Thailand's Economic Wreckage
The extent of the damage to Thailand’s economy is just starting to come clear in the wake of the chaos wrought by anti-government protestors who drove away risk-averse investors and wrecked the tourism industry with the closure of Bangkok’s international airports.
With the Democrat Party’s leader Abhisit Vejjajiva installed Monday as the new Thai prime minister, business and tourism leaders are hoping that the political situation is finally starting to even out, although there is no guarantee that the “Red Shirt” backers of former Prime Minister Thaksin Shinawatra won’t take to the streets in outrage over what they regard as having had their democracy stolen from them in a Royalist coup.
Even before the People’s Alliance for Democracy seized the airports in November, economists were predicting a slowdown next year because of the global economic downturn, with gross domestic product falling to 2.5-4 percent from 3.0-4.8 percent. Now many are forecasting zero growth or recession for 2009 as a direct result of the blockades and their collateral damage.
Thai business associations reckon that the protests cost Bt137 billion (US$3.9 billion) in direct losses and have asked the government to help cope. Numerous ratings agencies have downgraded their investment and security outlooks to negative on the economy and some of its banks and key businesses.
Tourism, commonly seen as Thailand's economic life raft, accounts for Bt600 billion annually or 6 percent of GDP and was expected to attract some 15 million tourists this year. But that is expected to fall dramatically with the global media circulating images of thousands of yellow-shirted PAD demonstrators occupying Suvarnabhumi and Don Muang airports demanding the government's ouster and stranding more than 300,000 foreign tourists amidst escalating reports of bombings, shootings and other violent clashes.
"Politics has invaded Thailand's tourism industry," says a Thailand-based tourism consultant with more than two decades of experience in the local market. "Any confidence in it was kicked to death by the airport seizures. It's going to take one-to-five years to recover."
"Blocking the airports was like cutting the arteries to a heart," he says. "SARS, avian flu, the tsunami all had a time frame and could be managed to a conclusion. But even the famous Thai touch has no effect now." Only rapid, progressive steps towards a peaceful reconciliation and the end to lawlessness will return investor and tourist confidence in the country, he added.
"Thailand’s image is battered," said Ken Scott, managing director, ScottAsia Communications, which specialises in the travel trade. "It needs political stability and a firm, articulate prime minister who inspires confidence inside and outside the country. There needs to be an unequivocal assurance that the airport will never be hijacked again."
Thailand's economic future remains stark until such stability returns. Unemployment figures, currently at 1.8 percent or 1 million jobless, are expected to triple next year, economists say. Fallout from the airport seizures will put an additional 1 million people out of work, according to the National Economic and Social Advisory Council, with the same number losing their livelihoods as the global economic downturn takes Thailand in its full grip.
December is typically tourism's busiest month of the year. But last week the Thai Hotels Association said nationwide occupancy was a pitiful 20-30 percent. The fact that only 10-15 percent of rooms are lit at night at the luxury hotels lining the banks of Bangkok's Chaopraya River confirms this fact.
A walk through Lumpini Night Bazaar, a popular draw with foreign tourists, reveals more shopkeepers than customers. The scene on Khao San Road, Bangkok's backpacker mecca, tells a similar story.
"It was really busy during the airport closure, because no one could leave," says Pom Noppaidol, who runs a T-shirt stall on the street. "Now it's really quiet. Thankfully Thais shop here too, so I'm doing some trade. We're all hurting from the drop in tourism, but to be honest the global economy is a bigger concern over whether my business will survive next year," he says.
"It's possibly the worst we have experienced in pure financial terms," says Andrew Wood, general manager, Chaophya Park Hotel & Resorts. He predicts a strong return to normalcy within three months, with a full recovery by July 2009. But this upbeat position is in stark contrast to the gloomy economic forecasts.
Phatra Securities, Thailand's second largest stockbroker, puts Thailand’s GDP at Bt25 billion (US$713 million) per day. It says the airport closures directly cost 5-7 billion baht per day, and will probably drag the economy into recession.
"Political turmoil will likely cause bookings to be halved during 4Q08 and 1Q09," said the company. "In the worst case, tourism revenue will be halved in 2009, representing a loss of 3 percent of GDP. Exports that utilise airfreight will also be affected and the need to pay higher airfreight cost could subtract another 1 percent of GDP. Therefore, GDP, which was expected to grow 3-4 per cent in 2009, could be flat or slightly negative."
"The inability of the country’s judicial and executive branches to prevent civil disobedience from causing major dislocations suggest that Thailand’s institutional strengths have become compromised," said Tom Byrne, senior vice-president, Moody’s Investor Services.
Such lawlessness has shattered any remaining investor confidence in Thailand, says one American Singapore-based businessman.
"There's a new name for Thailand in Singapore. It's called the Philippines," said Eric Rosenkrantz, chairman of mStream Media, who was stranded by protests both in Bangkok in November, and in Phuket in September.
"Singaporean businesspeople are scared of doing business in Thailand. They will simply invest in Vietnam where everything is controlled."
Prior to the occupations, the global credit freeze and political turmoil were already taking a toll on applications for foreign direct investment through the Board of Investment, where total foreign net applications fell to Bt221.4 billion for the first nine months of 2008, down 33.8 per cent YoY.
Thailand's auto and auto-parts industry is expected to contract by 15-20 percent as a result of the global downturn. GM (Thailand) recently announced the temporary two-month closure of its local manufacturing plant.
Property analysts predict a 20 percent drop in some sectors of the residential market next year.
Last week, the Semiconductor Industry Association forecast the first decline in global semiconductor sales since 2001, which will likely have an adverse impact on Thailand's tech sector, the country's second-biggest export market, says KGI Securities (Thailand).
One in 10 of the 300,000 factory workers in Ayuddhya province will lose their jobs by the year's end, according to the Federation of Thai Industries (FTI), which says the figure could rise to 100,000 next year, with most cuts coming from the area's electronics industry.
While Thailand cannot fight off the world recession alone it must tackle its internal issues.
Stability and a return to the rule of law are central to any hope of rebuilding the investor confidence needed to boost investment and stave-off the worst excesses of any slowdown. But the political situation is disturbingly fluid. Weeks of horse-trading took place prior to the installation of Abhisit as premier, with hundreds of millions of baht allegedly changing hands to bring former coalition members into the Democrat's camp, most notably from the powerful Newin Chidchob faction.
If successful this new government is likely to be fraught with infighting and rivalries. But the move away from the pro-Thaksin parties has been broadly supported by industry.
"It's not about people comparing the efficiency of the government," says Rakpong Chaisuparakul, strategist, KGI Securities (Thailand), who gives the Democrat's a 70 percent chance of winning. "They simply believe that the street protests will end with a Democrat-led coalition. I also think the risks of street protests from the [pro-Thaksin] red-shirts has decreased with Newin's faction joining the Democrats."
Real political resolution will take years and long-term economic recovery is inextricably tied to this.
Recent Phatra Securities research shows that every major period of political turmoil in Thailand since 1932 has taken five to seven years to resolve. It says the current troubles started with the 2006 coup. Rebuilding the country's tourism trade will be an effective economic shot in the arm, but this too will be a timely task.
"I don’t think we’ll see many smiles again until 2010," says Scott.