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Political stability is key to attracting foreign investment and is best demonstrated in Asia. The recent political instability in Thailand has sent the economy in a downward spiral while neighboring countries such as Singapore gain investor confidence.

One of the key factors that impact foreign investment decisions in a particular jurisdiction is the degree of political stability that an economy enjoys. Countries that are perceived to be politically stable are the ones likely to benefit from FDI inflows as investors are wary of parking their money in unsafe destinations. As far as the investment appetite in Asia is concerned, Singapore and Hong Kong are on top of investors’ lists as countries whose political regime is most conducive to business. Setting up a Singapore company has become a compelling choice for most foreign entrepreneurs and investors. By contrast, Thailand has been traditionally associated with political instability and corruption. The economy has sustained this far thanks to its tourism industry that is said to account for nearly 6% of its GDP. However, Thailand’s future seems bleak in the wake of the recent political crisis that may leave an indelible dent to its reputation.

Businesses have suffered due to violence and bloodshed that hit the streets of Bangkok’s financial district in recent weeks. The country’s tourism industry has been badly hit, with hotel occupancy rates falling below 50%, and industry analysts projecting a fall in tourist arrivals and tourism receipts to the extent of 10-20% this year. By contrast, Singapore witnessed a surge in visitor arrivals during the same period – a record high of 938,000. If Thailand’s political strife continues, Singapore could very well turn out to be an ideal springboard for tourists wanting to explore the Asian region. According to Christopher Bruton, the Bangkok-based executive director of risk consultancy Dataconsult Ltd. “Thailand’s recent instability has been stretched out for so long that a lot of people have given up on Thailand and are saying this place is just a mess. Thailand may well be cut out of some travel brochures.”

A Reuters report explains how political violence has taken a toll on Thailand’s business sector and economy as a whole. While Thailand scores a dismal 12.9% for political stability in the World Bank’s Governance Matters Report, 2009, Singapore scores an impressive 96.2%. Singapore also scored high on parameters such as government efficiency, regulatory quality, rule of law, and corruption control, while Thailand’s scores were quite dismal on the same parameters. One of the unique advantages of Singapore company incorporation is that the economy is backed by a stable and efficient political system that enacts pro-business policies and reforms. High levels of transparency, integrity and efficiency ensures no red tape and bureaucracy in Singapore incorporation.

It is clear that politics cannot be ignored while making serious investment destinations. Thailand will need to get its act together or it may run the risk of losing out on sizable foreign investments to politically stable Singapore.

The table below sourced from the World Bank’s Governance Matters Report 2009, compares the governance indicators of Singapore vis-a-vis Thailand.

Want to know more about doing business in Singapore? Learn about setting up a Singapore offshore company.