How has the unrest in Thailand impacted the level of foreign direct investments (FDI) in the country?

Thomson Reuters News reported on January 20, 2014 that one of the leading global automobile manufacturers, Toyota Motor Corp. was reconsidering its initial plans in investing up to approximately 20.0 billion Thai baht (USD 609.0 million) in Thailand, and could even trim its car production activities if the current political violence taking place in the capital city of Bangkok escalates into weeks of unrest. According to Reuters News, this information was disclosed to the media on Jan 20 by one of the local unit heads.

Toyota Motor Corp. is one of the largest automobile manufacturers in South East Asia, accounting for much of the Japanese automaker’s global bottom-line. The Thai unit, as with the rest of its competitors including Honda Motor Co and Ford Motor Co, serves as a regional vehicle production and export base. The manufacturing operations produce an average of approximately 800,000 vehicles a year. The type of vehicles being rolled out from the plants includes its range of sedans, mid-size sports utility vehicles (SUVs), pickup trucks, among others. According to the information obtained from the website of its Thai unit, Toyota Motor Thailand currently has three production facilities, including Toyota Samrong Plant, Toyota Ban Pho Plant, and Toyota Gateway Plant, each has production capacity of approximately 220,000 units per year. The staff strength stands at around 13,500 members, with 128 official dealers, and 390 showrooms. There are plans to increase its annual capacity by an average of 200,000 vehicles a year over the course of three to four years, but it has been put on hold pending further actions. This was revealed by Mr. Kyoichi Tanada, who is the president of Toyota Motor Thailand, at a news conference.

This announcement comes as Thailand is facing its second-week of street protests in the capital city of Bangkok, with protestors from the opposition faction clashing with security personnel. The country is scheduled to hold its general election on February 02, 2014, and the entire cabinet, including incumbent Prime Minister, Ms. Yingluck Shinawarta, is facing voter scrutiny and discontent over the alleged plan by the Thai government to allow her brother, former prime minister Thaksin Shinawarta to return back to Thailand, without having to stand trial for alleged charges of corruption, and bribery stemming from his leadership in the late 2000s.

According to a Bloomberg News article on January 21, 2014, the weeks of unrest in Thailand has resulted in the equity markets, namely the benchmark Stock Exchange of Thailand (SET) stock index to trade lower by 0.4 percent on Jan 20, and has declined by approximately 10.0 percent since the start of the demonstrations at the end of October 2013. The Thai baht currency has also declined by approximately 5.0 percent during the period, and it is one of the worst performing currencies in the region.

The latest announcement of the production pullbacks by Toyota Motors did not come as a surprise for many investors as the economy is also badly impacted by the weeks of unrest in the country. The Thai government has lowered its economic projections for 2014 to a revised 3.1 percent growth from an earlier growth forecast of between 3.2 to 4.0 percent, citing rising inflation expectations, disruptions caused by the political unrest, falling tourism receipts, among others. The situation is also appearing out of hand, but the Thai military has maintained its stance of not staging any coups that might frighten off more investors away from doing business in the country.

Some of the questions that might be on many investors’ minds are what will be the duration of the ongoing political tensions in Thailand, how best to navigate around the crisis and still be able to make reasonable investment decisions that will maximise returns. According to several polls conducted by the major consulting firms, and investment banks, most fund managers have expressed their doubts over a near-term resolve among the political factions, and have since underweighted their portfolio exposure in the region, until there are some signs that tensions escalate. Many multinational corporations, including the top Fortune 500 magazine ranked multinationals have either pulled out or are reducing their economic profiles in the country. Most of the market professionals have expressed their growing anxieties, fears, and uncertainties about undertaking major capital expenditures until the dust finally settles. For now, it is a day-by-day fluid situation where no investor could exactly predict when peace and order will be restored in Thailand. Prime Minister Yingluck will have to carry out her constitutional duties by holding the elections as planned on Feb. 02, and should that be a resolve, calm might perhaps be restored, but I believe that Thailand will continue to remain politically divided, and the investment sentiment might not be as robust as before. This represents a huge concern over the country’s future growth outlooks if foreign investors were to make tough decisions to end their presence in the region.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc