 million cars despite the challenges of domestic and foreign factors. While 1.1 million cars intent for export, 1.05 million cars will be sold in Thailand (Maikaew, 2019). As a result, the industry will have flat growth from the previous year.
The government incentives encouraged eco-car manufacturers to produce eco EVs. Eco-friendly automobiles consume fuel efficiency and reduce environmental pollution. The industry also benefitted from the lifting of the five-year resale ban following the strong replacement demand. As a result, consumers increase sales to automobile companies due to the purchase and resale of cars without restriction. The other benefit is the lower motorization rate of Thailand in comparison to other countries in emerging Asia. Nevertheless, the automotive industry is hindered by high household debt. Past policies, including incentivizing credit growth for a first car loan program, are no longer functional. The BOT has endorsed restrictions to credit card debts and personal loans that slow the repayment of loans. Higher debt ration raises the sensitivity of balance sheets to elevate interest rates (OECD, 2017). Additionally, the middle-income people cannot afford the high-technological cars, despite the industry’s capacity to pay local staff high salaries.

Export and Import

The Economic Complexity Index ranked Thailand in the 23rd position for being the largest exporter and 32nd for having a complex economy in 2017. The country produced an export value of $215B. This value is a decrease from $236B in 2012. Thailand mainly exports office machine parts, integrated circuits, delivery trucks, and cars for worth $19.8B, $12B, $9.4B, and $8.17B, respectively. Thailand exports products from China, the United States, Malaysia, and Japan.
In importation, Thailand garnered $160B and was ranked in the 27th position by the Economic Complexity Index in the same year. The sector had declined in value by -6.8% from $226 in 2012. Thailand imports gold ($10.6B), vehicle parts ($5.5B), and integrated circuits ($4.83B).
When venturing the export and import sectors, investors should be cautious of the oncoming challenges. Competition is unavoidable in the Thailand market. Many local companies are family-owned and controlled by skilled businessmen. Further, the market is price conscious and operated by low-priced imports and local suppliers. Additionally, the high tariffs in a majority of sectors hinder market access. For instance, the country has sanctioned tariffs on agricultural products in the World Trade organization.
The Thailand market provides plenty of opportunities for export and import purposes. It attracts foreign direct investments, thus promoting economic development and technology transfer (Johnstone et al., 2013). The country’s economic growth has established opportunities for U.S. firms in such infrastructural sectors as telecommunications and electrical power. Thai consumers accelerate public relations with the U.S. government by providing opportunities for trade in automotive accessories, franchising, medical products, and educational services. The best recommendation for foreigners is to partner with local distributors. They will help to enter the market and reach consumers easily. The distributors also provide knowledge of the perfect location, distribution networks, and associations with the government and businesses.

Tourism

The tourism industry is a profitable investment area in Thailand. The country was made the chairman of ASEAN in 2019 hence promoting international tourism. The new position also opens up new opportunities, including building hotels and shopping centers. Moreover, investors can make big sales from engaging in tourist-related services and collaborating with neighboring nations to create the best routes for visitors. Increasing popularity in remote areas is attributed to the government’s efforts in promoting less-visited regions and allocating revenue generated from the industry across the country. The government’s push for marketing campaigns to promote tourism has led to the introduction of the waiver of the visa-on-arrival fee until 30 April 2019. The occupancy of visitors in hotels is estimated to increase slightly from 71% (2018) to 72% (2019) due to the rapid increase in competition between alternative accommodation and traditional hotels (Deloitte Thailand, 2019).
The number of international visitors estimates to grow by 40.1 million in 2019. Nevertheless, the first five months of this year have shown a decrease of tourists in different countries. In Thailand, the Thai baht’s appreciation affects the sector. The Thai baht decreases the spending of tourists. Furthermore, the decrease in visitation by Chinese tourists and a drastic decline in European tourists’ visits lowered the revenue of tourism in 2019. The suitable recommendation for Thailand tourism sector is to influence online platforms to attract tourists to visit the country. The prospect theory of the finance model recommends considering alternatives that accompany uncertain outcomes. The tourism sector of Thailand is unpredictable because of global changes, environmental and social factors. However, researching on the tourist destination areas, conducting strategic marketing, and focusing on a target audience will enable investors to reap benefits.

