The latest casualty of Thailand’s five-month political deadlock may be foreign investment, as project approvals face delays and new investors hesitate to commit funds, the head of the investment promotion board said.
“We have started to see the impact from the political unrest,” Board of Investment Secretary General Udom Wongviwatchai said in a March 28 interview. “Investors have delayed investments and are waiting for a clearer picture.”
Thailand hasn’t had a functioning parliament since early December, when Prime Minister Yingluck Shinawatra called an election to appease demonstrators seeking to force her from office. A vote on Feb. 2 was disrupted by protests and later annulled by the courts and a new poll hasn’t been set, leaving the caretaker government with limited powers and keeping investors guessing on when stability may return to Southeast Asia’s second-biggest economy.
“Without a fully-functional government, confidence will be weak,” said Phatra Securities economist Thanomsri Fongarunrung. “Private investment will remain stalled as the political vacuum continues. The delay in project approvals by the BOI is a concern. A long delay may prompt investors to shift to other countries as it will affect their production plans.”
Applications for investment incentives fell 58 percent to 63.1 billion baht ($1.94 billion) in the first two months of 2014, and a new BOI board must be endorsed by the government before any major projects can be approved, Udom said.
“We are still waiting for a formal response from the Office of the Council of State,” said Udom, referring to the government’s legal advisory body. “So far, the signal is positive” that the new BOI board will be in place within the next three months, he said.
Hundreds of thousands of protesters began street rallies in late October, calling for Yingluck to step down and allow electoral rules to be rewritten to erase the political dominance of her family. They accuse the ruling Pheu Thai party of buying votes with damaging populist policies. Parties linked to former premier Thaksin Shinawatra have won the past five elections, including the 2011 poll that brought his sister to power.
The unrest has weighed on stocks and the baht, with Thailand’s benchmark SET Index down 4.9 percent since the protests began Oct. 31, compared with a 5.7 percent gain in Indonesia’s Jakarta Composite Index. The baht weakened 4 percent against the dollar in the same period.
The SET rose 0.2 percent to 1,371.86 as of 10:26 a.m. in Bangkok, and the baht strengthened 0.2 percent to 32.436 per dollar, after an election for half of the members of Thailand’s Senate was completed peacefully yesterday.
“The prolonged political vacuum will hurt Thailand’s competitiveness in the long term because foreign companies are unlikely to wait any longer,” said Monthol Junchaya, chief investment officer at One Asset Management Co., which oversees about $2.8 billion of assets. “They may have to look somewhere other than Thailand for their investments.”
Twenty-three people have been killed in protest-related violence, and demonstrators have occupied large swathes of Bangkok and invaded government ministries and the headquarters of the army and police in recent months.
The clashes have dented consumer confidence, which fell for an 11th straight month in February, and prompted the Ministry of Finance to cut its economic growth target three times in as many months, to 2.6 percent.
While new investors may be rethinking their plans to commit funds to Thailand, even companies already doing business in the country, including Toyota Motor Corp., may be hesitant to expand, Kyoichi Tanada, president of Toyota’s Thai unit, said Jan. 20.
“So far we haven’t seen investors pull out or relocate to other countries,” the BOI’s Udom said. “Existing investors understand our political situation. They can still wait. For new investors, we try to explain the situation to them.”
Thailand’s central location, strong supply-chain, skilled labor force and abundant agricultural supplies help the country maintain its attractiveness as an investment destination, Udom said. Most projects approved by the BOI are export-related, and won’t be affected by slowing local demand, he said.
Overseas investors are waiting for the new BOI board to approve a backlog of projects, and many international companies are still interested in investing in Thailand, said David Nardone, chief executive officer of industrial land developer Hemaraj Land & Development Pcl.
“There has been a big lag for large projects, and it’s still continuing,” Nardone said by phone. “People can’t wait forever. There is some investor hesitation in formalizing and finalizing their plans. People want to see a stable government formed and they don’t want to see violence in the country.”
Udom said the second phase of Thailand’s eco-car incentive program won’t be derailed by the political deadlock, and the BOI expects seven or eight companies to apply before today’s deadline. Companies will each invest 6 billion to 10 billion baht, he said, declining to name them.
“The problem is how long this situation will last,” Udom said. “If it doesn’t drag on for a year, investors can adjust their plans, but if it prolongs for more than a year there may be a problem.”