Impact of Political Volatility
The Impact of Thailand’s Volatile Political Climate on its Tourism Industry
February 5, 2016
Isabella Caravaggio – Primary Article Contributor
Jake MacDonnell – Team Leader following Thailand
Keywords: Thailand, tourism, government, military, political stability, volatility
One major source of Thailand’s tourism volatility comes from the changing political climate that the country has seen in the past decade. In May 2014, the military declared martial law and staged a coup against the government; they have remained in power since. This junta government has had an extremely poor human rights record, and this past September they delayed democratic elections by failing to pass a draft constitution that - among other things - allowed a military-appointed panel to take over parliament in times of national crisis. Now the junta predicts that elections will not be possible before June 2017.
This has enraged international actors such as the European Union and the United States who have threatened to boycott Thai export commodities. The country has seen a history of government spending on the tourism industry, however this has fluctuated with continual changes in the country’s executive government. Investors should be aware that a decline in exports primarily affects the manufacturing industry. However, it could indirectly impact the tourism sector as government expenditure might significantly decrease if international actors do boycott goods. This would mean poorer maintained beaches, museums, national parks, and other tourist destinations. Since there is no way to overthrow the junta government, risk mitigation is limited to being aware of the potential for volatility.
Foreign visitors are being deterred from vacationing in Thailand because of this continued violent political instability. Tourism has historically recovered rapidly in Thailand after past political incidents, however there are indications that this trend will not continue. Recently, political unrest has significantly decreased visitors from China (by 19%) who comprise a quarter of visitors entering Thailand. Essentially, political instability leads to a decrease in tourism, and a decrease in tourism significantly harms the Thai economy which is highly reliant on tourism revenues. This again could decrease government spending in the tourism industry, affecting the profits of potential investors.
In terms of policy and legislation, although the government technically revoked martial law in April 2015, the government still operates as if it were in place. For example, it is illegal to openly criticize the coup; a number of media outlets and websites have been blocked for this reason. Additionally, the British travel advisory cautions against all but essential travel to the Southern provinces of the country where martial law is still enforced. Martial law significantly deters tourists because many travel insurance providers will not cover vacationers travelling to countries that are under martial law.
Another questionable piece of legislation that has previously affected tourists are the lèse majesté laws. The law states that anyone who threatens, insults, or defames any current or previous members of the royal family will be imprisoned for up to 15 years. Two Swiss nationals have been prosecuted for texts insulting the Queen and many Thai scholars and activists have been imprisoned for their political opinions.
On the one hand, investors could accept the unsatisfactory political climate and decide to invest in the Thai tourism industry. Thailand continues to be a popular destination for younger travelers without families as they tend to prioritize affordability over safety, thus investors can cater their investments knowing this fact. On the other hand, tourists (especially ones with families) tend to choose regions or countries that are more stable both economically and politically and it would make more sense for foreign investors to capitalize on both family and individual travelers. It is recommended that investors either: a) forget Thailand and look to invest in a more politically stable country in South East Asia, b) forget East Asia and look to a more stable region such as the Caribbean or parts of South America, or c) if they are set on investing in Thailand, hold off until a democratically elected government has been put into place and determine how it affects the economy and tourism industry.
