Grayling Blog
Economic rebound eases pressure on Thai Government
Posted on 6.07.2010 by Justin Barnett
Ask anyone what was happening in Thailand in April and May and the answer would have been ‘mayhem’. Four years of political unrest, which prompted some commentators to refer to Thailand as ‘the ungovernable basket case of Asia’ came to a violent climax.
‘Red shirt’ demonstrators seeking the removal of the Government they claimed was illegitimate and unelected, occupied the central retail strip of Bangkok, camping out under shade cloth erected in front a massive stage that completely blocked a major eight lane road in the heart of the capital. It was highly organised, logistically complex, well supported and funded.
For weeks the Government tried without success to discuss, negotiate, cajole and encourage their removal. Finally, after a number of extremely violent incidents, the Army moved to restore order and take back the occupied streets. Over the two month period of the demonstrations a total of 89 people were killed in what has been described as the worst political violence in two decades.
It was a PR nightmare for a country where tourism has traditionally been a major contributor to the economy.Not the least because barely two years earlier demonstrations by ‘Yellow shirt’ demonstrators opposed to an elected government they saw as a proxy of deposed PM Thaksin Shinawatra, camped outside Government House and then occupied Bangkok’s Suvarnabhumi International Airport for nearly two weeks.
The hospitality industry, hit hard during an earlier disruption was sent into a tailspin again with many five star central city hotels locking their doors to prevent demonstrators moving in. Tourist arrivals in May fell 11.8% from the previous year to 850,000, while industrial production slowed also with both Toyota and Honda suspending production at their plants during the violence.
And yet while Australia lays claim the title of ‘The Lucky Country’, if recent economic and investment news is any indicator, Thailand can’t be far behind.
Exports from SE Asia’s second largest economy behind Indonesia leapt 42.1% in May prompting the Finance Ministry to revise its 2010 growth forecasts up for the second time in three months to 5-6%. Not only were exports taking off, but old friends were returning.
Ford Motor Company which already has a large manufacturing facility it shares with Mazda in Thailand recently announced it will be investing a further US$450 million to build a plant which will employ 11,000 people and manufacture its Focus model from 2012. Right next door to the new Ford plant, Suzuki has announced it will be establishing its first manufacturing facility in Thailand
Since its announcement of its intention to become the ‘Detroit of the East’ Thailand has attracted major manufacturing facilities from Toyota, Mitsubishi, General Motors, Nissan and Honda.
In turn this has created a domestic professional components manufacturing sector which has now reached sufficient critical mass to provide genuine economies of scale to supply the international plants.
All of this ‘quiet achievement’ was overlooked in the recent international coverage of the political demonstrations, so the timely confirmation of further significant investment by Ford and Suzuki has provided something of a breathing space for a Government, until so recently under the most intense international scrutiny.It has also underscored some of the key advantages Thailand has traditionally enjoyed over its neighbours.
Its central location in SE Asia is taking on even greater significance with the ASEAN Free Trade agreements beginning to take effect, Thailand is already positioning itself as a ‘natural gateway to ASEAN’. Last year the Kingdom hosted a meeting of ASEAN and its six major trading partners and announced a commitment to develop a “Comprehensive Partnership in East Asia”.
The ASEAN+Six grouping includes the powerhouse Asian economies of China, Japan, South Korea and India along with Australia and New Zealand. Together the 16 member countries will encompass a population of 3 billion people, accounting for 49.6% of the world’s population and 26% of global GDP.
For international companies seeking to access what is expected to be the world’s largest economic bloc in 15 years, the fundamentals of Thailand as a business environment and staging point are hard to resist.
Not only is the labour force considered to be disciplined and still relatively low cost, the infrastructure of the country is significantly further advanced than its neighbours. It also has reliable and sufficient power to meet the needs of the plants it is seeking to attract, thereby avoiding one of the major challenges facing its near neighbor Vietnam.
Recent reports of rising wage expectations and evidence of unrest amongst the migrant workforce in China’s manufacturing plants of international companies has also not gone unnoticed.
But while long term investment and rebounding exports show a different and more positive aspect to Thailand, continuing political difficulties will be a factor in determining whether the international goodwill and investment Thailand currently enjoys will remain.
Comments
Write a comment
About the Author
Justin Barnett
Justin has more than 29 years experience…
Barnett Justin
Director, Thailand
Telephone: +66 2635 7151 4
justin.barnett@grayling.com
Justin has more than 29 years experience as a communications professional and adviser. As well as Thailand and other Southeast Asian markets, he has worked extensively in New Zealand and Australia, while also acting for clients in M&A activity in the United Kingdom. During this time he has advised both government agencies and private sector clients on internal and external communications strategies.
