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 Protesters trying to topple the government have rallied in the
capital, Bangkok, since November. This month they have forced
ministries to close and blocked major roads. They say they will stop
a general election being held on February 2.
"Assuming the political woes go on, foreign investors may decide to
shift to other countries like Indonesia, Vietnam and Myanmar,"
Kyoichi Tanada, president of Toyota Motor Corp's <7203.T> Thai unit,
said this week.
"Many investors want to invest in Thailand. If the situation has not
been resolved, the ones which are already invested may not go away,
but whether they will invest more, it's questionable," said Tanada,
also vice-president of the Japanese Chamber of Commerce, which
represents 1,524 Japanese firms in the Southeast Asian country.
Thailand gets more than half of its foreign direct investment from
Japan. That foreign capital brings much-needed money into a country
that recorded a current account deficit in 2013 and may again this
year.
It is the biggest car market in Southeast Asia and a regional
production and export base for top manufacturers such as Toyota,
Nissan Motor Co <7201.T> and Ford Motor Co <F.N.>.
It is also a major global production center for hard disk drives
with big players such as Seagate Technology <STX.O> and Western
Digital <WDC.O> having operations in the country.
Thai partners are putting a brave face on things.
Hemaraj Land and Development <HEMR.BK> runs seven big industrial
estates, home to factories for the likes of Ford Motor, General
Motors <GM.N> and Caterpillar <CAT.N>.
David Nardone, its chief executive, said 10-20 percent of new
customers had postponed signing contracts to take up facilities
since December.
"It's short-term disruption," Nardone said, hopeful there would be a
recovery in the next few months. "There may be some people who don't
know Thailand so well and they may take longer, have more questions
and wait for clarity."
The optimists point to 2010, when more than 90 people died in
another protracted bout of political unrest. Foreign direct
investment jumped 88 percent that year, the stock market surged 41
percent and the economy bounded ahead by 7.8 percent.
This time, however, the protests have gone on for three months and
government work is being disrupted.
Some $60 billion of infrastructure spending may not get started this
year, for example. Consumer confidence fell for the ninth month in
December to a two-year low and investors worry about a possible
escalation of violence, which will hold back Southeast Asia's
second-largest economy after Indonesia.
POLITICS AND FLOODS
"Political instability is always preventing investment flows. Long
term investments projects may be reconsidered and other locations
may be reassessed," said Rolf-Dieter Daniel, President of the
European ASEAN Business Centre, which groups 14 European chambers of
commerce in Thailand.
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Foreign direct investment probably totaled almost $13 billion in
2013 but could drop to less than $8 billion in 2014 even if tension
eased and investors returned in the second half, said Pimonwan
Mahujchariyawong, an economist at Kasikorn Research Center in
Bangkok.
Investment also dropped in 2011 when widespread flooding disrupted
the activities of global electronics and car firms.
"Multinational firms tend to diversify their investments to other
ASEAN countries as well, to reduce risks (either from politics or
disasters)," Pimonwan said, adding FDI could return to a more normal
$8-9 billion per annum in the next 3-5 years.
Economists say Thailand's fundamentals — a relatively large market
of around 67 million people, a growing middle class, pro-business
environment, good infrastructure and geographical advantages
including access to emerging markets such as Myanmar — helped it
stand out in Southeast Asia and attract investment.
Jongkie D. Sugiarto, chairman of the Association of Indonesia
Automotive Industries (Gaikindo), said Indonesia with its 240
million people was well placed to catch up.
But the regulatory environment had to be improved and the domestic
market developed, he said. "We also have to build our
infrastructure, from ports to the provision of electricity and gas,
roads and so on. How can we possibly ask car companies that want to
invest in Indonesia to build power plants first?"
This year was always going to be tough for Thailand.
"Lackluster exports and weak consumer spending from 2013 have
resulted in low average capacity utilization at around 64 percent
and high growth of inventory accumulation," said Sutapa Amornvivat,
chief economist at Siam Commercial Bank <SCB.BK>, expecting private
investment growth of about 3 percent in 2014, much lower than the
average 10-year rate of 6 percent.
"But, looking beyond 2014, we think Thailand still makes a very good
long-term bet," she said.
That sentiment was echoed by Honda Automobile (Thailand), part of
Honda Motor <7267.T>.
"New potential investors may be spooked by the political woes," said
Pitak Pruittisarikorn, its executive vice-president. "For Honda, we
have been in Thailand for more than 50 years and we are still
confident in Thailand's long-term outlook." ($1 = 32.8350 Thai baht)
(Additional reporting by Orathai Sriring,
Manunphattr Dhanananphorn, Pisit Changplayngam and Pairat
Temphairojana in Bangkok and Eveline Danubrata in Jakarta; editing
by Alan Raybould and Emily Kaiser)
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