IS THERE a fundamental disconnect between business and politics in Thailand? At first glance, it would certainly seem so. Despite continuing political instability last year, the economy grew by 7.8 per cent.
Some say that this is the way it has always been. As one businessman put it to the BBC last month: “Business in Thailand succeeds in spite of its governments.” With an armed border conflict with Cambodia still seething in the east, and a long-running insurgency in the south, it seems hard to disagree.
Indeed, foreign investors appear unfazed by Thailand’s recent troubles. Japanese manufacturers, in particular, have actually been expanding in recent years. But headline growth figures can be deceiving, particularly when – as is the case in Thailand – an economy is heavily export-dependent.
Thailand’s main industrial area is located in Rayong province, a few hours’ drive east of the capital, Bangkok. The region also has its own port. Thai exports are equal in value to 70 per cent of its gross domestic product. So when exports last year rose by 28.1 per cent, the impact on macroeconomic growth was substantial.
Bangkok, however, was badly hit by the protests. Five-star hotels were closed for weeks on end last year. Other tourist-related industries also suffered, putting many Thais out of work.
Political uncertainties also affected foreign investment, one of the keys to future growth. According to a recent study by Nomura of region-wide foreign direct investment trends, inflows by non-residents increased substantially in Malaysia (400 per cent) and Indonesia (161.2 per cent) last year. Thailand, however, chalked up an increase of just 6 per cent. Clearly, many potential investors delayed or cancelled their investment plans.
Thailand has been deeply divided politically since 2006, when the military backed moves to oust populist prime minister Thaksin Shinawatra. The country has been plagued by massive street protests since, with demonstrators sometimes occupying government offices and the international airport. There have been bombings, arson attacks and even assassination attempts.
A general election promised for June this year could heighten tensions. A win by Mr Thaksin’s allies, for example, might encourage the military to orchestrate another coup. If the current government retains power, many opposition groups may conclude that the election was rigged. And this year, exports may not be able to paper over the accompanying negative impact on the economy.
One reason is that China, now Thailand’s main export market, is expected to slow as a result of stricter monetary and fiscal policies. The value of Thai exports to China rose to US$21.5 billion (S$27 billion) last year, up 33.2 per cent. This compares with a 21.2 per cent growth in its exports to the United States. Almost three-quarters of Thailand’s exports to China consist of industrial products, precisely the sort of goods exported from Rayong province last year.
Other factors likely to bring the export boom to a halt include a stronger baht and a slowdown in global growth as a result of higher oil prices.
Some of the slack may be taken up by a rise in household expenditure as a result of higher agricultural prices. But domestically generated growth will also be held back by higher interest rates. Official economic growth projections suggest an expansion for this year of 3.5 to 4.5 per cent.
Meanwhile, the domestic political scene will continue to distract the government. Emulating Singapore, Thai bureaucrats are focusing on making the country a centre for various regional economic activities. The energy ministry, for example, wants to promote the country as an export hub for biofuels and renewable energy technology, particularly in wind and solar power. But with the government in Bangkok continually distracted by political issues, such initiatives may not get the necessary political support.
More seriously, Thailand is approaching the limits of its export-oriented growth model. Facing increasing competition from cheaper producers such as Vietnam, policymakers need to follow the example set by South Korea and Taiwan in promoting the expansion of higher value-added production, particularly in services.
The current tendency of large Thai companies to invest abroad instead of at home is yet another issue that requires closer examination. But with the nation’s politicians continuing to squabble over unresolved national issues, such matters are unlikely to be seriously addressed.
In Thailand, as elsewhere, politics and business are closely connected.
Copyright © 2011 Singapore Press Holdings Ltd