This is mainly due to external negative factors including a possible war in the Middle East and anticipated surging oil prices, and the slowdown in key global economies, particularly Japan and the United States.

In addition, further terrorist attacks are another risk factor that may hinder investment prospects in the region.

"Our investment policies are good and getting better," Prime Minister Thaksin Shinawatra tells a gathering of some 700 Thai and Japanese businessmen early in October. The government has been urged to help promote investment to compensate for an expected decline of exports.

Based on diminishing global foreign direct investment (FDI) this year, the world's limited investment capital next year is expected to be even more difficult to attract.

According to the UN Conference on Trade and Development, the world's FDI inflows were expected to decline in 2002 by 27% to about US$534 billion. Of this, only 16% would be allocated to developing countries while 65% would go to developed countries. China has predicted that it would, for the first time, overtake the United States to become the largest FDI host country in the world.

Last year, the world's FDI stood at $735 billion, including 46% to the Far East, of which 50% was allocated to China, 9% to Singapore, 4% each to India and Thailand and 3% to South Korea.

Somphong Wanapha, the secretary-general of the Board of Investment (BoI), says the declining amount of global FDI indicates that fiercer competition to attract foreign investment among developing countries would be seen in the coming year.

Industrial estates in the Eastern Seaboard are heavily promoted for their well-developed infrastructure.

He said applications for BoI privileges in 2002 had exceeded the target set at 200 billion baht. Already for the first 10 months of 2002, the value of project applications reached 209 billion baht.

Investment applications in the automobile and construction industries were considerably higher than in the previous year.

He expected the automotive sector would be first among all industries, which could generate much-needed income for the country in the next few years.

As giant automakers had chosen Thailand for their production bases, many foreign parts producers had also decided to relocate into the country in order to pursue the business generated by the automakers.

Thailand's car exports were expected to reach 180,000 units in 2002 compared with 175,299 the previous year. Total car assembly was on pace to reach 560,000 units, closely matching the level of the years before the crisis.

Investment applications next year are not expected to be lower than those of this year, according to Mr Sompong. The main targeted industries are automotive, fashion, services, agriculture and information technology.

For this year, 64% of total investment was in targeted industries with 23.4% in agriculture, 12.2% in IT, 9.5% in automotive, 4.7% in services and 1.8% in fashion.

Mr Somphong said that in 2003, investment in Thailand was expected to come mainly from Japan.

Thailand, he said, was still a favourable investment destination for foreign investors due mainly to its political and social stability. Uncertainty about legal practices in China had led many investors to shift to Thailand, he said.

According to a BoI survey, about 70% of 1,210 foreign investors, half of them from Japan, wanted to expand their investment or make new investments in Thailand.

Japanese companies that have production bases in Thailand are expected to relocate more of their reseach and development centres here to support their production facilities.

In these tougher market conditions, companies that have their research and development centres elsewhere will not have the ability to quickly change their products to match customer needs and keep ahead of their competitors' developments.

Hitachi, for instance, is moving a research and development unit for electrical products to Thailand with the aim at providing more effective competition to its Korean rivals.

Phaphad Phodhivorakhun, chairman of the Federation of Thai Industries, said Thai exports were expected to face a difficult situation in 2003, resulting in slower growth of the country's economy than that in this year.

The expected export decline will be due mainly to the slow economic recovery in the US and Japan.

As a result, he said, the government should concentrate on efforts to promote investment in Thailand to compensate.

Asimo, the world's first humanoid robot developed by Honda, greets Pitak Intrawithayanant, then deputy prime minister, and Honda Motor Co president Hiroyuki Yoshino at a ceremony held in August for the rollout of new Honda power products at the Thai Honda Manufacturing Co plant in Lat Krabang Industrial Estate.

The BoI has to work more efficiently to attract investment, which is seen as a key engine to drive growth in 2003.

He suggested that the BoI should provide more wide-ranging investment privileges and mechanisms as other countries, not just tax breaks, some of which must be phased out at any rate under WTO rules.

Mr Somphong conceded the BoI was behind its competitors in terms of the variety of privileges it offered.

He said Singapore had various mechanisms to attract foreign investors, including credit subsidies for human resource development and research and development.

Mr Somphong said the BoI had undertaken to amend its investment promotional law so that it could provide more varied incentives.

The amendments, expected to be completed in 2003, would help give the BoI more mechanisms, including credit assistance in some targeted investment activities, which would not breach the World Trade Organisation guidelines.

Such activities included investments for improving productivity, human resource development and research and development.

The 200th Thai made Komatsu hydraulic shovel rolled off the line in late November at the Amata Industrial Estate in Chon Buri. Attending the ceremony were chairman Phornthep Phornprapha (centre), along with Komatsu Asia-Pacific president Yoshitaka Omura (left) and Bangkok Eiji Nakaoka (right).

The new privileges would initially be aimed at supporting five targeted industries and groups of industries forging industrial clusters.

As well, the BoI has introduced a more aggressive approach to attract investment.

It has signed co-operation agreements with major US, European and Japanese banks, which would in turn tell their clients about the opportunities that exist for investment in Thailand.

The agency also plans to set up an office in San Francisco in 2003, its second in the United States following the New York office.

The new office would target US electronics companies.

Another focus of the BoI is to provide investment support for small enterprises, community enterprises and co- operatives to help them enter export markets and to strengthen their business operations.

One key supporting programme for those enterprises involves forging networking between small and medium- sized enterprises and larger ones.