Foreign investment dropping off amid political instability

The on-going political crisis in the country not surprisingly has had a negative impact on foreign investment, although the overall impact is hard to gauge at this juncture.

The Bangkok-based European Asean Business Centre has already seen what it claims is significant evidence of foreign capital being withdrawn, with the likely beneficiaries being Thailand’s ASEAN neighbours, such as Malaysia, Cambodia, and Vietnam.

The Business Centre noted the importance for Thailand’s political framework to work out ways of reform based around the democratic process; in other words, a military coup or return to overt military rule would probably prove a major economic error, at least in terms of foreign capital inflows.

These views, naturally enough, are shared by other major business-oriented groups in Thailand. The Joint Foreign Chambers of Commerce issued a press statement which said, in part, ‘To boost foreign investment, we need predictability and a stable political environment where the rule of law prevails, with zero acceptance of corruption.’

Other major Thailand investors, the United States and Japan, have also been stressing the need for political reform to be achieved by democratic process.

The US Chamber of Commerce issued an announcement saying American businesses were still committed to Thailand, their chief concerns being the safety and welfare of their expatriate employees and a hope that business could continue relatively unhindered despite the street protests.

The vice-president of the Japanese Chamber of Commerce, Kyoichi Tanada (who is also the president of Toyota Motors Thailand), was quoted as saying, “Japanese businesses right now are worried about the situation and want to see it end as soon as possible.”

He noted that the political crisis was unlike the 2011 floods. That natural phenomenon saw the Japanese and other major foreign investors stand firmly behind Thailand, supporting the government’s efforts at reducing the negative business impact.

The European Asean Business Centre did, however, also cite another negative factor for foreign investors, one that could be exacerbated by the ongoing political turmoil.

In 2015, Thailand will leave the European Union’s Generalised System of Preferences (GSP) and this mean a loss of competitive edge, resulting in Thai products becoming much more expensive in Europe. This will negatively impact Thai exports.

The Centre said it is important that Thailand tries to set up a free trade agreement with the EU to compensate for it leaving the GSP. Unfortunately, this takes time to negotiate and requires a stable government to be in place to engage in the necessary dialogue, The fear is that the longer the political impasse the more it becomes certain that Thai exports to the EU will be hit, and no matter if a free trade agreement is eventually hammered out, valuable returns to the economy will have been lost.