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Thailand drums up post-COVID-19 investment in medical supplies

Board of Investment chief wants multinationals that can launch operations this year

Staff at Ramkhamhaeng Hospital's drive through service in Bangkok test for the coronavirus on March 26. (Photo by Akira Kodaka)

BANGKOK -- Thailand has greenlighted a string of new foreign direct investment deals in medical equipment production as it seeks to broaden capital inflows, which have suffered the ravages of trade headwinds and competition from lower-wage neighbors.

The Board of Investment, a government agency that promotes foreign direct investment, said this week it has approved 12 ventures to produce medical masks, more than double the five mask-production factories currently operating in the country.

"The medical cluster has become a priority," BOI Secretary-General Duangjai Asawachintachit told the Nikkei Asian Review. "We are encouraging existing companies to enhance production of face masks, medical gowns" and other personal protective equipment.

In the BOI's sights are foreign investors who can launch operations this year, including ventures that would tap a spurt of local research in medical devices. It is offering tax incentives for companies to "commercialize this research." Another tax carrot is being dangled to attract factories to produce non-woven fabric needed for masks.

Duangjai is touting the country's success in containing the spread of the deadly coronavirus "to promote Thailand as a medical hub."

"Our ability to manage the crisis will help when people have begun to rethink supply-chain management," she said. "Resiliency is the word of the day, not just lowest cost."

The 12 newly approved ventures add to 13 BOI-approved garment and textile companies, among others, that have shifted production to masks and medical gowns in response to the coronavirus pandemic. A maker of ski wear has changed midstream, according to the BOI, and now makes personal protective equipment for hospital staff.

The Federation of Thai Industries has taken up the BOI's challenge to ramp up production of medical health devices. On Wednesday, it unveiled plans to expand the production of reusable PPEs for health workers on the front lines the pandemic. There are 15 Thai companies currently capable of producing reusable PPEs. "Production capacity of enterprises is being adjusted to prepare for the second round of the pandemic," the FTI stated this week. "Production capacity for the next four months is estimated at 1,000,000 sets."

On May 21, Thailand confirmed 3 new cases hitting a total of 3,037 cases of COVID-19 and 56 deaths. The government eased restrictions imposed since mid-March over the weekend, permitting shopping malls to open. Restaurants, hair salons and parks were given the nod to open weeks earlier. But the public has been warned to wear masks and maintain the social distancing regulations to prevent a new spread of the virus.

Analysts agree that Thailand can tap its public health record to capitalize on foreign companies seeking locations for medical supplies production. "Thailand does have COVID credits to draw foreign investors looking for a place that can be trusted with good public health management to build a medical industry," said Pavida Pananond, an academic in international business at Thammasat University, in Bangkok. "It is a flicker of opportunity."

But, she cautioned, Thailand must overcome deficits in order for the medical-sector FDI to flourish. "Industries in this sector will look for depth of supply chain and high-skilled labor for their production," she said. "Thailand has not prepared sufficiently for value-added activities and needs to ramp it up."

The coronavirus struck Southeast Asia's second-largest economy just as the BOI had to contend with a dismal FDI climate. During the first quarter of this year, the total value of applications was 71.38 billion baht, a 41% decline for the same period last year. Of that, foreign investment accounted for 27.43 billion baht, or 38% of the portfolio. Japan, China and Hong Kong were the three main FDI sources.

The pandemic left a mark on a key sector of Thailand's FDI -- automobiles. Local market leader Toyota Motor shut three assembly plants, while Mitsubishi Motors and Isuzu Motors, which rank second and third in sales, also suspended production.

The Japanese automakers watched as Thailand's auto sales dropped 17% on the year in February. In March, when the Thai government imposed an emergency to contain the spread of the virus, auto sales plunged by 42%. By April, car sales had plunged by 65%, according to the FTI.

The United Nations Conference on Trade and Development, which monitors global investment and trade trends, cautions against high expectations from FDI in a pandemic-sapped year. The agency now projects a decline of 5% to 15% in global FDI this year, a dramatic turn from before the pandemic, when it forecast a "potential increase of 5%" of international investment inflows for 2020 to 2021.

Thailand must also contend with rising regional rival Vietnam, which saw FDI pledges for 2019 surpass $38 billion. Thailand's 2019 value of applications was $16.7 billion. But Vietnam has also witnessed a drop in FDI during the first quarter of this year. It attracted $8.6 billion, a 20.9% drop year-on-year, according to the country's Foreign Investment Agency.

Vietnam, which succeeded in containing the spread of COVID-19, has also set its sights on the medical sector to upgrade its FDI profile. Vingroup, the largest conglomerate in the country, is leading a pack of local companies to invest in medical supplies, including ventilators.

But that has not dimmed Duangjai's new stakes in Thailand's FDI upgrade. A Taiwanese company is going to make fabric locally for medical equipment and a Swedish company has invested to produce surgical gowns, she said. "We will be analyzing this supply chain," she added.

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