Japanese investors see past Thailand’s political impasse

All eyes are on Thailand as political deadlock between the Thai Government and the opposition in Bangkok enters its third month. But to what extent has the prolonged unrest affected the country’s economy?

The 2 February elections passed without major violence, but were described by Fitch ratings agency as “inconclusive” in a statement released on 4 February, which said that political tensions, although factored into the country’s ratings, were weighing on the economy.

Thailand’s election committee has said that results will not be announced until after run-off elections scheduled for 23 February.

The impasse reflects the divisions represented in recent years between red shirted protestors on the one side, and yellow-shirted demonstrators on the other.

The latest episode has been in response to President Yingluck Shinawatra’s controversial amnesty bill which would allow her brother Thaksin to return from self-imposed exile in Dubai.

Thaksin was ousted in a military coup and jailed in absentia in 2006 for corruption, and had £910m of assets seized.

Economic impact

The political turmoil has resulted in a 10% fall in the Thai stock market over the past three months, exacerbated by US fiscal tapering that has prompted global investors to withdraw from emerging markets en masse.

Thailand’s GDP forecasts are being revised downwards: the central bank governor has said growth is likely to be less than 3% for 2014, down from the 4% the bank had forecast in November.

But the turmoil has not put off all investors: an economic survey conducted by the Japanese Chamber of Commerce (JCC) found the majority of Japanese business leaders remained optimistic about business development in Thailand.  

Japan accounts for 60% of foreign direct investment in Thailand and the JCC has been present for 60 years, so Japanese investors may prove more resilient the others.

Even so, President of Toyota Motor Corp in Thailand, Kyoichi Tanada, has warned that long term investors may look to invest elsewhere such as Indonesia and Vietnam.

Foreign direct investment decisions are influenced by many factors, not just politics; a skilled work force and educational attainment is another key factor (on which Thailand ranks well above Vietnam and Indonesia, for example).

But these issues still matter at the margin when it comes to making investment decisions, and Thailand’s politics doesn’t help attract the direct investment it needs to fulfil its real potential.

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Jamie Hepburn | Political Risk Specialist
Profile | Email |  +44 (0) 207 212 2532


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