Snapshot:

• Thailand has entered a stage of moderate aging, with its demographic dividend gradually diminishing and economic stagnation emerging. Beneath the vibrant surface, the Thai economy is in urgent need of transformation. Currently, Thailand’s BOI (Board of Investment) has released ten key sectors to attract foreign investment.

• Biomass Technology (Biodiesel, Bioplastics, etc.): Thailand is rich in biomass resources. The country plans to increase the share of Sustainable Aviation Fuel (SAF) to 1% of total fuel consumption by 2026. The G+Ft and Atj pathways for SAF production might have advantages in Thailand. Additionally, the country aims to position itself as a hub for bioplastics production in Southeast Asia, with several foreign PLA manufacturers establishing operations there.

• Pharmaceuticals and Medical Devices: The Southeast Asian market currently sees a lack of innovative drugs, with most drugs sold by Western companies being generics. However, the high prices of Western pharmaceuticals have led some Chinese companies to first complete high-standard registrations in Europe and the U.S. for innovative drugs before launching them at relatively affordable prices in Southeast Asia and other regions.

When people think of Thailand, many envision the magnificent temples, bustling night markets, and the constant flow of tourists from various countries, all exuding a vibrant atmosphere. However, it may come as a surprise that Thailand has now entered a stage of moderate aging, with a median age of 39, second only to Singapore’s 42 in ASEAN. The demographic dividend is gradually disappearing, and the economy is stagnating, behind this lively facade lies a Thai economy in urgent need of transformation.

Despite this, Thailand remains one of the top destinations for companies looking to expand into Southeast Asia due to its large population base, strong consumer purchasing power, and relatively more matured online channels. Whether driven by the need to mitigate geopolitical risks or by growth opportunities based on sound market logic, Thailand continues to attract international businesses.

This article draws on our research and insights into Thailand to outline the characteristics of the Thai market and investment opportunities.

01｜A Tepid Thai Economy: Reform in Progress

According to IMF data, Thailand’s GDP in 2023 is approximately $515 billion, ranking 25th in the world and making it the second-largest economy in ASEAN, after Indonesia.

However, from 2015 to the present, Thailand’s average GDP growth rate has only been around 1.9%, lower than Malaysia’s 3.9%, Indonesia’s 4.2%, and Vietnam’s 7%, and below the ASEAN average of 4%. This makes Thailand one of the slowest-growing economies in the region.

Although the economic structure is relatively diverse, the Thai economy is overly reliant on international markets, with exports accounting for about 65% of GDP.

During the pandemic, trade and tourism were significantly disrupted, causing Thailand’s GDP growth rate to decline by 6.1%. It has yet to recover to pre-pandemic levels, making it the hardest-hit economy among ASEAN countries. Furthermore, the increasingly serious issue of an aging population has led the Thai government to urgently seek new engines for economic development. Prime Minister Paetongtarn Shinawatra, who took office in August this year, stated “the need to continue major economic stimulus and reforms, combat illegal drugs, and improve the country’s universal healthcare system”.

To reduce economic dependence, the Thai government has launched the Eastern Economic Corridor (EEC) initiative and is exploring the Thailand “4.0 strategy” for transformation. This involves a shift from purely agriculture and manufacturing to high-tech, renewable energy, and high-value-added services. These sectors are also favorable for foreign investment. The Thailand Board of Investment (BOI) has released ten key sectors to attract foreign investment, offering a series of incentives such as tax benefits, land ownership rights, visa facilitation, and foreign currency repatriation.

02｜What Opportunities Does Reform in Thailand Present for Investors?

In this article, we highlight two sectors.

1.Bioenergy

Thailand is the largest electricity-consuming country among ASEAN nations; however, it is a net energy importer, heavily reliant on energy imports from other countries. Domestic coal and oil resources are scarce, but natural gas resources are abundant. Unfortunately, continuous extraction has significantly reduced reserves. In 2022, approximately 38% of natural gas and 92% of oil in Thailand was imported.

As natural gas serves as the primary energy source (accounting for 68% of total energy consumption), the decline in domestic natural gas production has prompted Thailand to shift its focus toward developing renewable energy. The Thai government plans to increase the share of non-hydro renewable energy to 30% of total consumption by 2036, up from about 13.8% in 2022.

While Thailand does not have rich resources in wind and geothermal energy, it is crucial to mention biomass energy in addition to solar power. Being an agricultural powerhouse, Thailand has extensive arable land and forest areas, with significant cultivation of rice, sugarcane, cassava, oil palm, and coconut trees. Furthermore, the government’s strong push for real estate development has resulted in a substantial amount of urban solid waste, which is also a significant source of biomass energy. The government estimates that the biomass resources available for utilization amount to 40 million tons annually. The abundance of cheap biomass has led to biomass power generation being the largest share of renewable energy generation in Thailand, approximately three times that of solar power generation.

Currently, most biomass is burned to produce electricity in Thailand. However, for foreign investment, Thailand’s policy are more favorable in non-power biomass utilization. The Thailand Board of Investment (BOI) includes the biotechnology industry in the list of encouraged investment sectors. According to the BOI’s “Investment Guide 2023,” companies producing liquid biofuels, solid biofuels, and bioplastics are granted A2 enterprise investment incentives, including an 8-year exemption from corporate income tax, exemption from import taxes on machinery and raw materials, as well as other non-tax incentives.

In the field of biofuels, China’s Harbin Electric International has signed an EPC general contracting agreement with Capital One Enterprises Co., Ltd. in Thailand to construct a cassava-based ethanol plant with an annual output of 14.2 million liters and a 100 MW combined cycle power plant in Phanom Sarakham District of Chachoengsao Province.

The Japanese brewery Sapporo has authorized PTG Energy in Thailand to produce 1.5 generation cassava bioethanol. Additionally, Japanese trading company Sumitomo Corporation plans to build a bioethanol production plant in Bangkok by 2025, which will use sugarcane bagasse as its feedstock (E2G). Furthermore, Thailand plans to increase the usage of Sustainable Aviation Fuel (SAF) to 1% of total fuel consumption starting in 2026. The G+Ft and Atj pathways for SAF production hold more advantages in Thailand. Currently, most SAF projects in Thailand utilize the used cooking oil HEFA pathway for production. Local oil company Bangchak began piloting SAF in 2022 and expects to achieve commercial operation by the end of this year. Sumitomo Corporation has signed a SAF purchase agreement with Bangchak this year.

Currently, Thailand is the second-largest producer of bioplastics in the world, with 90% of its bioplastics being exported to countries such as Italy, the Netherlands, Japan, South Korea, and the United States. Thailand is committed to becoming the bioplastics center of ASEAN. The annual plastic production is around 95,000 tons, and local manufacturers plan to increase production by an additional 75,000 tons in the coming years. The Thailand Bioplastics Industry Association (TBIA) has revealed that Thailand aims to increase the annual production of bioplastics pellets to between 375,000 and 400,000 tons in the next few years.

In 2018, the joint venture Total Corbion PLA, owned 50% by Total and 50% by Corbion, announced the official start of production at its bioplastics plant in Rayong Province, which has an annual capacity of 75,000 tons of polylactic acid (PLA). This facility is currently the largest bioplastics project in Thailand, using sugarcane syrup as its raw material. Additionally, Brazilian bioplastics giant Braskem plans to establish a joint venture with Thai chemical company SCG to build a bio-ethylene production plant with an annual capacity of 200,000 tons in the coming years.

Healthcare and Pharmaceuticals

The characteristics of Thailand’s current medical market primarily include medical tourism, reproductive medicine including medical aesthetics and assisted reproduction, cosmetic surgery, and clinical trials for innovative drugs. According to the BOI’s “Investment Guide 2023,” companies involved in the production of high-tech medical devices, active pharmaceutical ingredients (APIs), targeted therapeutic drugs, and specialized medical centers can enjoy A2 enterprise investment incentives, which include an 8-year exemption from corporate income tax, exemption from import taxes on machinery and raw materials, as well as other non-tax incentives.

An interview with Li Ning, Vice Chairman of the Chinese innovative drug company Junshi Bioscience, indicated that the Southeast Asian market currently has relatively few innovative drugs. The drugs sold by European and American companies in Southeast Asia are mainly generic drugs, and overall, the prices of European and American drugs are quite high. As a result, some Chinese pharmaceutical companies choose to complete high-standard registrations for innovative drugs in Europe and the United States before launching them in Southeast Asia at relatively affordable prices.

