Failure to delay election may worsen business sentiment

Economy January 30, 2014 00:00


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SOME BUSINESSPEOPLE are worried that the government's decision to press ahead with Sunday's general election will add more fuel to the country's political conflagration.

Meanwhile, three months of political turmoil in Thailand has started to benefit neighbouring economies, as fund managers pull money out of the Kingdom, long-term investments are reconsidered and tourists avoid Bangkok, according to Bloomberg. And SMEs are feeling the pinch of reduced business activity.

Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said the decision to maintain the election date of February 2 might make things even more tense between now and election day.

He said that by declining to postpone the election, the government did not give people any choices while feelings on both sides run strong. The prolonged protests have damaged the economy and hurt the business sector’s confidence. Chookiat said the conflicting parties should seek negotiations to find joint solutions to get the country back on track.

Kalin Sarasin, secretary-general of the Thai Chamber of Commerce, agreed that the decision to maintain the election date was not the way to bring genuine peace to the country.

He added that Japanese investors were so worried about the political situation that they might suspend plans for new investment or considered putting their money into Indonesia or Vietnam instead. They are also worried about their safety after the violence that has erupted.

Worawut Ounjai, chief executive of OfficeMate, said he was also quite concerned that pushing ahead with the election on Sunday might lead to some violence as the masses on both sides confront one another.

“In my personal point of view, I would like the election to be postponed until the conflict is solved,” he said.

He added that the company had not yet adjusted its target of Bt10 billion in sales this year, but it would have to do so if the unrest is prolonged into the second quarter.

Lance Chody, president and CEO of Garrett Brands, said the US-based company was still confident in doing business in Thailand.

“We have always faced many challenges in doing business all over the world. Over the [years], we have expanded our popcorn shops to many countries around the world and confronted different problems, such as the economic problems and [economic] crisis in the US about two or three years ago,” he said, adding that the firm had weathered these storms. According to Bloomberg, foreign investors have withdrawn US$3 billion from Thai stocks since protests began late last year. They have continued to pour money into Indonesian shares even after the Jakarta Composite Index fell 3.9 per cent in two days recently amid an emerging-market sell-off.

Thailand has fared relatively worse than Southeast Asian neighbours as global investors shift money from emerging markets amid the US Federal Reserve’s plan to cut stimulus. Prime Minister Yingluck Shinawatra declared a state of emergency in Bangkok on January 22 after protests aimed at toppling her intensified, and the government cut its 2014 growth forecast twice in a month.

Long-term investors may consider countries including Indonesia and Vietnam because of the unrest, Toyota Motor Corp Thailand president Kyoichi Tanada said last week.

“The rotation from Thailand to Indonesia makes sense as we would expect Indonesia to relatively outperform,” Mixo Das, an Asia ex-Japan equity strategist at Nomura Holdings in Hong Kong, said on Tuesday.

“Thai growth fundamentals will be much weaker given a lack of investment and ongoing political uncertainty weighing on investor sentiment,” he said, adding that he would use the opportunity from a relief rally in Thai stocks to shift funds to other markets.

Meanwhile, Thailand’s small and medium-sized enterprises are experiencing liquidity problems due to the continuing slump in sales and services, which have put pressure on their production capacity and hampered their ability to make new investments.

The Federation of Thai Industries (FTI) said SME revenue had dropped by 15-20 per cent this month compared with January last year, which had hurt cash flow.

An FTI risk report stated that most SMEs had asked to extend their loan periods to sustain their businesses, while the Thai Credit Guarantee Corporation (TCG) also reported an increase in defaults by SMEs.

TCG acting general manager Wanlop Tejapaibul said he believed that SMEs’ cash-flow problems had been brought on by the government failure to pay farmers for rice under the pledging scheme, plus the slowing economy aggravated by the prolonged demonstrations, foreign-exchange volatility, and the weakening confidence of consumers and investors.

“The government’s failure to pay rice farmers has created a domino effect on SMEs in the agriculture businesses such as mills and the fertiliser industry because farmers have stopped buying their products,” he said. SMEs have also reduced investment in machinery as their production requirements dried up, he said.

SMEs’ production capacity is on a downward trend, he said.In the first quarter of 2013, their overall production capacity was 72 per cent, and had dropped to 63 per cent by the end of the year. Wanlop predicted that the production rate would continue to decrease this year on the lack of domestic demand and manufacturers’ belief that the economy is unstable.