Thai Growth Will Ride Out Any Election Unrest

(Bloomberg Opinion) -- Thailand’s long-delayed elections to be held on March 24 have stirred concern among some analysts that we will see a fresh round of protests and social unrest. Investors should look past any temporary disruption. Whatever the result, Thai leaders will move forward with a landmark project that will support growth in what has been one of the most economically stable countries in Southeast Asia for the past two decades.

First, a little background: In May 2014, the Royal Thai Armed Forces initiated a successful coup, leading to the impeachment of then-Prime Minister Yingluck Shinawatra, the dissolution of the senate and government, and the repeal of the Thai constitution. Since then, the military-backed National Council of Peace and Order has ruled the country, with retired General Prayuth Chan-Ocha serving as prime minister.

Though the junta regularly detained dissidents and has squashed most free speech, the economy grew at a decent clip between 2014 and 2018. Data from last year indicate that gross domestic product rose by about 4 percent, much of that fueled by tourism and manufacturing. Tourism alone represents almost one-fifth of the economy, with the Tourism Authority of Thailand predicting more than 40 million international tourists will flock to the country this year.

That said, poverty and widespread corruption remain pressing issues. Though Thailand’s overall poverty level has dropped dramatically in the past two decades, to less than 7 percent of the population in 2017 from 21 percent in 2000, Unicef estimates that more than seven million people, mostly in rural areas, live on less than $88 per month.

And while the junta has promised plenty of initiatives to combat political corruption, the simple fact is that graft exists at virtually every level of government. The University of the Thai Chamber of Commerce estimates that most businesses pay between 25 percent and 40 percent of contract values under the table to politicians and bureaucrats to secure work and get projects moving, according to the Bangkok Post. In other words, bribes are factored into the cost of doing business in Thailand. Don’t expect that to change after the election.

A new constitution drafted in 2017 makes it difficult for opposition parties to return to power and almost guarantees that the new prime minister will be pro-establishment. Many analysts believe Prayuth may claim the role in the end – hence the feeling that these elections are little more than “old wine in a new bottle.”

Any post-election turmoil doesn’t depend on who wins but on whether large-scale protests will follow. In the past, demonstrations led to a significant drop in Thai GDP growth. Unrest brought the economy to a near standstill in 2014, before the coup.

After the political dust settles, the focus will be on building the Eastern Economic Corridor, or EEC. In development for the past 30 years, the sweeping and ambitious project encompasses roughly 5,000 square miles between the provinces of Chonburi, Rayong and Chachoengsao, and is Thailand’s hub for export-oriented industries. The $54 billion project has a 2021 completion deadline. The current government is ramping up foreign and domestic investment in transportation infrastructure; developing business and innovation hubs; promoting tourism; and creating so-called “smart” cities.

The EEC has proven mighty attractive to overseas investors, with more than $9 billion in pledged foreign investment as of the start of last year, according to Thailand’s Board of Investment. Hundreds of projects in everything from agriculture to robotics are finding eager supporters, mostly from Japan, Singapore, the U.S. and China.

Investors, keep your eyes on the prize. Political unrest has shaken Thailand before, but statesmen of many stripes want to see the EEC succeed and will move heaven and earth to achieve it. That means any market dip will probably correct in a few months. Companies worth investing in are those that may benefit from the development: real estate firms such as Amata Corp. and WHA Corp.;  construction companies like Sino-Thai Engineering & Construction Pcl and CH Karnchang Pcl; and Siam Cement Pcl.

In sum, win, lose, or draw, the military is likely to remain dominant once the election is over. All eyes will then turn once again to Thailand’s economy.

 (Ronald W. Chan and his firm, Chartwell Capital, do not hold positions in the  companies he writes about for Bloomberg Opinion.)

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ronald W. Chan is the founder and CIO of Chartwell Capital in Hong Kong. He is the author of “The Value Investors” and “Behind the Berkshire Hathaway Curtain.”

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