Thailand and Vietnam spotlight tech and infrastructure expansion in pursuit of high growth

Thailand and Vietnam spotlight tech and infrastructure expansion in pursuit of high growth

Franz Murr, Regional Head of Asia-Pacific

Ha Bach, Chief Representative, Vietnam

Thira Nuntametha, Senior Representative, Thailand

Commerzbank’s Franz Murr, Regional Head of Asia-Pacific, Ha Bach, Chief Representative, Vietnam, and Thira Nuntametha, Senior Representative, Thailand, explain how two of ASEAN’s fastest growing economies are attracting foreign investors and building out crucial digital, transportation and energy infrastructure

Thailand and Vietnam are undergoing an economic transformation. In a strategic shift away from a long-standing reliance on labour intensive industries, these rising stars of ASEAN are both are steering their economies towards a more skills-based, sustainability focused model to drive opportunities for growth. The government directive Thailand 4.0, for example, aims to achieve this through infrastructure and technology, with Thailand’s Eastern Economic Corridor (EEC) being positioned as the country’s hub for this transformation. Meanwhile, Vietnam is similarly reorienting towards a technology centred strategy, and is fast emerging as a manufacturing hub for a host of major global brands.

FDI: the state of play

Fundamental to achieving these economic ambitions is enhanced infrastructure, and projects are underway that are opening doors to new opportunities for both countries.

During the last five to ten years, Vietnam has been winning out when it comes to foreign direct investment (FDI) from Japan, Korea, China or the US. Sitting at the crossroads of other major ASEAN countries and bordering China, Vietnam’s long coastline makes it a natural shipping hub. Moreover, with numerous trade agreements with international partners and its ASEAN neighbours, Vietnam ranks just behind Indonesia and Singapore as one of the region’s most connected nations. Most recently, planned infrastructure developments and constructions projects include metro lines and potential new international airports.

Certainly, Thailand views Vietnam as its main competitor in attracting FDI. But opportunities for investment are growing. For instance, Thailand is currently constructing a high-speed rail link that will better connect ports and industrial areas with the rest of the country, in line with the ambitions of the Thailand 4.0 project. This will mean it can better compete with the likes of Vietnam, Indonesia and Malaysia when it comes to attracting international trading partners and FDI.

Beyond infrastructure, opportunities in Thailand’s agricultural technology have secured investment from China and the US, and the Thai government is investing in key industries such as electronics and automotive manufacturing. But while the labour force is skilled in these areas, labour costs have risen significantly. Furthermore, political instability has made foreign investors wary in the past.

In Vietnam, sectors attracting FDI include pharmaceuticals, fast-moving consumer goods (FMCG) and the automotive industry. For instance, Unilever and Nestlé have operations in Vietnam, as does Mercedes, and the Danish company LEGO has recently set up a US$1 billion factory. Vietnam is also the main production centre for technology brands including LG and Intel, while Samsung has already invested nearly US$18 billion into the country. As a result, electronics now account for 20 percent of Vietnam’s exports.

Further boosting both Vietnam’s profiles for FDI is its potential as a manufacturing location for companies adopting a “China plus one” diversification strategy. This trend is seeing global businesses increasingly seeking to establish additional or alternative production hubs to those they have in China, to help strengthen their supply chains and address challenges such as China’s rising labour costs. Canon, for instance, has tripled the size of its factory near Hanoi and, in light of recent tensions with China, major suppliers for US brands like Apple are also choosing to set up in Vietnam.

Energy transition attracting FDI

Renewable energy technology and the energy transition are also making Thailand and Vietnam interesting prospects for foreign investors. A number of European manufacturers, for example, are exploring opportunities to invest significantly in Vietnam’s offshore wind market.

The last few years have seen Vietnam make tremendous progress on its drive to become net zero by 2050, and it is at the forefront of the clean energy transition in Southeast Asia. Solar power, which was added to the grid just four years ago, now accounts for 11 percent of Vietnam’s energy production. Both Siemens and wind-turbine company Vestas have a presence in the country. The government’s Power Development Plan VIII (PDP8) has also now been approved, which aims to expand Vietnam’s renewable energy generation, including a focus on the development of LNG facilities.

Meanwhile, Thailand is perhaps the region’s frontrunner when it comes to renewables. The country’s national sustainability strategy, called the bio-circular-green (BCG) economy, includes incentives such as tax breaks to help entice investment into renewable energy projects. One such project is the record-breaking construction of the largest stand-alone rooftop solar panel in the world by Japan’s Kansai Electric Power Co, which is currently underway in the EEC. Furthermore, Thailand is a big investor in renewable energy on the international stage, participating in projects in neighbouring countries such as Laos, Myanmar and Vietnam, as well as further afield like Japan, Australia and even Europe.

The shift to renewables will of course not happen overnight. The necessary capital and appetite for change exist, but the challenge for Vietnam, Thailand and other ASEAN countries is infrastructure. For the energy sector to progress, it is imperative infrastructure is developed in parallel. This costly endeavour will be a joint effort between governments, banks, power companies and foreign investors.

Technology to reshape the banking landscape

In these dynamic, burgeoning markets, local banks are investing heavily in cutting-edge digitalisation initiatives to optimise their processes and solutions in order to support evolving client needs. One of Thailand’s top banks, for instance, has announced a long-term strategic plan to invest US$3billion in innovation, which will see it move away from being a conventional bank towards becoming a type of tech company. A number of other large local banks have also launched their own innovation subsidiaries and are acquiring fintech start-ups to support the expanding needs .

In Vietnam, the pandemic has been a key trigger for Vietnamese banks to go digital. Mobile banking services in particular have gained traction, reflecting the high smartphone penetration in the country. As such, local banks are collaborating closely with fintechs to facilitate payments and peer-to-peer lending. In fact, Vietnamese fintech has fast become an attractive market for foreign investment, drawing in close to US$400 million in funding in 2021.

In tandem, the digitalisation strides that are being made are enabling the generation and interpretation of masses of valuable industry data – and incentivising local banks to expand into new services and offerings. For instance, Robinhood is a client-centric, Thai food delivery platform that was launched by Siam Commercial Bank (SCB) to provide an enhanced experience for an emerging societal trend. In turn, by analysing data from the platform, SCB can identify new opportunities to provide support for the independent businesses that are using the marketplace, such as restaurants and delivery companies. The richer insights into their business activities, such as revenue flows and risks, means the bank has greater transparency upon which to determine and offer funding support. This somewhat unconventional bank service is one of several initiatives that are helping to plug the perpetual finance gap that continues to afflict smaller businesses in the region.

Thailand and Vietnam are dynamic markets that are increasing their presence on the global economic stage. To be able to realise their full potential however, continued investment into physical and digital infrastructure upgrades are key. With digital initiatives improving access to banking services and closing the finance gap, and innovative incentives established to further attract investors, both countries are investing effectively for their economic futures. And with infrastructure projects luring foreign investment during development, and, once complete, helping to establish manufacturing industries for future FDI, with the right support there are opportunities to be grasped by banks and businesses across the globe.