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Title Decentralization of Direct Foreign Investments: The Case of thePhilippines and Thailand
Author(s) Umali, Celia L.
Citation 経営と経済, 77(1), pp.19-73; 1997
Issue Date 1997-06-25
URL http://hdl.handle.net/10069/29066
Right
NAOSITE: Nagasaki University's Academic Output SITE
http://naosite.lb.nagasaki-u.ac.jp
KEIEI TO KEIZAI, Vol.77 No. 1 , June 1997
Decentralization of Direct Foreign Investments:
The Case of the Philippines and Thailand
Celia L. Umali
Abstract
Direct foreign investments (DFls) have been one the engines of
growth in the Philippines and Thailand. The DFls however tend to ag-
glomerate in core areas leading to the unequal distribution of benefits
in the countryside. This paper assesses and compares the regional
disparity as far as DFls are concerned amid the current and emerging
economic and industrial trends in the Philippines and Thailand. The
strategies and approaches the two case countries adopt to spur decen-
tralization of DFIs in the context of sustainable growth and develop-
ment are presented.
1. Introduction
Thailand and the Philippines as members of ASEAN have commoneco-
nomic and political aspirations. The flying geese theory in development
economics has always placed both countries and other ASEAN nations for
decades moving together, with Japan leading the flock closely followed by
the NIEs. But recently, the Philippines has lagged well behind her other
ASEAN neighbors, particularly Thailand. The annual GDP growth rate of
the Philippines for 1990-1996 was 2.8% and that of Thailand was recorded
19
20 KEIEl TO KElZAl
at 8.6%. Per capita income in Thailand is US$7, 535 as compared to US$
2,935 in the Philippines. In 1993-1994, DFI flows into Thailand tripled
valued at US$14. 47 Billion (B). Although the DFls into the Philippines in
creased by 331% during the same year, it however amounted only to US$
2.46 B.
The shift to outward-looking and export oriented strategies for develop
ment of Thailand and the Philippines has paved the way for the inflow of
direct foreign investments (DFls) specially to manufacturing. The DFls
have been the source of much of the wealth and export led growth of the
Asia Pacific region. Export growth rates of merchandise have reached dou
ble digits of 16.4% and 14.1% in 1995 for the Philippines and Thailand.
This paper will first deal with the theories of foreign direct investment pro
cess to have a better understanding of the relationship between the direct
foreign investment and the host country. Secondly, we will try to assess
these DFI inflows in the context of the current emerging industrial trends in
Thailand and the Philippines.
To improve the economic and social conditions of the people is one of the
prime goals of the DFI-Ied industrialization policies of governments in many
developing nations. One measure of development is the equal distribution of
the benefits of economic growth. With the inflow of DFI and the industrial
transformation that follows, majority of the population have not been reach
ed with the fruits of growth. These DFls have been claimed to have been
the engine for growth in both Philippines and Thailand that led them to
achieve impressive economic growth and increase in per capita income. And
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 21
yet policy frameworks may be self-defeating with the existing regional
disparity. Even in terms of location of DFIs and support facilities that grow
and develop with it, there is a tendency for the DFIs to agglomerate in the
core urban areas leaving the hinterland behind. Therefore the third aim of
this paper is to address this issue and see the reasons behind the regional
disparity in Thailand and the Philippines as far as DFI are concerned amid
the. current and emerging economic and industrial trends. And finally, in
light of this we will assess the strategies/approaches Thailand and the
Philippine governments adopt to spur decentralization of DFIs in the con
text of sustainable growth and development.
2. Theories of the Foreign Direct Investment Process
Direct foreign investments involve the interrelationships between the
transnational corporation and the DFI-receiving country (or host country).
The focus of this paper would be more on the host countries, specially
developing nations. The more common factors why countries invite DFI in
to their shores are for capital source, technology transfer, marketing know
how and network and employment generation. This will develop the skills
of the domestic workforce, and stimulate the local economy with new ideas,
skills and expertise. More prominent is the development of a local industry,
as the development of the semiconductor and electronics industry in Asia
during the past decade. An ultimate goal for the race to attract foreign in
vestors is to provide the stimulus for growth for their economies.
In the 1990s governments of developing countries have embarked on policy
reforms that are more open to direct foreign investments that include fiscal
22 KEIEI TO KEIZAI
incentives, export promotion, liberalization and more private sector par
ticipation. Studies were done by Reuber (1973) and Gusinger (1985) on
the impact of government policies on the flow of DFIs. Their research
states that there may be two kinds of DFIs: export-and domestic-market
oriented DFIs. They found out that tax incentives influence the footloose ex
port-oriented DFIs and tariff rates influence the latter.
Various theories are formulated to explain the FDI process. One hypothesis
presented is in line with the international product life cycle theory
developed by Raymond Vernon. This theory states that at the maturing pro
duct stage, there is global diffusion of the product initially through exports
and then by overseas production via direct foreign investments from the
country when the innovation came from to other countries, initially to coun
tries of the same income level as the innovating country and later on to
developing countries. At the standardized stage, during which price deter
mines the product competitiveness, DFIs flow into low cost countries.
Firms from these DFI sending nations were looking for overseas production
sites for sales expansion, resource acquisition and diversification purposes.
The firms choice of doing overseas production, whether as market serving
or supplying seeking strategies, as Boddewyn (1987) indicated, is founded
on a more central purpose of profit maximization. Hence the firm's pro
fitability hinges not mainly on the cost of resources and the market size but
also on the efficiency of the labor, and the domestic institutions and in
frastructure at work. In the same context risk minimization is one of the con
cern of the DFI firm such that they look for a favorable business environ
ment: political and social stability, and sound macroeconomic fundamentals.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 23
Ramstetter (1993) however points out that foreign affiliates of MNCs by
virtue of operating abroad as compared to their parent company possess
locational-advantages and-disadvantages. The advantages he outlines were
consistent with other experts: proximity to market, ability to circumvent
protectionism, and access to low cost labor, raw materials and intermediate
goods. The foreign affiliates specially those who decide to locate in develop
ing economies are most often faced with inadequate or inefficient infrastruc
tures, either social or physical. For the internationally competing firm, this
could later on serve to increasing costs.
The eclectic theory of Dunning (1977) expounds that the decision for DFIs
is based on three parameters: (a) Ownership advantage, (b) Location ad
vantage and (c) Internalization advantage. The ownership advantage refers
to the competitive advantage the firm has which can be broadly categorized
into product technology, marketing resources and managerial expertise vis
a vis its rival. In the case of the locational advantage, the cost, risk and con
ditions in the investment receiving country are looked into. This includes
the availability, quality and price of factors of production, infrastructure,
populating growth, etc. And lastly, internalization ascribes to the advantage
in terms of marginal return to investments the firm would get if it operates
the foreign operations by itself.
Dunning's theory relates the DFI flows to a country to the level of the loca
tional advantage. Lecraw (1991) on the other hand adopting a similar con
cept made a systematic study to identify the factors that influence the DFI
decision of multinational firms (MNCs) but putting emphasis on the
changes in the locational advantage rather than on the level per se. In other
24 KEIEl TO KElZAl
words, it is the change in wage rate and not the wage rate that Lecraw takes
into account in his work. His study results indicated that locational factors
such as value of the natural resources, rate of growth of the labor force, con
sumption growth rate, risk, real exchange rate, tariff rate, tax rate and the
openness of the country's investment incentives all influenced the inward
flows of investment. But interestingly changes in the level of infrastructure
were found not to have significant impact on the DFI flows.
The current investments across transnational borders by many multina
tional firms facilitated by the improvements in communications, transporta
tion are very important for them to remain internationally competitive. DFI
receiving economies likewise have the desire to be part of the global
economy, linked with the global network specially in terms of market.
Hence amid global competition, foreign firms access to infrastructure like
ports, airports, telecommunications and power in the host countries,
necessary for them to efficiently conduct international business is very vital.
For another, many local firms seek alliances and joint ventures with foreign
firms wanting of capital, technology and management expertise which the
governments encourage, to expedite the development of certain industries
specially those that have just been liberalized and are needed in such haste
to sustain development.
3. Current Emerging Economic and Industrial Trends in
Thailand and Philippines
3. 1. Industrial transformation till the 1990s
Agriculture was the largest sector in Thailand and the Philippines until the
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 25
1960s. There was a dualistic agricultural sector that was comprised of a sub
sistence and a commercialized agriculture. Industrialization adopting in
ward looking and import substitution strategy behind protective walls and
tariff structures started in the Philippines as early as late 1940s and
Thailand followed suit in the late 1950s. The main purpose of this strategy
was to protect infant industries and to produce for the domestic market.
Thailand and the Philippines pursued export oriented industrialization
policies in the early 1970s that include the a). introduction of new invest
ment laws like giving special treatment to foreign investors in export activ
ities, b). adjustments in the investment incentives system like the offering of
attractive tax concessions to manufacturers of export products, c). changes
in the tariff structure including duty free imports of raw materials and in
termediate inputs for export manufacturing, d). the establishment of export
processing zones (EPZsl») and e). extensive deregulation.
The new international division of labor had multinationals (MNCs) in
vesting overseas seeking for cheaper factors of production. In the 1980s
there was industrial expansion induced by DFIs from Japan and the NIES.
