Thailand’s military government is planning to amend the FBA (Foreign Business Act)  to prevent foreign directors from controlling joint venture firms that are majority-owned by Thai shareholders.

Currently, foreigners are prohibited to hold more than 49% of the shares in a joint venture for it to qualify as a local company. But the present FBA makes it possible for foreign business partners to control joint ventures in Thailand, as it does not prohibit foreigners from making up the majority of the board of directors.

The arrangement has promoted investments in the country for decades, opening activities to foreign investors that would be otherwise restricted to foreign owned companies.

Bis repetita ?

Mitsugu Saito, minister and deputy chief of mission of the Japan Embassy, said an amendment restricting foreign control over joint-venture companies like the one proposed in 2007 would have a serious impact on existing and future investment.

“The embassy is quite seriously concerned about the draft amendment,” Mr Saito told the Bangkok Post Sunday. “If the law is changed, the ownership of a joint venture has to be a Thai national, and they [the Japanese] will have to decide to give up foreign ownership or withdraw their business from Thailand.”

The American Chamber of Commerce in Thailand on Monday warned in a statement that any protectionist amendments to the current investment laws “will only further damage foreign investor confidence, likely lead to a significant reduction in foreign investment, and harm Thailand’s regional competitiveness.”

“We have been doing business with Thailand for several decades based on mutual trust and mutual friendship, but I am afraid that by changing the basic business environment in Thailand [at] short notice, companies will lose trust in the Thai government and the business environment in Thailand,” Mr Saito said.

Unbeatable, or unpredictable Thailand ?

The move has come as a surprise to many in the foreign business community, as it mimics the former military appointed government in 2007, widely criticized for its incompetence . The project could potentially force some local joint ventures to be reclassified as foreign-owned, thus preventing them to do business in some sectors where foreign control is capped, or prohibited.

Changing the rules without notice could paint a negative and unpredictable picture for current and future investors, just when Myanmar and Vietnam are making efforts to attract business. Many are wondering  why a regime in power for a self-stated short term, is hastily moving ahead with policies that will affect investment and the economy for decades to come.

Foreign direct investment has been an important element of Thailand’s economic development process. The immense foreign currency influx after Thailand’s financial liberalization in 1990, helped to increase the country’s competitiveness. In the context of the recession and relatively slow recovery after the 1997 crisis, the FDI’s role became even more crucial in helping re-capitalize failing industries, bring in new technologies, generate or save jobs, assist with policy reforms and play a role in addressing the poverty and social inequalities challenges.

FDI Inflows By Countries and Industry

Source: Board of Investment – Last Available Data.