According to Reuters, reports show a 42% drop in local and foreign direct investment (FDI) in the first half of the year (H1) has left Thailand in a slump. The government anticipates a 22% decrease in expected investment applications from venture capital (VC) firms and other investors to drop by 22% to about USD $13.76 billion. FDI only made up 60% of the overall applications at USD $6.2 billion, according to data from the Board of Investment (BOI), which was about half the usual level year on year.
The economy has had a slower economic recovery than estimated after the devastating impact of the COVID-19 pandemic on businesses and trade. This slowdown has been made worse by the state of the world economy. Reduced investments worldwide, high-interest rates, financial sanctions, supply chain disruptions, trade restrictions, inflation, and other issues are wreaking economic havoc in many countries.
Another challenge affecting the Thailand VC scene is the presence of corporate VCs, essentially the Big Business of the VC world. Corporate-linked investors place a greater emphasis on the numbers and maximising their return than they do on fostering the startup ecosystem and encouraging innovation. As a result, startups that could have benefitted from an investment find themselves left behind in favour of those already earning money or showing signs of succeeding.
Here’s what’s is happening in the Thailand startup ecosystem?
Furthermore, VC trends in Thailand in the first quarter of the year (Q1) show a contraction in deal volume and value in mergers and acquisitions (M&A), according to professional services firm KPMG Thailand. The previous quarter’s performance was above average, while Q1 only had 33 deals and a deal value of USD $523.5 million. The Financial Services and Media & Technology sectors led the way in the number of transactions.
According to the KPMG report, the decrease in investment was brought on by geopolitical challenges, rising raw material and energy prices, reduced consumer confidence, the prolonged outbreak of COVID-19’s Omicron variant, and many other reasons.
Despite these issues and setbacks, the government believes the measures it has implemented to boost investment will succeed. For example, Energy Absolute PCL acquired 100% of Smart Bus Company Limited as part of a broader strategy to enter Thailand’s growing electric vehicle (EV) market.
Thailand’s EVs sector may hold the key to helping the country come out of its economic slump. According to the Reuters report highlighted above, the BOI announced that it had approved several investment pledges for the electric vehicle industry and digital investments. Between January and June, the BOI recorded a 212% surge in EV investment and a 202% surge in the digital sector from the previous year.
In August, the BOI approved investments in the EV field from China’s BYT Co Ltd., which manufactures electronics such as rechargeable batteries and photovoltaic products. It also approved an investment pledge from Thailand-based PTT Public Company Limited (PCL), which is in the oil and gas industry, to deliver on a gas production project.
Furthermore, Thailand approved expanded incentives in April to boost EV use in the country and maintain its status as an auto production hub for Southeast Asia. The government expects its EV auto production output to reach 30% by 2030. Smaller charging stations will be eligible for 3-year tax benefits, and charging stations with at least 40 chargers will receive a 5-year corporate tax exemption.
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Even though auto industry investments between January and March were down by 6% from the previous year’s high of USD $3.3 billion, FDI pledges rose 29%, with Taiwan, China, and Japan emerging as the top investors.
Other measures the government is adopting to push businesses forward include offering long-term visas to migrants to spur more foreign investment and promoting high-tech sectors. According to the eConomy SEA report, Thailand had one of the highest increases in new online consumers during the pandemic, meaning the citizens are open to using innovative technologies to improve their lives and the environment. The financial technology (fintech) sector remains popular in Southeast Asia, and Thailand has experienced considerable growth in digital payments, with companies like PromptPay becoming popular.
Even though the drop in investments has left Thailand in a slump, there is no need to panic. The current VC trends in Thailand result from global tensions, inflation, and other challenges, which may continue to hinder the country’s growth for a while.
However, the Thailand VC scene will most likely rebound, though, as a result of the country’s high ranking on the International Institute for Management Development (IMD) World Competitiveness Executive Opinion Survey. Some factors in Thailand’s favour include a business-friendly environment, a dynamic economy, competitive costs, and a reliable infrastructure. These factors will aid in the country’s growth, innovation, and ability to draw in both domestic and foreign investment, along with the global recovery and the region’s shift to digital solutions.