The appreciation of the yen after the Plaza Accord of 1985 and industrial
restructuring in the other industrialized countries further boosted the flow
of DFIs into ASEAN and led to a transformation of these countries'
economies and industrialization processes. Thailand and Philippine govern
ments embarked on an export-oriented manufacturing strategy for develop-
l) Export Processing Zones (EPZs)-Customs-controlled enclave where industries are
allowed to import raw materials and export finished goods free of duties, taxes and other
import restrictions. The site is developed to accommodate facilities for manufacturing
and other industrial purposes.
26 KEIEI TO KEIZAI
ment through the offering of trade and investment incentives. Raw
materials and labor costs were inexpensive in both countries but the stable
economic and political situation in Thailand made it one of the favorite
destinations of DFIs.
In Thailand in the 1950s, agricultural production of rice, cassava, maize,
teak, rubber and others provided about three fourths of total merchandise
exports and accounted for one third of the GNP. During 1960-1970, most
foreign companies invested in industries producing for the local market and
for import substituting products. In the 1980s investments were more on ex
port oriented industries.
The DFI inflow to Thailand skyrocketed to over US$2 B in 1990-1991 from
US$200 Million (M) in the mid-1980s. As a result there was a remarkable
growth in manufactured exports in processed foods, electronics and elec
trical appliances, automotive, machinery and equipment, garments, textiles
and footwear and toys. Manufactured exports as a share of GDP rose from
33% in the 1980s to 75% in 1990-1991. Exports in 1980 were mainly
agricultural in nature comprising 47% of total exports; manufacturing
however rose dramatically from 32% in 1980 to 82% in 1995 (Figure 1).
Figure 1. Sectoral Shares of Exports, Thailand.
1980
Manufacturing Others
Mmi,g~ 11.6% ",wrt;r
0.05% Fish~g Agriculture 4.2% 46.9%
1995
Others
~~ure Fishing 5 % Forestry 0.06% Mining 0.5%
Manufacturing 82%
Source: Bank of Thailand
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 27
The rise in investments in the manufacturing sector called for the develop
ment of supporting industries. The local industries however did not possess
the financial and technical capability to provide the required standards and
quality that the manufacturing sector for parts and components, and raw
materials may require. As a result the firms had to resort to two alter
natives. One is to import them from their home country or overseas sub
sidiaries. Another is for the suppliers of major manufacturers to follow and
do foreign investment in the country. The local content requirement was
put into effect to promote local industries. This may not be an effective
strategy in two counts. First, the local supporting industries are weak. And
second, many of the DFIs, of which more than 80% of production are
geared for the export market locate in the export processing zones (EPZ) .
One of the provisions of EPZ is that importation of raw material and equip
ment are exempted from tariffs.
In both economies, their comparative advantages during the early 1950s
were founded on natural based resources. In the Philippines it was based on
sugar milling and coconut oil mills. This is the reason why the country had
to import a lot of finished and semi-finished consumer goods and eventually
led to the reduction in the country's international reserves. Hence in 1949,
the government implemented import control to correct this problem, star
ting the import-substitution nature of industrialization in the Philippines. Im
ports of consumer goods were reduced only to be replaced by the importa
tion of raw materials, intermediate and capital goods needed by the new im
port substituting industries such as textiles, transport equipment, electrical
appliances, non-electrical machinery and metal products needed during the
1953-1960. During this time the economy was highly dependent on the
28 KEIEl TO KElZAl
country's traditional exports like copra, sugar, logs and lumber, and canned
pineapple and mineral products which accounted to 85% of exports in 1960.
Apparently these new import substituting industries were imported input-in
tensive and yet unable to generate enough foreign exchange earnings to pay
for the imports giving rise to the balance of payments crisis. This called for
a decontrol or the cancellation of import control and the government in
stituted other policies: devaluation of the peso, and tariffs to replace import
quotas in 1960.
In the 1970s manufacturing output grew at an average of 7%. Export earn
ings were still from the traditional exports and garments; and semi-conduc
tors became the Philippines' biggest export. In the 1980s, foreign debt ser
vicing ate up most of the dollar earnings that led to an economic crisis caus
ing manufacturing to contract by 7.5% in 1985. Up to the 1990s, almost 50
% of DFI stocks were in manufacturing, mainly on chemicals, food, basic
metals, transport equipment and textiles.
The Philippine economy grew at a slower pace in the 1990s. The country
was considered by many DFIs as a political risk area that they shied away
from the Philippines durings the height of overseas investment inflows into
Asia from the mid-1980s. The manufacturing sector grew overpassing that
of the agricultural sector. Electronics, transport equipment and chemicals in
dustry which were practically negligible in the past contributed much to the
growth of the manufacturing sector.
Philippine exports have always been categorized as traditional and non-tradi
tional exports. The former, mainly primary industry based increased very
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 29
slightly (15%) but the non-traditional exports increased 285 times during
the decade 1985-1995 attributed specifically to the exports of electric and
electrical equipment and parts and components, garments, machines and
transportation equipment and miscellaneous manufactured articles (Table 1) .
Table 1. Philippine Exports by Major Commodities, 1985 and 1994.
Exports 1985 Exports 1994 Commodities Value Million Value Million
US$ (Percent) US$ (Percent)
Traditional Exports 1298(28) 1505(11)
Coconut products 459(10) 607(5)
Sugar and sugar prods. 185(4) 77 (.5)
Forest products 199(4) 26(.2)
Mineral products 243(5) 436(3)
Fruits and vegetables 135(3) 184 (1)
Abaca 17 (0.4) 20 (.1)
Tobacco, unmanuf. 24 (0.5) 23(0.2)
Petroleum products 39(0.9) 132 (1)
Non-traditional exports 3277(71) 11723(89)
Manufactured 2767(60) 10917(83)
Elec. and elec. eqt./parts, and telecom 1056(23) 4984 (38)
Garments 623 (14) 2375 (18)
Textile yarns and fabrics 39 (0.8) 173 (1)
Footwear 39(0.8) 176 (1)
Travel goods and handbags 10(0.2) 76(0.5)
Wood manufactures 43 (0.9) 129(0.9)
Furnitures and fixtures 84 (0.2) 240(2)
Chemicals 150(3) 306 (2)
Copper metal 168(4) 270 (2)
Non-metallic mineral manufs. 24 (0.5) 96(0.7)
Mach. and transport eqt. 30 (0.7) 469 (4)
Proces. food and bevers. 106(2) 335 (3)
Misc. manufactured articles 136(3) 518(4)
Others 259(6) 770(6)
Non-traditional Manufactures 510(11) 806(6)
Total Exports 4575(100) 13228(100)
Source: NEDA Statistical Yearbook, Philippines, 1995.
30 KElEl TO KElZAl
3.2. Current industrial trends
Philippines and Thailand are two countries in Asia who were recipients and
have benefited from direct foreign investments (DFI) from US, EU and
Japanese firms from the 1980s, the first wave of investments in Asia during
the 1980s. Likewise they were the recipients of the second wave of DFls
from the ANIES (Korea, Taiwan Hongkong and Singapore) that followed
suit. Now Thailand, together with Malaysia are among the third wave of in
vestors. Foreign firms saw the locational advantage of Thailand as a
gateway to the big and untapped Indo-Chinese markets of Vietnam, Laos,
Cambodia and Myamnar. And yet Philippines still boasts of its highly skill
ed English speaking workforce. They have both reduced the investment bar
rier and improved the business climate conducive for investments. Their
governments had adopted strategic reforms to become part of the global
economy. Many countries including Thailand and the Philippines used to
bank on the labor intensive manufactured exports. But recently, they can
not just count on cheap labor alone since labor costs are rising faster than
productivity (Figure 2).
In 1996, there was a slowdown in exports (Figure 2) and subsequently the
growth rates in the Asian region much attributed to the drop in chips prices
by almost 95% worldwide as well as currency fluctuations. Computer and
computer parts and components and electronics form the backbone of many
Asian countries: electronics account for 70% of Singapore's exports, 50% of
Malaysian exports, and one third of Korean and Philippine exports that
make them very susceptible to price fluctuations.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 31
Figure 2. Wage Productivity and Export Growth Rates in Selected Asian Countries .
ASIA'S EXPORT GROWTH IS SLOWING ...
HONG KONG
~APORE
~UTH KOREA
~ ~ILAND
~SIA
MALAYSIA
PHILIPPINES
CHINA : -
ANNUA L CHAN~E EXPORTS: IN
.19~4
.19~5 • "96 EST.
:
... WAGES ARE OUTPACING PRODUCTIVITY ... HONG KONG
PHILIPPINES
INCREASE~ IN WAGES AND PRODUCTIVITY,
1985,-1995 : .WAGES ,
.PROOUCTIVITY •
o 10 20 30 40 0 125 250 375 500 ~PERCENT DATA: CEIC, ING BARINGS ~PERCENT DATA: JARDINE FLEMING RESEARCH
Source: BusinessWeek, October, 2, 1996.
Paul Krugman of Stanford University, once stated that East Asia was good
at mobilizing cheap labor and foreign capital but do not have the productivi
ty and innovation to sustain growth. He further stressed that once these "in
puts" are exhausted, the growth of the countries will be affected (Business
Week, December 2, 1996). For years, 1994-1996, Asia's export growth has
declined. Specially now that we are on to the next millennium, East Asia is
still beset with rising costs, shortage of skills and expertise, and infrastruc
ture deficiencies. Hence many countries in Asia including the Philippines
and Thailand are rethinking their strategies and are now concerned with the
development of human capital to be more innovative and creative, and the
shift to higher technology industries.
