Thailand has been making the global headlines once again but sadly for all the wrong reasons and as the country leaps headfirst into yet another political crisis, the cost of these ongoing political wrangling has already started to be seen.
While both sides of the political divide are on the streets, not just in Bangkok but across the country, the first victim of all the political polarization is none other than the ‘economy.’
As the students come out to say that their movement is gathering momentum and the ‘Yellow Shirts’ come out to announce their counter-protest has gained a nationwide acceptance, Thailand threatens to lag even further economically – surpassed by regional rivals.
Japan, which has slipped to becoming the 3rd largest economy in the world having been replaced by China, has been on the lookout for countries to diversify its manufacturing process as many of the Japanese companies have been too reliant on China for their production bases.
Both China and Japan have been at odds amid rising trade war tensions and the geopolitical conflicts that China has been agitating with its closest neighbours.
China has, in the recent past, flown aircraft and sent warships near the disputed island of Senkaku, angering Tokyo.
Coupled with the trade war and China’s increasing belligerence and imperialism with the region, the sentiment has changed and there has been a major shift in companies looking to diversify their production bases away from Beijing’s gaze and control.
Japan, which is one of the largest investors both in Thailand and China, has gone to the extent of subsidizing billions of dollars to Japanese manufacturing firms to shift away from China. Close to 2,000 companies have lined up to take up the subsidy by the Japanese government.
Yet despite this, Thailand will unlikely be able to take advantage of the shift in sentiment and might lose out to more stable ASEAN countries.
Vietnam a formidable competitor
Although Thailand has been a safe haven for investors from Japan for decades and Japanese firms feel safer investing in Thailand, the domestic political upheaval and the lack of coherent policies have left Thailand lagging behind in recent years.
Although a survey by Japan’s External Trade Organization (JETRO) in July this year showed that about 10 per cent of the Japanese firms in China wanted to move their production arm to Thailand, the country was not the first choice for Japanese investors.
“In the earlier study on which countries could be beneficiaries of the relocation of production facilities of Japanese companies out of China, Thailand is ranked second among developing Asia behind Vietnam. It is kind of a sorry situation that Thailand missed out on this occasion,” Maybank Kim Eng Securities said in a note to clients late last week.
The reason that Vietnam is Thailand’s biggest competition in Southeast Asia is that it has lower labour costs and good policies sees the country constantly investing in infrastructure and logistical investments.
Conspicuously, when the new Japanese Prime Minister, Yoshihide Suga, visited Asean countries recently, Thailand was skipped over completely.
Instead, Suga visited Vietnam and Indonesia where he met his Vietnamese counterpart Nguyen Xuan Phuc and Indonesian President Joko Widodo.
“Japanese companies are still by far the largest investment group in Thailand, and them gradually fading out of the scene is not good news especially if we put this in the context of China’s relationship with the developed markets,” Maybank Kim Eng said.
Indonesia’s President Jokowi welcomed Japanese companies that are planning to relocate and expand their investment to Indonesia. In the case of Vietnam, the emphasis was more on the South China Sea.
The broker said that in ‘our recent downgrade note on Thai industrial estate we raised the strong possibility that given the deterioration in the domestic political situation, Thailand could miss much of the Japanese investments looking for a new home.’
This the broker said was not a good sign as industrial estates could face negative consequences from such a shift to Vietnam and Indonesia.
All this shows that Thailand is losing out on a golden opportunity to tap the outflow of investments from China but the government of embattled Prime Minister Prayut Chan-o-cha is too embroiled in its search for survival to even care about the economy and investments.
Instead of being embroiled in local politics, Prayut should have helped to cement, reaffirm, and plan for the future with the Japanese Prime Minister and the Japanese investment community. But with all the efforts of Prayut focused on his own survival, the future of the country and its role as an important manufacturing base is threatened.
It seems to Prayut, newly appointed Finance Minister Arkhom Termpittayapaisith and Industry Minister Suriya Juangroongruangkit, care more about hanging onto power than actually doing something with the power for the benefit of the nation.
If that is the case, it may be time for him to step down.