In the first of a series of political commentaries from around the region, FIA invited Daniel W. Giles, Director of the Bangkok office for Vriens & Partners to share his perspective on the situation in Thailand and how it is impacting the food and beverage industry.
Turmoil in Thailand – by Daniel W. Giles
The current unrest on the streets of Bangkok is but the latest round of an ongoing political crisis that has rumbled on for nearly a decade. What makes the current turmoil different to those of the past eight years, however, is the unprecedented levels of polarisation that have gripped the general populace, and the complete absence of any discernable way out of the apparent stalemate.
Far from guaranteeing a return to normalcy, the recent general election on 2 February has only added to the uncertainty – while partisans and pundits debate the legality of election reruns (due to be held in April), the government remains a caretaker one, without the powers to dispense the budget (let alone formulate and push new policies), leaving the state machinery to continue hovering in limbo.
Then there is the potential for an extra-democratic intervention by the judiciary, the military, or any one of the nominally independent but establishment-controlled state agencies, such as the National Anti-Corruption Commission. Any sustained intensification of clashes between protestors and police, as we have seen this week, could easily serve as the pretext for such intervention.
Despite Thailand’s political woes the leadership on both sides of this divide are broadly pro-FDI (foreign direct investment). Although the anti-government forces contain more reactionary and nationalist elements, Thailand is unlikely to become hostile to foreign investors should regime change actually occur.
Nonetheless, this conflict is increasingly impacting the business sector, with foreign investors – buoyed by the unusually long stability in the aftermath of the 2011 floods and Pheu Thai’s indisputable landslide election win that same year – being suddenly forced to rethink their investment plans. Nowhere else is this newfound hesitancy better illustrated than in the case of automaker Toyota, whose quiet announcement that it would be “reconsidering” expansion plans in the kingdom immediately sent shockwaves throughout the entire business community. But while an actual retreat at this point remains improbable, foreign executives have admitted that their firms are instead eyeing opportunities elsewhere in the region as a direct result of the crisis, with Malaysia and Indonesia often benefitting from redirected investment.
More problems can be found elsewhere in the economy as the crisis persists: Tourist and flight numbers have nosedived during a period widely recognised as the country’s peak holiday season, severely affecting businesses as varied as hotels and shopping malls. Stop-gap efforts to entice visitors and shoppers alike have yet to be assessed, though these discount deals are unlikely to substantially ramp up revenues.
Similarly susceptible to the fallout is the FCMG sector, of which food and beverage is a significant part. Global PR firms in Bangkok report that several major clients have chosen to delay product launches and push back promotional campaigns.
Though food producers such as CP may have seen a sudden spike in orders in the last quarter of 2013 due to the widespread stockpiling that had occurred in the wake of the first protests (as part of business contingency plans), general consumption levels have been hit dramatically. An exception to the trend are the demonstration sites themselves, however, where sales in nearby convenience stores have doubled, with beverages and packed meals being bestsellers, while independent grocery shops have seemingly turned risks into opportunities by selling protest paraphernalia, which in turn positively impacts their sales of food and beverage.
Thailand’s overall outlook for the medium term is a gloomy one. Even the most seasoned observers are at pains to sketch a clear way out of the current impasse, and the longer the crisis persists, the further damage it will wreak on the economy. Nonetheless, in spite of its unruly politics, the Kingdom’s natural strengths, large population, rising personal incomes and geographic position at the heart of Southeast Asia continue to make it one of the region’s most attractive investment and logistics bases. But investors may need to hold fast to those thoughts in tumultuous weeks ahead.
FIA issues a fortnightly e-bulletin with analysis on relevant food and beverage industry issues across the region. To subscribe to this service, please click here.