Recent trends in Thailand
Thailand is now moving into the production of more sophisticated products
32 KEIEl TO KElZAl
such as plastics, chemicals, auto and auto products and electronics and are
trying to streamline in low end industries like toys, footwear and
agriculture-based products. The government believes that to expand the
medium technology industries, alliances with MNCs are at this stage
necessary. Hence the BOI policy groomed a network of auto parts suppliers
that made General Motors last year to locate in Thailand instead of the
Philippines and of electronics parts suppliers that attracted IBM to
Thailand as well. Large scale and capital intensive industries are now in
Thailand. Capital intensive industries like car manufacturing need more
permanent plants and equipment that a carefullocational decision has to be
made.
Thailand is the most advanced production base for cars in Southeast Asia to
the extent that local parts contents of Japanese cars are now 60 to 70%
although the legal requirement stands at only 54%. This is one reason why
many car manufacturers like Toyota, Honda, Ford-Mazda, Chrysler and
GM decided to continue or start car manufacturing/assembly in Thailand.
In 1996, more than 70 major Japanese auto-parts manufactures are
operating in the country. The use of locally produced parts and components
will thus make the car manufacturers less vulnerable to foreign exchange
risks. For another, Thailand has a large domestic car market and is
strategically located in the center of Asia and adjacent to the Indo-chinese
market. In support of the car industry, Thailand is slated to come out with
its first cold roll steel mill which would provide the local car manufactures
with the steel sheets by 1998.
Another fast growing industry in Thailand is the petrochemical industry
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 33
which has been attracting the attention of many petrochemical companies.
The growth in the manufacturing sector and the thriving textile industry
has created a big domestic demand for plastics. There are moves by the
government to liberalize the sector except for the upstream aromatic pro
ducts. The raw materials used in the production of plastic products, called
polymers, are ethylene and propylene. Domestic production of these
polymers are undertaken by the National Petrochemical and Public Co.'s
NPC-l and NPC-2, Thai Dlefins Co. and plans are there for new entrants:
Siam Cement, Thai Petrochemical Industry, and Mitsubishi-Thai govern
ment joint venture.
The Thai government has made the list of acitivities eligible for investment
promotion and this includes the following: agriculture and agricultural pro
ducts; minerals, metals and ceramics; light industries; metal products,
machinery and transport equipment; electronics and electrical industry;
chemical industry, paper and plastics; and service and public utilities which
are open for foreign investments.
Exports of garments, computer parts and components, electrical appliances,
plastics products and ICs have boosted manufacturing. Agro-industries
together with manufacturing account for 93 per cent of total exports in 1995. High
value added agro-industrial products such as frozen shrimp, frozen chicken,
canned tuna, canned fruits and vegetables, cut flowers, and the traditional
exports of rice, tapioca, sugar, rubber, etc. have been part of the top 20 ex
ports.
In pursuit of the shift to more knowledge based industries Thailand
34 KEIEI TO KEIZAI
however is faced with a shortage of engineers, technicians and managers
needed to develop the electronics, machinery and specialty steel industries.
Rise in wage levels in the country has forced labor intensive industries such
as garments, shoe and toy firms to relocate in low wage Vietnam, China and
Burma.
The W orId Bank estimates that the Thai government needs US$154 B to
remove bottlenecks in its infrastructure. Hence the government with
limited funds has turned to the private sector. Water systems, expressways,
container terminals, aviation, power and telecommunications services are
being developed under the BOT scheme. The private sector likewise is in
volved in the setting up of industrial zones that will have the infrastructure
tailor made to suit the needs of specific industries, e.g. auto assembly. Part
nership between the government (through the state owned Telephone
Organization of Thailand) and the private sector (through ad-hoc contract
basis) to improve telecommunications to the extent of putting up fixed lines
communication in the rural areas. Other services and public utilities are
eligible for investment promotion: tourism, air and water transport services,
hotels, housing, agricultural export zones, educational institutions and voca
tional training centers, hospitals, etc.
Private sector involvement in the industrialization process of Thailand has
been included in the First (1961-66) and Second Development Plans (1967-
1971). But relying on the private sector is not without problems and faults.
There is sometimes the conflict between contractors and regulators, and the
conflict between the profit maximizing goals of the private sector and the
social responsibility of the public sector.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 35
Recent trends in the Philippines
The Philippine's 1996 Investment Priority Plan (IPP) lists the preferred
areas of investments eligible for fiscal and non-fiscal incentives and addi
tional incentives if they locate in any EPZs. The activities include the follow
ing: export-oriented industries that have to export at least 50% of produce
(e.g. export producers, services for export, export trading, agro-export pro
cessing estates etc.); catalytic industries that show potentials of developing
into an export-oriented industry since they have comparative advan
tage(e.g. fine jewelry, processed foods, shipbuilding and repair, drugs and
medicine, production of planting materials, breeders, etc.); industries
undergoing industrial adjustments which have been affected by the restruc
turing of tariffs, the adverse effects of which may be overcome with the use
of new technologies (e.g. textiles, organic chemicals, sugar mills and refin
ing, packaging materials, machinery and equipment, parts and components,
coconut mills and refineries etc.); and support activities that include in
frastructure, services, environmental support facilities and research and
development projects and support to government projects (e.g. industrial
estates, industrial communities, power generation and transmission, com
mon carriers, telecommunications, industrial ports, waste management con
trol, research and development, agricultural services, etc.).
With the expected continuos growth in the Philippines, the demand for ther
moplastics and synthetic fibers are expected to increase as well. Although
the petrochemical industry is a decade behind compared to Malaysia,
Singapore and Thailand, the government has a Master Plan to develop the
petrochemical industry. From 1991-1994, the BOI has approved 17 pioneer-
36 KEIEl TO KElZAl
ing projects ranging from monomers to intermediates and in 1996, top
domestic firms and Sumitomo Corporation have signed a consortia to deter
mine the commercial vialability of a polyethylene project to meet domestic
and export demand.
The Philippines has a long history of protectionism and monopolies which
the government is. seeking to eliminate through deregulation and privatiza
tion. The financial industry is deregulated that for the first time in more
than 40 years foreign-owned banks are allowed to operate in the country.
Ten foreign banks have been granted full banking operations with the re
cent approval of the law liberalizing foreign banking. The monopolies in
telecommunications, and shipping have also been broken. Local enterprises
as well as foreign investors are encouraged to compete with home grown
business groups which have long enjoyed government protection. The im
pressive list of measures includes the progressive deregulation of the
telecommunications, oil, airline and shipping industries. Mining was opened
to foreign investors and soon the retailing sector. The retail sector is likewi
se being deregulated to spur competition and improve consumer welfare by
providing a wide variety of quality goods and services at reasonable prices.
In addition to these policy changes, urgent initiatives are underway to bring
about a more solid base for economic growth, this time with the active par
ticipation of the private sector in the context of competitiveness and efficien
cy. To this end; schemes such as privatization and the Build-Operate-
2) Build-Operate-Transfer(BOT)-A Private party agrees to finance, construct, operate
and maintain a facility for a specified period of time and then transfer the facility to a
government and other public authority.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 37
Transfer (BOT) 2) are being implemented. This has successfully attracted
foreign firms to take part in BOT in infrastructure projects such as power,
IEs, ports, airports and telecommunications.
Due to all these structural changes, many domestic firms in the telecom
munications and retail sectors have partnerships with foreign firms for
capital and technical know-how. Likewise through the BOT schemes DFls
could indulge in the development of power plants and industrial estates.
The Cojuangco-owned Hacienda Luisita for example is joining up with
Itochu Corporation of Japan and a local bank, Rizal Commercial Banking
Corporation to establish a second industrial estate in Region IIP). The
Laguna Technopark, an industrial estate in Region IV, is jointly owned by
the Ayala Land, Mitsubishi Corporation and Kawasaki Steel. Hongkong's
Consolidated Electric Power Asia (CEP A), a subsidiary of Hopewell Cor
poration and Mitsubishi Corporation of Japan have BOT projects in dif
ferent regions to develop power generation facilities.
4. Nature, Motivations and Direction of DFls
FDI flows into the Philippines and Thailand in early times were mostly
resource exploitation and development. They shifted to manufacturing for
the domestic market in the 1960s and 1970s according to the import
substituting development strategy; and manufacturing for export in the 1980s
with the advent of some liberalization policies adopted after 1985. And in
3) The whole archipelago has been divided in to the National Capital Region (NCR), the
Cordillera Autonomous region (CAR) and 12 other regional districts.
38 KEIEI TO KEIZAI
the 1990s labor-intensive industries such as textiles and garments and pro
duct cycle investments such as electronic-electronic products took the place
of resource base processing as favorite investment for foreign firms.
As mentioned in the earlier section, DFls can either be domestic market-or
export market-oriented and the determining factors for their inflows differ.
For the former obviously the market and market potential are the most im
portant determinant (Yue,1993). The host country's trade policy is the
basis for locational decision for DFls since it is with import restrictions for
example that assure the market size and access. On the other hand, export
oriented DFls have to take into consideration their international com
petitiveness for their locational choice. Hence foreign sourcing in terms of
cost of labor and factors of production are important ; so are access to
markets and raw materials and part and components and the exchange
rates.