Government spending, debt and deficit/surplus

Thailand’s government spending reduced from the first to the second quarter of 2019, from 399701TBH million to 394584 TBH million, respectively. Government spending involves the expenditure of the public in terms of goods and services. The GDP is dependent on government spending because it determines the country’s economic outlook currently and in the future. Budget targets are part of government spending policies that determine the economic growth of the country. Thailand’s government budget had a mean of -1 of the GDP from 1989 to 2018. The Thailand government aims to refrain talent from foreign investment through the Smart Visa program of four years. That applies to expatriates who work and make investments in services and technology-based activities. The government introduced the East Economic Corridor initiative to develop technological manufacturing in Chachoengsao, Chonburi, and Rayong provinces.
The International Money Fund reported that the national debt of Thailand was 41.9% in 2017. The low-level debt ratio is favorable for investors. As far as credit rating is concerned, Thailand has a successful credit score. Before 1997, Thailand was an A-grade credit rating country. Even so, the country is the second-biggest economy in South East Asia. The top three credit rating agencies, including Fitch, Moody’s, and S&P, state that the country has a stable economy. It means that debts will not alter its economic structure in the future. The Ministry of Finance introduced bailout packages to reduce the national debt. For instance, the tax deductions for STEM development exempt tax for foreign investors that use highly-skilled individuals in the fields of science and technology (Medina, 2019). The government focuses on foreign investment to increase the value of products and services that will raise revenue and eliminate the national debt.
The country’s deficit/surplus value is estimated to be -450,000.000 TBH million by 2020. Tourism is accountable for economic growth and surplus in Thailand. In 2017, the sector’s revenue was 10.6% of the GDP. Since Thailand is heavily vested in foreign direct investments and exports, a reduction in capital inflow can jeopardize the economy. The country experienced a financial crisis in the mid-1990s. The reasons were the operation with large trade deficits, the failing from overseas, and the withdrawal of foreign investors.

References

Chaisse, J. (2017). International investment treaties and arbitration across Asia. Boston: Brill, Nijhoff.
Cumperayot, P. (2019). What does a rising Baht mean for Thailand’s economy? The Diplomat. Retrieved from
https://thediplomat.com/2019/08/what-does-a-rising-baht-mean-for-thailands-economy/
Deloitte Thailand. (2019). Economic Outlook Report 2019. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/th/Documents/about-deloitte/th-about-economic-outlook-2h-2019.pdf
Ekelund, R. & Hébert, J. (2013). A History of economic theory and method: Sixth edition. Long Grove, IL: Waveland Press, Inc.
Johnstone, G., Puskur R., Declerck F., Mam K., Mak S., Pech B., Seak S., Chan S., Hak S., Lov S., Suon S., Proum K., & Rest S. (2013). Tonle Sap scoping report. CGIAR Research Program on Aquatic Agricultural Systems. Penang, Malaysia. Project Report: AAS-2013-28.
Maikaew, P.(2019). Automotive industry at a turning point. Bangkok Post. Retrieved from https://www.bangkokpost.com/business/1606570/automotive-industry-at-a-turning-point
Medina, A. (2019). Thailand plus: New stimulus package for foreign investment. ASEAN Briefing. Retrieved from
https://www.aseanbriefing.com/news/2019/09/24/thailand-plus-new-stimulus-package-for-foreign-investment.html
OECD. (2017). Resilience in a time of high debt. OECD economic outlook, 2017(2). Retrieved from https://www.oecd.org/eco/outlook/Resilience-in-a-time-of-high-debt-november-2017-OECD-economic-outlook-chapter.pdf

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