Before joining Grayling, Justin was Director of Corporate Affairs at Tesco Lotus in Thailand as the company grew its network from 20 to more than 450 stores. In this role he was responsible for directing and overseeing Government Relations, Site Acquisition Support, Corporate Social Responsibility, Event Management, Internal Communications, Knowledge Management, Media Relations and Issues Management.
A specialist in crisis and issues management, he has advised banks, airlines and corporates across a spectrum of challenges including recapitalisations, receiverships, proposed regulatory and legislative restrictions and civil unrest.
Comments on Justin Barnett review: Justin Barnett has presented a refreshing and spot-on assessment of Thailand’s situation. Most press reports, both domestic and international, have focused on the downside aspects of a country which undoubtedly is suffering from the challenges of a vibrant democracy. Just try protesting in Singapore, Malaysia, still more so Vietnam, Laos or Myanmar, and see what happens! While Justin has said most of what needs to be said at this time, a few additional comments might be made: (1) Rule of law: Events over the past two years, since the Government House occupation (Yellow Shirts), the Suvarnabhumi Airport occupation (Yellow Shirts), ASEAN Summit breakup on Pattaya (Red Shirts) and the recent hijacking of first the Rachadamnern then Rachaprasong areas of downtown Bangkok (Red Shirts), have drawn painful attention to the lack of effective rule of law prevailing in Thailand. Just as bad, the various legal cases, completed or pending, against various individuals and factions, have cast doubts on the impartiality of the courts of law. Fulfilling their duty to uphold the Constitution and legal system is laudable, but manipulating the courts as an instrument of politics is questionable, risking a decline into “institutional anarchy”. (2) Restoring peace: The government’s roadmap to reconciliation implies a degree of naivety. Can the divisions in society that have grown up over many years, really be eliminated by appointing committees and making populist gestures, just over a few months? Aiming for reconciliation may be too high a short-term ideal. But simply restoring a semblance of peace is the main urgent necessity. Tourists and investors will not return, if they fear continuing violence. The UDD have made it clear that the dispersal of the Rachaprasong demonstrations is not the end of the story. There are to be bomb attacks, sabotage, a sort of extension of what has been happening in Southern Thailand, potentially throughout the whole country. This kind of insurrection will be hard to prevent. However it is nice and kind of Hun Sen to send back a couple of alleged terrorists seeking asylum in Cambodia. ASEAN cooperation will certainly help, but domestic disorders will be hard to defuse. (3) Thailand’s fundamental economic strength Justin Barnett competently lists the strong performance of most sectors of the economy, especially the important automotive sector Tourism will recover too, provided rule of law, peace and security appear more consistent for a reasonable period (post-bombing Bali took a couple of years). The clearest indicators are, however, in the financial sector. GDP is strengthening, but the best indicators are those that rating agencies highlight: strong foreign exchange reserves (approaching US$150 billion), an excellent foreign debt profile relative to GDP (around 40%, compared with some Western countries, at over 100%), and sound fiscal and monetary policy. The strength of Thailand’s Baht currency is a mixed blessing. At the height of the 1997/98 Asian crisis, the Baht stood at over Baht 55 per US$, whereas now the value approaches Baht 32. Against the Euro and Sterling, the strengthening is even more dramatic. This increases the cost of exports to foreign buyers and raises the prices for visiting tourists. However the rising Baht parities lower the costs of Thai outward investment, which government policy makers are seeking to encourage. The Stock Market is also a good indicators of confidence, with the SET Index recovering to the 800 level. While new foreign investment has stalled, at least temporarily, existing investors, such as Ford, Toyota and other automotive companies mentioned by Justin, are just the leaders of the pack. Apart from the high profile re-investors, there is a lot of quiet confidence, particularly among Chinese and other East Asians, who shun publicity. (4) Thailand as hub of Indochina: Indochina is a fast growing region, with typical 7% to 8% growth rates, largely undeterred during the recent world setbacks. Thailand is inevitably the hub of the Mekong region, and roads, rail, powerlines and all sorts of cross-border infrastructure will assure Thailand’s continuing key positioning. Integration is gathering momentum. Probably the biggest leap forward is the development of Dawei (Tavoy) as a Bay of Bengal port in Myanmar, to open direct access to Westbound sea-routes. This is a huge scheme, promoted by Thailand with Myanmar government cooperation, literally an Eastern Seaboard for Myanmar. While admittedly things often don’t happen so fast (or at all) in Myanmar, this scheme could revolutionise (in the better sense of the word), Thailand’s potential economic growth. Exciting times for Thailand, as the Eurozone crumbles!