Since many of the DFls in ASEAN after 1985 were export-oriented in
nature, Thailand and the Philippines just like the other ASEAN countries
established industrial estates and export processing zones that provide well
developed infrastructure and fiscal incentives. And lately the fast changing
development in technology, informatics, transportation and telecommunica
tion has brought about new production technology and methods which do
not rely mainly on cheap labor and raw materials. More recently the need
for well developed infrastructures (e.g. energy, ports, airports, telecom
munications, logistical support) that the DFls need to do international
business have emerged. This is in line with the governments desire to be
part of the global business exchange network.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 39
4. 1. DFls in Thailand
In Thailand, in 1971-1975, the manufacturing sector received 28% of the
DFI of which the textile sector got 46% share, followed by the food
manufacturing sector (14%) and electrical appliances (13%). The next
five years till 1980, showed manufacturing share of total DFIs increasing by
26% but this time the investments in electrical appliances skyrocketed by
274% and textile sector coming in second although its share of DFIs has
declined to 20%. In 1980-1985, DFIs in the textile and food sectors con
tinued to decline, the electronics sector still on top but by this time in
vestments in chemicals started to increase by 188 % and petroleum pro
ducts from Baht 56 M to Baht 2 B. And from 1985 foreign companies were
interested in export industries, mostly small and medium industries dealing
with electronic appliances. Thailand in the second half of the 1980s had a
comparatively favorable economic growth as her ASEAN neighbors. A
survey of direct foreign investors in Thailand conducted by the Assumption
University in 1996 revealed that the three most important factors that in
fluenced their investment decisions are: 1). political stability, 2). market
size and 3). labor costs.
Total DFIs in Thailand in 1995 was valued at Baht 4l1B an increase of 43%
from the previous year of Baht 148 B accounting for 615 projects an increase
of 21% from the 507 approved projects in 1994. Japan still remains the top
foreign investor for the consecutive year 1993-1995, in terms of value and
number of projects. In 1995, Japan's investments comprised 48% (valued at
Baht 197 B) of total DFIs, followed by the US (16% valued at Baht 64 B)
and Taiwan (11% valued at Baht 45 B) (Figure 3). Thailand is most attra-
40 KEIEI TO KEIZAI
tive for automotive companies such Toyoda, Honda, Mazda and Mitsubishi
who have assembly plants in Thailand, aside from the support industries
that follow these big car companies.
The number of applicants for the year 1994-1995 did not vary much but the
in 1995 more of the investments were in large scale projects like rolled steel
iron, petrochemicals, chemical and paper, industrial estates and power. In
1995 too there was a shift to major higher technology industries such as elec
trical and electric products, metals and machineries and transport equip
ment and medical products, plastic and paper from the light industries that
prevailed before.
Figure 3. Foreign Direct Investments: Applications Approved, Thailand,
1995 (Billions Bahts).
Others
Italy
Switzerland
N ether lands
Germany
Malaysia
Hongkong
UK India
Australia
Singaporejlimlllliilliilllliilliililiiliiiill
KoreaJmm __ IllliilliiD
Tai wanjmliillmlliillmlliillml_ US.----Japan~~~~~~~~~~~~~~~~~~~~~
o 50 100 150 200
Source: BOI, Thailand.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 41
Of the 615 projects approved, only 8 were investments of at least Baht 10,000
M although investment amount was Baht 143 B or 34 per cent of total in
vestments for approved projects. Whereas the projects with less than Baht
10,000M number 607 accounting for 65 per cent of the total investments.
This indicates that most of the projects are more or less large scale in nature
rolled steel, chemical products and sponge iron. The BOI of Thailand in 1995 ap
prove projects of which the chemical products, paper and plastics had the
biggest investment (Baht 171 B); next is minerals and basic metals (Baht116 B)
and then metal products, machines and transport equipment (Baht 47 B) . In
1993-1995, 45-55% of foreign applications and approvals were export-
Table 2. Foreign Investment Projects Approved by the BOI, Thailand,
1993-1995. Unit: Million Baht
Year 1993 1994
Sector No. of Share in Investment Share in No. of Share in Investment Share in
Projects Total(%) Total(%) Projects Total(%) Total(%)
Agricuiltural Products 44 11. 7 4,186.8 3.9 52 10.3 5,700.4 3.9
Minerals and Ceramics 17 4.5 6,055.7 5.6 25 4.9 27.504.8 18.6
Light Industries/Textiles 106 28.1 10,732.6 9.9 73 14.4 6,043.2 4.1
Metal Products and Machinery 54 14.3 7,312.1 6.7 98 19.3 19,056.4 12.9
Electric and Electronic Products 91 24.1 16,867.6 15.5 126 24.9 32,634.4 22.1
Chemicals and Paper 29 7.7 11, 493. 2 10.6 93 18.3 39,152.0 26.5
Services 36 9.5 51, 836. 5 47.8 40 7.9 17,662.0 12.0
Total 377 100.0 108.484.5 100.0 507 100.0 147,753.2 100.0
Year 1995
Sector No. of Share in Investment Share in
Projects Total(%) Total(%)
Agricultural Products 69 11. 2 10,768.3 2.6
Minerals and Ceramics 43 7.0 115,961. 6 28.2
Light Industries/Textiles 50 8.1 7,703.7 1.9
Metal Products and Machinery 138 22.4 47,431. 5 11. 5
Electric and Electronic Products 139 22.6 40,181. 4 9.8
Chemicals and Paper 130 21.1 170,891. 9 41. 6
Services 46 7.5 17,960.8 4.4
Total 615 100.0 410,899.2 100.0 Source: BOI, Thailand.
42 KEIEl TO KElZAl
oriented projects, decreasing to less than 40% share in 1995. It can be seen
in Table 2 that DFIs in agricultural product related and light industries and
textiles projects have been declining since 1993 till 1995. Hence it can be
deduced that light industries and textile projects which have small amount
of investments and labor intensive have found other locations. Recently
foreign investors have been looking for other countries where wages are
cheaper such as Vietnam, China and Laos.
Thai nationals have to hold at least 51% of the registered capital for in
vestments in agriculture and fisheries, mining and the service sector. If the
project exceeds Baht 1, 000 M foreign investors may initially hold a majority
or all of the shares but the Thai people must get at least 51% of the shares
within five years of start of operations. For manufacturing, Thai nationals
have to have at least 51% of the registered capital if production is geared
for the domestic market except when they will locate in Zone3 in which case
100 ownership is allowed. When more than 50% of sales are for export, the
foreign investor may hold majority stocks and all the shares if more than 80
% of sales are derived from exports.
4. 2. DFls in the Philippines
In the Philippines policy reforms were implemented to improve the business
climate not only for local corporate activity but most specially for foreign in
vestments. For future economic growth DFIs are essential in as much that
the country has debts to service and low domestic savings rate. The govern
ment thus enforced policies to attract DFIs which are increasing but still fall
short compared to the large inflow into other Asian neighbors.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 43
Various measures have been adopted to attract foreign investments. More
areas have been opened to 100% foreign ownership and procedures for star
ting and doing business in the country have been simplified. Recently
minimum equity requirements for investors were lowered from U$500, 000
to U$150, 000. Efforts are also directed toward the elimination of the
"Negative list" which serves to protect some sectors from foreign investors
except for media and broadcasting.
All investors and enterprises enjoy basic rights such as:
i ). freedom from expropriation without just compensation
ii). the right to remit earnings from investments and capital gains
and dividends within the guidelines set by the Central Bank
iii). the right to repatriate the proceeds of the liquidation of invest-
ment
iv). the right to obtain foreign exchange to meet principal and in
terest payments on foreign obligations.
Although the Constitution prohibits the ownership of land by foreign na
tionals, foreign companies may lease the land they occupy for a period of 50
years renewable for another 25 years. In the event that the Condominium
Law is passed, foreign companies can own their plant facilities and become
stockholders of the company in the areas designated as industrial estates
assuring the company of permanent status.
The equity investments approved by the BOI are shown in Figure 4. From
1991 to 1995, the total cumulative equity investments amount to Pesos 387
44 KElEl TO KElZAl
B, 60% (Pesos 234 B) contributed by the local and 40 % (Pesos 153 B) by
foreign contributions. The top three cumulative individual country investors
in the Philippines for 1991-1995 were: the US (Pesos 41 B), Japan (Pesos 16 B)
and Great Britain (Pesos 13 B).
By sector, investments were concentrated in the manufacturing sector dur
ing the past decade in the cumulative amount of Pesos 698 B. The govern
ment indulged the involvement of the private sector in the public utilities
development highlighted in 1995 giving rise to an accumulated investment
of Pesos 84 B (Figure 5).
The biggest investor for 1995 still remains the US (Pesos 16B). Surprising
ly, Thailand (Pesos 9. 7 B) and Saudi Arabia (Pesos 15 B) came in second
and third (Figure 6). Four hundred seventy nine projects were approved
with costs in the amount of Pesos 335 B. The biggest share of the equity in
vestments went to manufacturing (Pesos 57 B) and public utilities (Pesos
2. 6 B). Most of these foreign equity investments in manufacturing worth
Pesos 34 B were directed to petroleum products, plastic products, construc
tion and housing components, fabricated metal products, machinery and
equipment, electrical and electric products and motor vehicle parts and com
ponents. In the first quarter of 1996, 144 projects worth Pesos 70 B were ap
proved wherein the manufacturing sector (specially construction and hous
ing components) garnered most of the investments valued at Pesos 27 B,
and public utilities and tourism coming in second and third with in
vestments of Pesos 23 B and Pesos 7 B, respectively (Figure 7).