Additionally, some Southeast Asian countries have a high level of recognition of Chinese medicines. In 2022, Shanghai Pharmaceuticals established a company in Bangkok, Thailand, to introduce medical devices, innovative drugs, and biopharmaceuticals into the Thai market. Last year, Junshi Bioscience set up a joint venture with Kanglinda to collaborate on the development and commercialization of PD-1 monoclonal antibodies in Thailand and eight other ASEAN countries. PD-1 monoclonal antibodies are primarily used to treat nasopharyngeal carcinoma, which has a high regional prevalence, making Southeast Asia one of the major affected areas. This year June, AstraZeneca announced it will invest approximately 6.2 billion baht (approximately US$168.5 million) over the next three years, from 2024 to 2026 in Thailand, to drive biomedical innovation with a focus on tackling NCDs.

As the population ages, the government may find it increasingly challenging to bear the rising healthcare costs, and limited medical resources could lead to significant reductions in the number of beds available in public hospitals. Patients with a high dependence on hospital services, such as those with advanced cancer, may face a lack of options if they cannot secure a hospital bed. Consequently, there will be a growing demand for nursing centers, rehabilitation centers, and geriatric hospitals in the future, which can provide end-of-life care, rehabilitation, home care, and support services for terminally ill patients. Japan might have an advantage in this industry. This type of industry is classified by the BOI as A3-A4 enterprises and can receive 3-5 years of corporate income tax exemption, exemption from import taxes on machinery and raw materials, as well as other non-tax incentives.

03 | Risk and concerns when outbounding to Thailand

The Thai market is larger than that of some other ASEAN countries, with a strong purchasing power. Thai consumers are enthusiastic about trying new things, making it a favorable pilot market for the consumer industry as well (we will provide a detailed discussion of Southeast Asian consumer behaviour in the next blog). However, there are also some risks associated with localized operations in Thailand:

Thailand’s market is controlled by conglomerates, similar to South Korea. Key industries are dominated by these conglomerates, including banking, insurance, agriculture, mining, and energy. Notably, in the past two years, Thai conglomerates have extended their reach into the renewable energy sector. For instance, the deployment of charging stations along major roads and highways is primarily managed by conglomerate companies or their subsidiaries. This trend could pose challenges for foreign investors. Over time, it may become more difficult to secure prime investment positions. However, investors can look for opportunities in smaller application scenarios.

Finally, the window for foreign investment will not remain open indefinitely. The influx of Chinese goods has significantly impacted local industries across Southeast Asian countries. Last year, Thailand saw the closure of over 1,300 factories, a 60% increase compared to the previous year. Although favorable policies seem likely to remain in place in the coming years, there is a strong possibility that changes will occur after this wave of overseas expansion concludes. For companies, establishing an overseas presence has always been a time-sensitive and demanding task.

#InvestinginThailandforforeigners #biomasspotentialinthailand #SAFinthailand #thailandSAFtarget #bioplasticinthailand #thailandagingsociety

References:

[1]商务部，2021.4.6，泰国制定“十三五规划”纲要

[2]上海至臻联合会计师事务所,2024.7.8, 泰国战略发展规划

[3]泰国投资促进局，2023投资促进项目申请指南

[4]广东省商务厅，2024.4.12，泰国：中国投资者可关注五大重点产业

[5]Macromicro, 泰国-出口-国家(同比)

[6] APEC Energy Working Group，2024.2, APEC Oil and Gas Security Exercise in

Thailand

[7]AENERT, 泰国能源产业

[8]CCPIT, 东盟营商环境报告2023

[9]EPPO, Thailand Energy Brief

[10] 虎嗅，2023.3.7，中国创业者在泰国：狼性文化在这里没戏

[12]东方财富网，2023.11.9，科创成果助力共建“一带一路” 中国原创医疗技术辐射亚太地区

[13]中国食品药品网，2024.5.6，国内药企“下南洋”渐成新趋势

[14]普华永道，2024.2，2015-2023年中国企业东南亚地区医疗行业投资回顾与展望

[15]TotalEnergies,2018.3.12, Thailand: Total Corbion PLA starts-up its 75,000 tonnes per year bioplastics plant

[16]biofuels international, 2017.1.11, Sapporo licenses Thai firm to produce cassava-based ethanol

[17]Nikkei Asia,2022.11.4, Japan looks to Thailand for bioethanol that doesn’t fuel food insecurity

[18]S&P Global,2024.4.3, Thailand’s Bangchak, Japan’s Sumitomo join forces for green UCO-to-SAF supply chain.