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Thailand Infrastructure Report issued for third quarter 2010

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UDD reds barricade in Silom district Bangkok

Thailands construction industry remained on course for growth in 2010, but success in the sector was overshadowed by doubts about political stability. We estimate that the industry will be valued at US$7.79bn for 2010 an increase of 1.5% year on year compared with 2009. While there is plenty of upside potential driven by internal demand, growth will remain limited over the forecast period with average year-on-year y-o-y growth of just 1.9% up to 2014 when the industry will be valued at US$11bn.Major projects were exclusively focused on the power sector this quarter. Following chronic shortages in recent years and an import driven power economy, Thai utility Electricity Generating Public Company EGCO announced plans to invest US$1bn in expanding its power generation capacity through 2014.

Meanwhile renewable received a boost with the news that the Asian Development Bank ADB would loan Thailands Natural Energy Development US$70mn to build a 73 megawatt MW solar power plant in in central Thailand. ADB said the country has huge potential for solar power, which can be used to address rising power demand from Thai businesses, communities and households. Thailand’s score in the Infrastructure Business Environment Ratings for Asia Pacific has declined recently placing it near the bottom the table. The country now sits in 10th place, out of 14 countries included in our Asia Pacific regional table. The country is dragged down by its limited sector growth potential, on a five-year view and political instability. In the Project Finance Ratings, Thailand scores somewhat better, ranking in the middle of the table in eighth place Thailand’s strong points lie in a higher level of economic stability compared with its peers, low inflation expectations, and strong market orientation score.

Political risk is the greatest risk in the countrys otherwise stable business environment. With it comes a string of other issues, such as the reliability of policy continuity especially concerning infrastructure investments and political support for UDDs. The Country Risk team notes that as long as political uncertainty remains elevated, investment growth will remain anaemic and forecast investment growth to reach 3.0% in 2010, driven largely by low base effects on account of the 8.8% collapse in 2009.

via Thailand Infrastructure Report Q3 2010 Market Report, Industry Analysis and Market Trends.

Most of the infrastructure development in Thailand has been responsive to demand rather than forward-looking. Availability and accessibility appear to no longer be a challenge. The next step for Thailand is to put more emphasis on quality of service delivery, management, and sound regulation.

UDD reds barricade in Silom district Bangkok

Political risk is the greatest risk in the countrys otherwise stable business environment. With it comes a string of other issues, such as the reliability of policy continuity especially concerning infrastructure investments and political support for UDDs. The Country Risk team notes that as long as political uncertainty remains elevated, investment growth will remain anaemic and forecast investment growth to reach 3.0% in 2010, driven largely by low base effects on account of the 8.8% collapse in 2009.

So far, the Thai government has enough capacity to finance the first economic stimulus package and the three-year public investment plan. In the face of shrinking revenues, the government estimates its budget deficit to be about 525 billion baht, or 6 percent of Thailand’s gross domestic product, in the fiscal year ending September 2009. It is also seeking loans from domestic and external sources to shore up the budget and support planned investment.

However, the World Bank cautioned that, for public debt to remain manageable, budget deficits will need to be reduced over the next few years and growth needs to return its long-term average, highlighting the importance of using the crisis as an opportunity to enhance growth prospects.

The political unrest in the last quarter of 2009 will continue to dampen tourist confidence into at least the first half of 2010. In addition, the slowdown in growth of the economies from which a large number of tourists come to Thailand, such as EU and Japan, will reduce tourist receipts next year. With the slowdown in exports capacity utilization is expected to fall in Thailand.  A clear exit strategy from the fiscal stimulus has yet to be articulated. Because part of the government’s capital budget has been moved off-budget as part of the stimulus package, some additional capital expenditures, as well as the maintenance expenditures of the newly-built infrastructure, must be incorporated into future budgets once the stimulus package is finalized.

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