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 45
Figure 4. BOI Approved Local and Foreign Equity Investments, Philippines,
1991-1995.
Pesos (bil. )
1991 1992 1993
Source: BOI, Philippines.
1994 1995
I Total Equi ty DLocai Equity DForeign Equity
Figure 5. BOI-Approved Cumulative Equity Investments by Sector, Philippines,
1985-96.
MANUFACTURING 290,096.70
PUBLIC UTILITIES ENERGY-RELATED PROJS 84,256.89
TOURISM-ORIENTED SER 61,243.35
27,201.06 01996 MINING 16,443.00 1m 1995 INFRASTRUCTURE
SERVICE .1994 AGRICULTURE D 1993 FISHERY
REAL ESTATE [J 1992
COMMERCE 3,484.45 .1991 FORESTRY
CONSTRUCTION 1,503.08 D 1990
MVDP 1,380.99
D 1989 1,260.51 EXPORT TRADERS
598.51 01988 R&D PROJECTS
521.66 SERVICE EXPORTERS ~ 1987
REGIONAL HQS 453.10
D 1986 216.52 FINANCIAL INSTITUTION 172.45
ENVIRONMENT PRTECTN 166.43 PD 1469
9.75
Source: BOI, Philippines.
46 KEIEI TO KEIZAI
Figure 6. Foreign Equity Investments Per Country, Philippines
1995 (Million Pesos).
U.s.A iilli~i~==~;;::"::" _____ 16,147.489 THAILAND 9,709.862 SAUDI ARABIA 7,578.090
GREAT BRITAIN 3,213.454 JAPAN 2,602.785
HONG KONG 983.160 LIBERIA .594.179
AUSTRALIA.400.706 TAIWAN 349.386 CANADA 274.241
MALA YSIA 158.068 NETHERLANDS 143.802
SINGAPORE 95.905 S. KOREA 56.944
RESIDENT CHINES 42.267 PROC 39.207
FRANCE 37.783 NAURU 34.365
GERMANY 21.618 INDIA 8.416
SWITZERLAND 8.016 VIRGIN ISLANDS 2.550
BELG ruM 1.443 WESTERN SAMOA 1.300
ISRAEL 1.291 DENMARK 1.275 BAHAMAS 1.250
ITALY 0.480 INDONESIA 0.375
OTHERS )ii------ 5,602.778
Source: BOI, Philippines.
Figure 7. BOI Approve Projects, by Sector, Philippines
1996 (Thousand Pesos).
Tourism -oriented 6,582,480
Public Utilities 22,981,341
Source: BOI, Philippines.
Manufacturing 26,980,592
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 47
With adequate supply of English speaking workers and engineers in the
Philippines, and still abundant cheap land, more investors in electronic and
auto parts are locating in the Philippines. Electronics firms from Japan, the
US and the UK have been teeming to the Philippines. DFls valued at US$850 M,
specially in the electronics sector grew from US$64, 000 in 1992 to US$2. 1
M in 1996. The electronics and semiconductor firms such as Intel, NEC,
Hitachi and Toshiba put in US$948M and Sanyo alone opened a US$30 M
semi-conductor manufacturing plant in 1996. Mastushita Electric Philip
pines Corporation has inaugurated its new plant to produce electric ap
pliances with a total project cost of Pesos 400 M. These two sectors con
tributed 40 % to the total exports of the Philippine during the first half of
1996. Electronics have been the biggest export component valued at USS$ 7
B out of the US$17. 4 B total exports.
Japanese car companies such as Toyota, Honda, Nissan and Mitsubishi ac
count for 80 % of cars assembled in the Philippines. Car companies see a
bright prospect for the car market in the Philippines hedged its bid to have
a hold in the market by bringing in 10 suppliers to invest Pesos 1.27 B.
Many investors indicated that the deciding factors in the choice of locating
in the Philippines are: sound economy, quality and skilled and highly
trainable labor and tax incentives. Futhermore, many believe that the
economy will change with the deregulation of the power, finance, telecom
munications, shipping and the oil sectors.
48 KEIEI TO KEIZAI
5. The Issue of Regional Disparity
5. 1. The Thai experience
The economic boom both in the Philippines and Thailand has created
disparity between the people in the rural areas and the core urban areas.
The 20 % well-to-do members of the population mostly residing in the
Bangkok area get more than half of the national income. The low income
people comprising 20 % of the population get a mere 4%. In 1994, the per
capita income in Bangkok and vicinity was Baht 186,000 whereas the per
capita income Northeastern region was as low as Baht 20,235 (Table 3 and
Figure 8). But among the changwats in regions there are core urban areas
where per capita income is higher such as Chon buri (Baht 208,000) and
Rayong(137,846) in the Eastern region, Phuket (Baht 108,652) in the
Southern region.
Table 3. Gross Regional Per Capita, Thailand, 1994.
Regions Per Capita GRP
(000 Bahts)
Whole Kingdom 61,335
Bangkok area 186,167
Eastern 100,321
Central 57,022
Western 46,028
Southern 39, 789
Northern 31,064
Northeastern 20,235
Source: Office of the National Economic and Social Development Board.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand
Figure 8. Per Capita Gross Provincial Product, Thailand 1993.
C-.~ '""\
lS"N
Andaman
5 ea
10"N
104"E
THAILAND PER CAPITA
GROSS PROVINCIAL PRODUCT
Gulf
of
Thailand
1111111
(j)PathumThani-14S,366
<2l Nonthaburi- 94, 364
alSamut Sakhon-113, 726
<I)Samut Prakam- 226, 672
Baht 100,000 and above
40,000 - 99,999
20,000 - 39,999
19,999 and below
--= River
Provincial Boundary
Regional Boundary
'-'-" Intemational Boundary
(Boundaries not necessarily authoritative)
", I
49
lS"N
10"N
Source: Office of the National Economic and Social Development Board, Thailand"
50 KEIEI TO KEIZAI
About 70% of manufacturing are concentrating in Bangkok and the surroun
ding areas, with low level of industrialization and low income in the rural
areas that become push factors for people to move to urban areas. Income in
the northeast was 10.2 lower than those in Bangkok in 1991. This gap in
creased to 11. 2 times in 1993 and to 11. 9 times in 1994.
The main strategy of the government to correct this is to encourage in
dustries to move out of Bangkok to the regions. Industry would move to the
less developed areas only if the infrastructures are in place. Hence, the
highways and the railway are being expanded and strengthened to connect
the new deepwater port east of Bangkok. Power and telephone services are
likewise being improved. Another approach the government deems impor
tant to improve and remove regional imbalance is education in the rural
areas. Access to, better and lower cost of education throughout the country
is top in the priority program. Students loans are available to less privileged
people payable upon graduation with a 1 % interest rate.
Although DFIs are important to the economy of Thailand since it accounts
for 71 % of the total investments, one evidence of disparity is in terms of
the regional distribution of investments. Fifty-eight percent of certificates
issued in 1988, 67% of new operations, 58% of projects numbering around
542 were located in Zone 14). Comparatively, only 21% of certificates issued,
4) The whole kingdom is divided into three zones as follows:
Zone 1: Bangkok, Samut Prakan, Samut Sakorn, Pathum Thani, Nonta Buri, Nakorn
Pathom.
Zone 2: Samut Songkhram, Ratchaburi, Kanchanaburi, Suphanburi, Angthong, Ayut
thaya, Saraburi, Nakhon Nayok, Chachoengsao, Chonburi.
Zone 3: The remaining provinces including Laem Chabang Industrial Estate.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand
Figure 9. Number of Projects in Zones, Thailand, 1988-1991.
600
500
400
No.of 300 Projs
200
100
o 1988 1989 1991 1991
Source: Pookaiyaudom, P., Thailand Case Study Report, UNCRD, 1993.
51
Figure 10. Foreign Investment Projects Applying for Promotional Privileges
Classified by Factory Location, Thailand, 1993-1995.
No.of Projs
400
300
200
100
o
Source: BOI, Thailand.
1993 1994 1995
-Zone1 ElIZone2 DZone3
19% of new operations, 21% of all projects (193 projects) were locating in
Zone 3 (Figures 9 and 10). Four years later, still a growing number of firms
wish to locate in Zone 1, and Zone 3 only becoming a second choice. But the
decentralization of investments projects is proceeding through the years
since the number of certificates issued for Zone 3 has been increasing. In
contrast, in 1995, the choice of location for the DFIs has been between Zone
2 and Zone 3. Zone 2 has attracted 51% of the DFIs, numbering around
9,139 registered foreign firms producing electronic products, furniture, ma-
52 KEIEI TO KEIZAI
Table 4. Approved and Registered Foreign Firms by Product and Zone,
Thailand, 1995.
