Industrial zone ruling creates investment risk for Thailand

A Sept. 29 court order suspended US$9 billion worth of operations in the rural town of Map Ta Phut, home to the world's eighth-biggest petrochemicals hub, over environmental and health issues. The ruling has stoked concerns about legal certainty and government effectiveness in a country once seen as a safe haven for big business.

Although an appeal has been lodged, allowing the 76 affected projects to resume operations temporarily, analysts say the credibility, and future, of Prime Minister Abhisit Vejjajiva's pro-business government is at stake if it fails to act fast.

“This is the government's big test, and if it fails to ensure these projects go ahead within a certain timeframe, investor confidence will be shattered,” said Kongkiat Opaswongkarn, president of Thailand's securities analysts' association.

“This situation is messy,” he said. “Right now, everyone is trying to attract foreign investment. Newcomers will look at other countries because Thailand has shot itself in the foot.”

Thailand is climbing out of its first recession in 11 years and with an intractable political crisis showing no signs of abating, Abhisit's fragile coalition has a lot to lose if the Map Ta Phut dispute it chose to ignore drags on.

Prior to the court ruling, Citigroup had forecast the kingdom would receive US$7 billion of foreign direct investment next year, far more than rival economies in Southeast Asia, such as Indonesia, Vietnam and Malaysia, some of which are offering incentives to lure foreign businesses.

Foreign inflows as a percentage of market capitalization in Thailand's bourse are at 1.1 percent, according to Kim Eng Research, more than double that of Indonesia and the Philippines. A protracted court case could change that.

The dispute at Map Ta Phut, a sprawling petrochemicals hub covering 16.5 sq km (4,086 acres) of Thailand's eastern seaboard, is over the failure of companies there to carry out environmental impact assessments (EIA) and health impact assessments (HIA).

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