PRODUCT ZONE 1 ZONE 2 ZONE 3 N.A. TOTAL FROZEN SEAFOOD 0.0 0.0 37.5 0.0 37.5 CANNED FOOD 0.0 0.0 1.2 0.0 1.2 GARMENT 0.0 0.0 221. 0 0.0 221. 0 SHOES 0.0 0.0 12.0 0.0 12.0 ELECTRICAL APPLIANCE 250.0 10.0 0.0 0.0 260.0 ELECTRONIC PRODUCT 411. 4 3,487.5 462.1 0.0 4,361. 0 JEWELLY 0.0 0.0 0.0 0.0 0.0 TOY 11. 3 0.0 0.0 0.0 11. 3 FURNITURE 0.0 125.0 0.0 0.0 125.0 RUBBER GLOVES 0.0 0.0 64.0 0.0 64.0 PLATIC BAG 0.0 0.0 0.0 0.0 0.0 ARTIFICIAL FLOWER 0.0 0.0 6.8 0.0 6.8 SPINNING, WEAVING, DYEING, PRINTING, KNITTNG 0.0 78.5 503.8 0.0 582.3 MACHINERY, COMPONENT & PART 21. 2 896.9 344.4 0.0 1, 262. 5 CERAMIC & GLASS PRODUCT 0.0 47.5 62.0 0.0 109.5 ARTIFICLAL LEATHER 0.0 0.0 18.6 0.0 18.6 SPORTING EQUIPMENT 11. 3 19.6 20.0 0.0 50.9 OTHER RUBBER ORODUCT 0.0 24.5 44.6 0.0 69.1 CHEMICAL PRODUCT 0.0 16.0 2,389.1 0.0 2,045.1 OTHER PLASTIC PRODUCT 12.0 77.3 115.2 0.0 204.5 PARA WOOD PRODUCT 0.0 25.0 83.1 0.0 108.1 ANIMAL PRODUCT 0.0 0.0 32.0 0.0 32.0 AGRICULTURAL PRODUCT 0.0 0.0 37.4 0.0 37.4 PROCESSING METAL 52.7 2,813.1 2,447.0 0.0 5,312.8 LOW OR MEDIUM INCOME HOUSING 60.6 0.0 4.9 0.0 65.5 FROSEN FOOD 0.0 0.0 4.9 0.0 4.9 LARGE SCALE CULT IV ATION 0.0 0.0 2.0 0.0 2.0 MEDICAL SUPPLIES 55.9 0.0 0.0 0.0 55.9 OTHER SERVICES 29.4 0.0 35.0 0.0 64.4 SHIP BUILDING/REPAIRING/BREAKING 0.0 1.4 0.4 0.0 1.8 LOADING & UNLOADING FACILTIES, CONTAINER YARDS 0.0 0.0 0.0 0.0 0.0 WAREHOUSING, GROP DYEING, SILO 0.0 0.0 0.0 0.0 0.0 WATER TRANSPORTATION 129.6 0.0 0.0 0.0 129.6 HIGH SPEED TOUR BOAT, FERRY 0.0 0.0 0.0 0.0 0.0 R&D, POLLUTION TREATMENT 0.0 0.0 1.6 0.0 1.6 COLD STORAGE 0.0 0.0 0.0 0.0 0.0 FACILITIES SERVICE & INFRASTRUTURE 0.0 0.0 140.0 0.0 140.0 MINING & REFINING 0.0 1, 400. 0 18.5 0.0 1, 418. 5 PAPER PRODUCT 0.0 0.0 352.8 0.0 352.8 CATTLE HUSBANDRY 0.0 0.0 8.0 0.0 8.0 HOSPITAL 0.0 0.0 75.0 0.0 75.0 HOTEL 0.0 0.0 38.0 0.0 38.0 INDUSTRIAL EST ATE 0.0 116.8 60.7 0.0 177.5 OTHERS 0.0 0.0 9.8 0.0 9.8
TOTAL 1, 045. 4 9,139.1 7,653.4 0.0 17,837.9 Source: BOI, Thailand
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 53
chinery, components and parts, processing of metal and mining and refining
compared to 43% (7,653 foreign firms) in Zone 3. Similar industries that
have located in Zone 2 have also decided to put up operations in Zone 3,
notably, electrical products, machinery parts and components, chemical pro
ducts and metal processing (Table 4).
5.2. The Philippine situation
The economic and social inequalities between the urban and regions exist in
the Philippines too. As the situation in Bangkok, the National Capital region
has the highest gross regional domestic product (GRDP) so is the adjacent
Southern Tagalog (Region 4) and Central Luzon (Region 3) due to their
proximity to Metro Manila. In 1992, the per capita gross regional product of
the Metro Manila and Southern Tagalog were Pesos 25,832 (in constant
1985 prices). and Pesos12, 968 respectively. Other regions such as the Bicol
region had as low as Pesos 4,602 per capita GRDP. The poverty incidence
in six out of the 13 regions is more than 50% in 1991. In terms of regional
distribution, Region III has the highest investment (Figure 10) in the
amount of Pesos 54Billion for 1995. Although investors have high
preference for Region IV with 110 new and expansion projects totaling
Pesos 32 B. Understandably Region IV is where most of the employment is
generated as shown in Figure 11.
Looking at Table 5 carefully, foreign direct investments are very prominent
in Region IV and the National Capital Region. In the other regions, most of
the projects approved by BOI are locally owned and operated. In Region IV,
54 KEIEI TO KEIZAI
foreign companies prevail in the provinces of Cavite, Laguna and Rizal and
in the province of Zambales in Region III primarily due to the IEs in these
areas.
The Philippines being an archipelago of 7, 000 island unlike Thailand has
great disparity as far as infrastructures are concerned. Telephone density in
the Metro Manila stood at 90% in 1994 and 2% in the Bicol, Cagayan
Valley, and Eastern Visayas regions. Other telecommunications, power and
water supplies seem inadequate in the countryside that firms prefer to
establish business in the urban areas.
Table 5. Equity Investments, by Percentage, by Region, Philippines 1995.
Regions Local Equity Foreign Equity
Region 1-Ilocos Region 72 28
Region 2--Cagayan Valley 99 1
Region 3--Centra1 Luzon 57 43
Region 4-Southern Tagalog 19 81
Region 5-Bicol Region 99 1
Region 6-Western Visayas 97 3
Region 7--Central Visayas 91 9
Region 8-Eastern Visayas 91 9
Region 9-Western Mindanao 97 3
Region lo-Northern Mindanao 81 19
Region II-Southern Mindanao 95 5
Region 12-Centra1 Mindanao 100 0
Autonomous Region of Muslim Mindanao 100 0
Cordillera Admin. Region 76 26
National Capital Region 40 60
Source:BOI, Philippines.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 55
Figure 10. BOI-Approved Projects by Region, Philippines, 1995 (Million Pesos).
III 53,768.07
IV 32,186.83
NCR 18,960.49
VI 11,152.59
VII 7,231.60
II
V
XI
X
IX
VIII
CAR
XII
I
2,601.30
2,354.86
1,445.00
1,005.49
613.76
213.10
175.67
SEVERAL LOCATIONS 1======~~~ ••••••••••• 116,883.43 NOT INDICATED] 37,494.37
Source: BOI, Philippines.
Figure 11. Total Labor Generated by Region by New and Expansion
Projects, Philippines, 1996.
IV
III
NCR VII
X
XI
VI
II 750
V 602
IX 570
XII 488
VIII 318
I 172
CAR 155
SEVERAL LOCATIONS •••••••••••••••••• 25,709 NOTINDICATED .. ________________________________________ ~
Source: BOI, Philippines.
56 KEIEl TO KElZAl
6. Approaches to Decentralize DFls
6. 1. Decentralization strategies in Thailand
To correct the imbalance among the regions and to remove the rural/urban
dichotomy and the prevailing disadvantages in the countryside, the govern
ment has pursued ways and means to decentralize development primarily
through an Economic Decentralization and Prosperity Distribution Policy in
1992. The main goal of this policy is to disperse the prosperity, employment
opportunities and income to the regions. To carry out this policy and ex
pedite its implementation, the National Development and Decentralization
Committee (NDDC) was established.
The BOI is in charge of the investment promotion measures to stimulate
regional investments targeting Zone 3. In light of this, the government has
initialized capital decentralization and capital mobilization in the stock
market. State financial institutions were encouraged to expand credit ser
vices to the regions at low interest, specially to the small and medium enter
prises in the Zone 3 area. Companies who operate and have their head
quarters in the regions are given the opportunity to be listed and mobilize
capital in the Thailand's stock market. The government allocates a budget
(that amounted to Baht 700 Million in 1993 and Baht 800 Million in 1994)
to develop the regional infrastructure, to provide funds to the private sector
and local authorities that may result in the government being a partner in a
joint venture, and to urge the provinces to make their own investment
plans.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 57
The government through the Board of Investments provides incentives to
further spur decentralization. The list of activities eligible for promotion has
been expanded for projects locating way out of Bangkok under the policy
from 148 to 160. Factories relocating away from Bangkok are eligible for
BOI promotional privileges such as the following:
From Zone 1 to Zone 2
Exemption from corporate income taxes for 3 years, and for 7 years in
industrial estates or promoted industrial zones.
From Zone 1 or 2 to Zone 3
Exemption from corporate income taxes for 8 years and 50% reduction
for another 5 years after the initial exemption period
Double deduction from taxable income of water, electricity, and
transport costs for 10 years,
Twenty-five percent deduction (from net profits) of the costs of in
stallation of the project's facilities.
Among other fiscal incentives offered by the BOI according to the Zone
where the investor would locate are:
Zonel
Fifty percent reduction of import duty on machinery for projects which
export at least 80% of total sales or locate their factories in industrial
estates or promoted industrial zones
Exemption from corporate income taxes for 3 years for projects which
export at least 80% of total sales and locate their factories in industrial
58 KEIEI TO KEIZAI
estates or promoted industrial zones
Exemption from import duty on raw materials or essential materials for
1 year for projects exporting at least 30% of total sales
Zone 2
Fifty percent reduction on import duty on machinery
Exemption from corporate income taxes for 3 years extendible up to 7
years for projects which locate their factories in industrial estates or
promoted industrial zones
Exemption from import duty on raw or essential raw materials for 1
year for projects exporting at least 30% of total sales
Zone 3
Exemption from import duty on machinery
Exemption from corporate income taxes for 8 years and 59% reduction
for another 5 years after the initial exemption period.
Seventy-five percent reduction on import duty on raw and essential
materials for 5 years for domestic sales
Double deduction from taxable income of water, electricity and
transport costs for 10 years from the date of first sales
Deduction from net profit of 25% of costs of installation or construction
of the project's infrastructure facilities.
However, although all provinces are covered under this Policy, the pro
vinces eligible for all supportive measures are those in Zone 3. Likewise the
government has listed the activities included: industry, agriculture, com
munications, transportation, electricity, water, tourism and services.
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 59
Industrial estates (IEs) 5) have been established throughout the country.
The first IE, Bangchan, 39 kms. east of Bangkok opened in 1972. Since
then the Industrial Estate Authority of Thailand (lEA T) has established
more than 25 IEs and EPZs, 17 of which are in joint venture with the private
Table 6. Distribution of IEs in Thailand, 1996.
Area No. of
Area No. of
IEs IEs
Central and Western Northeastern
Region: Samut Prakan 1
Region:Nakhon Ratchasima 2
Pathum Thani I U don Ra tchathani I Samut Sakhon 1 Prachin Buri 5 Ayutthaya 4 Udon Thani I
Saraburi 4 Khon Kaen I
Ratchaburi I Northern Region: Lamphun 2 Kanchanaburi I
Chiang Rai I
Eastern Phichit I
Region:Chachoengsao 2 Chonburi 5 Southern Region: Songkhla I
Rayong 12 Total IEs 47
Source: BOI, Thailand.
5) Industrial estates(lEs)have been established by many countries as a means to en
courage industrial development in the countryside and thus improve the social and
economic conditions in the region. An IE is defined by the UN as an area of land
allocated for factory buildings which is sold or leased for manufacturing purposes. The
land is developed to include roads and communication facilites and other services
necessary to meet the requirement of the industry. Financial incentives and privileges,
special qualification requirements and operational conditions and regulations are in effect
in the IEs. IEs are sometimes referred to as industrial district or industrial parks. Export
processing zones (EPZs) are special types of IE due to the type of industries that locate
there, e. g. production of goods mainly for exports (Ramos and Sazanami, 1991).
60 KEIEI TO KEIZAI
sector. Now in total there are 47 completed industrial estates (Table 6)
and 19 more under study for implementation. Map Ta Phut/Rayong area
was designated for the IE for heavy industries such as petrochemicals and
Laem Chabang/Chonburi area for IE and EPZs for light industries. The
government through the IEAT has join in partnership with Hemaraj Land
and Development Public Co. to develop the Eastern Industrial Estate
(which has already 80% occupancy and the Padding Industrial Estate
(which has already 90% occupancy) in the Rayong and Chonburi areas.
The first attempt though to decongest the Bangkok areas according to the
Fifth National Plan was the development of the Eastern Seaboard and move
economic activities to the Southeast of Bangkok. It cost the government
Baht 20 billion to put in place infrastructure in the three coastal provinces
east of Bangkok, namely, Chachongsao, Chonburi and Rayong in the early
1980s.
More recently, because of the development of the Eastern Seaboard, Rayong
has become the nation's heavy industrial zone. Siemens is jointly producing
switchboards with Telecom Asia, and Bayer, Germany will also build a
petrochemical plant in Rayong. As such it has attracted many domestic and
international banks specially after the liberalization of the financial sector.
It is projected that around 2,000 multinational companies will soon set up
business in Rayong specially in the areas of oil refineries, gas separation,
petrochemicals due to its proximity to the huge offshore natural gas
reserves in the Gulf of Thailand. Siam Cement in joint venture with Nippon
Steel and Mitsui of Japan, 10 car parts manufacturers, a Mazda/Ford
pickup assembly plant will soon establish a Baht 12 million integrated steel
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 61
mill in the Eastern IE.
The success of Rayong, a Zone 3 province has benefited much from the
measures taken by BOI to decentralize industries out of the city proper.
There are sufficient infrastructures like ports, water, electricity, telecom
munications, and highways to connect Rayong with the deep seaport of
Laem Chabang. Rayong has been developed to be able to accommodate a
big inflow of investments. In 1995, of the 1200 investments applied with the
BOI, 416 wished to locate in the eastern areas and 185 wanted to invest in
Rayong.
Each region has been allotted industries that could be promoted: North
(Chiagmai, Lamphun and Lampang) -light and clean industries such as
clothing, and high value electronics than can be airlifted, and agroin
dustries; South-heavy industries as petrochemicals; Northeast, the link to In
dochina-processing of materials and provision of services that would cater
to manufacturing and investments in Indochina.
Decentralization is thus encouraged from the above mentioned incentives
by granting maximum investment incentives to projects that will locate in
Zone 3, one of the more underdeveloped areas in Thailand. As we can see
in Figures 9 and 10, there has been an increase in the number of projects
planning to put up business in Zones 2 and 3 and that more than 50% of the
projects are applying to locate in Zone 3. For the ease of the investor, decen
tralization of authority to regional branches led to the establishment of
regional offices in Chiangmai (Northern Region), Nakhom Ratchasima
(Northeastern Region), Songkhla (Southern Region) and Chonburi (Laem
62
Chabang) .
KEIEl TO KElZAl
Most of the provincial firms in Thailand are small-scale, 70 per cent of
which employ less than 9 workers. Most of them are in food and wood base
industries. Although DFIs have increased substantially during the last
decades few local subcontracting firms had taken advantage of the oppor
tunity as shown by the rising importation of raw materials. And the govern
ment believes that in the areas of metal working, electronics parts and
transportation equipment, the Thai SMEs are capable of meeting the needs
of the DFIs. But there is lack of deepening of the industrial structure. The
Six and Seventh National Economic Plans have emphasized the role of sup
port industries. But the level of integration between the DFIs that have
been flowing into Thailand and the local firms is very low. Subcontracting is
relatively new in Thailand having been developed in the past six or seven
years. These subcontractors tend to locate close to the market or the con
tracting firms in Bangkok.
There are lack of subcontractors in the provinces who could provide high
technology products and the provinces are faced with lack of qualified en
trepreneurs. Hence the government has taken steps to strengthen the sub
contracting business in the provinces by providing technological improve
ment, management training, financial support and information support.
6.2. Decentralization framework in the Philippines
In the Philippines, development is skewed heavily in favor of the urban
areas. Cognizant of the impact of uneven growth in the regions to political
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 63
stability, appropriate government actions such as regional decentralization
to spur regional development are adopted. For one the degree of concentra
tion of DFIs and the development that accompanies it are polarized in cer
tain core urban areas. More often, urban centers could provide the in
frastructure facilities and institutions, and amenities necessary to conduct
business, either domestic or international. Against this background, the
government enacted the Local Government Code giving local officials
greater authority in running their locality. This results in keen competition
in attracting foreign investors to help the development of the regional
economy. Taking the lead in this drive are regions that have opened in
dustrial estates with facilities and amenities in place.
The Investment Priorities Plan (IPP) of 1996, the overall national plan im
plemented by the BOI to promote investments in the Philippines has the
theme, Global Competitiveness through Countrywide Industrial Dispersal.
Countryside development can likewise be enhanced if they are involved in
the global economy. Under the previous 1988 IPP, BOI started to withhold
incentives from projects locating in the Metro Manila area.
Major fiscal incentives like income tax holidays and tax and duty free impor
tation of capital equipment to induce investors to locate in the regions seem
ed effective. Investors showed preference for Region IV which in 1991 at
tracted 33 % of all projects approved. Similarly BOI believed that decen
tralizing its function with the opening of regional offices would expedite the
application and registration of firms locating in he regions. Hence 6 BOI
regional offices were established in the following locations: Legaspi (Region
V), Iloilo (Region VI), Cebu (Region VII), Cagayan de Oro (Region X) ,
64 KEIEI TO KEIZAI
Davao City (Region XI) and Baguio (Region 1).
The government has also pursued countryside development projects. The
Philippine Economic Zone Authority will soon establish 10 economic zones
(Figure 12) all over the country. These zones will also deal with infrastruc
ture development within the zones to serve the needs of industries and in
vestors. The former US military bases, Subic Bay and Clark Air Base, in
the Philippines have been converted to special economic free port zones. In
vestments in these base lands recorded US$ 1. 8 billion in 1996. Americans
were top of the 328 investors. Twelve US firms with investments worth
US$380 million located in these baselands that include prominent firms such
as Enron Subic Power Corporation, Federal Express, Coastal Subic Bay Ter
minal, Inc. One hundred eighty nine Filipino firms are situated in the
baselands with project costs of US$327 million. Coming third are the
Taiwanese firms numbering 54 with total investments of US$ 285 million.
Leading the Taiwanese group is Acer, Inc. and Universal Group of Taiwan.
Enterprises who produce for exports locate in export processing zones or in
dustrial estates. They not only enjoy priority in infrastructure development
but businesses here receive special assistance and incentives. Eleven in
dustrial estates have been authorized by far to operate as export processing
zones and several more are being developed. Enterprises earning at least 50
% of its total revenues from exports are entitled to the Board of Investment
(BOI), Export Processing Zone (EPZ) or Special Economic Zone Incen
tives including these additional privileges:
i ). Exemption from advance payment of customers duties
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand
Figure 12. Existing Export Processing Zones, Philippines, 1996.
LIP SEPZ (Tarlac, Tarlac)
SUBIC SEPZ (Subic, Zambales)
BEPZ----"'" (Mariveles, Bataan)
TABANGAO SEPZ--~~~ (Batangas City, Batangas) .
LIDE SEPZ------(Isabel, Leyte)
MEPZ-----------~~~ (Lapu·Lapu City
)~ ...•
{]
Source: DTI, Philippines, 1996.
BCEPZ (Baguio City, Benguet)
VW SEPZ (Bo. Malaria, Caloocan City)
CEPZ (Rosario, Cavite)
FCIE SEPZ (Dasmarifias, Cavite)
GBP SEPZ (Gen. Trias, Cavite)
o·
65
66 KEIEl TO KElZAl
Figure 13. The Regional Growth Centers of the Philippines.
<:1
'_ 0
Bacnotan. La Union .... -+---Cauayan. Isabela
Baguio. Benguet ---"7::-++4
Mariveles. Bataan Rosario Cavite '--_--...;:l ..
Batangas City---'----.. ..I
~~---- Legaspi City
er~~-Tacloban City Pavia. Iloilo-~'r------+""
~-:S:o-'~~Tagoloan. Misamis Or.
J,..-e.::lf--+--t'1-- Iligan City
Parang Maguindanao---J+,f--f:i-~--'fe! ~"""'-=I--Davao City Zamboanga City
.e?' o~ 0
Source: DTI, Philippines, 1996.
Gen. Santos City
G'
Decentralization of Direct Foreign Investments: 67 The Case of the Philippines and Thailand
ii ) . Zero percent duty on imported machinery and equipment and
spare parts
iii) . Tax credit on imported raw materials for a period of five years
iv) . Tax credit for increase in current year
v) . Tax credit of 25 percent of duties on local raw materials,
capital equipment and / or spare parts for a period of 3 years extendible for
another 3 years.
The government offers fiscal and monetary incentives to enterprises
registered with the BOI (known as the Omnibus Investments Code of
1987), the EPZ. or better known as the Export Development Act. Special
packages are also provided if companies locate in special economic zones
such as the Clark, Subic and John Hay. The fiscal incentives offered to
DFIs that engage in activities as per the 1996 Investment Priority Plan
(IPP) are:
i ). Income tax holiday of 4 to 6 years
ii ). Tax and duty-free importation of capital equipment and spare
Parts
iii). Tax credit on domestic capital equipment
iv). Tax credit for taxes and duties on raw materials used in the
manufacture, processing or production for exports
Whereas the non-fiscal incentives include:
i ). Simplified customers procedures
ii ). Unrestricted use of consigned equipment
iii). Employment of foreign nationals
68 KEIEI TO KEIZAI
iv). Waiving nationality requirements for regional ASEAN or
multinational financial institutions.
Aside from the Board of Investment incentives, enterprises locating at the
EPZ will enjoy these other privileges:
i ). Exemption from local taxes (except for real estate taxes),
licenses and fees
ii ). Exemption from real estate tax on production equipment and
machineries
iii). Exemption from the 15 branch profits remittance tax
iv). 100% foreign wnership
v ). Simplified import and export procedures.
There is also the identification of regional growth areas still yet with the pur
pose to spur infrastructure development in the countryside based on the
following criteria: marketablity, strategic location, ecosystem implications,
minimun infrastructure requirement and food security. At present there are
19 listed regional growth areas in the country (Figure 13). These regional
growth centers will be developed through the implementation of the
Regional Agri-Industrial Center Program (RAICs). One RAIC will be iden
tified per region and will be given priority in terms of offsite infrastructure
development by the government while on-site development in these areas
will be private-sector led (e.g. BOT). Two or more of these growth centers
are linked to come up with the growth networks or corridors that include:
Cavite-Laguna-Batangas-Rizal-Quezon (CALABARZON) Special Develop
ment Project, Northwestern Luzon Growth Quadrangle; Panay-Negros
Growth Pole; Cagayan de Oro-Iligan Corridor; Cotabato-Davao-Zamboanga
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 69
Crescent; Zamboanga City RAIGC; and Phividec Industrial Estate Phase Ex-
pansion.
The recent industrial growth in the Philippines were however centered in
the industrial estates and EPZs from where around US$2. 6 B worth of ex
ports originated. The government owns four of these parks and IEs, and the
private sector is investing in the development of IEs. Since the working in
frastructures are already in place, IEs are favorite sites for DFI such as the
Mactan EPZ (MEPZ), Cavite EPZ, Bataan EPZ, and more recently the
Subic and Clark Ecozones.
Similar to the case of Thailand, backward linkages for DFIs specially those
located in the EPZs are very low. Many firms located in MEPZs for exam
ple import the raw materials for production. The support industries are not
capable of supplying the raw materials in the quality and quantity required
by the multinationals. Hence the firms, with the provision that if they locate
in an EPZs enjoy a duty free importation of raw materials and capital goods.
7. Concluding Note
Both Thailand and the Philippines are still favorite destinations of many
direct foreign investors specially in the manufacture of medium to high
technology products for domestic and export demand. Thailand is on to car
manufacturing, petrochemicals and electronics. In the Philippines on the
other hand, electronics and semiconductor industries are expanding. Hence
each of them are trying to beef up their locational advantages so as to at
tract future DFIs in new or expanding projects. Their locational advantage
70 KEIEI TO KEIZAI
in terms of cheap labor is already passe'. Instead they are building up their
comparative advantages in infrastructure, efficient support industries, and
more importantly, skilled and creative workforce.
The DFI led growth is well recognized and part of their national develop
ment plans is how to decentralize these investments, spread the benefits of
this growth and correct the regional imbalance. Various approaches have
been adopted to spur decentralization of DFIs from fiscal incentives to finan
cial measures as shown in the table below.
As Rueber and Guisinger indicated, tax incentives have an impact on
multinational firms whose main purpose for locating in a host country is for
exports. Tax exemptions were very strong inducements for foreign firms to
shift from Zone 1 to either Zone 2 or Zone 3 in Thailand and locate in the
Approaches / Strategies Thailand Philippines
Fiscal Incentives .; .;
Non-fiscal Incentives .; .;
Local government investment plans .; .;
Promotion of support industries, specially SMEs .; .;
Establishment of BOI regional offices .; .;
Extensive IEs .; .;
Private sector participation .; .;
Decentralized Infrastructure development .; .;
Build-Operate-Transfer scheme .; .;
Financial Promotion Measures Decentralized credit .; X
Stock mobilization .; X
Joint venture capital .; X
Investment Promotion Zones .; .;
Note: .j denotes applicable; X denotes inapplicable
Decentralization of Direct Foreign Investments: The Case of the Philippines and Thailand 71
EPZs in the Philippines. Tax incentives, by itself, is not sufficient. Since
these DFIs are export-oriented in nature, the decisions on where to locate
are determined in part by the adequacy and accessibility to infrastructures
like ports, airports, power, roads and telecommunications to be able to com-
petitively engage in global business. Thailand and the Philippines well
acknowledge these infrastructure bottlenecks. In this context, both the
governments of Thailand and the Philippines have given infrastructure
development a priority and are expediting their development to the extent
of involving the private sector. BOT and strategic alliances both with
domestic and foreign firms are thus being encouraged to provide the capital
and technical know-how.
It is in light of these too, that special zones, IEs/EPZs have been establish
ed throughout the nation in Thailand and the Philippines as part of the
governments' decentralization policy. The active development concept im
plies that industrial funds can be allocated in the regions where resources
can be utilized more efficiently. The eastern seaboard in Thailand houses
the heavy industries like petrochemicals because of the economic efficiency
of locating there. And the benefits derived from this can be channeled to
other areas in a passive manner e.g. income transfer.
Agglomeration in these special areas by DFIs provide economies of scale in
the construction of the vital infrastructures, specially those that would link
the firms to the global market. Since the capacity of the government is
limited the participation of the private sector is indulged to develop these
special areas. Suitable manufacturing sectors such as more income elastic
and high value added products which have higher export market potential
72 KEIEI TO KEIZAI
should be selected. This will have more far reaching impact on the local
economy if the support industries that would cater to the needs of the DFls
could be strengthened.
Thailand has been very keen to remove financial disadvantages for in
vestors deciding to locate in the provinces, and has allocated a national
budget in support of the joint venture measure, infrastructure improvement
and the formulation of the provincial investment plans. And lastly, decen
tralized planning is practiced by local governments in both case countries to
strengthen the regional investment base and promote their own localities to
foreign investors.
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